Prudential Worth $54 Despite Group Insurance Underperformance

Prudential Financial (NYSE:PRU) will look to review its strategy regarding group insurance as the division’s poor performance contributed to a loss of $988 million reported by the company for Q1 2012. ^[1] The weakening of the Japanese Yen caused accounting losses of around $1.8 billion. Businesses other than group insurance, however, performed well during the quarter with strong sales for retirement solutions and annuities. Prudential Financial provides financial services worldwide and has a solid market share in Asian markets, particularly Japan. Its main competitors are MetLife (NYSE:MET), AIG (NYSE:AIG), Hartford Financial (NYSE:HIG) and Manulife (NYSE:MFC).

See our full analysis of Prudential here

Change in Leadership to Help Group Insurance

The company announced that it will be thoroughly reviewing its policies regarding group insurance and an overhaul might be in place, as management changes were made to the business last month. Group insurance provides life and long-term insurance solutions for employee and membership benefits plans and posted a loss of $38 million this quarter, compared to the profit of $39 million observed last year. Group insurance accounts for 5% of our price estimate for Prudential and we expect the division to return to profitability as the company revisits its policies.

Retirement Division Continues Strong Performance

U.S. retirement solutions, which account for 35% of our price estimate, showed a steady performance, with variable annuity sales of $5 billion. Retirement products have seen steady growth in the last few years, as an increasing number of people worldwide reach retirement age, and we expect this trend to continue throughout our forecast period.

Acquisitions Paying Off

Prudential acquired Star and Edison, life insurance and annuity units focused on Japan, from AIG in 2010. The company saw strong results from these units this quarter and expects continued growth in the Asian markets going forward. International insurance is a major source of revenue for Prudential, and accounts for 33% of our price estimate

We have a price estimate of $54 for Prudential’s stock, which is slightly ahead of the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. The Hartford Financial Services Group’s CEO Discusses Q1 2012 Results – Earnings Call Transcript, Seeking Alpha, 2^nd May, 2012 [↩]