Key Takeaways From Prudential’s Q3 Earnings

Prudential Financial (NYSE: PRU) reported mixed results for the third quarter on Wednesday, November 1, as net income increased by nearly 20% but its overall revenues declined by nearly 11% year-over-year. The earnings growth was primarily driven by U.S. individual life insurance, Gibraltar life insurance, and lower corporate losses. On the other hand, the decline in the revenues was the result of industry sales pressure because of the DOL Fiduciary rule and repricing of Prudential’s defined income (PDI) product.

Prudential’s stock, like those of other insurance majors, has risen dramatically in the last year (over 30%) on strong financial results in the last two quarters, improving bond yields, and optimism about a potential corporate tax cut and ease in the regulatory environment.

In the third quarter, Prudential’s operating income from U.S. retirement solutions remained flat, but the company saw improvement in U.S. life insurance and international operations. Prudential’s U.S. individual life insurance earnings were positively impacted by favorable mortality experience, comparative reserve refinements, and lower expenses. In the international insurance division, Gibraltar continued its strong performance driven by lower net expenses, favorable policy benefit experience and the business growth in the segment. Prudential’s earnings also benefited from the decline in corporate losses driven by lower expenses, higher investment income and higher income from the qualified pension plan.

U.S. Operations

The U.S. retirement revenues declined by nearly 25% in the quarter, primarily due to sales pressure in the industry as a response to the DOL Fiduciary rule. This was partially effective in June and is expected to be implemented fully in January of 2018. We expect this to continue to negatively impact Prudential’s retirement services revenues for at least next couple of quarters. In terms of the bottom line, Prudential did well to keep its U.S. retirement solutions earnings flat this quarter despite the steep decline in revenues.

Prudential’s U.S. individual life and group insurance operating income increased by $38 million in the quarter, driven by improved mortality experience and lower expenses.

International Operations

Prudential’s international income grew by 3% y-o-y to about $800 million in Q3 2017, driven by growth in Gibraltar operations, partially offset by Life Planner operations. Prudential’s Gibraltar earnings improved due to strong operational performance resulting in lower costs, favorable policy benefits and continued business growth.

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