01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (NYSE: PRU) reported approximately $901 billiona of assets under management as of December 31, 2011, with operations in the United States, Asia, Europe and Latin America.
The company is organized into the Financial Services Businesses (U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, International Insurance, and Corporate and Other) and the Closed Block Business, which are allocated and reported separately but have no legal separation. Net income attributable to Prudential Financial, Inc. was $3,666 millionb in 2011 compared with $3,195 million in 2010. Net income of the Financial Services Businesses attributable to Prudential Financial was $3,531 million in 2011 versus $2,714 million in 2010, with International Insurance income from continuing operations before income taxes of $2,986 million in 2011 versus $1,644 million in 2010.
Key 2011 developments included the February 1, 2011 acquisition of AIG's Star and Edison Japanese life insurance businesses for a total purchase price of $4,709 millionc, the sale of the Global Commodities Business for $422 million in cash, and the sale of the real estate brokerage and relocation business. Common Stock dividends declared were $1.45 per share for 2011, up from $1.15 in 2010, and the company repurchased 19.8 million shares for $999.5 million under a $1.5 billion authorization. The filing also discloses that the company's variable annuity living benefit hedging and temporary under-hedging decisions produced a $1,662 million pre-tax loss in Corporate and Other operations in 2011, and that the company expects a retrospective adoption of new deferred acquisition cost guidance to reduce total equity by approximately $2.6 to $3.0 billion for the Financial Services Businesses.
The filing also describes regulatory uncertainty under the Dodd-Frank Act, including possible designation as a systemically significant non-bank financial company, and notes that the Company's ratings were at or above the targets for some entities but below target for others. Investors should weigh these items alongside the company's reported growth in International Insurance and asset management flows.
02—Key points
Key Highlights
- Net income attributable to Prudential Financial, Inc. was $3,666 million in 2011, up from $3,195 million in 2010.
- Financial Services Businesses net income attributable to Prudential Financial was $3,531 million in 2011 versus $2,714 million in 2010.
- International Insurance income from continuing operations before income taxes rose to $2,986 million in 2011 from $1,644 million in 2010, including Star and Edison contributions.
- Acquired Star and Edison Businesses from AIG on February 1, 2011 for a total purchase price of $4,709 million.
- Common Stock dividend declared for 2011 was $1.45 per share, versus $1.15 in 2010; the company repurchased $999.5 million of stock in 2011 under a $1.5 billion program.
- Individual Annuity total account values were $113.5 billion at year-end 2011, with net sales of $13.1 billion.
- Total equity was $37,811 million at December 31, 2011; the company estimates adoption of amended DAC guidance would reduce Financial Services Businesses total equity by $2.6 to $3.0 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $49.09B$38.22B | +28.4% |
| Net Income | $3.63B$3.00B | +21.0% |
05—Questions
Frequently Asked Questions
What drove the increase in Financial Services Businesses net income in 2011?
Income from continuing operations for the Financial Services Businesses rose $875 million to $3,568 million, reflecting higher pre-tax earnings from foreign currency movements on hedged yen-denominated assets, larger general account investment gains, a $237 million benefit from partial sales of the China Pacific Group investment, a $96 million gain on the sale of Afore XXI, and business growth in International Insurance. These gains were partly offset by a $722 million unfavorable variable annuity hedging-related variance and a $580 million unfavorable variance from DAC and reserve adjustments.
What is the Closed Block Business and how does it affect Common Stock holders?
The Closed Block Business holds in-force participating individual life and annuity policies from demutualization, along with the IHC debt. Its results are reported separately and drive the Class B Stock. The filing states there is no legal separation between the two businesses, the Financial Services Businesses bear certain litigation and tax costs, and Closed Block losses or Class B dividends reduce assets legally available for Common Stock dividends.
What risks does the company identify from its variable annuity hedging program?
The company reported a $1,662 million pre-tax loss in Corporate and Other operations for 2011 from its decision to temporarily hedge to an amount below its hedge target, plus $1,736 million of DAC-related charges from the living benefit hedging program. The company also notes that hedge effectiveness, capital-market volatility and its own credit spreads can produce volatility in U.S. GAAP results and statutory capital.
Is the company's regulatory and ratings position a concern?
The filing says Prudential Insurance's risk-based capital ratio was approximately 490% and that all U.S. insurance subsidiaries exceed minimum requirements. However, some ratings are below the company's targets, and a three-notch downgrade would require approximately $75 million of collateral postings. Dodd-Frank could subject the company to stricter prudential standards if designated a Designated Financial Company, a designation the filing says is not yet determined.
06—Continue