01—Abstract
Summary
Summary of the 10-K filed February 20, 2015. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (NYSE: PRU) reported approximately $1.176 trilliona of assets under management as of December 31, 2014, with a general account investment portfolio of $409 billion, and operations across the United States, Asia, Europe and Latin America.
Total revenues for 2014 were $54.1 billionb, and net income attributable to Prudential Financial was $1.381 billion, compared with a net loss of $667 million in 2013. Net income of the Financial Services Businesses was $1.533 billion versus a loss of $713 million the prior year, while the Closed Block Business recorded a loss of $152 million. The filing's central structural event is the elimination of the separation between the Financial Services Businesses and the Closed Block Business.
On January 2, 2015, Prudential repurchased all 2.0 million outstanding shares of its Class B Stock for $650.8 millionc, and PHLLC redeemed the $2.1 billion IHC Debt on December 18, 2014. Beginning in 2015, Common Stock earnings per share will reflect consolidated results, and the Closed Block will be reported as a divested business.
Management also declared a $0.58d quarterly dividend on February 10, 2015 and maintained a $1.0 billion share repurchase authorization through June 30, 2015. Key risks highlighted include Designated Financial Company and G-SII regulatory designations that expect enhanced capital and supervision requirements, continued low interest rates affecting spreads on $166 billion of domestic insurance liabilities, sensitivity of variable annuity guarantees to equity markets and interest rates, and exposure to Japanese operations, where the company reports 41% of Financial Services general account investments and substantial yen-related earnings volatility.
02—Key points
Key Highlights
- Assets under management of approximately $1.176 trillion and a general account investment portfolio of $409 billion as of December 31, 2014.
- 2014 net income attributable to Prudential Financial, Inc. of $1.381 billion, compared with a net loss of $667 million in 2013; total revenues of $54.105 billion.
- Repurchased all 2.0 million Class B shares for $650.8 million on January 2, 2015, and redeemed the $2.1 billion IHC Debt in December 2014, eliminating the separate Financial Services and Closed Block presentation from 2015.
- Closed Block reinsurance recaptured effective January 1, 2015, with approximately $57 billion of Closed Block assets transferred to Prudential Legacy Insurance Company of New Jersey.
- Designated Financial Company status (Federal Reserve supervision) and G-SII identification by the Financial Stability Board will bring enhanced capital, liquidity and stress-testing requirements.
- Repurchased $1.0 billion of Common Stock under the July 2013–June 2014 authorization, and declared a $0.58 quarterly dividend on February 10, 2015.
- Impact of the low interest rate environment: approximately $166 billion of domestic insurance liabilities, of which about $50 billion carry crediting rates adjustable subject to guaranteed minimums.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 20, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $54.10B$41.46B | +30.5% |
| Interest Expense | $1.91B$1.41B | +35.4% |
| Net Income | $1.38B-$667.00M | +307.0% |
| EPS (Basic) | $3.25$-1.55 | +309.7% |
| EPS (Diluted) | $3.23$-1.55 | +308.4% |
05—Questions
Frequently Asked Questions
Why did Prudential eliminate the separation between the Financial Services Businesses and the Closed Block Business?
The January 2, 2015 Class B Repurchase removed all outstanding Class B Stock, which had reflected the performance of the Closed Block Business. Once that stock was cancelled, the filing states that earnings per share of Common Stock reflect consolidated earnings, and the Closed Block will be reported as a divested business under the company's definition of adjusted operating income.
What drove the swing from a 2013 net loss to 2014 net income?
The filing attributes the improvement largely to a $5.443 billion favorable swing in pre-tax realized investment gains and losses excluding the variable annuity hedging program, driven by declining interest rates in 2014 versus rising rates in 2013. This was partly offset by a $5.765 billion less favorable Capital Protection Framework result and a $1.529 billion increase in tax expense.
What regulatory changes could affect Prudential going forward?
Prudential is a Designated Financial Company supervised by the Federal Reserve Bank of Boston and identified as a G-SII by the Financial Stability Board. The filing notes expected enhanced capital standards, stress testing, resolution plans, and possible Basic Capital Requirements beginning with confidential reporting in 2015 and a final framework expected by 2019, though the company states it cannot yet predict the full impact.
How exposed is Prudential to Japan?
Japanese insurance operations represent 41% of the Financial Services Businesses' general account investments as of December 31, 2014. Gibraltar Life and Prudential of Japan are central to International Insurance, which reported $3.252 billion of adjusted operating income in 2014. The filing also notes yen fluctuations significantly affect U.S. dollar-equivalent earnings and equity, partly managed through forward currency and other hedging programs.
06—Continue