01—Abstract
Summary
Summary of the 10-K filed February 19, 2016. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. reported consolidated net income attributable to Prudential Financial, Inc. of $5,642 milliona for 2015, compared with $1,381 million in 2014 and a net loss of $(667) million in 2013.
The company manages approximately $1.184 trillionb of assets under management as of December 31, 2015, and operates across the United States, Asia, Europe and Latin America through four divisions: U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, International Insurance, and Closed Block. Total revenues were $57,119 million in 2015, and pre-tax income from continuing operations was $7,769 million, with the prior-year comparison affected by yen-related foreign exchange and hedging items. On January 2, 2015 the company repurchased all 2.0 million shares of its Class B Stock for $651 million, eliminating the two-class structure and making Common Stock reflect consolidated results.
Management highlighted the company's designation as a Designated Financial Company under Dodd-Frank, its designation as a global systemically important insurer by the FSB, and expected regulatory changes including the DOL fiduciary rule, captive reinsurance reforms (AG 48 and the NAIC Variable Annuities Framework for Change), and planned recapture of variable annuity living benefit risks from Pruco Re in 2016. Share repurchases totaled $1.0 billionc in 2015, and a $1.5 billion repurchase authorization was approved for 2016.
Dividends declared were $2.44d per share for 2015. Key risks cited in the filing include low interest rates compressing net investment spreads, foreign currency exposure particularly to the Japanese yen, ratings sensitivity (S&P downgraded Japanese insurance subsidiaries to A+ in September 2015), litigation and regulatory matters including unclaimed property matters, and the potential impact of the proposed DOL fiduciary rules on retirement and annuity distribution.
02—Key points
Key Highlights
- Net income attributable to Prudential Financial, Inc. was $5,642 million in 2015, up from $1,381 million in 2014 and a net loss of $(667) million in 2013.
- Total revenues were $57,119 million in 2015 versus $54,105 million in 2014; realized investment gains were $4,025 million in 2015.
- Assets under management totaled approximately $1.184 trillion as of December 31, 2015.
- Class B Stock was repurchased and canceled on January 2, 2015 for $651 million, so 2015 Common Stock EPS reflects consolidated earnings ($12.17 diluted).
- Board authorized up to $1.5 billion of share repurchases for January 1 through December 31, 2016; dividends declared were $2.44 per share in 2015 versus $2.17 in 2014.
- Prudential Financial is a Designated Financial Company under Dodd-Frank and has been identified by the FSB as a global systemically important insurer, expecting enhanced supervision.
- Planned 2016 recapture of variable annuity living benefit riders from Pruco Re and expected closing of the AFP Habitat acquisition in Chile are key strategic items.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 19, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $57.12B$54.10B | +5.6% |
| Operating Income | $5.70B— | — |
| Interest Expense | $1.31B$1.91B | −31.6% |
| Net Income | $5.64B$1.38B | +308.5% |
| EPS (Basic) | $12.37$3.25 | +280.6% |
| EPS (Diluted) | $12.17$3.23 | +276.8% |
| Shares Outstanding (Basic) | 451.70M— | — |
| Shares Outstanding (Diluted) | 460.40M— | — |
05—Questions
Frequently Asked Questions
Why did net income swing from a loss in 2013 to $5.6 billion in 2015?
The filing attributes much of the change to realized investment gains of $4,025 million in 2015 versus losses of $(5,206) million in 2013, largely from derivative results tied to variable annuity hedging and interest rate positions. Income tax expense also rose to $2,072 million in 2015 on higher pre-tax income of $7,769 million.
What did the Class B Stock repurchase change for shareholders?
The company repurchased all 2.0 million Class B shares for $651 million on January 2, 2015. Common Stock earnings per share for 2015 now reflect the consolidated results of Prudential Financial, rather than only the former Financial Services Businesses. The repurchase price is subject to a dispute by holders of a majority of the Class B shares, so the final amount may change.
What regulatory developments could affect future results?
The filing describes Dodd-Frank designation as a Designated Financial Company with stricter capital, liquidity and stress-testing requirements, the FSB's G-SII designation with BCR and HLA capital standards, the DOL's proposed fiduciary rule expected to be finalized in 2016, and the NAIC's Variable Annuities Framework for Change affecting captive reinsurance. Management states it cannot predict the ultimate impact of these items.
How sensitive are earnings to low interest rates and the yen?
The filing notes that reinvestment yields on certain blocks are below current portfolio yields, and that U.S. dollar equivalent yen earnings have declined and will continue to decline in 2016. Hedging covers 100% of expected 2016 yen-based earnings, 73% for 2017 and 28% for 2018.
06—Continue