01—Abstract
Summary
Summary of the 10-K filed February 17, 2017. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (NYSE: PRU) reported approximately $1.264 trilliona of assets under management as of December 31, 2016, with operations in the United States, Asia, Europe and Latin America.
Net income attributable to Prudential Financial, Inc. was $4.368 billionb in 2016, down from $5.642 billion in 2015, and total revenues were $58.779 billion versus $57.119 billion. Income from continuing operations before income taxes was $5.705 billion in 2016 compared with $7.769 billion in 2015. Diluted earnings per share of Common Stock were $9.71 in 2016 versus $12.17 in 2015.
The filing attributes the decline primarily to unfavorable items including $980 millionc of adjustments to DAC and reserves, a $972 million pre-tax impact from the Capital Protection Framework, and $479 million lower net pre-tax realized gains, partially offset by a $737 million favorable tax variance and a $660 million favorable variance from embedded derivatives and hedges. Management highlights persistent low interest rates as a key challenge, noting that reinvestment yields remain below portfolio yields and that approximately $183 billion of fixed maturity and commercial mortgage assets in the U.S. operations have an average yield of about 4.5%. The company completed the Variable Annuities Recapture effective April 1, 2016, which distributed $1.0 billion of highly liquid assets to Prudential Financial, repurchased $2.0 billion of Common Stock, and declared Common Stock dividends of $2.80 per share for 2016.
Regulatory developments, including Designated Financial Company status under Dodd-Frank and the Department of Labor fiduciary rule, are described as areas of uncertainty. Total stockholders' equity attributable to Prudential Financial was $45.863 billiond at year-end 2016, and total borrowings were $19.174 billion. In addition, the company authorized up to $1.25 billion of share repurchases for 2017 and declared a $0.75 per share dividend on February 8, 2017.
02—Key points
Key Highlights
- Total revenues rose to $58.779 billion in 2016 from $57.119 billion in 2015, while net income attributable to Prudential Financial fell to $4.368 billion from $5.642 billion.
- Diluted EPS of Common Stock was $9.71 in 2016 versus $12.17 in 2015, reflecting consolidated earnings after the January 2015 Class B Repurchase.
- Assets under management were approximately $1.264 trillion as of December 31, 2016, across life insurance, annuities, retirement services, mutual funds and investment management.
- Adjusted operating income before income taxes totaled $5.399 billion in 2016 versus $6.231 billion in 2015, with International Insurance contributing $3.117 billion and Individual Annuities $1.765 billion.
- The Variable Annuities Recapture, effective April 1, 2016, moved $1.0 billion of highly liquid assets to the parent and is expected to reduce future capital volatility.
- Persistent low interest rates remain a headwind, with the filing noting an average fixed maturity and commercial mortgage portfolio yield of approximately 4.5% expected to decline as assets reinvest.
- Common Stock dividends declared were $2.80 per share for 2016, and the Board authorized up to $1.25 billion of share repurchases for calendar year 2017.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 17, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $58.78B$57.12B | +2.9% |
| Operating Income | $4.37B$5.70B | −23.3% |
| Interest Expense | $1.32B$1.31B | +1.1% |
| Net Income | $4.37B$5.64B | −22.6% |
| EPS (Basic) | $9.85$12.37 | −20.4% |
| EPS (Diluted) | $9.71$12.17 | −20.2% |
| Shares Outstanding (Basic) | 438.20M451.70M | −3.0% |
| Shares Outstanding (Diluted) | 446.60M460.40M | −3.0% |
05—Questions
Frequently Asked Questions
How did Prudential's earnings change in 2016?
Net income attributable to Prudential Financial, Inc. was $4.368 billion in 2016, compared with $5.642 billion in 2015. Income from continuing operations before income taxes was $5.705 billion versus $7.769 billion. The filing cites $980 million of unfavorable DAC and reserve adjustments, a $972 million unfavorable Capital Protection Framework impact, and $479 million lower net pre-tax realized gains, partly offset by a $737 million favorable tax variance and a $660 million favorable embedded derivative variance.
What is the significance of the Variable Annuities Recapture?
Effective April 1, 2016, Prudential recaptured the risks of its variable annuity living benefit riders and certain retirement products previously reinsured to its captive, Pruco Re. The filing states this enabled the Individual Annuities segment to distribute $1.0 billion of highly liquid assets to Prudential Financial and is expected to reduce future capital volatility and make capital and liquidity management more efficient.
How much capital did Prudential return to shareholders in 2016?
During 2016 Prudential repurchased $2.0 billion of Common Stock and declared Common Stock dividends of $2.80 per share, totaling approximately $1.2 billion in dividends declared for the year as stated in the cash flow discussion. The Board authorized up to $1.25 billion of share repurchases for calendar year 2017 and declared a $0.75 per share dividend on February 8, 2017.
What risks does the filing highlight for investors?
The filing highlights low interest rates compressing net investment spreads, potential credit rating downgrades, regulatory changes under Dodd-Frank (as Prudential is a Designated Financial Company), the Department of Labor fiduciary rule affecting retirement products, and foreign currency exposure, particularly to the Japanese yen. It also notes that Japanese sovereign rating changes could lead to downgrades of Prudential's Japanese insurance subsidiaries.
How large is Prudential's balance sheet and borrowing position?
As of December 31, 2016, total assets were $783.962 billion and total liabilities were $737.874 billion. Prudential Financial, Inc. equity was $45.863 billion. Total borrowings on a consolidated basis were $19.174 billion, including $15.924 billion at Prudential Financial, Inc. on a general obligation basis.
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