01—Abstract
Summary
Summary of the 10-K filed February 17, 2022. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (PRU) reported net income attributable to Prudential Financial, Inc. of $7.72 billiona for 2021, compared with a net loss of $374 million in 2020, as reported in its Form 10-K filed February 17, 2022.
The company describes itself as a global financial services leader and premier active global investment manager with approximately $1.742 trillionb of assets under management as of December 31, 2021. Results were driven by a $3.34 billion favorable variance in realized investment gains (losses) excluding certain variable annuity hedging impacts, a $2.35 billion favorable variance in adjusted operating income from business segments, and a $1.06 billion goodwill impairment related to Assurance IQ, which the filing cites as a notable pre-tax item in the year-over-year comparison. The company is pursuing a multi-year business transformation.
In 2021 it agreed to sell its Full Service Retirement business to Great-West Life & Annuity Insurance Company and a portion of its in-force traditional variable annuity block (PALAC) to Fortitude Group Holdings, LLC, with both transactions expected to close in the first half of 2022, subject to regulatory approvals. The filing states that the company plans to reallocate capital with the intention of doubling the earnings contribution from its higher-growth businesses and reducing the earnings contribution from Individual Annuities. Shareholder returns in 2021 totaled $2.5 billionc of share repurchases and $1.82 billion of dividends declared, and the board authorized up to $1.5 billion of repurchases for 2022.
Key risks highlighted include the ongoing COVID-19 pandemic's effect on mortality and investment portfolios, the low interest rate environment affecting investment spreads, Japan sovereign and yen exposure, ratings sensitivity, and pending securities and regulatory litigation related to reserve assumptions in the Individual Life business. The filing reports $53.2 billiond of total capital as of December 31, 2021, which it states is consistent with its ratings targets.
02—Key points
Key Highlights
- Net income attributable to Prudential Financial, Inc. was $7.72 billion in 2021, versus a net loss of $374 million in 2020 (per the consolidated statements of operations).
- Total revenues rose to $70.93 billion in 2021 from $57.03 billion in 2020, with realized investment gains of $4.02 billion versus losses of $3.89 billion the prior year.
- A $1.06 billion pre-tax goodwill impairment was recognized for the Assurance IQ reporting unit in Q4 2021, with goodwill reduced to $1.08 billion.
- Total segment adjusted operating income before income taxes was $7.30 billion in 2021 versus $4.95 billion in 2020, led by Retirement ($2.18 billion) and Individual Annuities ($1.90 billion).
- Pending dispositions: Full Service Retirement sale to Great-West (total proceeds expected to be about $2.8 billion) and a PALAC variable annuity block sale to Fortitude (total value about $2.2 billion), both expected to close in the first half of 2022.
- Shareholder returns: $2.5 billion of common stock repurchased and $1.82 billion of dividends declared in 2021; $1.5 billion repurchase authorization approved for 2022.
- Total capital of $53.2 billion at December 31, 2021, which the company states is consistent with its ratings targets.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 17, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $71.25B$57.03B | +24.9% |
| Operating Expenses | $21.23B$8.89B | +138.9% |
| Operating Income | $8.84B-$242.00M | +3752.9% |
| Interest Expense | $1.48B$1.56B | −5.3% |
| Net Income | $8.94B-$374.00M | +2489.8% |
| EPS (Basic) | $22.56$-1.00 | +2356.0% |
| EPS (Diluted) | $22.40$-1.00 | +2340.0% |
| Shares Outstanding (Basic) | 387.20M395.80M | −2.2% |
| Shares Outstanding (Diluted) | 390.10M395.80M | −1.4% |
05—Questions
Frequently Asked Questions
What drove the swing from a net loss in 2020 to net income in 2021?
The filing attributes the $8.10 billion year-over-year increase in net income attributable to Prudential Financial, Inc. primarily to a $3.34 billion favorable variance in realized investment gains (losses), a $2.59 billion favorable variance from embedded derivatives and related hedges on certain variable annuities, a $2.35 billion increase in adjusted operating income from business segments, a $1.39 billion favorable variance from market experience updates, and a $1.33 billion favorable variance from Divested and Run-off Businesses. These were partly offset by a $1.76 billion higher tax expense and the $1.06 billion Assurance IQ goodwill impairment.
What is the status of the planned business dispositions?
The company entered into a definitive agreement in July 2021 to sell its Full Service Retirement business to Great-West Life & Annuity Insurance Company, and in September 2021 agreed to sell its equity interest in Prudential Annuities Life Assurance Corporation (PALAC) to Fortitude Group Holdings, LLC. Both transactions are expected to close in the first half of 2022, subject to regulatory approvals and customary closing conditions. The Full Service Retirement sale is expected to generate total proceeds of about $2.8 billion, and the company expects to record a gain on each sale at closing.
Why was the Assurance IQ goodwill impaired?
The filing states that the impairment resulted from a decline in peer company valuations, particularly in the last three months of 2021, combined with revisions to Assurance IQ's long-term forecasts after the fourth-quarter 2021 Medicare enrollment period. Those revisions reflected lower growth in Medicare sales driven by slower agent growth, higher operating expenses, and changes in product mix. The pre-tax charge was $1.06 billion, or $837 million after tax.
How much capital did the company return to shareholders and what is authorized for 2022?
In 2021, the company repurchased shares totaling $2.5 billion (24.5 million shares) and declared common stock dividends of $4.60 per share, totaling $1.82 billion. In November 2021, the board authorized up to $1.5 billion of share repurchases for January 1 through December 31, 2022. On February 3, 2022, the board declared a $1.20 per share quarterly dividend, payable March 11, 2022.
What are the main risks the filing highlights for investors?
The filing highlights the continuing COVID-19 pandemic's impact on mortality, morbidity, and investment portfolios; a prolonged low interest rate environment that compresses investment spreads; foreign exchange exposure, particularly to the Japanese yen; credit ratings sensitivity, including the potential effects of a Japan sovereign downgrade; and the risk of further goodwill impairments for Assurance IQ. It also describes pending shareholder and securities litigation related to reserve assumptions in the Individual Life business.
06—Continue