A time to reap rewards.Prudential's 10-year turnaround Turnaround
A situation where a company that has had poor performance for an extended period of time experiences a positive reversal.
A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. came in three phases: damage control stemming from life agent sales misconduct MISCONDUCT. Unlawful behaviour by a person entrusted in any degree: with the administration of justice, by which the rights of the parties and the justice of the, case may have been affected.
2. , divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of businesses from its 1980s' financial supermarket Financial Supermarket
A company offering a wide range of financial services (e.g. stock, insurance and real-estate brokerage).
For the consumer, a financial supermarket can offer convenience and efficiency, since his/her money is not being continually shifted from strategy, and what happened during and after demutualization Demutualization
The process of changing corporate structure from a mutual fund company to some other form, such as a limited liability or corporation.
This means mutual/life insurance companies convert from policyholder companies to stock companies. . That third phase, from the initial public offering to mergers and acquisitions to stock buybacks Stock buyback
A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share.
See buyback. , set the stage for tangible improvements that the company reported in December during its "Investor Day" presentation.
For the nine-month period ending Sept. 30, Prudential reported a 22% rise in pre-tax adjusted operating income Operating Income
The profit realized from a business' own operations.
This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. to $1.8 billion, a 38% increase in earnings per share of common stock based on that income to $2.63, and a return on equity of 10%, up from 7.6% a year earlier. Prudential's ROE A fictitious surname used for an unknown or anonymous person or for a hypothetical person in an illustration.
A lawsuit is generally named for the persons who are parties to it. goal in 2005 is 12%. Andrew Kligerman, a UBS UBS Union Bank of Switzerland
UBS United Bible Societies
UBS United Blood Services
UBS United Buying Service
UBS Used Bookstore
UBS University Business Services
UBS Universal Building Society (UK)
UBS Ulaanbaatar Broadcasting System equity analyst, said in a recent report he expects Prudential to achieve that goal and that the company is "improving towards the peer-group average."
"Certainly one of the headlines would have to be the focus that we now have on the grow-and-protect strategy, and the changes we've made in the mix of businesses," said Mark Grier, vice chairman, Financial Management Division, earlier in the year. "But we've also significantly strengthened our operating platform; the corporate functions have gotten themselves to the point we're at market standards in the things we do in finance and HR, compliance and law. We have a common business system within Prudential as opposed to a totally decentralized de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. and fragmented frag·ment
1. A small part broken off or detached.
2. An incomplete or isolated portion; a bit: overheard fragments of their conversation; extant fragments of an old manuscript.
3. operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. . So all those combine to make it easier today than it was 10 years ago"
Leading the way in growth and ROE is the International Insurance and Investments Division, headed by Vice Chairman Rodger Lawson. Despite representing less than 18% of operating businesses in attributed equity, a measure of stockholder value, the division contributes about 40% of operating revenue operating revenue
Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. and a 27% ROE. The Life Planning part of the division, nearly 20 years old, grew agent by agent in country by country, and Chairman Art Ryan retained the business model. The professional field force made up of life planners receive training from Prudential in needs-based selling of life insurance for purposes of family protection. "When we start in a new country, like Brazil, it takes about two years to get the business off the ground," said Lawson. "We recruit extremely carefully. In most countries, being a life planner is a very good job. Normally we take only three or four out of every 100 applicants, and they go through a rigorous vetting vet 1 Informal
v. vet·ted, vet·ting, vets
1. To subject to veterinary evaluation, examination, medication, or surgery.
2. program." The company also provides a high level of service to individual clients, who are typically building their incomes but may not have a lot of wealth. As a result of this model, policy persistency is the highest in each country in which Prudential competes, Lawson said.
Building on Acquisitions
Major acquisitions under Ryan, primarily of Hyundai Investments in Korea and Kyoei Life Insurance Co. in Japan, provided the basis for the traditional life insurance business and the foreign asset-management business.
Over the past three years, Prudential has imparted the skills and qualities of its life planners business to agents in the traditional life model of Kyoei, which Prudential renamed Gibraltar Life. Some left, but retention was better than expected. In November, for the first time, the number of Gibraltar Life advisers grew. "We couldn't fire all the insurance agents and start over again," said Lawson. "We've put a lot of money into training and recruiting, and we've changed to a compensation system based on performance." The result has been greater productivity, policy persistency and agent retention. As of Sept. 30, its ROE was an amazing a·maze
v. a·mazed, a·maz·ing, a·maz·es
1. To affect with great wonder; astonish. See Synonyms at surprise.
2. Obsolete To bewilder; perplex.
Domestically, Prudential expects the greatest growth to come from the retirement market, with its Investment Division leading the way. From year end 2002 to Sept. 30, 2004, the company's retirement and annuity annuity: see insurance.
Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. businesses grew in attributed equity from 11% of its financial services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. businesses to 28%. This sudden growth relates to Prudential's acquisitions of American Skandia Life Insurance Co. and Cigna's retirement business for a combined $3.4 billion. Individual life insurance during that same period declined as a percentage of the total. "This shows that our capital is following the growth prospects, and the growth prospects are in retirement," said John Strangfeld, vice chairman, Investment Division. The other business growing on a percentage basis is investment management, which runs money for institutions and other third-party investors, he said.
While the merger of Prudential Securities and Wachovia Securities Wachovia Securities, located in Richmond, Virginia (soon to be moved to St. Louis), is the third largest brokerage firm in the United States as of 2006 with $689 billion retail client assets under management. It is a subsidiary of Wachovia Corporation. had no impact on the amount of money run by Prudential Securities, and thus represented a slightly smaller percentage of Pru's overall financial services businesses, Strangfeld said the company should see better performance because the business is no longer disadvantaged by a lack of scale. "Our expectation is that this should produce handsome financial outcomes, and sustainable ones over time" he said.
Except for the American Skandia purchase, changes in the Insurance Division have been in both product and distribution. "Our life business is a significant turnaround story," said Vice Chairman Vivian Banta earlier last year. "The improvement in returns in this business have been nothing short of spectacular." She added that changes in distribution, product development and service quality delivered have been "very dramatic."
Banta said the number of career agents dropped from a high of about 6,100 to about 3,700 last year. The company also has upgraded recruiting standards and reduced annual recruits from 3,000 to 750 while providing a transitional salary, bonus and better training to improve the probability they will succeed. Agents now serve under one sales channel instead of three, and Prudential also continues to "raise the bar" in productivity requirements.
Prudential's third-party distributors Third-Party Distributor
The name given to institutions that sell or distribute mutual funds to investors for fund management companies without direct relation to the fund itself. are mainly in the wirehouse, bank and independent-financial-adviser channels. The company services them through nearly 200 wholesalers. About 70% of life insurance revenues come from career agents vs. 30% from third-party distributors. That was also true of annuity revenues before the American Skandia purchase, but since then third-parties generate more annuity revenues than the captive captive
said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. agents, said Banta.
Remarkably, Prudential considered divesting its annuities business before the Skandia acquisition. "We knew we were a subscale business and that having scale was very important in order to compete," she said. "We also knew that our primary distribution channel was through our captive agency, and yet the fastest-growing channels were the independent channels. This did not bode bode 1
v. bod·ed, bod·ing, bodes
1. To be an omen of: heavy seas that boded trouble for small craft.
2. well for us." The Skandia deal gave Prudential the channel diversification Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.
Diversification is possibly the greatest way to reduce the risk. it needed, and it met and exceeded the company's targeted hurdle HURDLE, Eng. law. A species of sledge, used to draw traitors to execution. returns. "That made it doubly attractive" Banta said. "It was a great move for us."
On the product side, Prudential had been primarily a variable life shop, but the 2000-2003 bear market exposed the vulnerability in that strategy. Since then, Prudential has diversified diversified (di·verˑ·s its product lineup A criminal investigation technique in which the police arrange a number of individuals in a row before a witness to a crime and ask the witness to identify which, if any, of the individuals committed the crime. with more universal life and term life products. Overall, both the insurance and annuities businesses are much more market-focused since the company's demutualization in December 2001, including products that are updated and freshened, she said.
Kligerman reported that variable annuity Variable Annuity
An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. sales declined 18% sequentially during last year's third quarter, more than the industry's decline of 11%. He said converting 550,000 American Skandia contracts onto Pru's systems resulted in delays in new-product introductions, but said new products are on the way.
With the company's reconstruction in place, Prudential was focused on execution last year and will be again this year, said Grier. "We haven't printed a 12% ROE in '05 yet," he said. "Beyond that, we will be trying to enhance our positioning in grow and protect, investments in our own businesses or to look outside for other opportunities. But I don't see us drastically dras·tic
1. Severe or radical in nature; extreme: the drastic measure of amputating the entire leg; drastic social change brought about by the French Revolution.
2. changing course. We'll continue to be opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik)
1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances.
2. in the deals we do and the way we use our capital."
Leaps to 5th Among Variable Annuity Writers. By adviser-sold assets under management on Sept. 30, 2004, Prudential's purchase of American Skandia propelled it past five top-10 writers into fifth place. ($ Millions) Hartford $87,298 Equitable 51,271 MetLife 45,106 Lincoln 43,568 [left arrow] #5 Prudential 42,644 Nationwide 37,500 AIG Sun/VALIC 31,376 Manulife 29,989 ING 28,795 Adviser-sold market (excludes Group/retirement plan contracts); Source: VARDS Note: Table made from bar graph. And to 8th in New Sales Among adviser-sold variable annuity products. 3Q '04 3Q '04 Sales 3Q '04 Rank Company ($B) Share % 1 Hartford $3.4 13.7 2 Equitable 2.2 9.0 3 MetLife 2.0 7.9 4 Lincoln 1.7 6.9 5 ING Group 1.6 6.3 6 Pacific Life 1.4 5.7 7 Manulife 1.4 5.6 8 Prudential 1.3 5.0 9 IDS 1.0 4.2 10 Allianz 1.0 4.1 Industry $24.8 Source: VARDS Creating Scale. With the acquisitions of American Skandia Life Insurance Co. in May 2003 and Cigna Life Insurance Co. in April 2004, Prudential increased account values enough in variable annuities and defined-benefit and defined-contribution retirement to become a major player. Account Values Dec 31, 2002 Sept 30, 2004 $80.7 billion $172.6 billion Retirement $62.0 $124.3 Annuities $18.7 $48.3 Source: Prudential Note: Table made from bar graph. Earnings Generators The American Skandia and Cigna acquisitions helped fuel nearly a fivefold increase in annuities' and retirement accounts' contribution to operating income as a ratio of the income of all of Prudential's financial services businesses. Adjusted operating income of the Financial Services Business (1) Year ended Dec. 31 2002 Year ended Sept. 30, 2004 (2) $1.7 billion $1.8 billion 6% Retirement & Annuities 29% Retirement & Annuities (1) Pre-tax (2) Includes results of retirement business acquired from Cigna commencing on acquisition date April 1, 2004 Source: Prudential Note: Table made from pie chart. International's Growing Role With a presence in Mexico, South America, Europe and Pacific Asia, Prudential's international insurance business now produces the greatest share of corporate earnings. Major businesses are in Japan, Korea and Taiwan. Adjusted operating income (1) $1,825 million International's Growing Role 39% * Life Planner model * Gibraltar Life Retirement & Savings 29% * Retirement * Individual Annuities Investment Business & Corporate 10% * Financial Advisory * Asset Management Domestic Insurance 22% * Individual Life * Group Insurance (1) Before-tax; for the financial services businesses; nine months ended Sept. 30, 2004 Source: Prudential Note: Table made from pie chart. Positioned for Growing Sales Third-party distribution channels drive most of variable annuity sales, particularly the independent broker-dealer channel, which is where Prudential has nearly two-thirds of its distribution alignment. VA Channel Sales Share: 3Q '04 Annuity Industry Prudential Annuities Independent 37% 64% Banks 16% 5% Direct 1% Agency 22% 24% Regional 11% 2% Wirehouse 13% 5% Source: VARDS Note: Table made from pie chart.