Prudential Financial, Inc. Announces 2018 Results

NEWARK, N.J.–(BUSINESS WIRE)–Prudential Financial, Inc. (NYSE:PRU):

  • Net income attributable to Prudential Financial for 2018 of $4.074
    billion or $9.50 per Common share versus $7.863 billion or $17.86 per
    share for 2017.
  • After-tax adjusted operating income of $5.019 billion or $11.69 per
    Common share for 2018 versus $4.652 billion or $10.58 per share for
    2017.
  • Fourth quarter 2018 net income attributable to Prudential Financial of
    $842 million or $1.99 per Common share versus $3.765 billion or $8.61
    per share for the year-ago quarter. Fourth quarter 2017 net income
    included a benefit of $2.871 billion or $6.64 per Common share as a
    result of the Tax Cuts and Jobs Act.
  • Fourth quarter 2018 after-tax adjusted operating income of $1.035
    billion or $2.44 per Common share versus $1.173 billion or $2.69 per
    share for the year-ago quarter.
  • Notable items for the current quarter resulted in a net charge to net
    income and after-tax adjusted operating income of $228 million or
    $0.54 per Common share, as discussed later in this release.
  • Today, the Company declared a quarterly dividend of $1.00 per share of
    Common stock, payable on March 14, 2019, to shareholders of record as
    of February 20, 2019, representing an increase of 11% over the prior
    year dividend level.

Charles Lowrey, CEO, commented on results:

We continued to generate meaningful value for our customers and grow
our business. For the year, we increased adjusted earnings per share by
11% and adjusted book value per share by 8%. Our adjusted operating
return on equity remained at the top end of our 12-13% target, and the
fundamentals across our U.S. Financial Wellness, PGIM, and International
businesses remained solid.

We maintained a strong capital position demonstrating resilience to
equity market fluctuations, in particular during the fourth quarter. Our
high level of cash flow generation enabled us to continue to invest in
our businesses and return more than $3 billion to shareholders through
dividends and share repurchases throughout the year.”

                     

OTHER FINANCIAL HIGHLIGHTS
($ millions, except per
share)

        4Q:18         4Q:17
Book value per share of Common Stock         $116.34         $125.63
Adjusted book value per share of Common Stock         $96.06         $88.67
Common Stock share repurchases         $375         $313
Common Stock dividends         $377         $322
Common Stock dividends per share         $0.90         $0.75
Parent company highly liquid assets         $5,548         $4,376
               
                     
NOTABLE ITEMS ($ millions, pre-tax)         4Q:18         4Q:17
Notable Items included in Adjusted Operating Income:                    
Updated estimates of profitability driven by market performance
versus assumptions
        $(109)         $16
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
        $(140)         $90
Underwriting experience above / (below) average expected gains         $(10)         $(45)
(Higher) / lower than typical expenses         $(30)         $(12)
Total Notable Items included in Adjusted Operating Income         $(289)         $49
               

Prudential Financial, Inc. (NYSE:PRU) today reported year-end and fourth
quarter 2018 results. Net income attributable to Prudential Financial,
Inc., was $4.074 billion ($9.50 per Common share) for the year ended
December 31, 2018, compared to $7.863 billion ($17.86 per Common share)
for the year ended December 31, 2017. After-tax adjusted operating
income was $5.019 billion ($11.69 per Common share) for 2018, compared
to $4.652 billion ($10.58 per Common share) for 2017.

For the fourth quarter of 2018, net income attributable to Prudential
Financial, Inc., was $842 million ($1.99 per Common share), compared to
$3.765 billion ($8.61 per Common share) for the fourth quarter of 2017.
After-tax adjusted operating income was $1.035 billion ($2.44 per Common
share) for the fourth quarter of 2018, compared to $1.173 billion ($2.69
per Common share) for the fourth quarter of 2017.

Consolidated adjusted operating income, adjusted book value and adjusted
operating return on equity are non-GAAP measures. These measures are
discussed later in this press release under “Forward-Looking Statements
and Non-GAAP Measures” and reconciliations to the most comparable GAAP
measures are provided in the tables that accompany this release.

RESULTS OF ONGOING OPERATIONS

The Company’s ongoing operations include PGIM, U.S. Workplace Solutions,
U.S. Individual Solutions, International Insurance, and Corporate &
Other Operations. In the following segment-level discussion, adjusted
operating income refers to pre-tax results.

PGIM

PGIM, the Company’s global investment management businesses,
reported adjusted operating income of $243 million for the current
quarter, compared to $306 million in the year-ago quarter.

                   
PGIM ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $243       $306  
           

The decrease of $63 million from the year-ago quarter reflects a $67
million lower contribution from other related revenues, net of
associated expenses, which amounted to $57 million for the current
quarter. This decrease was partially offset by higher asset management
fees, reflecting an increase in average assets under management.

PGIM assets under management of $1.161 trillion were $6 billion higher
than the year-ago quarter driven by fixed income inflows partially
offset by equity outflows and market depreciation. Unaffiliated
third-party net outflows in the current quarter of $3.1 billion included
a single institutional fixed income client outflow of $9 billion. Total
PGIM net inflows in the current quarter were $9 billion.

U.S. Workplace Solutions

U.S. Workplace Solutions, consisting of the Retirement and Group
Insurance segments, reported adjusted operating income of $249 million
for the fourth quarter of 2018, compared to $313 million in the year-ago
quarter.

                   
RETIREMENT SEGMENT ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $216       $291  
Notable items included above:                  
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
      $(65)       $50  
Underwriting experience above / (below) average expected gains       $5       $(10)  
           

The Retirement segment reported adjusted operating income of $216
million for the current quarter, compared to $291 million in the
year-ago quarter. Excluding the notable items above, results increased
$25 million from the year-ago quarter reflecting a higher contribution
from net investment spread results and an increase in underwriting gains
from growth within our pension risk transfer business.

Retirement account values were $432 billion as of December 31, 2018, up
1% from a year earlier, reflecting positive net flows partially offset
by market depreciation. Net flows in the current quarter of $6.2 billion
included several pension risk transfer sales totaling $7.5 billion.

                   
GROUP INSURANCE SEGMENT ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $33       $22  
Notable items included above:                  
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
      $(10)       $10  
Underwriting experience above / (below) average expected gains       $5       $(10)  
           

The Group Insurance segment reported adjusted operating income of
$33 million in the current quarter, compared to $22 million in the
year-ago quarter. Excluding the notable items above, results increased
$16 million from the year-ago quarter reflecting more favorable
underwriting results from business growth, partially offset by higher
expenses.

Group Insurance reported earned premiums, policy charges and fees of
$1.3 billion in the current quarter, an increase of 6% from the year-ago
quarter.

U.S. Individual Solutions

U.S. Individual Solutions, consisting of the Individual Annuities
and Individual Life segments, reported adjusted operating income of $419
million for the fourth quarter of 2018, compared to $639 million in the
year-ago quarter.

                   
INDIVIDUAL ANNUITIES SEGMENT ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $445       $541  
Notable items included above:                  
Impact from updated estimates of profitability driven by market
performance versus assumptions
      $(22)       $16  
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
      $(10)       $10  
           

The Individual Annuities segment reported adjusted operating
income of $445 million in the current quarter, compared to $541 million
in the year-ago quarter. Excluding the notable items above, results
decreased $38 million from the year-ago quarter reflecting lower policy
fees, net of associated risk management and other related costs, driven
by a decrease in average variable annuity account values. These
decreases were partially offset by favorable hedging results and a
greater contribution from net investment spread results.

Individual Annuities account values were $151 billion as of December 31,
2018, down 10% from a year earlier, driven by market depreciation and
net outflows over the year. Individual Annuities gross sales were $2.2
billion in the current quarter, up 38% from the year-ago quarter,
reflecting favorable customer reaction to pricing actions and sales of
our fixed index annuity product which launched in the first quarter of
2018.

                   
INDIVIDUAL LIFE SEGMENT ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $(26)       $98  
Notable items included above:                  
Impact from updated estimates of profitability driven by market
performance versus assumptions
      $(62)       $0  
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
      $(10)       $5  
Underwriting experience above / (below) average expected gains       $(25)       $(25)  
(Higher) / lower than typical expenses       $(30)       $0  
           

The Individual Life segment reported a loss, on an adjusted
operating income basis, of $26 million for the current quarter, compared
to income of $98 million in the year-ago quarter. Excluding the notable
items above, results decreased $17 million from the year-ago quarter
primarily reflecting a lower contribution from net investment spread
results and the effects of the annual assumption review process on
expected underwriting experience.

Individual Life sales of $193 million in the current quarter were up 5%
from the year-ago quarter, reflecting our product diversification
strategy, resulting in higher other universal life and variable life
sales partially offset by lower guaranteed universal life sales.

International Insurance

International Insurance, consisting of Life Planner Operations
and Gibraltar Life & Other Operations, reported adjusted operating
income of $736 million for the fourth quarter of 2018, compared to $777
million in the year-ago quarter.

                   
LIFE PLANNER OPERATIONS ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $349       $383  
Notable items included above:                  
Impact from updated estimates of profitability driven by market
performance versus assumptions
      $(25)       $0  
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
      $(20)       $15  
Underwriting experience above / (below) average expected gains       $(5)       $0  
           

The Life Planner Operations reported adjusted operating income of
$349 million for the current quarter, compared to $383 million in the
year-ago quarter. Excluding the notable items above, results increased
$31 million from the year-ago quarter reflecting business growth
partially offset by lower net investment spread results driven by low
interest rates in Japan.

Life Planner Operations constant dollar basis sales of $319 million in
the current quarter were up 12% from the year-ago quarter, driven by our
Japanese operations reflecting a 6% growth in Life Planner count and
higher sales of U.S. dollar-denominated products.

                   
GIBRALTAR LIFE & OTHER OPERATIONS ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $387       $394  
Notable items included above:                  
Returns on non-coupon investments and prepayment fees above /
(below) average expectations
      $(25)       $0  
Underwriting experience above / (below) average expected gains       $10       $0  
           

The Gibraltar Life & Other Operations reported adjusted
operating income of $387 million for the current quarter, compared to
$394 million in the year-ago quarter. Excluding the notable items above,
results increased $8 million from the year-ago quarter reflecting
business growth and a higher contribution from investment spread results
driven by U.S. dollar-denominated product sales, partially offset by
higher net expenses.

Gibraltar Life & Other Operations constant dollar basis sales of $327
million in the current quarter were down 7% from the year-ago quarter as
competitive pressures in the bank channel offset growth in other
channels.

Corporate & Other Operations

Corporate & Other Operations reported a loss, on an adjusted
operating income basis, of $329 million in the fourth quarter of 2018,
compared to a loss of $463 million in the year-ago quarter.

                   
CORPORATE & OTHER OPERATIONS ($ millions)       4Q:18       4Q:17  
Adjusted operating income       $(329)       $(463)  
Notable items included above:                  
(Higher) / lower than typical expenses       $0       $(12)  
           

Excluding the notable items above, the $122 million lower loss from the
year-ago quarter reflects lower net expenses in the current quarter,
driven primarily by lower costs for employee benefit and compensation
plans tied to Company stock and equity market returns.

ASSETS UNDER MANAGEMENT

Assets under management amounted to $1.377 trillion at December
31, 2018, compared to $1.394 trillion a year earlier.

NET INCOME AND INVESTMENT PORTFOLIO

Net income attributable to Prudential Financial, Inc. amounted to
$842 million for the fourth quarter of 2018, compared to $3.765 billion
for the year-ago quarter.

Current quarter net income includes $215 million of pre-tax net realized
investment losses and related charges and adjustments. The foregoing net
losses include net pre-tax losses of $465 million from products that
contain embedded derivatives or guarantees and associated hedging
activities, largely driven by the impact of widening credit spreads net
of interest rate declines, net pre-tax losses of $310 million from
general portfolio and related activities, and net pre-tax losses of $119
million from impairments and sales of credit-impaired investments. The
foregoing losses were partially offset by pre-tax gains of $679 million
primarily related to derivatives used in our capital hedge program and
other risk management activities, including foreign currency and asset
and liability duration management.

Net income for the current quarter reflects a pre-tax decrease of $277
million in recorded asset values and $228 million in recorded
liabilities representing changes in value which are generally expected
to ultimately accrue to contractholders. These changes primarily
represent mark-to-market adjustments.

Net income for the current quarter also reflects pre-tax income of $11
million from Divested and Run-off Businesses.

Net income for the year-ago quarter included a tax benefit of $2.871
billion related to the enactment of the Tax Cuts and Jobs Act driven by
the remeasurement of net deferred tax liabilities arising from a lower
U.S. corporate tax rate and the adoption of a territorial tax system,
partially offset by the deemed repatriation of unremitted earnings of
foreign subsidiaries. The year-ago quarter net income also included $581
million of pre-tax net realized investment losses and related charges
and adjustments. The foregoing net losses include net pre-tax losses of
$500 million primarily related to derivatives used for risk management
including foreign currency and asset and liability duration management
and other risk mitigation activities, net pre-tax losses of $332 million
from products that contain embedded derivatives or guarantees and
associated hedging activities, largely driven by the impact of
tightening credit spreads on our risk of non-performance, and $87
million from impairments and sales of credit-impaired investments. The
foregoing losses were partially offset by net pre-tax gains of $338
million from general portfolio and related activities.

FORWARD-LOOKING STATEMENTS AND NON-GAAP MEASURES

Certain of the statements included in this release constitute
forward-looking statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
made based on management’s current expectations and beliefs concerning
future developments and their potential effects upon Prudential
Financial, Inc. and its subsidiaries. Prudential Financial, Inc.’s
actual results may differ, possibly materially, from expectations or
estimates reflected in such forward-looking statements. Certain
important factors that could cause actual results to differ, possibly
materially, from expectations or estimates reflected in such
forward-looking statements can be found in the “Risk Factors” and
“Forward-Looking Statements” sections included in Prudential Financial,
Inc.’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
Prudential Financial, Inc. does not undertake to update any particular
forward-looking statement included in this document.

Consolidated adjusted operating income, adjusted book value and adjusted
operating return on equity are non-GAAP measures. Reconciliations to the
most directly comparable GAAP measures are included in this release.

Adjusted operating income is the measure used by the Company to evaluate
segment performance and to allocate resources. Adjusted operating income
excludes “Realized investment gains (losses), net,” as adjusted, and
related charges and adjustments. A significant element of realized
investment gains and losses are impairments and credit-related and
interest rate-related gains and losses. Impairments and losses from
sales of credit-impaired securities, the timing of which depends largely
on market credit cycles, can vary considerably across periods. The
timing of other sales that would result in gains or losses, such as
interest rate-related gains or losses, is largely subject to our
discretion and influenced by market opportunities as well as our tax and
capital profile.

Realized investment gains (losses) within certain of our businesses for
which such gains (losses) are a principal source of earnings, and those
associated with terminating hedges of foreign currency earnings and
current period yield adjustments are included in adjusted operating
income. Adjusted operating income generally excludes realized investment
gains and losses from products that contain embedded derivatives, and
from associated derivative portfolios that are part of an
asset-liability management program related to the risk of those
products. However, the effectiveness of our hedging program will
ultimately be reflected in adjusted operating income over time. Adjusted
operating income also excludes gains and losses from changes in value of
certain assets and liabilities relating to foreign currency exchange
movements that have been economically hedged or considered part of our
capital funding strategies for our international subsidiaries, as well
as gains and losses on certain investments that are designated as
trading. Additionally, adjusted operating income excludes the changes in
fair value of equity securities that are recorded in net income
beginning on January 1, 2018 as a result of the adoption of ASU 2016-01.

Adjusted operating income also excludes investment gains and losses on
assets supporting experience-rated contractholder liabilities and
changes in experience-rated contractholder liabilities due to asset
value changes, because these recorded changes in asset and liability
values are expected to ultimately accrue to contractholders. In
addition, adjusted operating income excludes the results of divested
businesses, which are not relevant to our ongoing operations.
Discontinued operations and earnings attributable to noncontrolling
interests, each of which is presented as a separate component of net
income under GAAP, are also excluded from adjusted operating income. The
tax effect associated with pre-tax adjusted operating income is based on
applicable IRS and foreign tax regulations inclusive of pertinent
adjustments.

Adjusted book value is calculated as total equity (GAAP book value)
excluding accumulated other comprehensive income (loss), the cumulative
effect of foreign currency exchange rate remeasurements and currency
translation adjustments corresponding to realized investment gains and
losses, and as of December 31, 2017 certain deferred taxes resulting
from the change in the U.S. tax rate enacted with the Tax Cuts and Jobs
Act. These items are excluded in order to highlight the book value
attributable to our core business operations separate from the portion
attributable to external and potentially volatile capital and currency
market conditions.

Adjusted operating return on equity is equal to the annualized
year-to-date after-tax adjusted operating income divided by the average
adjusted book value. Return on equity based on GAAP balances is
calculated using after-tax net income and equity.

We believe that our use of these non-GAAP measures helps investors
understand and evaluate the Company’s performance and financial
position. The presentation of adjusted operating income as we measure it
for management purposes enhances the understanding of the results of
operations by highlighting the results from ongoing operations and the
underlying profitability of our businesses. Trends in the underlying
profitability of our businesses can be more clearly identified without
the fluctuating effects of the items described above. Adjusted book
value augments the understanding of our financial position by providing
a measure of net worth that is primarily attributable to our business
operations separate from the portion that is affected by capital and
currency market conditions, and by isolating the accounting impact
associated with insurance liabilities that are generally not marked to
market and the supporting investments that are marked to market through
accumulated other comprehensive income under GAAP. Adjusted return on
equity is a useful measure of the operating return the Company achieves
in relation to the capital available to our businesses. However, these
non-GAAP measures are not substitutes for income, equity and return on
equity determined in accordance with GAAP, and the adjustments made to
derive these measures are important to an understanding of our overall
results of operations and financial position. The schedules accompanying
this release provide reconciliations of non-GAAP measures with the
corresponding measures calculated using GAAP. Additional historic
information relating to our financial performance is located on our
website at www.investor.prudential.com.

EARNINGS CONFERENCE CALL

Members of Prudential’s senior management will host a conference call on
Thursday, February 7, 2019, at 11 a.m. ET, to discuss with the
investment community the Company’s fourth quarter results. The
confer

Contacts

MEDIA: Bill Launder, (973) 802-8760, [email protected]

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