Annuity sales skyrocketed during the second quarter at
Prudential Financial Inc., thanks to a push to expand distribution relationships in the bank and wirehouse channels.
“We're still in the position — and have been for some time — where now growth is coming from new distribution relationships,” said Bernard Winograd, executive vice president and chief operating officer of Prudential's U.S.-based businesses, in an earnings conference call today.
The insurer's variable annuity sales climbed to $5.31 billion during the second quarter, up from $3.37 billion in the prior quarter. Fixed annuity sales experienced a modest decline, falling to $32 million in the second quarter from $41 million in the year-ago period. After-tax adjusted operating income for Prudential's Financial Services Business fell to $708 million during the second quarter, down from $809 million in the year-ago period.
Both Prudential and its competitor Jackson National Life Insurance Co. have been seeing a surge in bank channel sales of variable annuities, observed Marco Chmura, operations manager for the variable annuity data team at Morningstar.
“It's just the buzz around these variable annuity products and the fact that these are the companies with the richest-sounding guarantees,” said Mr. Chmura. “They also have some of the best compensation for the advisers, so I'd say that that's contributing to the rise in those channels and making it a higher priority for their sales.”
Prudential's Highest Daily variable annuity managed to climb to the top of the variable annuity sellers list after the 2008
recession and market volatility upset the top sellers of the product. Increased volatility in the equity markets makes it costly for insurers to hedge their variable annuities and living benefits. Low interest rates are also a risk.
However, even Prudential had to dial back their generous benefits, replacing their Highest Daily Lifetime 7 with the Highest Daily Lifetime 6 Plus last August. Given today's low interest rate environments, Mr. Winograd said the carrier is constantly examining the annuity's pricing.
“Everything else equal, a change in interest rates isn't helpful for the product we just sold,” he said, adding that interest rates aren't the only factor that goes into pricing. “Our process of looking at the pricing for HD6 is a continuous one, with a limit to the number of times it can be adjusted every year in the marketplace.”
Executives on the phone remained open to the prospect of Prudential purchasing another company.
“We like our overall balance and mix of business,” said chief executive John R. Strangfeld. “We'd like to do acquisitions, but we don't need them; we view [mergers and acquisitions] as a ‘like to do' not a ‘have to do.'”
Mr. Strangfeld noted that there were a number of well-publicized firms that were in flux, as well as other less-known possible targets. “Whether we buy them is a consideration of market dynamics and supply and demand dynamics,” he said. “I would summarize by saying ‘We shall see.'”
Executives on the call noted that Prudential Insurance Co of America had paid $2.4 billion in dividends to its parent company Prudential Financial. Richard J. Carbone, executive vice president and finance chief of Prudential Financial, defended the move. “We would rather have financial flexibility at the mother ship rather than have it buried in a subsidiary,” he said adding that the subsidiaries were well capitalized.
But some analysts question the
dividend payout.
“It’s prudent to move capital to the parent when you can," said Andrew Kligerman, a life insurance analyst with
UBS. "But having said that, the company has made it clear it would like to do a strategic acquisition.”
Prudential’s top priorities would likely be expanding its presence in Japan, as well as the U.S. retirement business. It may also look for other international businesses where its agent model can work, or it could buy up a U.S.-based life carrier.
American International Group’s Star Life Insurance Co. Ltd and
AIG Edison Life Co. are possibilities.
“Star and Edison operate on a traditional distribution,” Mr. Kligerman said, referring to the part-time agent force at those companies. “Prudential has had a lot of success with that model in its Gibraltar operation in Japan.”
ING is another possibility, he added. “They have a U.S. pension operation that’s very attractive, along with U.S. life and a mix of international business,” Mr. Kligerman said. “They have a few operations that can fit with Prudential.”
