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Prudential Financial Posts 30% Earnings Rise in 2011

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Prudential Financial Inc. posted a 30% gain in net income in 2011, according to the company’s latest earnings release.

Prudential Financial, Newark, N.J. (NYSE: PRU), recorded net income for its financial services business of $3.5 billion for the year ended December 31. The figure is up from $2.7 billion in net income for 2010.

Prudential’s earnings per common share (diluted), based on after-tax adjusted operating income of the Financial Services businesses, were $6.41 compared to $6.17 for the year-ago period.

For the fourth quarter ended December 31, Prudential generated $606 million in net income or $1.97 per diluted share. That’s a 185% increase over the $213 million or $1.76 per diluted share posted for the same period one year ago.

“Prudential had a very good year, driven by the quality of our individual businesses, by the mix of those businesses, by our financial strength and, we believe, by the talent of our people,” said Prudential Chief Executive John Strangfeld during a February 9 conference call to discuss the company’s financial results. “Our solid results enhance our confidence that we will achieve our ROE [return on equity] aspiration of 13% to 14% for 2013.”

Prudential Financial garnered $21.4 billion in revenue in 2011, a 40.5% rise over the $15.2 billion in revenue secured in 2010. Fourth quarter revenue in 2011 also rose to $5.7 billion from $3.9 billion for the year-ago period, a 43.5% increase.

In the fourth quarter, Prudential posted premiums of $1 billion, up from $929 million for the same period in 2010. For the full year, premium revenue totaled $4 billion, up from $3.5 billion in 2010.

“Our capital position remains exceedingly strong,” said Strangfeld. “We are well positioned to pursue business opportunities. And we have the capacity to remain strongly capitalized even in stressed environments.

“As for capital management, he added, “we will continue to seek acquisitions where we can realize attractive returns and are comfortable with the execution risk, such as our acquisition of Star and Edison.”

Prudential finalized the $4.8 billion buyout of American International Group’s Japan-based insurance companies—AIG Star Life Insurance and AIG Edison Life Insurance Companies—in February of 2011. The two companies now operate as subsidiaries of Gibraltar Life Insurance, a Prudential Financial unit operating in Japan. As part of the acquisitions, Star Life and Edison Life bancassussurance operations were integrated with Prudential Gibraltar Financial Life Insurance bancassurance channels in Japan.

Strangfeld noted also that Prudential takes a “balanced approach to investing in businesses and returning capital to shareholders.” During the second half of 2011, the company returned about $1.7 billion of capital to shareholders through a share-repurchase program and increased dividend.

Prudential recorded individual annuity account values of $113.5 billion as of December 31, up 7% from a year earlier. For the quarter, gross and net annuities sales totaled $4.4 billion and $2.9 billion, respectively.

The annuity business additionally reported adjusted operating income of $391 million for the fourth quarter compared to $345 million a year ago.

“This increase represents the net effect of growth in our fees at a very solid pace, partly offset by a higher level of base DAC [deferred acquisition cost] amortization and by higher expenses and interest charges in the current quarter,” said Prudential Vice Chairman Mark Grier during the conference call.

Prudential’s gross variable annuity sales for the quarter totaled $4.4 billion, in line with the second and third quarters. This, said Grier, compares to $6.1 billion a year ago when sales in advance of the repricing of Prudential’s annuity products in early 2011 bolstered new business.

“We strongly believe that our consistent approach to product design and our demonstrated commitment to the advisor sold variable annuity business provide us with a solid competitive advantage in the market that is very much driven by third-party gatekeepers and distributors,” said Grier. “And the various ways of product design changes and market entries, exits and reentries by various providers serve to distinguish us and strengthen our position with our distribution partners.”

Gross deposits and sales of the company’s Prudential Retirement unit reached a record high of $44 billion. Strangfeld attributed the gain to “strong sales in the institutional stable value wrap market” and to defined benefit risk transfer sales. He added that assets under management exceeded $600 billion for the first time.

However, adjusted operating income for Prudential’s retirement unit dipped to $142 million for the current quarter from $147 million a year ago. 

Prudential enjoyed a double-digit gain in individual life annualized new business premiums, which totaled $75 million, up 12% from a year ago. But group insurance annualized new business premiums ended at $86 million, down from $109 million a year ago.

Prudential Financial Chief Financial Officer Richard Carbone noted during the conference call that, after adjusting for various transactions, including the Star and Edison acquisitions and the July 2011 sale of its global commodities business to Jefferies Group, Inc. for $419.5 million, the company’s capital reserve capacity remains “essentially unchanged” from January 2011.

“This is consistent with the estimate we provided you in November,” said Carbone. “Of our $4 billion to $4.5 billion in capital capacity, we estimate that about half is readily deployable.”