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Pru Puts Individual Annuities on Diet

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Charles Lowrey, Prudential Financial CEO (Photo: Prudential)

Prudential Financial Inc. wants to shed much of the benefits-guarantee-based annuity business now on its books, in addition to ending sales of annuities that come with significant benefit guarantees.

Charles Lowrey, the Newark, New Jersey-based insurer’s CEO, and other Prudential executives talked about the company’s new attitude toward annuities last week during an earnings call with securities analysts.

(Related: COVID-19 Claims Seep Into More Insurers’ Earnings)

Prudential did well: it reported $1 billion in net income for the fourth quarter of 2020 on $15 billion in revenue, despite the effects of the COVID-19 pandemic on life and disability insurance operations.

The U.S. individual annuities unit reported $440 million in operating income before income taxes on $1.2 billion in revenue.

The Background

But Prudential said in November 2020 that it was discontinuing the sale of individual variable annuities with guaranteed living benefits, because of concerns about the company’s exposure to the effects of low interest rates and investment market risk.

Lowrey said in December 2020 at a Goldman Sachs virtual conference that Prudential would try to keep some annuity business, while reducing exposure to interest rate risk and stock market price fluctuation risk. It would do this by emphasizing the company’s new FlexGuard annuity, which is an indexed annuity that’s filed as a variable-rate product.

(Related: Prudential Introduces Its First Indexed Variable Annuity: Annuity Matters)

Lowrey also said during the conference that Prudential would be reducing costs with a voluntary employee separation program. The company conducted the first part of that program in 2019 and completed three more parts in 2020, he said.

The New Earnings Call

Lowrey told analysts during the call for the company’s fourth-quarter earnings that Prudential is working to become a higher-growth, less market-sensitive business.

“We expect to double our growth businesses to more than 30% of earnings and halve our individual annuities business to 10% or less of earnings,” Lowrey said.

Lowrey said Prudential sees its PGIM asset management arm and joint ventures and subsidiaries in places like Asia, Latin America and Africa as growth businesses.

Prudential also is looking hard at market-sensitive, low-growth businesses and blocks of businesses, in addition to the individual annuities business, “in terms of runoff, reinsurance or sales,” Lowrey said.

“Life will be one of the businesses we look at in addition to annuities, but not necessarily the only one,” Lowrey said.

Another executive, Rob Falzon, Prudential’s vice chairman, said one way to reduce the share of the company’s overall earnings coming from individual annuities is to let legacy business run off.

“That legacy block runs off at about $3 billion a quarter,” Falzon said.

The FlexGuard Contract

Prudential executives said they’re happy about recording strong FlexGuard annuity sales.

Andrew Sullivan, head of the company’s U.S. businesses, said the company has recorded $2 billion in FlexGuard sales between the May 2020 launch and the end of 2020.

“We think it’s one of the most successful launches probably in the industry,” Sullivan said.

Prudential still has to introduce the contract in some states, and it’s still rolling the contract out to outside distributors, Sullivan said.

“So, we’re seeing great momentum, and we expect that momentum to continue,” Sullivan said.

— Read New Accounting Rules to Put Life Insurers on GAAP Reporting Rollercoasteron ThinkAdvisor.

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