Prudential announces second quarter 2020 results

Prudential Financial reported second quarter results. Net loss attributable to Prudential Financial, Inc. was $2.409 billion ($6.12 per Common share) for the second quarter of 2020, compared to net income of $708 million ($1.71 per Common share) for the second quarter of 2019. After-tax adjusted operating income was $742 million ($1.85 per Common share) for the second quarter of 2020, compared to $1.262 billion ($3.03 per Common share) for the second quarter of 2019.

Consolidated adjusted operating income and adjusted book value 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.

Charles Lowrey, Chairman and CEO, commented on results:

“During the second quarter, we displayed resiliency amidst the effects of the pandemic and economic and market shocks while continuing to execute against our 2020 priorities with urgency, benefiting from our complementary business mix, our rock-solid balance sheet, and our carefully constructed risk profile. We remain on track to achieve our targeted $140 million of cost savings for the year and are making progress in transitioning our international earnings base to higher-growth markets.

We also continue to address the impact of the low interest rate environment through aggressive repricing and by pivoting to less rate-sensitive products. We are examining ways to further reduce the sensitivity to interest rates and exploring the potential to generate cost savings on top of our existing 2022 target of $500 million.

Our hearts go out to all of those directly impacted by the COVID-19 pandemic and by the deeply troubling recent incidents of racial injustice and inequality. Guided by our purpose, we remain committed to addressing these challenges on behalf of our employees, customers and communities with compassion and accountability towards achieving meaningful outcomes.”

RESULTS OF ONGOING OPERATIONS
The Company’s ongoing operations include PGIM, U.S. Businesses (consisting of U.S. Workplace Solutions, U.S. Individual Solutions, and Assurance IQ), International Businesses, and Corporate & Other. In the following business-level discussion, adjusted operating income refers to pre-tax results.

PGIM

PGIM, the Company’s global investment management business, reported record high adjusted operating income of $324 million in the second quarter of 2020, compared to $264 million in the year-ago quarter. The increase reflects higher Other Related Revenue, driven by an increase in strategic investment earnings, lower expenses, and higher asset management fees, driven by an increase in average account values.

PGIM assets under management of $1.394 trillion, a record high, were up 9% from the year-ago quarter, reflecting market appreciation and public fixed income inflows, partially offset by public equity outflows. Third-party net inflows of $3.7 billion in the current quarter reflect record retail flows of $9.4 billion, partially offset by $5.7 billion of institutional outflows, driven by a single client withdrawal.

U.S. Businesses

U.S. Businesses reported adjusted operating income of $455 million for the second quarter of 2020, compared to $875 million in the year-ago quarter. This decrease includes a net unfavorable comparative impact from our annual reviews and update of assumptions and other refinements of $182 million. Excluding this item, current quarter results primarily reflect lower net investment spread results and lower net fee income, partially offset by more favorable underwriting results.

U.S. Workplace Solutions, consisting of Retirement and Group Insurance, reported adjusted operating income of $286 million for the second quarter of 2020, compared to $548 million in the year-ago quarter.

Retirement:

• Reported adjusted operating income of $281 million in the current quarter, compared to $467 million in the year-ago quarter. This decrease includes an unfavorable comparative impact from our annual reviews and update of assumptions and other refinements of $176 million. Excluding this item, current quarter results primarily reflect lower net investment spread results, mostly offset by higher reserve gains due to COVID-19.
• Account values of $498 billion were up 4% from the year-ago quarter, primarily driven by market appreciation and pension risk transfer transactions. Net outflows in the current quarter totaled $600 million with $1.6 billion from Full Service, primarily driven by elevated participant withdrawals due to COVID-19, partially offset by $1.0 billion of net inflows from Institutional Investment Products.

Group Insurance:

• Reported adjusted operating income of $5 million in the current quarter, compared to $81 million in the year-ago quarter. This decrease includes a net favorable comparative impact from our annual reviews and update of assumptions and other refinements of $2 million. Excluding this item, current quarter results primarily reflect less favorable underwriting results due to COVID-19 and lower net investment spread results.
• Reported earned premiums, policy charges, and fees of $1.3 billion in the current quarter were consistent with the year-ago quarter.

U.S. Individual Solutions, consisting of Individual Annuities and Individual Life, reported adjusted operating income of $185 million for the second quarter of 2020, compared to $327 million in the year-ago quarter.

Individual Annuities:

• Reported adjusted operating income of $249 million in the current quarter, compared to $462 million in the year-ago quarter. This decrease includes an unfavorable comparative impact from our annual reviews and update of assumptions and other refinements of $124 million. Excluding this item, current quarter results primarily reflect lower fee income, net of distribution expenses and other associated costs, partially offset by higher net investment spread results.
• Account values of $159 billion were down 4% from the year-ago quarter, reflecting net outflows, partially offset by equity market appreciation. Gross sales of $1.3 billion in the current quarter reflect our continued product repricing and pivot strategy.

Individual Life:

• Reported a loss on an adjusted operating income basis of $64 million in the current quarter, compared to a loss on an adjusted operating income basis of $135 million in the year-ago quarter. This lower loss includes a favorable comparative impact from our annual reviews and update of assumptions and other refinements of $116 million. Excluding this item, current quarter results primarily reflect lower net investment spread results and less favorable underwriting results due to COVID-19, partially offset by lower expenses.
• Sales of $184 million in the current quarter were up 2% from the year-ago quarter, primarily reflecting higher variable life sales.

Assurance IQ reported a loss, on an adjusted operating income basis, of $16 million in the current quarter.

International Businesses

International Businesses, consisting of Life Planner and Gibraltar Life & Other, reported adjusted operating income of $693 million for the second quarter of 2020, compared to $790 million in the year-ago quarter. This decrease includes a net unfavorable comparative impact from our annual reviews and update of assumptions and other refinements of $106 million. Excluding this item, current quarter results primarily reflect business growth, higher earnings from joint venture investments due to market performance, and more favorable underwriting results, partially offset by lower net investment spread results and higher expenses.

Life Planner:

• Reported adjusted operating income of $304 million in the current quarter, compared to $379 million in the year-ago quarter. This decrease includes a net unfavorable comparative impact from our annual reviews and update of assumptions and other refinements of $47 million. Excluding this item, current quarter results primarily reflect lower net investment spread results and higher expenses, partially offset by business growth.
• Constant dollar basis sales of $178 million in the current quarter decreased 30% from the year-ago quarter, primarily reflecting lower sales in Japan driven by restrictions in sales activities due to COVID-19.

Gibraltar Life & Other:

• Reported adjusted operating income of $389 million in the current quarter, compared to $411 million in the year-ago quarter. This decrease includes a net unfavorable comparative impact from our annual reviews and update of assumptions and other refinements of $59 million. Excluding this item, current quarter results primarily reflect higher earnings from joint venture investments due to market performance, higher net investment spread results, and more favorable underwriting results.
• Constant dollar basis sales of $198 million in the current quarter decreased 34% from the year-ago quarter, reflecting lower sales in both the Life Consultant and Bank channels driven by restrictions in sales activities due to COVID-19.

Corporate & Other

Corporate & Other reported a loss, on an adjusted operating income basis, of $541 million in the second quarter of 2020, compared to a loss of $335 million in the year-ago quarter. The higher loss from the year-ago quarter reflects higher expenses, driven by increases to legal reserves, and lower net investment income, partially offset by higher income from pension and other employee benefit plans.

NET INCOME
Net loss in the current quarter included $2.7 billion of pre-tax net realized investment losses and related charges and adjustments, largely driven by the non-cash effect of non-performance risk related to products that contain embedded derivatives, due to tightening credit spreads, and includes $139 million from impairment related losses.

Net income for the year-ago quarter included $654 million of pre-tax net realized investment losses and related charges and adjustments, primarily driven by products that contain embedded derivatives and the associated hedging activities, including $14 million from impairment related losses.