Prudential 2012 Annual Report Download - page 4

2 Prudential Financial, Inc. 2012 Annual Report
Capitalizing on unique opportunities
Our financial strength enabled us to take advantage of
opportunities during and after the financial crisis to put more
distance between us and the competition, through organic
growth, targeted acquisitions, new product development and
talent management. In 2012, we announced three significant
transactions that strengthened our domestic retirement and
life insurance operations.
In November, we closed a landmark pension risk transfer
agreement with General Motors, under which we assumed
responsibility for pension obligations for more than 110,000
salaried GM retirees. This transaction is the largest of its kind in
the United States. We followed this with another sizable pension
risk transfer agreement with Verizon Communications, which
closed in December. This transaction transferred approximately
$7.5 billion in pension obligations to Prudential.
These significant transactions capitalized on steps we first
took several years ago—both before and during the financial
crisis—to broaden our capabilities in the pension risk transfer
market. As we analyzed this market, we saw the beginning of a
trend, and one that offers attractive opportunities that play to
our historical strengths. With our financial strength, investment
capabilities and actuarial expertise, we are uniquely suited to
assume the responsibilities required to secure pension benefits.
In fact, we have been helping companies guarantee pension
obligations since 1928. It’s a business we know well and one
that we are confident will generate a significant source of
revenue and profits for our domestic retirement business.
We also strengthened our domestic life insurance operation
with the acquisition of The Hartford’s individual life insurance
business, through an agreement we signed in September and
closed in January 2013. From this acquisition, we received
approximately 700,000 Hartford life insurance policies with a
face amount in force of approximately $135 billion.
The result is a life insurance operation with greater scale,
broadened product offerings and expanded distribution
capabilities, which will enable us to meet the life insurance
needs of even more Americans. Our expanded operation ranks
among the top five largest individual life insurance operations
in the United States, based on new premium sales. We also
now hold leadership positions in key product areas, including
universal, variable and term life insurance. In addition, we
have gained distribution strength in the banking and wirehouse
channels, as well as a deep bench of talented people,
particularly in the areas of product development and sales.
Our recent pension risk transfer transactions and the
Hartford acquisition have further enhanced our operations by
diversifying our sources of earnings. We saw a similar result
in Japan, with the addition of the Star and Edison operations,
which brought greater scale, more stability and increased our
potential for growth.
We remain very satisfied with the results of our recent
acquisition activity in Japan. The integration of the Star and
Edison companies with our Gibraltar Life operation remains
on track. We marked the legal merger of the three companies
on January 1, 2012, and have already seen results from the
expanded distribution capabilities, which include new sales
professionals and third-party distributors, and the addition of a
large force of independent agents to our existing channel. This
acquisition is delivering what we expected.
We continued to expand our international insurance operations
in other ways. In November we celebrated the launch of our
life insurance joint venture in China with the Fosun Group, a
large privately owned holding company. Known as Pramerica
Fosun Life Insurance Ltd., the new company is the first life
insurance joint venture in China between a private enterprise
and a foreign company. We see tremendous potential for
growth in China, where life insurance penetration remains well
below the average levels seen in many other countries.
We are proud of all of these transactions, which we are
confident will drive opportunities for new business in the future.
Our success with them demonstrates how innovative thinking,
collaboration and outstanding execution enable us to deliver
groundbreaking results and further differentiate ourselves in
the marketplace. It is also additional evidence that we have
emerged from the financial crisis in a position of strength.
Managing high-quality businesses that perform
We maintain a strategic portfolio of high-quality businesses,
which we have assembled over time through careful selection
and by focusing on a specific set of customer needs—protection
and retirement. We continue to balance our mix of operations
to retain a clear focus on core businesses where we have
demonstrated strengths and see potential for returns.
In building our portfolio, we have taken deliberate actions to
ensure an appropriate blend of growth and stability. This mix
provides us with balance during unsettled periods. We also
consistently exercise strong risk management and quality
control, which we view as core competencies and are reflected
in the underlying strength of our business fundamentals.
We are confident that we have assembled the best portfolio
of businesses in our history, in terms of their ability to deliver
an attractive balance of growth, stability and sustainable
performance over the long term. The performance of our
businesses in 2012 demonstrates the soundness of our strategy.
For the year, our International Insurance division achieved
record-setting sales of more than $4 billion, on a constant
dollar basis, representing an increase of 28 percent over
2011. Our operations in Japan continue to benefit from
expanded distribution across multiple channels and from the
successful integration of the Star and Edison operations.
Our Retirement business achieved record account values in
2012, reflecting strong sales of a stable value product, as
well as the impact of the two significant pension risk transfer
transactions, which in aggregate garnered more than $50 billion
in account values. Total account values for the Retirement
operation were approximately $290 billion as of year-end 2012,
up from approximately $230 billion the prior year.