Prudential 2001 Annual Report Download - page 6

4Gro wing and Pro te c ting Yo ur Wealth
productivity, policy persistency and customer satisfaction. During the past
decade, we’ve transferred skills learned in Japan to build successful businesses in
Korea and Taiwan, as well as start-up businesses in Europe and Latin America.
Not all of our overseas growth has been organic. Through the years, we’ve
made selected acquisitions that have enhanced our overseas presence and
reached beyond the affluent market. A recent example is our April 2001 acqui-
sition of Kyoei Life Insurance, now called Gibraltar Life.
Gibraltar was the 11th-largest insurance company in Japan at the time we
purchased it. It has given us instant access to the middle-market consumer and
added more than 6,000 agents, 500 offices and nearly 5 million in-force policies.
And it has made an immediate positive impact on our bottom line.
Altogether, our international life insurance sales have produced an annual
growth rate of 28 percent over the past three years, not including Gibraltar Life.
In 2001, with Gibraltar’s contribution, they generated nearly $700 million of
new annualized premium. To put that in perspective, those new premium
numbers would rank among the top five sellers of life insurance in the U.S.
With our overseas life insurance business anchored by our well-established
presence in Japan and Korea, we’ve expanded our asset management, advisory
and private client businesses in key international markets. After several years of
investment, we’re now beginning to see benefits in markets such as Japan,
Korea, Taiwan and Mexico.
Raising return on equity to market standards.
In our recent history as a mutual company, Prudential’s balance sheet has been
strong, but our return on equity has lagged public company standards. We’ve
already taken steps to address our cost structure, reducing operating expenses
by $170 million in 2001. And our business strategy is focused on using our
strengths to bring our return on equity to market standards over the next few
years. We believe our success in attaining this goal will translate directly into
increased shareholder value.
Diversified earnings can mitigate risk. Our adjusted operating income in
2001 came from a mix of financial services businesses and geographic areas.
Twenty-five percent of 2001 adjusted operating income came from our U.S.
consumer businesses, 17 percent from asset management businesses, 15 percent
from employee benefits businesses, and 41 percent from international businesses.
International business growth trends are positive. Our international
insurance business has delivered strong earnings growth over a number of years
and contributes an increasing percentage of our adjusted operating income.
Our domestic life insurance business has made the infrastructure changes
we believe are necessary to produce increases in earnings. We have restruc-
tured our sales force, improved service and expanded our third-party distribution.
Agent productivity and policy persistency have been rising since 1996.
We are transforming our U.S. securities business to help reduce earn-
ings volatility. Our goal is to increase recurring revenue, as opposed to
transaction revenue which is largely dependent on retail stock market trading
volume. This year, 35 percent of total non-interest revenue was derived from
recurring revenue sources, such as wrap-fee programs and managed money
accounts. That’s up from about 30 percent in 2000.
“Prudential Financial
now begins
its public life
well-capitalized,
strategically
focused and
well-positioned to
create value for
customers and
shareholders.”