Analysts Plan to Upgrade Prudential

Thanks to robust busines growth in the third quarter of 2014, Morningstar equity analysts plan to increase the insurer's fair value share price estimate

Vincent Lui, CFA 19 November, 2014 | 10:17AM
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Prudential (PRU) saw robust business growth in the third quarter, and we are planning to increase our fair value estimate to reflect our forecast for higher long-term growth and profitability for the U.K. insurer.

In recent years, the firm, through its U.S. subsidiary Jackson National Life, had expanded rapidly on its variable annuity sales, taking market share from the likes of MetLife and Prudential Financial, as those two U.S. insurers continued to rein in capital market risk. However, more recently, Prudential has sought to reduce sales of these annuities, which typically offer customers guaranteed benefits.

In the third quarter, sales of variable annuities with guaranteed benefits fell 13% from the second quarter. The drop was not a big surprise to us, and we welcome the move as we think Prudential is taking a more prudent approach to maintaining an appropriate balance of revenue streams and matching the firm’s risk appetite. That said, the U.S. remains a growth driver for the firm, with Jackson’s new business profit rising 16% through the first nine months, thanks to the positive impact on product enhancement and pricing actions, which more than offset the negative effect of the low interest rate environment.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Prudential PLC1,454.50 GBX0.21Rating

About Author

Vincent Lui, CFA  Vincent Lui, CFA is an equity analyst for Morningstar, covering life insurance companies.