Prudential Shifts Focus to Variable Life and Buffered Annuities

Prudential Financial Inc. is strong, but it's still going to take steps to make its U.S. life and annuity products more resistant to COVID-19 pandemic turmoil. Executives from the Newark, New Jersey-based company talked about that shift today, during a conference call the company held to go over first-quarter earnings with securities analysts. Charles Lowrey, the company's chief executive officer, said Prudential is focused on taking the right course of action for the business, and on investing for the future. "While the severity and duration of the pandemic and related economic impact remains unknown, we are confident about the strength of our company," Lowrey said. "Prudential has survived pandemics, wars, recessions and the depression, among other events in its 145-year history. We are resilient, we are strong and we will continue to move forward to deliver sustainable value for all our stakeholders."

Resources

• A recording of Prudential's latest analyst call is available here.
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Rob Falzon, Prudential's vice chairman, said the company will adjust for the change in market conditions by shifting its focus to serving the market with lower-risk products. The individual annuities business will be pivoting to focus on less interest-rate-sensitive products, Falzon said. The company will launch the FlexGuard indexed annuity earlier than it had planned, Falzon said. "In our individual life business, we're also making product and pricing changes that will result in the continued pivot to variable life and other less interest-rate-sensitive products," Falzon said. "As a result of pricing actions, product pivots and the disruptions from COVID-19, we expect sales to continue to decline for individual annuities in the near term, and we also expect reduced sales for individual life." Andrew Sullivan, head of Prudential's U.S. business, said that overall U.S. individual life sales increased to $187 million in the first quarter, up 15% from the total for the first quarter of 2019. "Fifty percent of those sales were variable life," Sullivan said. "We've also in April launched a product that is much less sensitive to interested rates and equity markets, attuned to the RIA channel." The company is also very excited about the launch of a buffered annuity, Sullivan said. A buffered annuity gives the holder some, but not complete, protection against loss of account value. "That has become a robust market," Sullivan said.

COVID-19 Operational Impact

Prudential executives also talked about the impact of the pandemic on life and disability claims. Prudential is famous for struggling to try to keep its own employees healthy, and processing life insurance death claims, during the 1918 influenza pandemic, which killed about one out of every 200 people then living in the United States. About 98% of Prudential's employees are now working at home, Lowrey reported. The company has also provided a great deal of support to the communities around its offices, and it has rounded up 75,000 N95 respirator masks for health care workers in New JErsey, Lowrey said.

COVID-19 Claims Impact

Tanji said Prudential has been assuming in its baseline scenario that COVID-19 will kill about 100,000 people in the United States and about 40,000 in Japan, where it also has large operations. The company is conscious of the fact that it's U.S. insureds tend to be concentrated in some of the states that have already been affected by COVID-19, such as California, New Jersey and New York, Tanji said. If the baseline scenario is correct, then COVID-19-related life insurance claims could have an impact of about $135 million on earnings in the second quarter, and about $200 million for the full year, Tanji said. Sullivan said Prudential is expecting to see the increase in mortality even though the people insured by its group life plans tend to be relatively young. "We also believe that we'll see an uptick in short-term disability incidence," Sullivan said.

COVID-19 Tech Impact

Lowrey said one effect of the pandemic has been to cause Prudential to speed up the introduction of digital tools, such as an automated system for handling life insurance claims that offers more ways for the beneficiaries to provide proof of death electronically. The company has also added mobile apps and chat bots to manage a surge in customer calls, and it has expanded the use of electronic signatures across its business, Lowrey said. — Read Earnings: Prudential, Genworth, CNO, RGA, Sun Life, on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.