Prudential Financial Inc. (PRU), the second-largest U.S. life insurer, said it may achieve as much as 19 percent return on equity in its international business as it integrates operations bought in Japan.
Return on equity may be at least 18 percent outside the U.S. as Prudential trims expenses after its 2011 acquisition of two Japan-based life insurers from American International Group Inc. (AIG), the Newark, New Jersey-based insurer said in a presentation posted on its website today. That compares with 17.5 percent last year.
“Japan is such a key part of our strategic approach,” Edward Baird, chief operating officer of Prudential’s international operations, said today during a presentation to investors in Tokyo. As Prudential adds businesses in the country, the insurer’s focus “has always been to not be distracted or seduced by growth in the top line, but see it rather more as a driver to get to growth in the bottom line.”
Chief Executive Officer John Strangfeld, 58, is counting on international expansion led by Japan as he targets return on equity of at least 13 percent companywide next year. Prudential is combining the former AIG units, Star Life Insurance Co. and Edison Life Insurance Co., with a business it built in the country for more than two decades.
“International insurance is benefiting from exceptional business growth even while we continue to integrate Star and Edison,” Strangfeld said on an Aug. 2 conference call with analysts. “Expense synergies related to Star and Edison and the broader financial impact of the strong momentum in international will continue to be important drivers of performance.”
Prudential climbed 0.4 percent to $56.90 at 10:31 a.m. in New York trading. Strangfeld’s firm has gained about 14 percent this year, compared with the 15 percent advance of the 75- company Bloomberg World Insurance Index.
Adjusted operating income at Prudential’s international insurance segment rose to $681 million in the second quarter from $500 million a year earlier, the firm said Aug. 1. Profit more than doubled on gains from derivatives, which Prudential uses to guard against market risks such as interest-rate changes and currency fluctuations.
Prudential entered Japan in 1987 and expanded its business in 2001 with the acquisition of a failed Japanese carrier that it renamed Gibraltar Life Insurance Co., which then merged with Star Life and Edison Life this year.
Total pretax integration costs of the insurers is expected to reach about $450 million, down $50 million from original estimates, said Kei Sato, president and CEO of Gibraltar Life in a presentation to investors made in Tokyo. Targeted annual cost savings stand at $250 million, with about 65 percent realized by 2012 and 80 percent by 2013, he said.
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