“Prudential Financial now begins
its public life well-capitalized, strategically focused and well-positioned to create value for customers and shareholders.”
Growing and Protecting Your 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.