Stable Return Product by Prudential - Analyst Blog

Prudential Retirement, a wing of Prudential Financial Inc. (PRU), has added Prudential Protection Account to its range of institutional retirement products. The most salient feature of the new product is that it will guarantee principal as well as accrued interest in the form of insurance from Federal Deposit Insurance Corporation (FDIC) up to $250,000 per participant for its 401(k) and 401(a) defined contribution plans as well as for governmental 457 plans. 

The inbuilt guarantee by FDIC assures the safety of retirement investments. These products have gained all the more attraction following the recent financial crisis that led to the wealth erosion of several insureds whose investments were tied to equity markets. 

A stable value offers the security and conservative approach many investors look for to help meet their goals as they work towards a positive retirement outcome. The FDIC guarantee will protect against a loss in case of a failure of the banking unit – Prudential Bank & Trust, FSB − which will carry all the money invested in the account as deposit.

The U.S. retirement market remains a big opportunity for Prudential. The nation's 76 million Baby Boomers are beginning to reach retirement age, with the first cohort turning 65 in 2011. As people are living longer, retirement assets must last 20 to 30 years or more. In addition, the private sector is continuing to shift from offering traditional defined benefit pension plans to defined contribution plans such as 401(k)s. As a result, more workers will have responsibility to save adequately, invest appropriately and generate their own retirement income.

During the third quarter earnings release earlier during the month, Prudential's Retirement segment reported adjusted operating income of $119 million compared to $117 million a year ago. The results reflected a charge of $15 million from updating of deferred amortization costs and other amortization assumptions, while results for the year-ago quarter had included charges of $8 million.

Stripping these items out of the comparison, results for the Retirement business were up $9 million from a year ago. The increase was driven mainly by higher fees reflecting growth in full service account values. Full service account values stood at a record-high of $135 billion as of September 30, up 11% from a year earlier. The increase was driven by market appreciation and by $4.4 billion of positive net flows, including about $2.1 billion of net additions in the current quarter, which included two large case wins.

Other insurance companies offering stable value products are ING Retirement Services, a part of ING Group (ING) and AIG Retirement Services, a part of American International Group Inc. (AIG).

 
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