Steven Wevodau - Life Insurance

NEWARK, N.J.–(BUSINESS WIRE)–An aging American workforce is increasingly concerned about long-term care needs and the benefits available through employers, according to a report released by Prudential Financial, Inc. (NYSE: PRU - News).

But the Prudential study, Long Term Care Insurance, shows only a small number of employees understand the benefits of long-term care insurance, with only about one-quarter of workers planning to use insurance to fund long-term care expenses.

“As Baby Boomers begin thinking about life after age 60, they grasp the implications of longer lives, post-retirement finances and lifestyles and nursing care costs,” said Lori High, president of Prudential’s Group Insurance business. “As a result, workers are more aware of their own future long-term care needs and the impact on their retirement lifestyle.”

Those with care-giving experience place greater value on employee benefits including long-term care insurance, because they’ve seen how inadequate insurance coverage can drain resources. Unfortunately, there remains a gap between this recognition and action to provide an adequate solution through the purchase of long-term care insurance, according to High.

Consider these findings:

• Three in 10 workers said they don’t have a plan or don’t expect to need long-term care services for them or their spouse.
• Among those that do have a plan, their expectations may be unrealistic given the rising costs of long-term care. The most common sources of funding cited for long-term care were 401(k) or retirement savings, followed by Medicare.
• The education gap is greater for women. Women tend to do more of the care giving and have more experience with care giving, yet they are less likely to have a plan for their own long-term care needs compared with men.

Prudential’s Long Term Care Insurance was conducted in conjunction with the company’s sponsorship of Long Term Care Insurance Month. Held each November, Long Term Care Insurance Month is an industry-wide effort coordinated by the nonprofit American Association for Long-Term Care Insurance in response to growing concern about the large number of Americans who lack adequate long-term care insurance protection.

“Americans recognize the importance of each dollar spent on employee benefits – both employers and their employees – and are looking for the best coverage their money can buy,” High said.

Long Term Care Insurance, the third in a series of five reports, stems from the company’s broad Study of Employee Benefits: 2009 and Beyond report fielded via the Internet during April and May of 2009. It consists of three distinct surveys: one among benefits plan sponsors, one among benefits plan participants, and one among employee benefits brokers and consultants. The surveys were conducted for Prudential by the Center for Strategy Research, Inc., a Boston-based, independent, market research firm. Click here for a copy of Long Term Care Insurance.

Prudential’s Group Insurance business manufactures and distributes a full range of group life, long-term and short-term group disability, long-term care, and corporate and trust-owned life insurance in the U.S. to institutional clients primarily for use in connection with employee and membership benefits plans. Group Insurance also sells accidental death and dismemberment and other ancillary coverages and provides plan administrative services in connection with its insurance coverages.

Prudential Financial, Inc. (NYSE: PRU - News), a financial services leader with approximately $580 billion of assets under management as of June 30, 2009, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping approximately 50 million individual and institutional customers grow and protect their wealth. The company’s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential’s businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit http://www.news.prudential.com/.

Group Insurance benefits are issued by The Prudential Insurance Company of America, Newark, NJ. Prudential and The Rock logo are registered service marks of The Prudential Insurance Company of America.

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Prudential Financial, Inc.
Laurita Warner, 973-802- 8614
Laurita.warner@prudential.com

67 WALL STREET, New York–January 14, 2009 - The Wall Street Transcript has just published its Insurance issue, a report offering a timely review of the sector to serious investors and industry executives. This 36-page feature contains a roundtable forum and industry commentary through in-depth interviews with top management from 3 firms and 2 analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics include: Impact of the credit crisis, Poor equity markets, Variable annuity business outlook, Disability insurance, Increase in claims, Exposure to subprime and derivatives, Default risk, Raising capital, Hoarding cash resources, Cutting expenses, Mergers and acquisition activity , Market volatility, Management quality, Regulatory outlook, Access to TARP funds, Treasury loan to AIG, Credit ratings, Trader’s market and pair trades, Investor interest, Stock picks, Stocks to avoid.

Contents: Roundtable Forum - Life Insurance: Randy Binner, Friedman, Billings, Ramsey Group, Inc.; John Nadel, Sterne Agee & Leach, Inc.; Property-Casualty/Reinsurance: Michael G. Paisan, Stifel Nicolaus & Company, Inc.; Outlook for Property & Casualty Insurance: J. Paul Newsome, Sandler O’Neill + Partners, LP. CEO Interviews (average 2,500 words): Top management from 3 sector firms examine the outlook for their firm and sector. Firms interviewed include: American Financial Group, Inc., Employers Holdings, Inc., Greenlight Capital Re, Ltd. Companies include: AIG (AIG); Prudential Financial (PRU); MetLife (MET); Assurant (AIZ); Aflac (AFL); Reinsurance Group of America (RGA); Hartford Financial (HIG); Principal Financial (PFG); Unum (UNM); Genworth (GNW); Lincoln National (LNC); StanCorp (SFG); Allianz (AZ).

In the following brief excerpt from the 36-page report, the roundtable discusses the outlook for the sector and for investors.

TWST: John, as you look back at 2008, what has been the driving force in the life insurance business? Has it really been the financial crisis?

Mr. Nadel: Yes, I think that’s exactly right. The forces have really been twofold in the life insurance sector in my view. They’ve been credit and the poor performance of the equity markets. So every company has had its piece of credit whether it came in the early stages in the form of the subprime residential mortgage-backed securities or if it’s come more recently through the broad decline in valuations across every asset class, from corporates to commercial mortgage-backed securities and the ongoing pressure on residential mortgage-backed securities and other asset-backeds. Every company has had exposure there. And then you’ve got your variable annuity companies, which have had the double-whammy. The impact of credit on their general account investment portfolios and then the impact of the down equity markets both on the earnings off of their variable annuity businesses plus the incremental capital that they need to continue to put up against the variable annuity businesses as the guarantees go further and further in the money.

TWST: Randy, same question, how would you characterize what went on and what drove things for 2008?

Mr. Binner: John certainly laid it out very well. We had identified credit as a huge issue just over a year ago and have worked on it a lot this year by trying to identify who had exposure to what risky assets and, more important, what we thought the losses would be, and as you said, there were definitely stages of it. I’d say that we all understood that it was a levered credit play in a lot of ways with the average leverage of 7 times invested assets to equity. I believe what you saw was that we all handicapped the credit exposures for what the economy supported and then we got past this point maybe a few days after the GSE bailouts in September, when things got a lot worse from a credit and stock market perspective. After that, some of the more levered credit plays became un-investable because the generally higher leverage no longer made the group relatively well insulated, but relatively more exposed. I believe from that point in time we’ve been one of the worst performing verticals in the overall market.

In addition to credit, the deposit-based products and variable annuity guarantees have obviously been the things that pop up when the S&P moves below 900. That is a particular problem for Hartford (HIG) and Lincoln (LNC), but also for MetLife (MET) and Prudential Financial (PRU) to a lesser extent. But, at the end of the day, it all comes back to credit because while the variable annuity exposure may decrease earnings or hit your capital base, you still need that capital base relative to the inevitable credit losses.

Finally, I’d add, the recession exposure of disability insurance products was another area where investors have been cautious and are going to continue to be cautious.

TWST: Where does the disability work into this, Randy?

Mr. Binner: In the last recession, Unum (UNM) most notably, which is the largest disability provider in the US and the UK, saw higher losses coming out of the last recession due to higher claim incidents, but, more objectively, they had more severe or longer claims as they struggled to get people back to work. So, the general idea that incidence of claims will go up in periods where consumer confidence is waning and unemployment is rising is well established. Claims have a tendency to go up due to natural ramifications of a bad economic environment, mental issues, substance abuse, soft tissue problems or possibly fraud. MetLife saw a bit of a crack on that in their benefit ratio last quarter, but we really haven’t seen it from other insurers yet.

TWST: What names are you pointing people to, Randy?

Mr. Binner: Aflac is our top pick. It’s a very solid, protection-focused company. You get a very reliable EPS stream that is not market sensitive, and from a credit perspective they do relatively well. I think I said before that no insurance company is perfect but their more risky exposure is concentrated exposure to bank and financial debt from Europe and Japan. Clearly, there have been issues there but at least you know what names you can monitor and track. Also, 70% of their operations are in Japan, which is giving you a benefit on earnings from the strong yen versus the dollar. And you know, sales are going to be tough for them, but I think that’s priced into the stock. Also, their earnings base is intact and finally, longer term, the idea of selling cancer insurance and supplemental health policies, is a strong secular growth story both in the US and Japan.

Then you move to relative calls like MET and PRU, that we have already covered. Companies like Principal, which is a great franchise and a great company, good management team - they have too much credit exposure relative to their excess capital base in order for me to get comfortable recommending the stock. They may be able to out earn the credit losses, but we continue to caution people on a story like that.

TWST: John, what names are at the top of your list?

Mr. Nadel: I agree on a couple of those with Randy. My top pick is Assurant (AIZ). It’s a specialty insurance company as well. It’s got four or five niche-oriented businesses, and no equity sensitivity in their earnings stream either. They’ve benefited in one of their businesses from the housing crisis. It doesn’t seem like anybody in the insurance business should benefit from a crisis, but their specialty property business has tripled in size in about three years owing to higher mortgage delinquencies and default rates. That’s a company that is well managed. They are really good capital allocators and are extremely cheap on a valuation basis and even on a relative basis to everything. That’s a name that we would highlight as one of our top picks. As Randy indicated when he was talking about Aflac, I don’t agree on the Aflac call, but I would characterize Assurant similar in that it’s a stock that can be long for the long term.

I like MET and PRU a lot. There are not going to be smooth stories here I don’t think, not unless credit improves dramatically, but I do suspect that investors today in those names are going to be well rewarded long term as they come out the other side of however long this lasts. They will come out bigger, stronger with more market share, more opportunity for expense efficiencies and better margins coming out the other side.

The last one that we would highlight is a bit of a specialty company as well and that is Reinsurance Group of America (RGA). It’s a pure play life reinsurance company. It’s not quite as cheap as it was maybe a month or two ago when they raised some equity, but their equity raise was much more about a proactive opportunity to take advantage of some new business opportunities here as a bunch of the primary life insurers are looking for opportunities and ways to relieve capital strain, unlock capital. RGA is one of those companies that by essentially being a partner with the life companies and reinsuring some of their businesses, they can provide that capital relief to the primary companies and also benefit for themselves long term. RGA is a company that we think has significant value, it’s still a buy-rated stock, but it’s performed really well here on a relative basis over the course of the past couple of months. I’d look for an opportunity in the mid-$30s as a great entry point.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 36-page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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