Prudential signs pension agreement with GM

The deal comes at just the right time for the insurance company.

By Trefis Jun 6, 2012 1:59PM
Image: Signing document (© Vincent Hazat / PhotoAlto/Getty Images)Prudential Financial's (PRU) group insurance division received a much-needed boost after the company signed an agreement with automaker General Motors (GM) earlier this week to transfer pension obligations.

Under the agreement, Prudential will assume the responsibility to provide benefits to GM's employees who retired before Dec. 1, 2011. The new deal helps both parties as General Motors can reduce its pension obligations by $26 billion and Prudential gains from GM's planned group annuity contract worth approximately $29 billion.


The GM deal comes at just the right time for Prudential, which saw its group insurance division report a loss of $38 million in the first quarter of 2012. This result prompted the company to make several changes to the structure of the division, including a change in management as well a restructuring of the products and services offered.


With the exception of the last quarter, the group insurance division has been quite profitable for Prudential, and we expect the revenues generated by it to increase through the Trefis forecast period as the company continues to revise its policy along with effective marketing. Group Insurance accounts for 5% of our price estimate of the company's stock.


Prudential Group Insurance Revenue

We will keep a close eye on Prudential as it continues to expand globally. The company is one of bidders for ING Asia's Life Insurance operations, along with competitors MetLife (MET) and Manulife (MFC). This deal would help Prudential establish a foothold in Southeast Asia and allow it to grow its operations in the rapidly growing insurance market in the region.


We have a price estimate of $55.24 on Prudential's stock, about 25% above the current market price.


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