Gauging Prudential Financial’s Valuation


Apr. 7 2015, Updated 11:05 p.m. ET

Valuing insurers

Being balance sheet–driven businesses, insurers are generally valued on the basis of their book values. For more information on how to value insurance companies, please read An investor’s guide to the insurance business.

A closer look at Prudential’s (PRU) price-to-book value multiple shows that over the last four years, Prudential’s price ranged mostly between 0.5x its book value per share and 1.0x its book value per share. Its current price-to-book value multiple was around 0.9x.

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Peer comparison

Among its peers, Prudential Financial remains in the middle of the valuation range, with companies like MetLife (MET) and Lincoln Financial (LNC) showing a lower multiple. Manulife (MFC) and Principal Financial (PFG) are on the more expensive side. Over the last five years, Prudential’s shares have traded at a discount to its peer group.

Prudential’s valuation has been impacted by headwinds faced by insurers in the US, including lower interest rates and regulatory uncertainties. However, as we have seen in this series, Prudential is taking pricing actions in various products that are impacted by such factors, as well as diversifying the product mix, thereby reducing its risks.

Prudential has been designated a Global Systemically Important Insurer, which places it under stricter regulatory oversight. In the following article, we’ll explore how this designation impacts Prudential.

Investors interested in gaining exposure to the insurance sector can invest through ETFs such as the iShares US Financials ETF (IYF) or the Financial Select Sector SPDR ETF (XLF).


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