Prudential Financial Inc. is optimistic about its ability to generate strong cash flow and return on equity heading into next year.
The company is well-positioned going into the new year because of its differentiated business mix, Chairman and CEO John Strangfeld said during a 2018 financial outlook conference call.
Based on the potential outcome of the tax reform debate, CFO Robert Falzon said capital levels might be affected, but the executive did not expect any impact on capital deployment or the company's ability to meet its targets. He said the company would be in a better capital position after a bill is signed into law.
Although Prudential lowered its 2017 ROE expectations due to the multiyear impact of low interest rates, Strangfeld said the company has surpassed its 12% to 13% expectation for the trailing 12 months ended Sept. 30, reflecting favorable underwriting, market and investment performances, as compared to average expectations. Prudential's 2018 ROE outlook remains in the range of 12% to 13%.
The company expects negative impact from continued low interest rates of 25 cents to 35 cents per share in 2018, but Falzon said that will be modestly offset by the company's assumed 3% appreciation in equity markets.
The insurer set 2018 EPS guidance in the range of $11.20 to $11.70, based on a number of key assumptions, including an effective U.S. corporate tax rate of about 26% and a 10-year Treasury yield of 2.40% at the end of that year. The tax rate does not reflect the potential impact from tax reform.
The company's board has authorized $1.5 billion in share repurchases in 2018.