eric berg ii poll 2015

Depth of Experience

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RBC CAPITAL MARKETS

life insurance research

a review of the work of

for the 2015

institutional investor magazine poll

ERIC N. BERGU.s. life insurance analyst for rbc

The Team

Bulent Ozcan – E-Brokers and Regional and Independent Investment BanksKenneth S. Lee – Life Insurers and Asset Managers

Our Signature

The only team on wall

street covering both asset

managers and life insurERS

IN AN INTEGRATED WAY.

IN-DEPTH RESEARCH

TOP INDUSTRY CONTACTS

DISTINCTIVE SPECIAL EVENTS

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RBC Capital Markets, LLC

Eric N. Berg, CPA (Analyst)

(212) 618-7593

[email protected]

Bulent Ozcan, CFA

(Associate Analyst)

(212) 863-4818

[email protected]

Kenneth S. Lee (Associate)

(212) 905-5995

[email protected]

Outperform

NYSE: EV; USD 41.37

Price Target USD 50.00

WHAT'S INSIDE

Rating/Risk Change

Price Target Change

In-Depth Report

Est. Change

Preview

News Analysis

Scenario Analysis*

Downside

Scenario

35.00

13%

Current

Price

41.37

Price

Target

50.00

23%

Upside

Scenario

61.00

50%

*Implied Total Returns

Key Statistics

Shares O/S (MM):

119.4

Dividend:

0.88

Market Cap (MM):

4,940

Yield:

2.1%

Avg. Daily Volume:1,139,773

RBC Estimates

FY Oct

2013A2014A

2015E2016E

EPS, Adj Diluted

2.062.48

2.743.04

P/AEPS

20.1x16.7x

15.1x13.6x

Net Flows

24.7

2.8

8.513.7

AUM

280.7297.7

326.8363.6

EPS, Adj Diluted

Q1

Q2

Q3

Q4

2014

0.58A0.59A

0.63A0.68A

2015

0.64E0.68E

0.68E0.74E

Net Flows

2014

(1.1)A(0.9)A

(2.0)A6.8A

2015

1.1E1.9E

2.5E3.0E

All values in USD unless otherwise noted.

December 2, 2014

Eaton Vance Corp.

Can Eaton Vance CEO Tom Faust do math? We

think so.

Our view: Our study supports the assertion being made that EV's ETMF

chassis has the potential to transform the mutual fund industry by cutting

costs – as much as 52% off of equity funds and 76% off bond funds. We

affirm our Outperform rating on EV.

Key points:

A new study by RBC Capital Markets Asset Management Research

has produced favorable results regarding Eaton Vance – and is leading

us to affirm our Outperform rating on EV. Our study’s encouraging

conclusion: The new mutual-fund format for which Eaton Vance has

received preliminary SEC approval – essentially, to offer a traditional,

actively managed mutual fund in an ETF wrapper – could shave as much as

52 % off of the expenses of the typical equity mutual fund and as much as

76 % off of the expenses of the typical fixed-income fund. In short, the new

RBC study supports the assertion being made by Eaton Vance that the new

“exchange traded managed fund,” or ETMF, format that EV has developed

has the potential to transform the mutual fund industry by cutting deeply

into what individuals and institutions pay for mutual funds.

The great appeal of ETMF’s, as we understand the new product from

Eaton Vance, is that they would eliminate many if n

ot all of the frictional

costs now found routinely in traditional funds. These frictional costs

include 12b-1 distribution fees, tra

nsfer-agent fees, custodian fees, cash

drag, and hidden but nonetheless very real other costs such as brokerage

trading commissions and other trading costs. Investors have debated just

how sizeable and significant these fees are, both individually and in total,

so it made sense to us to study the data to find out for certain.

Our conclusion: Mr. Faust’s 75 basis point assertion is higher th

an our

estimates – 44 basis points in savings for equity funds and 43 basis

points for fixed-income funds. Further, our numbers may be too high if

our assumption about the percentage of brokerage commissions that go

toward meeting net redemptions in a fund is too high at 20%. However, we

acknowledge that Mr. Faust lik

ely has access to more granular data that

could account for the variance between his estimate and ours.

Our larger point, however, shouldn’t be missed: Whatever the right

number is that NextShares could bring to investors in the form of savings

on their mutual funds, those savings stand to be substantial – and have

the potential, if eliminated through ETMF’s, to raise fund shareholders’

returns significantly. Priced as of prior trading day's market close, EST (unless otherwise noted).

For Required Conflicts Disclosures, see Page 15.

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(212) [email protected] Kenneth S. Lee (Associate)

(212) [email protected]

April 9, 2015Life & Health Insurance

Life insurers' and asset managers' Washington woes

Investment conclusion

Our key takeaway after a series of meetings in Washington D.C.: The issues that they’d love to see go

away – the so-called “fiduciary” issue in the case of life insurers and the SIFI issue in the case of asset

managers – are anything but off the table.

Life insurers would be thrilled if the phrase “fiduciary issue” never emerged from investors’ lips again.

And understandably so. The proposal, made by President Obama earlier this year and seconded by

SEC chairwoman Mary Jo White, would turn 401K distributors for Principal Financial Group and Lincoln

National and the financial advisers at Ameriprise who do IRA-rollover work into fiduciaries as opposed

to simply consultants. As a result, these salespeople would be held to a much higher standard than they

are at present. They’d have to do what’s best for the customer rather than what’s simply suitable. And

that, Principal, Lincoln, and Ameriprise correctly understand, could greatly slow the pace of sales for

what are flagship products for these companies. The fiduciary issue would not apply to life insurance

agents selling individual life insurance products.

The same thing could be said of the asset managers, only the twist in their case is they wish the SIFI

issue would go away. In their view, it’s folly to think that any asset manager or mutual fund managed

by an asset manager is a systemically important financial institution that could drag down the entire

U.S. financial system since even $4-trillion-in-assets BlackRock manages other people’s money rather

than its own.Our key takeaway after spending a full day in Washington with various trade groups: Life insurers and

asset managers are going to have to sweat it out for the immediate future. While it’s still early days

and it’s quite possible that when all is said and done both ideas will end up being scuttled, we came

away from our Washington trip thinking that both the fiduciary standard for distributors of certain life

insurers’ products and SIFI designations for certain asset managers enjoy positive momentum.

Priced as of prior trading day's market close, EST (unless otherwise noted).



We were ahead of the Fiduciary topic from the Department of Labor, doing our annual Washington D.C. field trip to comment on the Fiduciary issue the week before it came out. Separately, with a number of life insurers – Ameriprise, Principal, and others – in the business of actively managing mutual funds, we’ve led the pack in terms of analysis of efforts to convert garden-variety mutual funds into low-cost

ETF’s.

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ARCH

RBC Capital Markets appreciates your consideration in the 2015 Institutional Investor All-America Research Team survey.



(212) 618-7593

[email protected]


(212) 905-5995

[email protected]

April 29, 2015

Life & Health Insurance

Pension risk transfer: Despite lower rates, still a huge opportunity

Investment conclusion

The latest study by RBC Capital Markets Life Insurance Research into pension risk transfer – the

burgeoning business of major corporations’ offloading their pension obligations to giant life insurers

such as Met and Pru – has reached a surprising and upbeat conclusion. It is that notwithstanding last

year’s sharp drop in interest rates and the introduction of a new pension mortality table – developments

that have both made it harder for pension sponsors to offload their obligations to life companies –

the market itself remains large and promising. Last year saw Motorola, Bristol Myers Squibb, and UK

companies Legal & General and British Telecom transfer part or all of their pension obligations to

Prudential. In the note we’re publishing today, we’re estimating that 211 other plan sponsors with

combined pension obligations approaching $900 billion could transfer their pensions to a life insurer for

less than a half years’ worth of the sponsors’ cash from operations. Moreover, even when we focus on

the far smaller group of what we call “ideal” pension-risk-transfer candidates – plan sponsors that have

above-average pension obligations relative to the sponsors’ market capitalizations and below-average

costs to defease their pensions – we find that the number of such ideal pension-transfer candidates

hasn’t really declined much since year end 2013, the drop in interest rates and the introduction of the

new mortality table notwithstanding. There are still 29 ideal candidates versus 31 a year ago. And the

combined pension obligations of these ideal candidates, while down, is still significant at $160 billion.

Met and Pru, both leaders in pension-risk-transfer, should be the biggest beneficiaries. And the fact

that the market for such deals hasn’t fallen apart in the face of two major headwinds is causing

us to be incrementally more positive today on Met and Pru. While we’re not changing our Sector

Perform ratings on Met and Pru because we have other concerns about these companies – Met’s top-

line growth, in our judgement, has been anemic, and the sharp drop in interest rates over the last year

has raised questions about the sustainability of Pru’s share buyback – we do consider it a positive that

the opportunity for these life insurers to assume corporate pension obligations in exchange for a large

up-front check remains very substantial.




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Bulent Ozcan, CFA(Associate Analyst)


January 8, 2015Asset Management & Custody Banks

Outlook: What 2014's performance woes mean for

US asset managers in 2015

Investment Conclusion

Looking to 2015, we believe the asset management business could face

many of the same challenges it faced in 2014. We believe as the extent of

manager underperformance for full-year 2014 becomes clear, the move

to passively managed assets may continue and perhaps be hastened, by

other trends in the business that we expect to continue in 2015. These

include the growing number of fixed-income ETFs; the increasing use of

ETFs for asset allocation, a key determinant of investment performance;

and the concept of 'rep as portfolio manager'—financial advisors who

more and more see themselves as investment-manager pickers rather

than as stock pickers.The U.S. asset management industry continues to face material

headwinds. A new study we’re releasing today concludes that price

cutting in the asset management industry has become widespread, with

nearly 75 percent of equity managers cutting their advisory fees by an

average of 8.6%. Making matters worse, it’s far from clear whether this

price cutting will have any effect on retaining assets. That’s because

the 6 basis points or so by which equity managers are dropping their

average 72 basis point advisory fee does not compensate for the average

underperformance of equity managers. Specifically, our study shows

that in recent years that underperformance has been averaging about

165 basis points a year among large-cap managers.

Against this backdrop, in the large-cap area, we continue to like Invesco

(IVZ), Eaton Vance (EV), and BlackRock (BLK), with BlackRock being more

of a longer-term call because of its relatively modest upside to our

one-year price target of $382. These traditional asset managers are not

attempting to buck the trends in the business but rather are seeking

to evolve in order to continue to grow and prosper in what is clearly a

pressured environment. We also like Waddell & Reed (WDR)—although

for very different reasons—Waddell is staying the course as a traditional

fund manager picking one stock and one bond at a time.

In the alternatives area, meanwhile, we view Blackstone Group’s (BX)

business model as the most attractive one. While we were bullish on the

sector in 2014, we are taking a more cautious stance on the group for

2015. As the sector has fallen out of favor in the past year, we believe that

investors should focus on names that provide downside protection while

offering the chance to participate on the upside. Blackstone’s diversified

business model stands out among its peers.




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(212) 618-7593

[email protected]


(212) 905-5995

[email protected]

Bulent Ozcan, CFA

(Associate Analyst)

(212) 863-4818

[email protected]

Outperform

NYSE: PRU; USD 86.50

Price Target USD 102.00 ↑ 99.00

WHAT'S INSIDE

Rating/Risk Change Price Target Change

In-Depth Report

Est. Change

Preview

News Analysis

Scenario Analysis*

Downside

Scenario

70.00

17%

Current

Price

86.50

PriceTarget

102.00

20%

Upside

Scenario

122.00

43%

*Implied Total Returns

Key Statistics

Shares O/S (MM):471.2

Dividend:

1.60

Market Cap (MM):40,759

Yield:

1.8%

RBC Estimates

FY Dec

2012A2013A

2014E2015E

BVPS Diluted57.86

53.9861.48

69.44

Prev.

61.0769.02

P/BVPS

1.50x1.60x

1.41x1.25x

EPS, Ops Diluted6.27

9.729.64

10.04

Prev.

9.24

P/E

13.8x8.9x

9.0x8.6x

BVPS Diluted

Q1Q2

Q3Q4

2013

55.94A 54.18A 55.77A 53.98A

2014

55.67E 57.52E 59.46E 61.48E

Prev.

57.44E 59.23E 61.07E

EPS, Ops Diluted

2013

2.28A2.30A

2.94A2.20A

2014

2.24E2.39E

2.47E2.54E

Prev.

2.31E2.32E

2.37E


April 4, 2014

Prudential Financial, Inc.

The pension transfer market: Now $1 trillion

Our view: Our refreshed analysis of the pension closeout market leads us

to believe the total "addressable market" has increased significantly over

the past year to $1 trillion of pension obligations. We are boosting our

2014 EPS estimates to reflect the increased opportunity and affirming our

Outperform rating.

Key points:

We are affirming our OUTPERFORM rating on Prudential. Our call: A

refreshed and updated analysis we’ve done of a market Pru is pursuing

-- pension closeouts in which life insurers assume pension obligations

of industrial companies – has reached an encouraging conclusion. It is

that the increase in interest rates over the last year paired with the big

rise in the stock market have created an even larger market for pension

closeouts than the market that existed when we first studied the pension-

closeout issue a year ago. We now estimate that there are 65 Russell 1000

companies with nearly $700 billion in pension obligations, up from 41

companies a year ago and $400 billion in pension obligations, that would

be likely candidates to have their pensions taken over by a company such

as Pru. That’s because the ratio of these companies’ pension obligations

to their market caps is above the average for their peers AND because

these companies could transfer their pensions to a Pru for less than a

year’s worth of cash flow. Further, focusing just on industrial companies

whose pension obligations may not be unusually large relative to their

market caps but that could move those obligations off their balance sheets

and onto the books of a Pru for a cost equal to less than half a year

of that company’s cash from operations, the “addressable market” for

pension transfers for Pru and insurers pursuing this market swells from

184 companies a year ago to 231 today. The amount of pension obligations

that could be taken over, meanwhile, swells to $1 trillion from $777 billion.

Our bottom line: The rise in interest rates and in the stock market

have made the pension-closeout market Prudential is pursuing bigger

than ever. Further, we believe Prudential’s market opportunity could be

larger than we had previously thought, due to an increased number of

companies that could transfer their pension liabilities at a reasonable cost

and thus lock in the significant gains in their plan assets over the past year.

Consequently, we are boosting our 2014E EPS by $0.40/sh, from $9.24

to $9.64, to reflect the increase in market opportunity. Our price target

is being adjusted from $99 to $102 due to the increased earnings we now

see.



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RBC Capital Markets, LLCEric N. Berg, CPA (Analyst)(212) [email protected] S. Lee (Associate)


Bulent Ozcan, CFA(Associate Analyst)(212) [email protected]

Sector Perform (prev: Outperform)NYSE: PRU; USD 79.19Price Target USD 88.00 ↓ 101.00

WHAT'S INSIDE Rating/Risk Change

Price Target Change

In-Depth Report Est. Change

Preview

News AnalysisScenario Analysis*

DownsideScenario

56.0027%

CurrentPrice

79.19

PriceTarget

88.0013%

UpsideScenario

108.0038%

*Implied Total ReturnsKey StatisticsShares O/S (MM):467.2

Dividend:1.60

Market Cap (MM): 36,998Yield:

2.0%Avg. Daily Volume: 3,261,340

RBC EstimatesFY Dec2012A 2013A 2014A 2015E

BVPS Diluted57.86 53.98 54.39 61.86

P/BVPS1.37x 1.47x 1.46x 1.28x

EPS, Ops Diluted 6.27 9.72 9.21 9.45

P/E12.6x 8.1x 8.6x 8.4x

BVPS DilutedQ1

Q2Q3

Q4

201456.02A 57.61A 58.00A 54.39A

201556.12E 57.98E 59.90E 61.86E

EPS, Ops Diluted20142.40A 2.49A 2.20A 2.12A

20152.24E 2.35E 2.40E 2.45E


February 12, 2015Prudential Financial, Inc.What can happen when a two-month-old interest

rate assumption isn't refreshedOur view: We are downgrading Prudential Financial to Sector Perform

from Outperform. Driving the downgrade: our thinking that demand for

Prudential’s shares will be muted in coming months in the wake of the

company’s surprising announcement last week regarding excess capital.

Key points:In essence, Pru said it ended 2014 with $2 billion in excess capital, well

below the $3.5 billion in year-end excess capital Pru had forecast Dec. 11.

How in the span of only 13 business days between Dec. 11 and Dec. 31 Pru

managed to finish the year with $1.5 billion less in excess capital than it

had forecast is, in some respects, still a mystery to us. One thing, however,

seems likely: Pru’s shares will perform in line with the life group until it

becomes clear that the sharp drop in excess capital that Pru reported

relative to its forecast won’t undermine Pru’s share repurchase program.

Also driving our downgrade: the further drop in interest rates this year.

Pru has acknowledged that the drop has cut excess capital even further.

Our thinking: this will only add to investors’ concerns about Pru’s ability

to execute its capital plans.Excess capital has always been important at Pru. Among life insurance

companies, Pru was one of the biggest buyers of its stock before the

financial crisis, routinely spending $750 million on buybacks a quarter.

Since then, Pru has pared back considerably, but it still has been spending

in the neighborhood of $250 million a quarter on repurchase. These

buybacks have enabled Prudential to boast one of the highest ROEs in life

insurance, 15.2% at year-end 2014, and to command a premium price-to-

book multiple: 1.5x compared with the 1.2x peer average. The buybacks

have become even more important, in our opinion, in the last couple of

years given the slowdown in growth in Pru’s Japan operation, responsible

for 40% of earnings.We are revising our price target from $101 to $88, reflecting a more

conservative ROE assumption of close to 13.5%, within the range

of a normalized 13-14% ROE across business cycles articulated by

management, in our P/BV regression valuation methodology.



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RBC Capital Markets appreciates your consideration in the 2015 Institutional Investor All-America Research Team survey.



(212) 618-7593

[email protected] S. Lee (Associate)

(212) 905-5995

[email protected]

April 20, 2015Life & Health Insurance

Hybrid long-term-care and life products: Less risky

business?Investment Conclusion

Stung by one problem after another in the sale of stand-alone, individual

long-term-care policies, major U.S. life insurers are now trying another

tack in what would appear to be another attempt to get it right: the sale

of so-called hybrid products that blend life insurance or annuity coverage

with long-term-care protection.

Known also by the term “linked-benefit products” or “combo products,”

these hybrid contracts start with either a life insurance policy or an

annuity and then give the customer tacked on long-term-care coverage in

exchange for an additional rider fee. Among those selling hybrids: Lincoln,

which has been a veteran player in the hybrid arena with its decades-

old Money Guard product; Genworth; Pacific Life, Nationwide Life; and

Met and Pru.Indeed, the topic of hybrid products in life insurance is an important one

in our view because it gives a more nuanced perspective than perhaps

the companies have been providing on the state of their long-term-care

involvement. In particular, while it’s certainly the case that Met, Pru,

Ameriprise, Unum, and a number of other publicly traded life companies

exited the long-term-care business years ago, it’s important to note

that these companies exited the stand-alone LTC business. Many of

them not only remain in the hybrid life-and-long-term-care or annuity-

and-long-term-care business, they are promoting these combo products

aggressively.So it’s important that investors understand both the risks and the

opportunities associated with hybrid products, a topic that was the

subject of significant discussion at last week’s annual life insurance

conference sponsored by the American Council of Life Insurers, the Society

of Actuaries, and the Life Office Marketing Association. We attended the

conference, which was held outside of Washington D.C., and the panel

discussion on hybrids. What follows is our key takeaways.




TEXT

We’ve been thought leaders in the area of pension risk transfer – the burgeoning business of big companies such as Motorola, Verizon, General Motors, and Bristol-Meyers writing multibillion-dollar checks to get the Pru’s and the Met’s of the world to assume the companies’ pension obligations. Separately, we’ve written extensively about the ongoing

problems in long-term-care insurance

1

Investor Discussions

October 8, 2014

Current Topics in Disability Insurance

Daniel D. Skwire, FSA

[email protected]

For Authorized LTCG Use Only

For Authorized LTCG Use Only

Long Term Care In-force Management

Vincent L. Bodnar, Chief Actuary

Matthew H. Morton, Senior Consulting Actuary

January 23, 2015

Long-term Care

A product in transition

January 2015

TEXT

Built up over nearly two decades, our Rolodex of industry contacts is expansive: From consultants to rating-agency executives to

regulators to actuaries and academics.

Please contact your RBC sales representative to express any indicatio

ns of interest.

Bulent Ozcan, CFA

[email protected]

212.863.4818

Kenneth Lee

[email protected]

212.905.5995

Life Insurance / Asset Management

Equity Research

Eric Berg, CPA, CFA

[email protected]

212.618.7593

RBC Capital Markets Life Insurance / Asset Managers Research

Calendar of Events

January 5-6, 2015 (Chicago)

Society of Actuaries Lunch Meeting

Speakers: Society of Actuaries experts

January 21, 2015 (conference call)

Intellectual Property Rights Discussion with the Eaton Vance (EV) ETMFs

Speakers: Sidley & Austin LLP

January 23, 2015 (New York)

State of the Long-Term-Care Business Lunch Meeting

Speakers: Larry Rubin, Partner, Head of LTC Consulting; Peggy Hauser, Director, LTC Consulting; Vince Bodnar,

Chief Actuary, LTCG; Matthew Morton, Sr., Consultant, LTCG

March 2-3, 2015 (Florida)

State of the Variable Annuity Market

Speakers: Steven McDonnell, Soleares Research

March 2, 2015 (Florida)

AIFA Panel: “The Future of Retirement”

Speakers: Eric Berg, RBC Capital Markets (moderator);

March 2-3, 2015 (Florida)

State of the Variable Annuity Market

Speakers: Steven McDonnell, Soleares Research

April 2, 2015 (Boston)

Please contact your RBC sales representative to express any indications of interest.

Bulent Ozcan, CFA

[email protected]

212.863.4818

Kenneth Lee

[email protected] 212.905.5995

Long-term Care Experts in Boston

Speakers: Larry Rubin, Partner, Head of LTC Consulting, PwC; Vince Bodnar, Chief Actuary, LTCG

April 9, 2015 (tentative) (Washington DC)

Annual RBC Washington DC Field Trip

Speakers: TBD

May 18-19, 2015 (Minneapolis / Chicago)

Apollo Global Management (APO) Management Meetings

Speakers: TBD May 20-21, 2015 (Boston)

Principal Financial (PFG) Management Meetings

Speakers: TBD June 8, 2015 (NYC)

Lincoln Financial (LNC) Management Meetings

Speakers: TBD June 16-17, 2015 (Canada)

MetLife (MET) Management Meetings

Speakers: TBD June 19, 2015 (Atlanta)

Voya Financial (VOYA) Management Meetings

Speakers: TBD May 2015 (Chicago)

Top Life Insurance Salespeople Weigh in on the Front Lines

Speakers: TBD

TEXT

From conference calls with patent attorneys to 1:1’s with a leading disability consultant to a luncheon with three top long-term-care experts, our Calendar of Events has been jammed with interesting and informative sessions for

investors.

THANK YOU

ERIC N. BERGINSTITUIONAL investor magazine 2015

all-star analyst poll

The Team

Bulent Ozcan – E-Brokers and Regional and Independent Investment BanksKenneth S. Lee – Life Insurers and Asset Managers

eric berg ii poll 2015

Documents