Prudential on the Prowl for Bargains

Prudential Financial advertises that you should "own a piece of the rock." But it's more likely that the nation's second-largest life insurer could own a piece of you - or at least, your insurer.

M&A talk is cheap. But the Pru's normally conservative management is sounding a lot more bullish. The insurer came through the recession with flying colors, reporting earnings of $3.4 billion in 2009, compared to a loss in 2008. On its earnings call on Feb. 10, executives were happy enough not to be as evasive as usual.

"This is an interesting time in terms of supply and demand," said CEO John Strangfeld, who noted that there are "a limited number of people who could compete with us." The Newark, New Jersey-based insurer has a low debt to capital ratio of 21.6 percent, according to UBS analyst Andrew Kligerman, who said on the conference call that "this gives you a lot of upside."

While Prudential emphasized that the insurer was "not M&A dependent," company executives said that buying companies - or pieces of companies - during a recession, when things are cheap, was an "opportunistic overlay" for their business.

Asked if the insurer might want something in the variable annuity business, where Prudential has succeeded by being conservative while others have lost ground by offering expensive guarantees, the Pru's management said a "pure play" in this area was unlikely. Instead, its priority is selling traditional insurance to overseas markets.

But Strangfeld threw in a caveat. Any potential acquisition would have to be in a position to grow as fast as the company's internal operations. And right now, the bar is high.