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F500-2023-067.

The financial services company, which offers a broad array of services for retail and business clients including insurance, dropped 16 places on this year’s list as the company endured substantial losses in profit in 2022. 
<ul> 
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G500-2021-178-PRUDENTIAL FINANCIAL

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;The insurance giant felt the squeeze of the pandemic in 2020; Prudential’s revenues fell 12%, while it posted a net loss of $374 million (compared with profits of nearly $4.2 billion in 2019). But chairman and CEO Charles Lowrey has talked up plans to invest up to $10 billion into “higher-growth, less market-sensitive” businesses, as well as a cost-cutting target of $750 million by the end of 2023. One bright spot remains PGIM, the insurer’s massive investment management arm, which saw its assets under management (AUM) swell 13% to nearly $1.5 trillion at the end of 2020.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">The insurance giant felt the squeeze of the pandemic in 2020; Prudential’s revenues fell 12%, while it posted a net loss of $374 million (compared with profits of nearly $4.2 billion in 2019). But chairman and CEO Charles Lowrey has talked up plans to invest up to $10 billion into “higher-growth, less market-sensitive” businesses, as well as a cost-cutting target of $750 million by the end of 2023. One bright spot remains PGIM, the insurer’s massive investment management arm, which saw its assets under management (AUM) swell 13% to nearly $1.5 trillion at the end of 2020.

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F500-2021-55-Prudential Financial

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F500-2020-053-Prudential

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Prudential Financial, a global financial services company founded in 1875, offers life insurance, annuities, retirement solutions, mutual funds, and investment management services to individuals, businesses, and institutions.

Q2 2026

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Q2 2025

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Q4 2024

Prudential Financial (PRU): Company Profile, Stock Price, News, Rankings

legacy

Prudential Financial

prudential financial

Ladies and gentlemen, thank you for standing by, and welcome to Prudential's Quarterly Earnings Conference Call. At this time, all participants have been placed in a listen only mode. Later, we'll conduct a question and answer session. Instructions will be given at that time.

As a reminder, today's call is being recorded. I will now turn the call over to Mr. Bob McLaughlin. Please go ahead.

Good morning, and thank you for joining our call. Representing Prudential on today's call are Charlie Lowrey, Chairman and CEO Rob Falzon, Vice Chairman Andy Sullivan, Head of International Businesses and PGIM, our Global Investment Manager Caroline Feeney, Head of U. S. Business Janella Frias, Chief Financial Officer and Rob Axel, Controller and Principal Accounting Officer. We will start with prepared comments by Charlie, Rob and Janela, and then we will take your questions.

Today's discussion may include forward looking statements. It is possible that actual results may differ materially from the predictions we make today. In addition, our presentation includes references to non GAAP measures. For a reconciliation of such measures to the comparable GAAP measures and a discussion of factors that could cause actual results to differ materially from those in the forward looking statements, please see the slides titled Forward Looking Statements and Non GAAP Measures in the appendix to today's presentation and the quarterly financial supplement, both of which can be found on our website at investor.prudential.com. And now, I'll turn it over to Charlie.

Thank you, Bob, and thanks to all of you for joining us today. First, I'd like to comment on the leadership changes we announced in the fourth quarter. The Board appointed Andy Sullivan as Prudential's next CEO, effective March 31. He is an exceptional leader and the Board and I have every confidence he is the right person to take Prudential into the future. Also at the March, Carolyn Feeney will take on an expanded role overseeing our global retirement and insurance businesses.

Both Andy and Caroline have been highly engaged in setting and executing our strategy, so we expect a smooth transition. And Jacques Chapuis will be joining as CEO of PGIM, our global asset management business. Both Caroline and Jacques will report directly to Andy. This is an exciting and significant time for Prudential and the right time to elevate the next generation of leadership as we mark our one hundred and fiftieth anniversary. Finally, I'd also note that just last week, we were recognized as the number one company among our life and health insurance peers for 2024 on Fortune's list of the world's most admired companies.

Now let's turn to our results. In 2024, we made significant progress on our path to becoming a higher growth, more capital efficient company. We maintained our disciplined approach to capital deployment, while also continuing to invest in our businesses and returned excess capital to shareholders. Our strategic progress and performance are backed by our financial strength. Turning to Slide three.

Our results for the full year reflect continued momentum as we further diversified our product suite and expanded our distribution capabilities to address the investment, insurance and retirement needs of our customers and clients around the world. Earnings for the fourth quarter were lower than we anticipated, but do not reflect the earnings power of our businesses. This was largely due to adverse underwriting experience, primarily driven by an elevated level of large individual life claims. Large claim activity will vary on a quarterly basis, but our fundamentals remain strong and the actions we are taking across our businesses create a solid foundation for future growth. We reported strong full year sales across our Retirement and Insurance businesses as well as strong investment performance and significant positive net flows in PGIM.

PGIM reported robust affiliated and third party flows for the full year 2024, benefiting from our broad capabilities across fixed income, equities and our diversified private alternatives platform and fueled by the growing global retirement opportunity and the growth of our retirement and insurance businesses. Our Retirement Strategies business continues to address the growing needs of the market as a leader in pension risk transfer and individual annuities. On the institutional side, our pension risk transfer business had the highest annual level of sales for any single carrier since 2012. On the individual side, we had our ninth consecutive quarter of sales growth. We also continued to diversify our products and expand our distribution networks in Group Insurance and Individual Life, which resulted in continued sales momentum.

And in our international businesses, we continued to diversify our product portfolio in Japan, including Retirement solutions, and we expanded our distribution channels in Brazil. In addition to the momentum we are seeing across our businesses, during 2024, we successfully executed on a number of transactions that enhanced our capital flexibility, improved the quality of our earnings and shifted our business mix. We completed two guaranteed universal life reinsurance transactions, which reduce our cumulative exposure to this product by 60%. And just last month, we announced our second Prismic transaction to reinsure a $7,000,000,000 block of Japanese whole life policies, adding further scale to the Prismic platform. Turning to Slide four.

Our continued investments in our businesses are supported by our disciplined approach to capital deployment, which included returning nearly $3,000,000,000 to shareholders in 2024. In addition, the Board has authorized share repurchases of up to 1,000,000,000 in 2025 and increased the common stock dividend for the seventeenth consecutive year. Turning to Slide five. Our strategic progress is supported by our robust risk and capital framework. We maintained a AA rating, which reflects a healthy capital position, including holding more than $4,000,000,000 in highly liquid assets.

We also maintained a well diversified high quality investment portfolio and a disciplined approach to asset liability management. We're operating from a position of strength and have entered 2025 with continued confidence in our strategy, our capabilities and our path to deliver long term sustainable value for all our stakeholders. Before I turn the call over to Rob, I want to acknowledge the extraordinary partnership we have shared over these past six years. Rob is retiring from Prudential in July, culminating a remarkable forty two year career with the firm in which he has made innumerable and material contributions to our continued success and future growth. And with that, I'll turn it over to Rob.

Thank you, Charlie. It's been a privilege. I'll provide an overview of our financial results and business performance for our PGIM, U. S. And international businesses.

I'll begin on Slide six with our financial results. Our pre tax adjusted operating income was $1,400,000,000 or $2.96 per share for the fourth quarter of twenty twenty four and $5,900,000,000 or $12.62 per share for the full year, up 6% from 2023. This reflects the execution of our strategy to grow our market leading businesses and was driven by higher fee and spread income due to continued strong sales and flows, as well as the benefit of higher interest rates in equity markets, net of increased expenses to support the growth of our businesses. Our GAAP net loss for the quarter was $57,000,000 This was primarily due to interest rate driven realized losses on the investment portfolio that will be transferred to Prismic in connection with our recently announced reinsurance transaction, as well as some modest repositioning of our investment portfolio in the quarter. 2024 adjusted operating return on equity of 13.1% improved to 70 basis points from 2023.

This reflects the strength of our businesses and the benefits from the deliberate actions we have taken to pivot to more capital efficient and higher growth products. Turning to the quarterly operating results from our businesses compared to the year ago quarter. PGIM, our Global Investment Manager, had higher asset management fees driven by strong net flows, market appreciation, favorable investment performance and increasing contributions from the Deerpath Capital acquisition and higher other related revenues driven by higher incentive fees. This was partially offset by higher expenses to support business growth. Results of our U.

S. Businesses reflected higher expenses related to the one time transaction impacts associated with the closing of both the guaranteed Universal Life Reinsurance transaction and the consolidation of our captive financing arrangements, less favorable underwriting results driven by mortality experience and true ups and lower net fee income. This was partially offset by higher net investment spread income, primarily driven by business growth. Our international businesses had less favorable underwriting results, primarily reflecting elevated U. S.

Dollar product surrenders with continued weakness in the yen and higher expenses to support business growth. These were partially offset by increased spread income due to higher yields from favorable market performance and reinvestment of the portfolio. Turning to Slide seven. PGIM, our global investment manager, has diversified capabilities in both public and private asset classes across fixed income, equities and alternatives. PGIM's investment performance remains strong with 7885% of assets under management outperforming their benchmarks over the last five and ten year periods respectively.

PGIM's assets under management increased by 6% to $1,400,000,000,000 from year end 2023, driven by market appreciation, net flows and strong investment performance. Total net flows in the quarter of $8,600,000,000 included affiliated net flows of $8,900,000,000 driven by a large annuities mandate, partially offset by $300,000,000 of third party net outflows. Total net flows for full year 2024 were $38,000,000,000 including $24,000,000,000 in affiliated flows and $14,000,000,000 from third party clients. These inflows reflect the competitive positioning of both PGIM and our retirement business in the wake of large, albeit episodic, institutional pension plan activity. As the investment engine of Prudential, PGIM's capabilities support the success and growth of our U.

S. And international businesses in retirement, asset management and insurance. PGIM's asset origination capabilities, investment management expertise and access to institutional and other sources of private capital, including through our sponsored reinsurer Prismic, our competitive advantage, helping our businesses bring enhanced solutions and create more value for our customers. Our retirement and insurance businesses, in turn, provide a source of growth for PGIM through affiliated net flows as well as unique access to insurance liabilities. In In addition, our diversified PGIM private alternatives platform, which has assets under management of nearly $250,000,000,000 experienced 37% growth in private credit origination activity in 2024 compared to the prior year.

This was driven by our direct lending businesses, including our acquisition of DeerPath Capital and the organic build out of our private asset backed financing business. Turning to Slide eight. Our U. S. Businesses produce diversified sources of earnings from fees, net investment spread and underwriting income and benefit from complementary mix of longevity and mortality businesses.

We continue to focus on growing our market leading businesses by expanding our addressable market with new financial solutions delivered through a broader distribution footprint, leveraging capabilities across Prudential and enhancing those capabilities to improve the experience of our customers and distribution partners while driving operating efficiencies. Retirement strategies generated strong sales of $50,000,000,000 in 2024 across its institutional and individual lines of business. Institutional retirement sales of $10,000,000,000 in the fourth quarter contributed to $36,000,000,000 of sales for the year, up 27% from the prior year. U. S.

Funded pension risk transfer transactions for the year were over $16,000,000,000 the highest annual level for any single carrier since we set the record in 2012. Additionally, longevity risk transfer sales totaled over $10,000,000,000 this year. Individual Retirement posted $3,600,000,000 in sales in the fourth quarter, its best quarter of sales in over a decade. 2024 sales were over $14,000,000,000 up 84% from the prior year. Our product pivots and innovation have resulted in continued strong sales of our registered indexed linked annuities and fixed annuity product sales have doubled from the prior year.

Additionally, we continue to reduce market sensitivity by running off our legacy variable annuities. Group insurance sales totaled $550,000,000 in 2024, up 4% from the prior year, driven by growth in supplemental health. We are executing our strategy of both product and client segmentation diversification, while leveraging technology to increase operating efficiency and enhance the customer experience. These actions to improve profitability and performance resulted in a benefits ratio of 83.1% for the year, which is at the low end of our target range. In Individual Life, sales reached a quarterly record high of $326,000,000 in the fourth quarter and for the full year increased 23% from 2023.

These increases include the benefit from the strength and breadth of our distribution capabilities, the expansion of our product offerings, including our pivot towards more capital efficient products and from an increased level of estate planning sales concentrated in the fourth quarter. Turning to slide nine, our international businesses include our Japanese life insurance companies where we have a differentiated multi channel distribution model as well as other businesses aimed at expanding our presence in targeted high growth emerging markets. In Japan, we are focused on providing high quality service and expanding our distribution and product offerings. Our needs based selling approach and protection and retirement product focus continue to provide important value to our customers as we expand our product offerings to meet their evolving needs. In emerging markets, we are focused on creating a selective portfolio of businesses in regions where customer needs are growing, where there are compelling opportunities to build the market leading businesses and where the Prudential enterprise can add value.

Sales on our international businesses for 2024 were up 6% compared to the prior year. Sales in Japan are benefiting from recent retirement and savings product launches, which are gaining traction with customers resulting in a 14% increase in sales of these products compared to the full year 2023. In addition, emerging market sales increased 12% versus the prior year, driven by growth in Brazil as we continue to expand third party distribution and benefit from the strong performance of our life planners. As we look ahead, we are well positioned across our businesses to be a global leader in expanding access to investing, insurance and retirement security. We continue to focus on investing in growth businesses and markets, delivering industry leading customer and client experiences and creating the next generation of financial solutions to serve the diverse needs of a broad range of customers.

And with that, I'll now hand it over to Janella.

I will begin on Slide 10. Our significant capital position and strong regulatory capital ratios continue to support our AA financial strength and our ability to expand our market leading businesses. Our cash and liquid assets were $4,600,000,000 which is above our minimum liquidity target of $3,000,000,000 and we have substantial off balance sheet resources. Now turning to Slide 11. As I mentioned on last quarter's call, in order to provide greater insights into our financial outlook and align with our longer term nature of our business, we are introducing new financial targets through 2027.

Our significant growth in sales and flows supported by the strength of our balance sheet and our commitment to become a higher growth, more capital efficient company position us well to achieve these targets. We expect this will lead to annual core earnings per share growth of 5% to 8%, which is based off of core adjusted operating income per share for 2024 and an adjusted return on equity of 13% to 15%. We are also introducing an operating expense ratio for our global retirement and insurance businesses in anticipated range of 8.5% to 10.5%, which we expect will trend down over the three year period. The momentum in our sales and flows combined with operating efficiencies and incremental buybacks are expected to contribute to our earnings growth and returns over the three year period. But this performance may not be linear due to the near term strain from new business and the impact of runoff blocks.

In addition, we will remain thoughtful in our capital deployment, preserving our financial strength and flexibility by targeting to maintain highly liquid assets of over $3,000,000,000 at the holding company, while investing in our businesses for long term sustainable profitable growth. We expect to deploy 30% to 40% of capital generated towards organic growth as we see significant opportunities in our chosen markets. After consideration of organic growth, this yields a free cash flow ratio of approximately 65% of net income with 35% to 45% expected to be deployed to attractive and increasing dividends. This is a healthy return to shareholders that represents an annual payout of approximately 6% of adjusted book value as of year end 2024. Further, we expect to return 20% to 30% towards share repurchases and the Board authorized $1,000,000,000 of repurchases in 2025.

Finally, we continue to proactively explore opportunities to invest in inorganic growth while maintaining a disciplined approach to capital deployment in the current environment. Turning to Slide 12. Our enterprise metrics will be supported by our business segment growth targets. We expect low double digit earnings growth in PGIM backed by strong asset management fee growth of 6% to 9%, driven by net flows and market appreciation and an adjusted operating margin of 25% to 30%. In The U.

S. Businesses, we expect mid single digit earnings growth supported by account value and sales growth across businesses. In Retirement Strategies, our account value growth assumes annual growth sales of $35,000,000,000 to $45,000,000,000 which will be partially offset by annual net runoff of our pension and longevity risk transfer products of $8,000,000,000 to $10,000,000,000 and legacy variable annuities of $12,000,000,000 to $16,000,000,000 In Group Insurance, we expect premium growth of 2% to 4% and in Individual Life, we expect sales to be flat to 5% growth. And lastly, in our international businesses, we expect low to mid single digit earnings growth driven by sales growth of 4% to 6% as we continue to diversify our product mix. We also have included our key economic assumptions and other earnings considerations specific to 2025 in the appendix.

We are confident in our ability to deliver on these financial objectives as we drive incremental organic growth in our businesses, while continuing to maintain our disciplined capital deployment approach. So turning to Slide 13 and in summary, we continue to become a higher growth, more capital efficient company. We will maintain our disciplined approach to capital deployment and our growth is supported by the strength of our balance sheet. And with that, we will be happy to take your questions.

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Suneet Kamal from Jefferies. Your line is now live.

Great, thanks. I wanted to start on the annuity outlook. I see the 20% to 25% account value growth. Caroline, I was just wondering if you could help us maybe translate that into sales growth expectations for the year. And the reason I ask is, I think LIMRA is out saying sales will probably be down for the industry.

And I just want to get a sense of how you're thinking about Peru's outlook?

Yes, terrific, Suneet. I will certainly take your question. So clearly, it was another extremely strong year for annuities with over $425,000,000,000 in total industry sales last year. And I think what Limmer might be referencing in terms of their some of their outlook is this past quarter, the industry did see some softening of traditional fixed annuity sales, which is to be expected with rate decreases. So what we're seeing is a shift from MYGAs, which are more sensitive to rates to index products such as Rylas.

But Suneet, what I would point out is that Rylas sales were up over 35% across the industry last year. So in our own business, we continue to see positive results. In the fourth quarter, we delivered roughly $3,500,000,000 in sales, which was our ninth consecutive quarter of sales growth. So from an outlook perspective, Suneeth, as we've discussed previously, we continue to see those compelling tailwinds in the marketplace driven by aging demographics, plus a high volume of money in motion. And that includes an estimated $70,000,000,000 in fixed annuities that's coming due, as well as over $7,000,000,000,000 in money market fund balances.

So all of this just underscores the importance of our diversified product portfolio. As you know, Suneet, this has been a key focus for us over the past few years. And as a result, we now have the broadest individual product portfolio in our history. And we actually have five different products with over $1,000,000,000 in annual sales. So overall, we believe the tailwinds will continue to support strong sales.

And certainly, we are well positioned to capture this demand and thanks to the strength of our distribution and our well established brand.

Got it. And then I just wanted to pivot to Prismic. Obviously, we saw the internal reinsurance deal. Presumably, that's going to consume some of their time and capital. I guess the question is how quickly do you think Prismic could sort of pivot to maybe some third party deals, particularly in Japan?

Is it going to take some time for them to integrate this transaction? Or just any thoughts around that would be helpful.

Suneet, it's Rob. I'll address that. So, yes, we closed the second transaction as we I think had indicated with Japan based a number of important reasons for doing that. But more broadly, as we think about the Japan opportunity, including the third party opportunity in Japan, we think it's a significant growth opportunity for Prismic, both from our own book and third party reinsurance. Japan is the third largest life market in the world, and it's been relatively underserved by third party reinsurers.

So there's an opportunity there and that opportunity is sort of accelerating by virtue of the introduction of the ESR regime and its impact on legacy books that have been sold not just by us, but across the industry. ESR is has a non economic treatment of long duration foreign currency denominated product that's in the Japan marketplace, but the industry has sold a lot of that and continues to sell it because of the demand that our customers have for the product. And so addressing those books and that and those flows of sales are going to be something that the industry has to grapple with and we think we're well positioned to do so. Our brand, our local presence and the market intelligence that we've got create a competitive advantage. Prismic, as we've indicated in the last quarter, we've stood up a dedicated licensed team in Japan.

And then by virtue of, as I indicated upfront, by closing on our own whole life book, it's given us the experience and confidence to execute third party blocks and further establishes our credibility in the marketplace. But I would emphasize more generally, we're optimistic that we can grow Prismic through the multiple levers that we've got to need. So that includes ongoing balance sheet optimization both in The U. S. And Japan.

It includes importantly flow, so new sales solutions across our businesses and third party blocks particularly in Japan.

Thank you. Next question today is coming from Tom Gallagher from Evercore ISI. Your line is now live.

Good morning. A few questions on free cash flow. The so the 65% free cash flow conversion, why is 30% to 40% of that needed for growth capital when most of the businesses that I would think of requiring capital are growing sub 5%?

Hi, Tom, it's Janella. So let me take that. So we continue to see strong opportunities in our chosen markets and we're leaning into those opportunities as evidenced by our strong sales and flows really across our businesses. So as an example, on a full year basis, we had a 39% increase in sales for Retirement Strategies, 23% increase in sales for Individual Life and these strong sales are contributing to earnings. But we do face near term headwinds due to strain from new business, specifically distribution costs that are not deferred and the impact of runoff.

So I would emphasize that we're investing in strong growth that is materializing in earnings, but we have near term headwinds related to new business strain and runoff. And as these headwinds moderate, we would expect an upward trajectory in our core earnings growth. But even with these headwinds, we have a 5% to 8% growth rate in core earnings. We are paying a healthy dividend and we have a healthy level of buybacks.

Got you. And Janelle, just a follow-up, making sure I'm understanding what the intention is here when I'm solving for buybacks and dividends. If I take the 75% of the 65% free cash flow conversion, that would equate to about 50% of GAAP earnings that will be returned through buybacks and dividends over the next three years. Is that the rough math? And And just a related question, I think you used to use operating income, now you're using net income.

Is there anything to read into with the change in that conversion? Thanks.

look at our capital allocation priorities that we shared, so

attractive in in dividends are 35% to 45% share repurchases 20% to 30%. So I think you're just adding those two when you get to the 75 And so in terms of the change to net income, while ALI is our primary basis for assessing operating results, we do think that over the near term GAAP net income will be a closer proxy for free cash flows. And that is because there are items that are excluded from ALI that do impact statutory capital, which is the primary driver of cash flows. So for example, realized gains and losses that arise due to normal course portfolio management activity or mark to market on hedging instruments impact both GAAP and stat. Now conversely, there are some components of GAAP net income that don't impact cash flows, but our free cash flow ratio is an overtime calculation, Tom.

And we do anticipate that much of the non economic volatility largely evens out over time, leaving us with net income being a good indicator of cash flows in the near term for us.

Thank you. Next question is coming from Ryan Krueger from KBW. Your line is now live. Hey, thanks.

Good morning. My first question was just on the ULSG transaction you completed in the Japan Prismic transaction that announced between the two of them you're freeing up several hundred million dollars I think over $500,000,000 but kept the buyback at $1,000,000,000 for $25,000,000 dollars Can you give more color on how you may use that capital over time? Are you holding it for potential opportunistic on May or is there are there any other considerations where you could use that for?

Hi, Ryan. It's Janella. So the potential uses of the capital will be consistent with our capital allocation priorities that we detailed with our financial targets and will be consistent with our essentially our priorities in terms of how we think about capital deployment. So we look to strike a balance between preserving financial strength and flexibility, investing in our businesses for long term growth and returning capital to shareholders. As part of our shareholder distribution philosophy, a core level of share repurchases will generally be sustainable.

But keep in mind that that may vary with opportunities for attractive capital deployment or reductions in free cash flow in times of stress. So we constantly monitor developments in economic and market conditions. We will follow our risk management and capital management playbooks with discipline to be prepared for opportunities and risks as well.

Thank you. And then there was a recent lawsuit against the plan sponsors that involved the pension risk transfer transaction with Prudential. There have been some other lawsuits against other plan sponsors from other pension risk transfer providers that have had some negative impact it seems on activity. Do you think this will have any impact on Prudential's transaction pipeline or do you view this more as a one off issue?

Yes. So, Ryan, it's Caroline and I'll take your question. And while I won't comment on the impact on any of our peer companies, I will say clearly that litigation like this threatens the ongoing health of the pension risk transfer industry. It's particularly harmful for plan sponsors who are looking to de risk their pension obligations and for the retirees whose pensions are protected through these transactions. So fundamentally, companies like Prudential who are governed by the insurance regulatory system are simply better holders of these types of risks.

Our industry has an extensive history of fulfilling the promises made to retirees, since we here at Prudential actually pioneered this business in a transaction with the Cleveland Public Library, which was now over one hundred years ago, Ryan. So while we're not a named party in the lawsuit, let me just reiterate that this lawsuit does not accurately represent Prudential or the quality and the security of the industry. In terms of the impact going forward from a new business perspective, Ryan, we still see strong funded statuses and we see favorable market conditions. So we have every reason to believe there will continue to be an active pipeline. And with our ability to work with planned sponsors of all different types and sizes, we are well positioned to continue to be a market leader in this space.

Thank you. Next question is coming from Elyse Greenspan from Wells Fargo. Your line is now live.

Hi, thanks. Good morning. I know you guys said the five to EPS growth outlook, right, is not expected to be linear, I think was the words. And obviously, there could be some variations by year. But how would you think going into 25%, twenty five % your expectations there relative to the 5% to 8% target?

Yes. Hi, Elyse, it's Janella. So I would start by saying that we feel confident about our 5% to 8% EPS growth target off of core earnings. We see strong opportunities and tailwinds and we're executing on those opportunities as evidenced by our strong sales and flows. But as you pointed out and as I said in my opening remarks, this growth will not be linear and we do have near term headwinds, mainly due to strain of sales and runoff.

So the 5% to 8% is an average over the three year period. It could be lower or higher in any given year. And naturally as the headwinds of some of our runoff blocks moderate and our growth investments take hold, we would expect an upward trajectory in our core earnings over that three year period.

Thanks. And then my second question is just on Prismic in Japan. You guys did announce a recent transaction. Beyond that, as we deal with the capital change the upcoming capital changes in Japan, do you guys expect to do additional transactions with Prismic there?

Elyse, it's Rob. I'll take that question. We're continuing to work on an active pipeline of multiple reinsurance transactions. They include ongoing balance sheet optimization from our own book, both in The U. S.

And Japan. We're working on flow solutions as well across our businesses, again, in The U. S. And Japan. And we are looking at third party blocks with a focus there being really almost exclusively in Japan.

So our expectation is that, yes, we'll continue to have opportunities with Prismic to address what we see as a significant market opportunity, not just in our own book, but across the industry in Japan.

Thank you. Next question is coming from Wes Carmichael from Autonomous Research. Your line is now live.

Hey, good morning. I wanted to follow-up on Japan and maybe the progress that's being made on ESR implementation. I think your Japanese SMR ratios are in excess of 700% today. But could you give us any insight on your view of current excess capital in Japan if you had to implement ESR today?

Hi, Wes. This is Janella. So, yes, the JFSA's plan is to adopt ESR for the fiscal year beginning 04/01/2025, with the first mandatory reporting date being 03/31/2026. We expect upon implementation of ESR that our capital levels will continue to be above target levels that would support AA financial strength ratings. And as we said before, our intent is to start providing information about our ESR position in the summer.

We have executed some transactions, affiliated reinsurance transactions to help mitigate the volatility. And like

to optimize our balance sheet and manage our risks in capital and reserving regimes that best match the economics of our products. So we don't anticipate a significant change in our capital position in those entities.

Hey, Wes, it's Andy. Let me just add that in Japan, we offer a broad product portfolio that meets the needs of our customers and we're continuing to innovate and expand on that portfolio, including with ESR friendly offerings. So the bottom line for us is these product capabilities, when combined with our strong underwriting, our asset liability management and our hedging, we have everything that we need to continue to profitably grow well in Japan.

Got it. Thank you. And maybe Andy as a follow-up for you, as you think about taking the reins of Prudential at the March, how are you thinking about your direction as a leader of the business? Any color on where you're most focused strategically in your first few months as CEO?

Yes. So Wes, thank you for the question. And let me start by saying this is an absolute honor and it's a privilege and I couldn't be more excited about what's ahead of us. As you would expect, we have a rigorous transition plan that we're marching through and that transition is going very well. It obviously helps that I've been a member of this executive team now for over five years.

But having said that, we always have a lot of work to get done in front of us. We absolutely intend to continue to raise the performance of the company over time, given the strong opportunities that we see in the marketplace. So what I'd say is, I'm not yet in the role, so it would be premature to share additional information right now, but I look forward to sharing more with you in the future calls as the team settles in.

Thank you. Our next question is coming from John Barnidge from Piper Sandler. Your line is now live.

Good morning. Thank you for the opportunity. My question is on the free cash flow conversion and the 0% to 10% opportunistic M and A. I know Pru maintained its ownership in the second round of Prismic. Is that going to be the main consumer of that 0% to 10% of opportunistic M and A?

Or does there remain interest in high growth emerging markets international in asset management as previously expressed by the company in prior years?

So John, it's Charlie. I will take your question. I say thank you. I'm excited to get a question. So that's great.

Taking a step back for a moment, again, as always, organic growth is job number one, as you heard from some of the other management. But we're open to opportunistic and selective M and A that accelerates our strategy and meets our financial objectives as we go forward. In the past, we've executed on many acquisitions that have significantly grown the company and we pursued these acquisitions for a whole variety of reasons such as expanding our capabilities, broadening our distribution, increasing scale or adding key talent. And as we look forward, we're going to focus on organic growth opportunities to expand our product breadth and distribution capabilities, scale our existing businesses, including through Prismic as you suggest, which provides us access to third party capital, And we will be both strategic and selective in our M and A interests, which remain consistent in terms of focusing on our programmatic acquisitions for PGIM or emerging markets and focusing on distribution capabilities or scale.

Thank you. That's helpful. And with the pipes kind of laid with that second transaction in Prismic, are you beginning to kind of warehouse liabilities and investors for subsequent rounds so the friction is left?

John, it's Rob. We don't have a specific plan for warehousing liabilities in the way that you described it. What I would say is that we have brand quality and scale in our insurance and retirement businesses both in The U. S. And in Japan.

And so we both have significant back books and we have a significant volume of sales as evidenced by the growth that we've witnessed just in this last year and quarter with the sales across our businesses. And so we don't have a bespoke warehouse, but instead what we have is a business system which is generating significant amounts of liabilities which lend themselves to opportunities for Prismic on a go forward basis.

Thank you. Next question is coming from Jack Matin from BMO. Your line is now live.

Hi, good morning. Just one follow-up on the free cash flow conversion. You mentioned the headwinds from new business strain and the impact of runoff. I guess just to clarify, are those comments related to GAAP earnings or are you referring to the cash flow conversion ratio? Because the new business strain element of that makes sense to me, but I would have thought that blocks running off would have had a higher cash flow conversion rates since you're not incurring any new business strain.

So just want to make sure I'm understanding those impacts correctly.

Yes, Jack, it's Janella. So yes, I was referring to the GAAP earnings AOI core earnings specifically in my answer to the runoff and the new business strain.

Got it. Thank you. And then, just a question on the intermediate term growth outlook within the international operations and your guidance for low to mid single digit earnings growth. I guess, does that outlook assume that product surrender rates normalize off of the more recent kind of elevated levels? I mean, any other drivers that you would call out as driving an uptick in kind of your growth trajectory in those markets?

Prudential Financial (PRU) Q4 2024 Earnings Call Transcript

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