Prudential (PRU) Q3 2025 Earnings Call Transcript

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Date

Thursday, October 30, 2025 at 11:00 a.m. ET

Call participants

Chief Executive Officer — Andrew Francis Sullivan

President, U.S. Businesses — Yanela Frias

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Risks

Jennison, the active equity manager within PGIM, continued to experience outflows in Q3 2025.

Year-over-year, international business sales declined by 6%.

Persisting headwinds from higher-than-expected surrenders in Japan continue to partially offset new international business growth. Management stated that surrender activity in Japan continued to show signs of stabilization, but it remains a near-term headwind.

The Group Insurance benefits ratio was approximately 83% for Q3 2025, with management citing less favorable disability experience driven by an uptick in severity and lower claim resolutions, which can vary quarter to quarter.

Takeaways

Pre-tax adjusted operating income -- $1.9 billion in pre-tax adjusted operating income, a 28% increase, resulted in $4.26 per share and reflected earnings growth in every business (non-GAAP).

Adjusted operating return on equity (ROE) -- Adjusted operating return on equity exceeded 15% year-to-date for the first nine months of 2025.

PGIM assets under management (AUM) -- $1.5 trillion in assets under management, up 5% in Q3 2025, driven by market appreciation and $2.4 billion in total net inflows, including $1.8 billion from affiliated channels and $600 million from third-party channels.

PGIM long-term performance -- Over 70% of AUM outperformed benchmarks over five- and ten-year periods.

Margin expansion initiative -- Management expects "over 200 basis points of margin expansion in 2026" from PGIM restructuring and $100 million in projected annual run-rate savings by 2026, with approximately one-third expected to be reinvested.

U.S. retirement strategies sales -- Generated $10 billion in sales (institutional: over $6 billion, including a $2.3 billion jumbo pension risk transfer and $1.5 billion in longevity risk transfer; individual: over $3 billion), marking the seventh consecutive quarter above $3 billion in individual sales.

Group insurance sales -- Quarterly sales of nearly $80 million; year-to-date sales reached $555 million, a 14% increase, driven by group life and disability lines.

Individual life sales -- $253 million, up 20%, with record results from FlexGuard Life variable life products.

International sales trends -- Year-to-date, international business sales rose 4% compared to the prior year, bolstered by a 35% increase in Japan over three years (with yen sales up more than 50%), while this quarter saw a 6% decline from the prior-year period due to foreign exchange effects.

Liquidity and capital position -- Cash and liquid assets were $3.9 billion, exceeding the $3 billion minimum target. Board-approved economic solvency ratio target of 150%, with Prudential of Japan and Gibraltar Life "well above this level", according to Yanela Frias.

Expense management -- The company maintains an intermediate operating expense target of 10.5%-8.5%, with continued efficiency efforts expected to provide resources for investment and improve margins.

Legacy variable annuity runoff impact -- Management anticipates a continued $3 billion-$4 billion quarterly runoff with a $10 million-$15 million non-GAAP adjusted operating income impact per quarter; new annuity and Japan business earnings are expected to offset the headwind over time.

Partners Group and Prismic partnerships -- PGIM launched a partnership with Partners Group to enhance multi-asset solutions, while Prismic is active in balance sheet optimization and executed its first forward flow transaction covering U.S. retail fixed annuities.

AI and technology investments -- Investments in AI are accelerating to improve both customer experience and organizational efficiency, with management noting, "Investments are ramping up and they're ramping up because we see the value of that enhanced level of investment."

Summary

Prudential (NYSE:PRU) management identified higher-than-expected alternative investment income and one-time items as contributors to record adjusted operating income in Q3 2025, along with continued positive momentum across all core business segments. The successful completion of a significant jumbo pension risk transfer transaction in institutional retirement and robust longevity risk transfer activity were highlighted as evidence of leadership in the retirement space. Leadership changes in Japan were positioned as a planned acceleration of succession, with new product launches driving materially stronger Japanese sales over multiple years. Management stated that actions in PGIM asset management, including centralizing distribution channels and reorganizing the multi-manager model, are projected to produce substantial margin expansion and operating efficiencies as early as 2026.

Sullivan emphasized, "we completed the sale of our PGIM Taiwan business to focus resources on higher-growth opportunities," underscoring the company's commitment to capital allocation toward areas with the strongest return profiles.

PGIM restructuring included $40 million in charges in Q3 2025, offset by a $25 million gain from the Taiwan sale, demonstrating the initial financial effects of organizational streamlining strategies.

Jennison equity outflows persisted within PGIM, attributed by management to industry-wide "active to passive pressure," and remain a key challenge for organic growth despite positive net inflows in fixed income and alternatives.

On reinsurance and capital management, Frias specified, "We continue to work on an active pipeline with Prismic that includes ongoing balance sheet optimization, financing new business growth as well as working on third-party."

Group Insurance disability lines faced higher severity and lower claims resolution rates during the quarter, following an exceptionally strong resolution period previously, while management noted industry-consistent experience and recent price increases in New York paid family leave to help manage future impacts.

Management reiterated a three-year 5%-8% EPS growth target, stating "the growth not being linear" as near-term headwinds from legacy variable annuity runoff and Japanese surrenders begin to moderate, supporting confidence in future earnings expansion.

Industry glossary

PGIM: PGIM is Prudential Global Investment Management, the asset management arm of Prudential, managing public and private asset classes.

Pension risk transfer (PRT): Insurance and financial transactions in which a defined benefit plan sponsor shifts responsibility for pension obligations to an insurer.

Longevity risk transfer (LRT): Transactions in which insurers assume the risk of pensioners living longer than expected, often via reinsurance for pension schemes.

ESR (Economic Solvency Ratio): A regulatory capital measure used for Prudential’s Japanese entities to assess solvency under stressed market conditions.

AOI (Adjusted Operating Income): A non-GAAP metric reflecting core operating performance and excluding certain items such as realized investment gains/losses and non-recurring charges.

Prismic: Prudential’s reinsurance platform used for balance sheet optimization, capital efficiency, and risk transfer.

VUL (Variable Universal Life): A life insurance product with flexible premiums and investment options, combining insurance protection with investment accounts.

Full Conference Call Transcript

Andrew Francis Sullivan: Good morning, everyone, and welcome to the call. We had a strong third quarter. Our pre-tax adjusted operating income was $1.9 billion, or $4.26 per share, a record high of 28% from the prior year quarter reflecting earnings growth in every business. Our year-to-date adjusted operating return on equity was over 15%. These results reflect higher spread income and more favorable underwriting experience across our global retirement and insurance businesses, as well as higher fee income in PGIM. Current quarter results benefited from alternative investment income that was above our expectations, as well as other favorable one-time items. Higher alternative investment income was driven by stronger private equity and hedge fund returns partially offset by lower real estate returns.

Our third quarter performance reflects sustained momentum across our businesses. Let me highlight a few examples. PGIM remains focused on delivering strong investment performance and strengthening core capabilities while continuing to invest in the business to drive future growth.

This quarter, we achieved positive net inflows across both third-party and affiliated channels. In institutional retirement, we closed a jumbo pension risk transfer transaction reinforcing our market leadership and complementing the robust longevity risk transfer activity so far this year. Our individual retirement, Individual Life and Group Insurance businesses are benefiting from our differentiated distribution and the actions we've taken to broaden our product portfolios and diversify our market segments. Individual Retirement delivered over $3 billion in sales for the seventh consecutive quarter, and Individual Life and Group Insurance delivered double-digit year-to-date sales growth.

Turning to our International Insurance businesses, in Japan, where our business has been traditionally focused on protection products, we continue to expand our retirement and savings solutions, leaning into the changing nature of this marketplace. And in Brazil, we set a new sales record in the Life Planner channel. In addition, we continue to expand our third-party distribution network and deepen our strategic partnerships.

While business performance was strong for the quarter overall, let me bring one area of pressure to your attention. Jennison, our active equity manager, continued to experience outflows consistent with broader industry trends. These outflows are dampening our organic growth and earnings momentum in PGIM. We are encouraged by the third-quarter results and remain committed to delivering stronger and more consistent earnings growth that creates long-term value for our shareholders.

Moving to slide three, I've been clear on my three priorities as CEO. First, we are evolving our strategy to focus on opportunities that will deliver the most profitable growth over time and are allocating our capital accordingly. Specifically, we're looking to focus on areas with large and growing addressable markets in which we have highly differentiated capabilities and can earn attractive returns. Accordingly, in the third quarter, we completed the sale of our PGIM Taiwan business to focus resources on higher-growth opportunities. Second, we are determined to execute with more consistency and discipline.

We are quickly evolving to a unified asset manager model in PGIM and have taken actions to deliver run-rate savings that will drive margin expansion in 2026. Client response to our new organizational structure, which includes a centralized distribution capability for institutional investors, has been overwhelmingly positive. In fact, we now expect to double the percentage of clients engaging with two or more of our asset management businesses, which will drive additional margin growth over time.

The sales momentum in our Global Retirement businesses underscores how we're meeting evolving customer needs around the world. In U.S. Retirement Strategies, year-to-date sales of over $30 billion demonstrate our leadership in the growing retirement market and contributed to our highest earnings in the last five quarters. Additionally, over the past three years in Japan, we've launched seven new products reflecting our commitment to meeting the evolving needs of our customers through a comprehensive suite of protection and retirement solutions. As a result, sales in Japan have increased by about 35% over this period, with yen-denominated sales increasing by over 50%.

Continuing the thread of enhancing our culture with a focus on speed and accountability, as an example, we accelerated our succession plan in Japan appointing Brad Hearne as CEO reporting directly to me. This move ensures we have the right leadership in place to drive our growth strategy. Brad brings a strong track record of driving results and scaling distribution networks from his time leading our domestic Prudential Advisors business. His experience is directly relevant given the shifting nature of Japan's market towards retirement.

He will continue working closely with Caroline Feeney, Jack Matten, and the entire leadership team to share best practices and collaborate across businesses, ultimately helping us better serve customers and capture opportunities in this rapidly evolving market. We extend our thanks to Hamada san for his thirty-three years of service in Japan. Before I turn it over to Yanela, I want to emphasize that across the enterprise, we're taking clear and decisive action to address these priorities. I look forward to sharing more in the quarters ahead as we continue to build on our momentum.

Yanela Frias: Thank you, Andy. I will provide an overview of the performance for our PGIM, U.S., and international businesses. I will begin on Slide four with the quarterly operating results from our businesses compared to the year-ago quarter. PGIM delivered higher asset management fees driven by market appreciation, positive net flows, and strong investment performance. Higher other related revenues from strong Fannie Mae and Freddie Mac originations and gains on seed and co-investments. Third-quarter results also included $40 million in reorganization charges from integrating PGIM's multi-manager model, partially offset by a $25 million gain from the sale of our Taiwan business. Results of our U.S.

Businesses reflected higher net investment spread income in Retirement Strategies, including the benefit from stronger alternative investment income, coupled with more favorable underwriting results from Individual Life and Group Insurance. This was partially offset by lower fee income resulting from the runoff of our legacy variable annuity block and higher expenses to support business growth.

In our international businesses, we also experienced higher net investment spread results including the benefit from stronger alternative investment income and more favorable underwriting, partially offset by higher expenses to support business growth. Turning to slide five, PGIM has diversified capabilities in both public and private asset classes across fixed income, equities, and alternatives. PGIM's long-term investment performance remains strong, with over 70% of assets under management outperforming their benchmarks over the five and ten-year periods. In addition, the three-year track record, which is an important metric for the retail channel, has 80% of assets outperforming benchmarks.

PGIM's assets under management of $1.5 trillion increased by 5% from the prior-year quarter, driven by market appreciation, positive net flows, and strong investment performance. Total net inflows in the quarter of $2.4 billion included affiliated net inflows of $1.8 billion and third-party net inflows of $600 million. Third-party institutional and retail inflows were both $300 million, mainly driven by fixed income inflows partially offset by Jennison equity outflows as previously noted.

Before I move on from PGIM, I want to expand on Andy's commentary regarding the rapid progress we have made reorganizing, including early financial impacts. The actions taken thus far will drive operating efficiencies and create reinvestment capacity, enabling us to continue expanding capabilities, enhancing client experience, and strengthening our competitive position to support future growth. We expect to realize approximately $100 million in annual run-rate savings by 2026 and plan to reinvest about a third of these savings to bolster sales and distribution. Compared to 2025, we now anticipate over 200 basis points of margin expansion in 2026 from these actions and are well-positioned to reach our 25% to 30% margin target.

Turning to slide six, our U.S. businesses produce diversified sources of earnings from fees, net investment spread, and underwriting income, and benefit from our complementary mix of longevity and mortality businesses. Retirement strategies continue to have strong momentum. Generating $10 billion of sales in the third quarter, across its institutional and individual lines of business. Institutional retirement sales of over $6 billion included a $2.3 billion jumbo pension risk transfer and were complemented by $1.5 billion of longevity risk transfer transactions. Individual Retirement posted over $3 billion in sales driven by continued momentum in fixed annuities, as well as solid sales of registered index-linked annuities reflecting the actions we have taken to broaden our product portfolio.

Group insurance sales totaled almost $80 million in the third quarter, with year-to-date sales of $555 million up 14% from a year ago. Driven by growth in both group life and disability. We are executing our strategy of both product and market segment diversification while leveraging technology to increase operating efficiency and enhance customer experience. The benefits ratio of approximately 83% remains at the low end of our target range. Reflecting favorable life underwriting results and less favorable disability experience driven by an uptick in severity and lower claim resolutions which can vary quarter to quarter.

In Individual Life, sales of $253 million in the third quarter were up 20% from the prior-year quarter. This growth was driven by higher accumulation-focused variable life including record sales in our differentiated FlexGuard Life product suite. Turning to Slide seven, 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. Sales in our international businesses were down 6% compared to the prior-year quarter. This was primarily due to strong U.S. dollar-denominated single-pay sales in Japan that benefited from the yen appreciating sharply in the prior-year quarter.

Year-to-date international sales remained solid and are up 4% versus the prior year driven by growth in both Japan and Brazil. As we previously stated, while surrender activity in Japan continued to show signs of stabilization, it remains a near-term headwind that will partially offset new business growth. We also anticipate approximately $30 million of higher expenses in the fourth quarter primarily due to timing consistent with what we've observed in prior years.

Turning to slide eight, our capital position and strong regulatory capital ratios continue to support our AA financial strength and our ability to grow our market-leading businesses. Our cash and liquid assets were $3.9 billion, which is above our minimum liquidity target of $3 billion, and we have substantial off-balance-sheet resources. Also of note, our Board approved an economic solvency ratio operating target of 150% as part of our annual capital planning process. Prudential of Japan and Gibraltar Life remain well above this level. 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. And with that, we're happy to take your questions.

Operator: Thank you. We will now be conducting a question-and-answer session. Our first question today is coming from Wilma Burdis from Raymond James. Your line is now live.

Wilma Burdis: Hey, good morning. Just first question on the PRTs. We saw you had a large jumbo pension risk transfer this quarter, which has been a slow market this year. Maybe just give a little bit of commentary on that and then also the longevity market in the UK, since we've seen a couple of entrants there. So just if you can give us an update on what you're seeing? Thanks.

Andrew Francis Sullivan: Sure. Good morning, Wilma. So we still believe that the pension risk transfer market will be softer in 2025 versus 2024. But we've seen an uptick in the pipeline for the second half of the year is proving to be more robust than what we saw earlier. Remember that especially in the PRT market, it's an episodic market, particularly in the jumbo space. That said, it is going to be a big market for years to come with $3 trillion in untransacted liabilities funding levels sitting at high 105%. We're very well positioned to win and to remain a leader given the strength of our brand, our underwriting, our asset management, and service.

So we're happy to see that the market strengthening here in the back half of the year.

When it comes to the LRT market, this is a very good opportunity as well. Globally, pension plans are even more well-funded than they are here in the U.S. We focus on two core markets, the U.K. and Netherlands. In the U.K. we're seeing about $50 billion to $55 billion of pension risk transfers per year with about 80% of that volume seeking longevity reinsurance. In the Netherlands, there's about $330 billion in defined benefit pension money. That's given the reform looking to transition to defined contribution. Much of that will seek pension risk transfer and reinsurance. Similar story to PRT, we're a leader in the space.

We did two deals this quarter for $1 billion that puts our year-to-date sales over $11 billion. So this is also just a very good market, healthy returns, and plenty of room to grow. So we like the dynamics that we're seeing in both of these spaces.

Wilma Burdis: Sounds great. And then page inflows have been improving. Could you just talk a little bit more about the drivers and you think this is an inflection point? Or what are you kind of seeing? Do you think this is an improvement that's going to continue?

Andrew Francis Sullivan: Certainly. And we've discussed this before. As it comes to flows, we assess success by looking at total flows, both affiliated and third-party. And we look at it over longer timeframes. So if you look at it from that lens over the last twelve months, we did over $20 billion in total inflows. This quarter we did $2.4 billion in total inflows. And in the third party in particular, we were positive and split even retail and institutional. What we saw this quarter was very strong inflows across public fixed income, privates, and alternatives that were offset by Jennison equity outflows. This is systemic in the industry and we're not immune given the active to passive pressure.

That said, active equity plays a very important role in our client's portfolio and is important in the mix. As we look forward from an outlook perspective, given the consistent strength we've been showing in institutional, we're optimistic. We're more cautious on the retail side as that is more volatile, and clients tend to react quicker to changes in the environment. And we are working to lessen and overcome those equity outflows.

Operator: Thank you. Next question today is coming from Suneet Kamath from Jefferies. Your line is now live.

Suneet Kamath: Great. Thanks. Good morning. I guess, Janela, in the past you've talked about this three to four-point drag on EPS growth from the legacy VA and surrenders. Could you maybe just give us some color on how that you expect that to play out over the next few years? And then somewhat relatedly, you're putting on all this new business growth, but is there a lag between when you write this business and when it actually shows up in the EPS results?

Yanela Frias: Yes. Hi, Suneet. Yes, so let me start. Recall when we provided the intermediate target of 5% to 8%, I did speak about these near-term headwinds being incorporated in the target, and therefore the growth not being linear. As these headwinds dissipate, we will see the earnings power of the new annuity sales and the Japan business continue to emerge. Specific to the two items, with regards to the VA runoff, we expect to continue to see the $3 billion to $4 billion quarterly runoff, which, as I said, has about a $10 million to $15 million AOI impact per quarter compounding, hence the $100 million to $100 million that we've talked about before.

As that block continues to run off and the account values of the new products grow, we will have a crossover point and the earnings headwind will be reduced. With regards to the higher-than-expected surrenders in Japan, we do continue to see stabilization. Given the stabilization, as we look forward beyond 2025, we would expect a more moderate impact of surrenders. With regard to the second point of your question, I would say we are seeing the benefit in EPS when we look at the core earnings growth in both individual and institutional retirement this quarter. And as I said, over time as the headwinds dissipate, that earnings growth will continue to grow.

Suneet Kamath: Got it. And then just shifting gears, I wanted to ask about the private credit asset class just given some of the headlines that we've seen over the past couple of weeks. Given your strength in fixed income asset management in general, I figured you'd have a good read on what you're seeing in the market and maybe more specifically what you're seeing at Prudential Financial, Inc.?

Yanela Frias: Yes. So let me talk about the general account for sure. Obviously, we're monitoring this very closely as we do with all markets. With regards to private credit in our portfolio, we've been in the private credit space for decades. Our private credit portfolio is largely private placements with strong covenants and other downside protections. And this portfolio has consistently performed better than equally rated publics during economic downturns and we've seen this consistently. Approximately 90% of our corporate private credit securities are investment grade, roughly half of the below investment grade private placements are in the BB. Category and are very well underwritten. And lastly, our growth in private credit has been modest.

We've been doing this for a long time and we are very comfortable with the portfolio.

Suneet Kamath: Okay. Thank you.

Operator: Thank you. Next question is coming from Thomas George Gallagher from Evercore ISI. Your line is now live.

Thomas George Gallagher: Good morning. A couple of questions about Japan. The 150% ESR target. Can you can you kind of get into why you think that's the appropriate level? I think there's some confusion around what peer targets are and how they're higher than Prudential Financial, Inc.'s. And generally, the domestic insurers in Japan are running at around 200% plus, and why 150 is like a fine number for you? And is that something you've gotten blessed by the rating agencies and regulators? Thanks.

Yanela Frias: Yes, Tom. Let me explain what the 150 ESR target is and what it isn't because I agree with you, there may be some confusion. In terms of what it is, it is the level that we would hold after a market stress occurs. This is the level we would not want to go below, and this type of stress includes shock to markets, rates, and credit. This is how we set our targets across all our legal entities and as you've heard me say before, we have capital resources to manage these stresses as well as to manage more severe stresses including our contingent capital sources. That's what it is.

In terms of what it isn't, it is not what we would aspire to hold in normal times. In normal times, we would hold higher levels as you saw at the March 31 date where our ESR level was between 180-200%. So we plan to hold a level of capital above our target to provide a cushion that can withstand a market stress. And that is very consistent with how we manage our other businesses. Further to some of your questions, these ratios are a result of considerable thought, considerable modeling outcomes, and dialogue with key constituents including the rating agencies. As far as regulators, they're more focused on the threat level for them, which is 100%.

And relative to peers, different companies do have different business mixes and we believe that is a big driver of the difference in the levels. So I would just close by saying that our operations in Japan remain well-capitalized. Our June results were well above our 150% target just like our March 31 results were, as we discussed last quarter. And our ESR is not a binding constraint when it comes to cash flows from Japan.

Thomas George Gallagher: That's all helpful. I appreciate it. And just my follow-up is, so you had the recent abrupt departure of your CEO in Japan. I guess my perception is it's somewhat related to some regulatory issues that have occurred in the market that have impacted Prudential Financial, Inc. of Japan. Can you elaborate on what's happening there? And I just want to make sure you don't think there's going to be any impacts on sales, and revenues when we think about things going forward in that business? Thanks.

Andrew Francis Sullivan: Yeah. Good morning, Tom. So succession planning is something that we take really seriously here at Prudential Financial, Inc. and do very well. So this change from Hamada san to Brad was planned. So when we use the words abrupt departure, this was a planned succession change. We did accelerate it. And Hamada san stepped down given some of the operational and compliance considerations as you mentioned. Hamada san felt and I felt as well it was a good time to give Brad Hearn what I will call the driver seat. I want to, as I did in my opening remarks, thank Hamada san for all he's done for the company. But Japan's in great hands.

Brad Hearn is a thirty-plus-year veteran of the industry. Brad oversaw our Prudential Advisor capability here in the U.S. He was the architect and key driver of the strategic relationship with LPL. He's seen he saw the U.S. market go from independent insurance agent over time to financial planners. Which is a very similar trend to which we're beginning to see in Japan. So he is the right leader to lead forward, capitalizing on this changing nature of the market. As far as what this might mean from a go-forward perspective, from a revenue perspective looking forward, I'd just say keep in mind two things. One, the market is changing. It is rotating towards retirement and savings.

And then recognize in our results, you're still seeing the surrender headwinds. We're pleased with sales year-to-date in Japan. They're up 4%. And we've seen our new product introductions are really taking hold. About 20% of our sales are from products that we've introduced in the last twenty-four months, and the majority of the sales are from retirement and savings. So this was a planned change that we accelerated. If you look at the breadth of our product portfolio, the depths of our multi-channel distribution, we know that all of that will help us overcome these headwinds over time and will help our growth.

Operator: Thank you. Next question today is coming from Jamminder Singh Bhullar from JPMorgan. Your line is now live.

Jamminder Singh Bhullar: Hey, good morning. I had a couple of questions. First, if you could just talk about what you're seeing in terms of claims trends and price competition in the disability market and then I had one another product line.

Andrew Francis Sullivan: Yes. So thanks, Jimmy, and maybe I'll take this overall from both perspectives. First, we are pleased with the quarter that we had in the group and we're very pleased with our results year-to-date. As you saw in the quarter, we saw very strong Life performance, so very happy about that. We did see headwinds on the disability side. There's really three things that I would talk about when it comes to the higher disability ratio that we saw in the quarter. First, we saw an increase in the average size of new claims, for both short-term and long-term. As you know, that will naturally vary quarter to quarter. Second, we saw lower LTD resolutions.

Remember last quarter for us was an exceptionally strong quarter. It was exceptionally strong as a resolution quarter as well, so it's quite natural for that to step down after such a strong quarter. And then third, we had unfavorable experience in our New York paid family leave book. That's very consistent with the industry. And I would note that New York recently raised pricing in paid family leave, which is going to help offset that headwind. Pricing remains rational. We obviously closely monitor new business pricing and we're not seeing anything different than we would expect to see.

We also obviously spend a lot of time monitoring our book experience at the block and case level and we've been quite successful at placing renewal increases where they've been warranted. So our group business is very well led. We have a very experienced team that stays on top of changes in the outside environment and we have a good deal of confidence in the path forward.

Jamminder Singh Bhullar: Okay. And then just on competition in the VA market, your sales, I think, sequentially were up, they have slowed from what they were last year, and you've been citing competition as one of the reasons. So I just wanted to ask you for more details on what type of competition are you seeing? Are you just seeing a more crowded market? Or is it that companies are offering terms and conditions which you feel you want to match?

Andrew Francis Sullivan: Yeah. Jimmy, thanks for the question. This is consistent with what we've discussed last quarter. It has become more competitive, and you can use the word more crowded. I think that's a great way to frame it. We went from 5 competitors a few years back to 25 today. That includes some broader annuity players that have entered more recently. When you only had five, the share was very concentrated. So it's quite natural for new players to work very hard to fragment that concentration. We expect it and have seen that there will be some aggressive pricing in the marketplace.

What you should expect from us is disciplined growth, capitalizing on the strength of our brand, the strength of the product portfolio, and our wide distribution. We're going to always make sure we're growing, but we're also achieving the right level of profitability. And that's what you're seeing show up in the sales. If you look at that business in general, we've done greater than $1 billion of sales per month every single month of 2025. That is very consistent success and that's what we would expect going forward.

Jamminder Singh Bhullar: Okay. Thank you.

Operator: Thank you. Next question is coming from John Bakewell Barnidge from Piper Sandler. Your line is now live.

John Bakewell Barnidge: Good morning. Thanks for the opportunity. My question is about the Partners Group partnership. How meaningful do you envision it and are there other partnerships that could be added beyond Partners Group as we've seen life insurers not just stop at one for product creation? Thank you.

Andrew Francis Sullivan: Yes. Good morning, John. We're very excited about the partnership with the Partners Group. PGIM and the Partners Group are highly complementary and obviously bring to the table best-in-class capabilities from both sides. Really, this partnership is about working together to bring forth multi-asset solutions to wealth, retirement, and insurance clients, particularly in the retail space. If you think about it, partners bring capabilities that we don't have, like primary private equity. And we bring credit and real estate capabilities that are very additive to their strengths. So you should expect that one of the ways we'll look to grow our asset management capability and success is using partnerships It's additive to help us grow and but it's not new.

You saw us do this as we launched Prismic as well.

John Bakewell Barnidge: Okay. Thanks for that. And then with the board approving the ESR, what is the opportunity for Prismic as you see it in the coming year? Thank you.

Yanela Frias: Hi, John. With regards to Prismic, I would say Prismic continues to be an important tool in our toolkit. Reinsurance is key to our business. It allows us to manage products in the most capital-efficient manner by matching capital and reserving regimes with economics. To accomplish this, we use reinsurance with wholly-owned entities, prismic, and third parties, and you've seen us do that to manage ESR volatility as we've talked about in the past. We continue to work on an active pipeline with Prismic that includes ongoing balance sheet optimization, financing new business growth as well as working on third-party capital third-party blocks, sorry.

The one thing I would say that is new about Prismic is that we did recently launch our first forward flow transaction with Prismic covering U.S. retail fixed annuities. It's in small quantities because we just began that, but it is our first forward flow transaction.

Operator: Thank you. Next question is coming from Jack Matten from BMO Capital Markets. Your line is now live.

Jack Matten: Hi, good morning. My first question is on individual retirement. Your core earnings growth there took a nice step up this quarter. It looks like at least part of that was on kind of like better spread earnings. Just wondering if you could discuss further the earnings growth outlook for that business. Are there ways you can keep offsetting the headwinds from VA runoff? And any impacts from Fed rate cuts that we should be thinking about in the coming quarters?

Yanela Frias: Yes, Jack. So a couple of things. Yes, to your point, we did have nice core earnings growth there. So there were two things. We did have higher spread income as well as higher fee income in the business. And that is a result of both business growth and favorable markets. With the continued strong sales that we have seen, we did have an increase in spread earnings. There was also some reinvestment benefit as reinvestment yields continue to be above portfolio yields. So that's the first driver. In addition to that, the benefit from market appreciation did more than offset the runoff of our legacy variable annuities increasing fee income. So that is definitely a driver that we're seeing.

With regards to offsetting the runoff, obviously, the earnings here are going to be driven by both markets and spread. In terms of rate cuts and the impact on spreads, there is no material impact of changes in short-term rates for us. As I mentioned, our reinvestment yields continue to be higher than our portfolio yields. And so from a long-term perspective, we do have our sensitivities that we shared on interest rates. And so I would remind you if we had a one-time 50 basis point decline in long-term interest rates, with no recovery after twelve months. We estimate an annual AOI impact of approximately $0.20 per share.

Andrew Francis Sullivan: Hey Jack, I would just add that this is a market with a lot of tailwinds. It's a market that's now consistently over $110 billion per quarter. If you think about the aging society, that aging society's need for protected income, the fact that there's $7 trillion in money markets on the side and $40 trillion in unprotected retirement assets sitting in retirement accounts, there's just a lot of tailwind. We're well-positioned to capture share in the market given the strength of our capability. So we like what we see and we expect to see growth here.

Jack Matten: Got it. Thank you. And then follow-up is on expenses. Think we're lower this quarter across the company, I think both in and other and the operating segments. I guess could you just talk about any kind of expense efficiencies you're driving across the organization? And looking forward, should we think about it's a certain expense ratio or level of savings next year and whether that may be incorporated into the operating segments?

Yanela Frias: Yes, definitely. And I would start by saying that for us, expense discipline is a lifestyle, not necessarily a diet. So we don't think about specific initiatives. We are constantly looking for continuous improvement and that provides resources to continue to invest in the business as well as potentially falling to the bottom line. We do have an intermediate target for operating expense expenses of 10.5% to 8.5%. And when we did set the target at the end of last year, we were already at the top end of the range and we do expect to continue to make progress with regards to that target.

Operator: Thank you. Next question is coming from Taylor Alexander Scott from Barclays. Your line is now live.

Taylor Alexander Scott: Hi. I wanted to come back to PGIM and just some of the comments you made about the margin improvement over time. I'd be interested in the restructuring reorganization charges that you had this year and how much of that directly translates into more immediate savings in expenses? And will you have any more of those kind of reorganization charges as we think about going into year-end and early next year?

Andrew Francis Sullivan: Yes. Thanks, Alex. Maybe let me take that in two steps. Let me talk a little bit about the integration and then talk about the margin. Just to keep front and center, the integration, the reason we did that was really driven by customer behavior and the way that we see customers buying. They absolutely want to work with fewer asset managers that have more breadth. That's why we decided to go to market as one PGIM. I'm very proud of Jacques and the leadership team for the rapid progress they made that they already fully changed, and leaned into this new model. The change is being well received in the marketplace by our clients.

We're already seeing early signs of cross-sell momentum. And as Yanela talked about in the opening, this will lead to real bottom-line savings and strong efficiencies. That absolutely is going to be helpful from a margin perspective. Our margins in the quarter were 23.7 That was impacted by really two different, I'll call them one-timers, the $40 million of severance, but also the Taiwan sale. Without those, the margin in the quarter would have been 25.9 so in our 25 to 30 range. The path to getting towards the high end of that range at 30% is very clear. We are starting to see the beginning of the improvement in the fixed income and real estate market.

That certainly will be helpful. We are seeing traction in major growth initiatives with real progress across ETFs, asset-backed finance, and direct lending. And to your point, we will maintain a laser focus on expenses. And that means, both looking for lower-priority areas that we can shift investment out of, as well as just across the entire company, we have a fantastic opportunity with AI and new technology to become more productive. So we are confident in our ability to achieve the high end of 25% to 30% and the changes that we're starting to make more rapidly are giving us good momentum.

Taylor Alexander Scott: That's really helpful. Next one I had is on capital management. Just in light of seeing some better growth coming through, could you update us on just capital management priorities overall and the mix between sort of growth capital versus redeployment and thoughts on M&A outlook?

Yanela Frias: Sure, Alex. So I would start by saying that our capital deployment priorities have not changed. We remain focused on achieving our growth objectives and take a very disciplined approach towards capital deployment to support this. Our top priority has and continues to be to invest in our businesses at attractive returns while continuing to pay a healthy dividend along with share buybacks. We are comfortable with our current level of capital deployed to shareholders, which was over $700 million in the quarter and we feel that we maintain a balanced mix. And as you know, our guidance and our intermediate target is a 65% free cash flow ratio after investing in the business.

Andrew Francis Sullivan: And I would just jump in on the M&A side. You know, we've talked about evolving our strategy to recognize the changing world around us. And leaning into the best areas for growth and return. As we do that obviously, as I've always said, organic growth is always job one. We think we have some very good organic growth opportunities. But we do view M&A as an important tool to be utilized over time. You've heard me on many calls now, I'm a deep believer in being very proactive in the marketplace.

I've used the words "in the know and in the flow." That means across our very best growth opportunities, so things like asset management, being very active and always being aware. As always though, we're going to be very intentional, methodical, and disciplined in what we do in the M&A space.

Taylor Alexander Scott: Great. Thank you.

Operator: Next question today is coming from Ryan Joel Krueger from KBW. Your line is now live.

Ryan Joel Krueger: Hey, thanks. Good morning. With regards to the headwind from variable annuity runoff, I guess one alternative to limit that would be pursuing more variable annuity risk transfer. I know you've already, of course, done a couple of transactions already, but was hoping to get an update on if that's something that you'd be at least consider pursuing again.

Andrew Francis Sullivan: Good morning, Ryan. I'm going to raise this up and not just focus it on variable annuities because there are other areas that this would apply to. We have made very good progress on our product pivots. And on the reinsurance transactions, we're pleased that we have those behind us. We have reduced the exposure to traditional variable annuities and universal life substantially, by greater than 60%. As I said last quarter, we don't view this as a start or a stop. We're always seeking to optimize our balance sheet, capital, and our cash flows. And as we sit here, there is a healthy market available for transactions. There's plenty of capital available.

There are plenty of counterparties that are seeing value in these legacy books of business. So we are, and we will continue to assess those opportunities. Obviously, we will keep you informed when we do something.

Ryan Joel Krueger: Great. Thank you. And then in January, you had announced that you were pursuing a strategic partnership with Daiichi. Is there anything you can provide in terms of an update on that and what that could potentially include?

Andrew Francis Sullivan: Yes, absolutely. The partnership is off to a very good start. And I would just say recall there from what we announced there are two major aspects to Phase one. First, we will distribute Daiichi's neo first cancer product through our Life Planner system. That demonstrates the strength and the value of that Life Planner system and others recognize that strength. The second part of it is we will manage material assets over time for and in particular, including private credit. The assets have begun to manage assets for Daiichi. It's steadily growing and will soon reach $1 billion in assets under management. This is a very important partnership for us.

And the Daiichi CEO, Kakuta san and I meet with regularity, and we do have a menu of looking at things of how we might expand this relationship. But we're also both very clear that job one is doing these current things very, very well. To earn the right to do the next set of things.

Ryan Joel Krueger: Great. Thank you.

Operator: Thank you. Our next question today is coming from K. B. Monteseri from Deutsche Bank. Your line is now live.

K. B. Monteseri: Thank you. First question is on tech and AI. You've been investing in technology and big data analysis for a long time now. Do you think this new generation of AI tools is adding more urgency to invest even more in tech right now than, let's say, three years ago? Or do you view that as being just business as usual in terms of technology investments?

Andrew Francis Sullivan: Yes, K. B., we do believe that AI is going to have a profound impact on Prudential Financial, Inc. over time. And to your point, we have been investing in this for quite some time and we're going to keep doing that. Investments are ramping up and they're ramping up because we see the value of that enhanced level of investment. I think as many do. They're also ramping up though because the quality of the tools available to use are much better than they have been, even a year ago. Where we're focused is two core areas. First is improving our customer and advisor experience and using AI to personalize the process and to have faster decision-making.

And then second, there's just a very strong opportunity to improve the efficiency of the organization. Both accelerating employee productivity at the individual level as well as simplifying processes across the company. So this is an area where investments are ramping up and it will enable and inflect our performance over time.

Operator: Thank you. My follow-up question, and maybe there's a bit of competitive sensitivity around it. So feel free to not answer it. But how much do you spend on any given year on these investment in AI and growth initiatives? From a technology standpoint?

Andrew Francis Sullivan: K. B., you nailed it. We're not going to provide that figure. But maybe I'll just kind of frame it that we believe technology is intertwined and is core. There's no difference between business and technology today. So the level of investment is significant, and we feel it's appropriate and provides great return to the shareholder.

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

Elyse Beth Greenspan: Hi, thanks. Good morning. My first question, I know you guys provided a little bit of forward guidance for next year, right, just within PGIM and margin improvement. And then just based on how you see other things sitting today, do you guys expect to get back or to get within that 5% to 8% EPS target that you guys laid out next year?

Yanela Frias: Hi, Elyse. Again, if you recall when we talked about the targets, we said it wouldn't be linear. We talked about the near-term headwinds and over time as those dissipate, we would have higher growth. The actions we've taken in PGIM obviously will produce operating efficiencies and create reinvestment capacity and drive growth. We are not at this point updating the targets and it is too early to provide an update. So I would just say we still are targeting the three-year growth to be between 5% to 8%.

Elyse Beth Greenspan: Thanks. And then my second question I guess goes back to the ESR, right? I know you guys are now laying out this 150 target, right? And last quarter, you guys had given us the range that 180 to 200 where you were at the end of the fiscal year. And I believe you said that you're well above the 150 million so can you give us a sense like are you still within the 180 to 200?

And I know the disclosure will start to come next year, but would you I guess, disclose if you fall outside of that 180 million to 200 million range or if you could just give us a sense of just what the disclosure is going to be from now into next year?

Yanela Frias: Yes, between now and to next year, you could think about our disclosure being very consistent with how we talk about RBC for PICA. RBC for PICA is published on an annual basis. And in the interim quarters, we talk about our level relative to that target. It will be the same for the rest of the year until we are publishing in Japan the quarterly RBC. And so what we said on March 31 is that at the fiscal year-end, we were at 180% to 200%. That is well in excess of the 150% target. What we said this quarter is as of June 30, we are well in excess of that target.

Elyse Beth Greenspan: Okay. Thank you.

Operator: Thank you. Next question is coming from Tracy Banghi from Wolfe Research. Your line is now live.

Tracy Banghi: Thank you. I have a follow-up on private credit. I get that the traditional place life insurers like to be in is private placements, and you have a long track record in the space. And many of the private placements are rated. But the market is evolving and new private credit asset classes have emerged in recent years. So my question is on an allocation perspective. What is your appetite for some of these newer types of private credit assets like residential mortgage loans, asset-backed lending, middle market loans, and infrastructure?

Yanela Frias: Yes. Tracy, what I would say is we have a strong portfolio constructed to be resilient and perform well. We always evaluate new asset classes, so absolutely there are new asset classes in private credit. And we're looking to evaluate the asset classes that offer attractive relative returns and diversification opportunity. This is always done in the context of our robust risk and capital frameworks and we will continue to do that.

Andrew Francis Sullivan: Tracy, I just add in, obviously, that's from a general account perspective. But these are important businesses in PGIM. We've been expanding our capabilities from an asset class perspective in the credit space. And you'll recall, we just brought together public and private credit together into a $1.1 trillion manager because that's how customers are buying. But we have leaned in and really strengthened, I'll give examples, direct lending. You'll recall a couple of years back we bought DeerPath Capital and between our organic growth in direct lending and DeerPath, we're now over $14 billion in assets under management. We're also leaned into asset-backed finance, which is part of our $145 billion securitized products business.

And we're one of the leading players out there in public and private ABF. These are capabilities that grew out of the general account. But it's important both to have the right capabilities for RGA but also to get real commercial success out of them as well.

Tracy Banghi: Thank you. My next question is on the VUL growth. It was nearly 20% this quarter. It is a more market-sensitive product and you're the market leader in the space. I was looking at Wink Data, it looks like you're number one and you have nearly 30% market share. So it seems like you like the product more than others. And I'm wondering what is it about the product that you like? And what's the earnings profile of VUL that maybe others are missing?

Andrew Francis Sullivan: So thanks, Tracy. Maybe let me start by saying VUL is less market than the product set that we moved away from. You'll recall that we pivoted away from guaranteed universal life to variable universal life in particular variable universal life accumulation products. As far as why we're seeing such great success in the marketplace, I'd just say a couple of things. First is the strength of our distribution. We have one of the strongest distribution capabilities in the marketplace between our Prudential Advisor capability and our third-party relationships. We also have a relatively new product in the marketplace FlexGuard Life and that product is a VUL product and had a record quarter.

Others are entering the space. They do see the attractiveness and it is becoming more competitive. To be clear, though, we feel we have everything that we need to remain a leader, but we would expect to see more pressure as more of our competitors are getting into this part of the market.

Operator: Thank you. Next question today is coming...

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