The operator introduces the participants of the conference call and reminds listeners that the call is being recorded. Prudential's Chairman and CEO, Charlie Lowrey, along with other company executives, will provide prepared comments and then take questions. The presentation may include forward-looking statements and non-GAAP measures, and the company's third quarter results show continued momentum and execution of their strategy. Prudential aims to become a higher growth, less market-sensitive, and more nimble company, and this quarter, they have increased their capital efficiency and enhanced their capabilities.

Prudential is optimizing its operating model to drive efficiency and growth. They have launched Prismic, a life and annuity reinsurance company, to reduce market sensitivity and expand their assets under management. This is an example of how Prudential's business system can benefit customers, shareholders, and stakeholders. They are also investing in their businesses and expanding their distribution channels, such as achieving record sales in Brazil through third-party and Life Planner channels.

Prudential has seen strong sales in individual retirement strategies, driven by the success of FlexGuard and the launch of a new fixed annuity. They have also secured new pension risk transfer transactions and expanded into the health savings account market. They have announced a strategic partnership with LPL Financial to enhance their adviser and customer experience. Prudential is also investing in customer service through technology partnerships and streamlining their organizational structure to better meet the changing needs of their customers.

Prudential's strong balance sheet and risk management have helped them navigate the current economic environment. They have a high financial strength rating and a well-diversified investment portfolio. They have returned over $700 million to shareholders in the third quarter. Their pretax adjusted operating income for the third quarter was $1.6 billion, up 45% from the previous year. This was due to business growth and a higher interest rate environment, partially offset by lower fee income. Their GAAP net loss was $2.1 billion, primarily due to mark-to-market losses on interest rate derivatives. PGIM, their global investment manager, had lower revenues and higher expenses compared to the previous year.

The increase in earnings for the company's International businesses was primarily due to higher spread income. PGIM, the company's global investment manager, has a strong track record of outperforming benchmarks. However, there were third-party net outflows in the quarter, driven by lower fixed income inflows and client outflows. PGIM's success is mutually reinforcing with the company's insurance and retirement businesses, and their asset origination capabilities and access to private capital give them a competitive advantage. The company's private alternatives and credit business has also seen growth through organic growth and acquisitions.

In the third quarter, PGIM's private assets platform saw a capital deployment of $8 billion, driven by strong private placement and direct lending originations. The U.S. businesses also had a diverse earnings mix from fees, net investment spread, and underwriting income, with a focus on increasing value and growth and reducing market sensitivity. Retirement strategies had strong sales of $6.7 billion, with the institutional business benefiting from leading market capabilities and individual retirement sales driven by product pivots. Individual life sales increased 24%, with variable life products and the recently launched FlexGuard Life product contributing. Group insurance also saw strong results, with favorable underwriting experience and a benefit ratio of 82.4%.

The paragraph discusses the international businesses of the company, including its Japanese life insurance companies and other emerging markets. The company's focus is on providing high-quality service and expanding its product offerings to meet customer needs. The company saw a 19% increase in sales compared to the previous year, driven by record sales in Brazil and growth in the bank channel. The company aims to be a global leader in expanding access to financial solutions and serving a diverse range of customers. The paragraph concludes by mentioning the earnings for the fourth quarter of 2023 in comparison to the third quarter results.

In the third quarter, the company's pretax adjusted operating income was $1.6 billion, resulting in an after-tax earnings per share of $3.44. To predict fourth quarter results, the company suggests adjustments for items such as lower variable investment income and seasonal expenses. The company also mentions implementing changes to their organizational structure and expects a restructuring charge of $200 million. These adjustments bring the expected earnings per share for the fourth quarter to $2.75, but if specific fourth quarter items are excluded, earnings per share would be $3.48. The company's capital position remains strong with $4.3 billion in cash and liquid assets within their target range of $3 billion to $5 billion.

The company has strong regulatory capital ratios and off-balance sheet resources. They are carefully managing their capital deployment to balance financial strength, growth, and shareholder distributions. The GAAP net income loss did not require any capital contributions. The transition to ESR from SMR in Japan may have an impact on Pru's capital, but their current businesses in Japan are financially strong and profitable. The FSA is implementing new capital standards, but adoption is still a couple of years away.

The company has made progress in becoming a more growth-oriented and adaptable company, including selling off low-growth businesses, acquiring new capabilities, and exceeding expense goals. They plan to continue improving and accelerating their growth objectives in a competitive environment.

The company is focused on investing in its businesses and technology, reducing costs, and improving efficiency to remain competitive and grow sales and earnings. They plan to simplify their management structure, empower employees with faster decision-making, and update investors on their progress. The restructuring will result in annual cost savings that will exceed the restructuring charge of $200 million, providing expense capacity for investments and offsetting inflation. The goal is to keep expenses flat and improve margins through continuous improvement. The launch of Prismic with $1 billion of capital may have been used for the structured settlements transaction.

Robert Axel, Ryan, and Rob discuss the committed capital in place for future growth. They mention the intersection of asset management and insurance and how Prismic will play a role in accelerating growth across all of their businesses. They also mention opportunities for optimizing their balance sheet and reinsuring third-party blocks into Prismic. The restructuring program will involve investing in human capital, automation, and offshoring.

The company is undergoing a simplification process to create a leaner, faster, and more agile structure in order to better serve customers and drive growth. They are focusing on optimizing organizational structure through design and technology instead of offshoring. The company also plans to continue growing through programmatic M&A transactions, with a focus on mature companies that align with their strategy. They will carefully evaluate each potential acquisition for both strategic and financial benefits. Additionally, they are working to globalize the PGIM business.

The speaker discusses the company's focus on higher growth and higher fee areas, specifically mentioning private alternatives and real asset capabilities. They confirm that the benefit of negative IMR is already reflected in their RBC ratio, and address a question about how USD-denominated products will be treated under the new ESR framework in Japan. They emphasize that this is still a developing regulatory framework and that they are working on getting the economics right for long duration products sold in the US.

The speaker discusses the negative flows in both retail and institutional funds for PGIM and attributes it to industry-wide issues and a slight dip in performance. They also mention the impact on fees and state that the outflows were predominantly due to equity.

In the past year, clients have been rebounding and recognizing gains as our equity assets have performed well. However, there have been outflows of $3.8 billion on the institutional side, primarily in fixed income. This is consistent with industry trends. Our outlook is positive for a stable, higher rate environment. In Individual Life, there was a benefit from lower expenses and a legal reserve release, which contributed to a good quarter. It is our practice to regularly review legal reserves and make adjustments as needed.

The release this quarter reflects the results of a review on the life side, with strong investment and underwriting results. The company remains optimistic about growth. When asked about the impact of DOL regulations on FIA business, Caroline Feeney states that they support consumer protections and are still analyzing the proposal's potential impact on customers' access to retirement products.

The speaker acknowledges that the proposed rule has a focus on fixed indexed annuities, which account for less than 20% of their total annuity sales. They are still reviewing the proposed rule and plan to comply with it, as they did with the last proposed rule. They cannot comment on whether other channels, such as the IMO channel, are prepared for the new rule. The speaker also mentions Prismic and the investor consortium, but cannot provide details on their investment time horizon or plans for liquidity.

Robert Falzon, speaking on behalf of the company, explains that they have partnered with a group of large global investors with a long-term investment horizon. Prismic has an independent Board of Directors and there are no put or call provisions in their agreement. The next question is from Wilma Burdis of Raymond James, who asks about deal closing costs with Somerset Re and the trajectory of benefits from the restructuring. Ken Tanji responds that the deal-related costs will be incurred at the time of closing and the benefits of the restructuring will occur after that. There will be benefits in 2020 and a portion will be effective in the first quarter. Wilma also asks about the impact of Prismic on Pages RBC and Ken explains that there will be a holdco liquidity impact from the initial investments.

The Prismic reinsurance of the structured settlement had a modest initial impact on the company's RBC ratio in September, but it will continue to have a positive impact as the investment portfolio is reallocated. The company sees opportunities for further optimization of its in-force block, particularly in the life and annuity blocks. Prismic is an example of the company's open architecture solutions and is a key component of their strategy to become a higher growth, less market-sensitive, and more nimble company. The company is excited about leveraging third-party capital and reinsurance to drive growth in its insurance, retirement, and asset management businesses. Prismic reinforces and enhances the company's mutually reinforcing business system in three ways.

The company has several strategies for leveraging Prismic, a reinsurer, to increase assets under management for PGIM. These strategies include reinsuring in-force business, writing new business that can be reinsured to Prismic, and reinsuring third-party blocks. The company is being thoughtful about executing these opportunities and has reallocated resources to optimize capabilities. Additionally, the market has shown an increasing appetite for a variety of reinsurance products, expanding beyond traditional insurance and annuity products.

The insurance marketplace is growing and there are opportunities both domestically and internationally. The proceeds from the VA deal were used to support organic growth and a dividend of $1 billion was made to PICA in the third quarter. The holdco cash decreased slightly due to the dividend, a $200 million investment in Prismic, and ordinary expenses.

PGIM has an appetite for both flow and balance sheet from Prudential as well as third parties. They will get asset management on those blocks as they're brought into Prismic. Their ownership in Prismic is at 20%, but they may continue to invest in those types of businesses if they enhance the fee components and have a reduced risk profile. There are no new developments in the office component of their high-quality real estate portfolio.

The speaker discusses the resiliency of their portfolio, specifically in the office loans sector. While valuations and collateral have decreased, the LTV remains low and the team is experienced and dedicated. The speaker also mentions that their outlook for variable investment income includes lower levels of prepayment income in the future, but their well-diversified portfolio should continue to perform well. In the current quarter, real estate performance was down but private equity performed well.

The speaker discusses Prudential's private equity portfolio, which has a small exposure to the DC area and a significant component in high yield and debt strategies. They believe they will perform well, but have lowered their expected range for other related revenues in their PGIM division due to a slowdown in the real estate market. The company's unique business model and growth strategy aim to help people secure their financial future.

Prudential is confident that their strategy and business model will make them a global leader in providing access to investing, insurance, and retirement security. The speaker thanks the participants and concludes the teleconference and webcast.

This summary was generated with AI and may contain some inaccuracies.