The operator introduces the Prudential Quarterly Earnings Conference Call and announces the participants. Bob McLaughlin, representing Prudential, introduces the speakers and mentions that the call is being recorded. Charlie Lowrey, Rob Falzon, Andy Sullivan, Caroline Feeney, Ken Tanji, and Rob Axel will be speaking. The presentation may include forward-looking statements and non-GAAP measures. Charlie Lowrey thanks everyone for joining and announces the CFO transition. Yanela Frias will be the new Executive Vice President and CFO, replacing Ken Tanji who has been with Prudential for 27 years.

Yanela, a seasoned executive, will become CFO on March 15, while Ken will stay on for a smooth transition. Ken has had a distinguished 35-year career at Prudential and has been a great partner and friend. The company's financial results for 2023 show strong sales momentum and solid earnings growth. Prudential has made progress in transforming their business to become a higher growth, more capital-efficient, and nimble company. They have executed several transactions to improve capital efficiency, such as reinsuring a $10 billion block of traditional variable annuities and closing a $10 billion transaction with Prismic, a life and annuity reinsurance company.

Prismic, a major company, is using its differentiated brands, global capabilities, and multichannel distribution to drive future growth. They have entered into a reinsurance agreement with Somerset Re to release capital and increase earnings. The company is also strengthening its market-leading businesses through strategic M&A, expanded distribution, and new products to meet the changing needs of customers. They have acquired a majority stake in Dearpath Capital to enhance their capabilities in private credit and direct lending. Prismic is also expanding internationally, with a focus on Latin America and Japan. They have secured a large longevity risk transfer transaction in the Netherlands and have launched a new retirement income solution in collaboration with Fidelity Investments.

In 2023, the company launched a new index structured settlement annuity product and evolved its operating model and organizational structure to better support customers and leverage technology. They also formed partnerships with technology firms to increase innovation and enhance customer experience. This, along with their strong balance sheet and risk management, has allowed them to confidently navigate the macroeconomic environment. The company's disciplined approach to capital deployment allows them to balance investing in long-term growth with returning capital to shareholders, as evidenced by returning over $700 million in the fourth quarter.

The board has authorized $1 billion in share repurchases and a 4% dividend increase for 2024. This marks the 16th consecutive annual dividend increase. Robert Falzon provided an overview of the financial results and business performance for PGIM, US, and International businesses. Pre-tax adjusted operating income for 2023 was $5.5 billion and $1.3 billion for the fourth quarter. GAAP net income for the quarter was $374 million higher than after-tax AOI. PGIM had lower other related revenues and higher expenses, while US businesses had higher spread income and lower expenses. International businesses had less favorable underwriting results but lower expenses.

PGIM, Prudential's global investment manager, has a diverse range of capabilities in public and private asset classes and has achieved strong investment performance. Despite some net outflows in the fourth quarter, PGIM's assets under management have increased due to market appreciation. The success and growth of PGIM and Prudential's insurance and retirement businesses are mutually reinforcing, with PGIM's investment expertise and access to private capital providing a competitive advantage for the businesses. Additionally, PGIM's Private Alternatives business, with assets of $240 billion, continues to grow through both organic growth and acquisitions.

In the fourth quarter, PGIM's private assets platform saw a capital deployment of $9 billion, driven by strong private placement and direct lending originations. The US businesses also performed well, with diversified earnings from fees, net investment spread, and underwriting income. Retirement strategies had strong sales of $16.4 billion, with institutional and individual lines of business both contributing. Institutional Retirement sales were boosted by international reinsurance sales and a successful quarter for structured settlements. Individual Retirement saw its highest sales since 2019, driven by product pivots and strong sales of FlexGuard and FlexGuard Income. Individual Life sales also increased significantly, thanks to a focus on more capital-efficient products. In group Insurance, the company continues to diversify its products and client segments while utilizing technology to improve efficiency and customer experience.

The company's full year sales increased by 11%, driven by growth in disability and supplemental health. Their international businesses, particularly in Japan and emerging markets, also saw significant sales growth. The company is focused on providing high-quality service and expanding their distribution and product offerings. They are also investing in growth businesses and markets to become a global leader in financial solutions for a diverse range of customers.

In the paragraph, Kenneth Tanji discusses the company's earnings for the first quarter of 2024 and provides insight into how they may compare to the fourth quarter results. He mentions adjustments for items such as variable investment income and underwriting experience, and notes that the company's underlying earnings power has increased significantly over the past year. Tanji also highlights the company's strong capital position and regulatory ratios, as well as their substantial cash and off-balance sheet resources.

The company remains focused on balancing financial strength and growth through capital deployment. They are confident in their ability to navigate the macro environment and have a solid balance sheet. The 65% free cash flow conversion target is still in place and their businesses in Japan are well capitalized.

The company is working with the FSA to adapt to new standards and has various strategies in place to manage in the new regime. Sales in Japan and other international markets have been strong due to a strong brand, great product, and outstanding distribution. The company has seen growth in all channels and is focused on innovating product designs and enhancing the customer experience. In Brazil, there was double-digit growth in every channel, with high retention and productivity in the Life Planner channel. The company is also expanding and strengthening third-party distribution.

The speaker discusses the strong results from Itau Bank and the expansion of their partnership with Mercado Libre. They are optimistic about their ability to grow and deliver value to customers while maintaining profitability. The RBC ratio improved in the quarter due to various factors such as in-force businesses generating free surplus and a regulatory change. The speaker also mentions that their sensitivity to short-term interest rates is not expected to have a significant impact.

The speaker explains that the company's approach to deploying capital is focused on maintaining a strong balance sheet, investing in growth, and returning excess capital to shareholders. They have recently deployed capital to support sales and develop new products to meet customer needs.

The company recently closed on an acquisition and returned $700 million to shareholders. They are not satisfied with recent flow performance and are taking actions to improve it, such as investing in the business and expanding into private alternatives. They believe that improved investment performance and distribution will lead to active flows in the future, and they expect the record amount of money market assets to flow back into fixed income once inflation and rates stabilize.

The speaker from Prudential Financial discusses the strength of their investment performance and their optimism for the future despite recent underperformance in terms of flows. They mention a pickup in gross inflows towards the end of the fourth quarter and into this year. They also mention their interest in augmenting their organic growth with mergers and acquisitions, specifically in higher growth, higher fee areas such as private alternatives and real asset capabilities. They have recently made some acquisitions in this area and are open to further opportunities, but will remain patient and disciplined in their approach. The speaker also confirms that the RBC is now greater than 425.

The speaker, Kenneth Tanji, discusses Pega's financial performance and objectives, including maintaining a strong RBC ratio and balancing growth, financial strength, and shareholder distribution. He also provides an update on the SGUL deal with Somerset Re, which is expected to close in the current quarter. The speaker, Robert Falzon, mentions that the deal will be retrospective to the beginning of the year and an update on the financial impacts will be provided once the deal is closed. The speaker also addresses the performance of PGIM, noting strong five and 10-year numbers but a lower three-year number.

The speaker discusses the company's approach to capital deployment, which includes maintaining a strong balance sheet, investing in organic growth, and seeking out potential acquisitions. They prioritize opportunities that align with their growth strategy and may include expanding into new markets or enhancing distribution.

The company sees great potential in the PRT market and has had success in this area, with plans to continue investing in the business. They also plan to return excess capital to shareholders, but will evaluate this based on investment opportunities. The company's strong performance in PRT is highlighted, with a recent $5 billion deal and their position as a leader in the market. They expect to see continued growth in this area and believe their expertise and service delivery will keep them competitive.

Prudential's Andy Sullivan discusses potential pension reform in the Chilean market and the impact it could have on the company's business. He mentions the rejection of a constitutional referendum and a proposed bill to eliminate AFPs and increase employer contributions. He also notes that the Habitat JV, while a larger component of their emerging markets, is not a significant contributor to PFI earnings. A question is then asked about lapses in Japan due to exchange rates.

The speaker, Andrew Sullivan, discusses the decline in the in-force amounts of Prudential's Japanese businesses, attributing it to a shift towards investment contracts and natural runoff in older life blocks. He expresses confidence in the company's ability to grow and diversify these businesses. Caroline Feeney then addresses the reduction in the benefit ratio target for the group insurance business and highlights its strong performance in the quarter and full year.

The company believes it is in a strong position due to their progress in executing their strategy. They are focusing on diversifying their business and adding new products. This has led to stronger core earnings with higher margins. The full year benefits ratio was over 83%, driven by strong performance in the Life block and record disability results. The company expects this underwriting performance and earnings power to continue improving, which is why they have lowered their benefit ratio guidance for the year. They are confident in the future earnings power of their group insurance business due to their growth and execution of their strategy.

Rob Falzon, speaking on behalf of the company, discusses the potential growth opportunities that Prismic, a joint venture between the company and institutional investors, can bring. They are optimistic about its potential to finance sales growth and optimize their balance sheet, and plan to expand beyond their initial $10 billion transaction. They also mention the $1 billion buyback authorization for 2024 and the potential for more capital returns from selling blocks and running off earnings.

The speaker, Kenneth Tanji, discusses the company's approach to shareholder distributions, including dividends and share repurchases. They have a consistent approach and consider their capital position, outlook for free cash flow, and opportunities for organic growth. The company has increased their dividend for 16 years in a row. The next question is about the Group Insurance business and the possibility of expense savings in the future. Caroline Feeney responds that they have seen improvement in administrative expenses and will continue to focus on expense efficiencies and adjust their operating models as needed.

The company has had success in managing disability claims and has invested in technology to improve this process. They have also been disciplined in expense management and pricing. The company is focused on globalizing their business, particularly in markets where they are not currently large. The Prismic business is a part of this growth opportunity for PGIM internationally.

Rob Falzon discusses the company's efforts to expand in Europe and Asia and its investments in distribution. He also mentions the opportunity in Japan and the potential for growth in those regions. In regards to commercial real estate, there has been a 16% market correction with an estimated 5-6% left to experience. Office real estate has been hit the hardest, with a 30% correction and potentially another 10-15% to go.

The speaker discusses the performance of their portfolio, which is mostly made up of non-office properties and has a low loan-to-value ratio and high debt service coverage ratio. Despite a decline in the value of their office component, the overall portfolio has seen a 6% increase in valuation. They also mention their experience with maturities in 2023, where only a small portion required modifications and the majority were resolved favorably through refinancing or extensions. They expect to see some impact from the current economic cycle, but believe their portfolio will remain resilient.

The speaker discusses the company's increase in reserves in their real estate portfolio, which now stands at $370 million. This represents 72 basis points and is seen as well provisioned for the portfolio's quality. The speaker thanks the questioner and concludes the call by expressing confidence in the company's strategy and momentum for the future.

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