Prudential Financial, Inc. Q3 FY2025 earnings call

• Andy highlighted strong third quarter results with pretax adjusted operating income at $1.9 billion, up 28% year-over-year. PGIM had positive net inflows, and U.S. and International businesses had various performance aspects. - Priorities: Evolving strategy to focus on profitable growth, including selling PGIM Taiwan business; executing with consistency, with progress in PGIM organizational structure; enhancing culture with speed and accountability, including accelerating succession plan in Japan with Brad Hearn as new CEO. - Yanela provided overview of PGIM U.S. and International businesses' quarterly operating results, including PGIM's diversified capabilities, capital position with $3.9 billion cash and liquid assets above minimum target, and Board-approved economic solvency ratio operating target of 150%.

PGIM delivered higher asset management fees driven by market appreciation, positive net flows and strong investment performance. 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, partially offset by lower fee income from legacy Variable Annuity runoff and higher growth expenses. International businesses also had higher net investment spread results, including benefit from stronger alternative investment income and more favorable underwriting, partially offset by higher expenses to support business growth. PGIM's assets under management were $1.5 trillion, up 5% from prior year quarter, with $2.4 billion total net inflows in the quarter, including $1.8 billion affiliated and $600 million third-party inflows, with fixed income, privates and alternatives seeing strong inflows offset by Jennison equity outflows.

• PGIM expects to realize approximately $100 million in annual run rate savings by end of 2026 and reinvest about 1/3 of savings to bolster sales and distribution. - Anticipates over 200 basis points of margin expansion in 2026 from organizational actions, targeting 25%-30% margin range. - EPS target of 5%-8% is not linear due to near-term headwinds like VA runoff and Japan surrender activity, but expects higher growth as headwinds dissipate.

• Jennison active equity manager experienced outflows, dampening organic growth and earnings momentum in PGIM. - Surrender activity in Japan remains a near-term headwind partially offsetting new business growth. - Potential impact of market changes, such as shifts in interest rates or competitive dynamics, on various segments.

Q: 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.

A: Sure. So we still believe that the Pension Risk Transfer market will be softer in '25 versus '24. 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, this is going to be a big market for years to come with $3 trillion in untransacted liabilities, funding levels sitting at 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 is strengthening here in the back half of the year.

Q: PGIM flows have been improving. Could you just talk a little bit more about the drivers? And do 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?

A: Yes, certainly. So -- 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 time frames. So if you look at it from that lens, over the last 12 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 evenly between retail and Institutional. What we saw this quarter was very strong inflows across public fixed income, privates and alternatives. That was offset by Jennison equity outflows. This is systemic in the industry, and we're not immune given what's happened with the active to passive pressure. That said, active equity plays a very important role in our clients' portfolio and is important in the mix. As we look forward as far as 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.