Prudential Financial, Inc. Q4 FY2025 earnings call

• Japan Issue: Prudential voluntarily halted new sales at POJ for a 90-day period due to employee misconduct, with actions including customer reimbursement, enhancing training, sales supervision, and compensation restructuring. Impact on 2026 pretax adjusted operating income estimated at $300M-$350M.
• 2025 Financial Results: Pretax adjusted operating income was $6.6 billion, adjusted operating return on equity ~15%, and nearly $3 billion returned to shareholders via dividends and buybacks.
• PGIM: Strong investment performance, integrated asset management, but faced outflows in active equity. Expecting margin expansion in 2026.
• U.S. Businesses: Retirement strategies had $40 billion in sales, Group Insurance up 11% year-over-year, Individual Life pivoted to less capital-intensive accumulation products.
• International: Japan saw growth in retirement/savings products, emerging markets had record sales in Brazil, and exited certain businesses in Taiwan and Kenya.

PGIM reported pretax adjusted operating income of $249 million in Q4. Its assets under management were approximately $1.5 trillion, up 7% from the prior year quarter, but experienced net outflows of approximately $10 billion due to industry trends and a single low fee fixed income withdrawal. The U.S. businesses delivered pretax adjusted operating income of approximately $1.1 billion, driven by higher spread income and favorable results in some segments, though offset by lower fee income from legacy variable annuity runoff. International Businesses generated pretax adjusted operating income of $757 million, with higher sales in Japan (where retirement and savings products now account for a majority of sales) and emerging markets reporting record full year sales of $386 million on a constant currency basis. Japan's 90-day sales suspension is expected to impact 2026 pretax adjusted operating income by $300 million to $350 million.

• 2026 pretax adjusted operating income impact from Japan sales suspension estimated at $300M-$350M.
• Board authorized up to $1 billion in share repurchases in 2026 and increased the common stock dividend for the 18th consecutive year.
• PGIM expected to deliver over 200 basis points of margin expansion in 2026.

• Potential extension of Japan's 90-day sales suspension, which could further impact earnings.
• Headwinds in active equity for PGIM due to industry shift to passive management.
• Competition in the RILA market affecting sales and profitability.

Q: How did Prudential arrive at the 90-day sales suspension in Japan?

A: It was a carefully considered decision based on 4 major actions (customer reimbursement, Life Planner training, enhancing sales supervision, redesigning compensation) and 90 days was seen as a reasonable time to make meaningful progress, but will resume sales when confident in compliance and oversight.

Q: Will the sales suspension in Japan impact Gibraltar Life?

A: No direct impact seen yet, but conducting a similar review of Gibraltar's sales practices.

Q: What's the impact of surrenders in Japan?

A: Yen depreciation drove elevated surrenders, but customers with heightened FX sensitivity have already surrendered, and impact on 2026 earnings from 2025 surrenders estimated at ~$50 million.

Q: How does the sales suspension in Japan affect cash flow and capital deployment?

A: No significant impact expected on cash flows or capital deployment plans as there are multiple sources of cash flows in Japan.