PRU - Earnings call transcript Q4 2017 | Prudential Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Prudential Quarterly Earnings Call Fourth Quarter 2017.

During today's conference all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

conference the recorded host, conference today's like would Mr. reminder, turn to over a is I being now As to your Mark Finkelstein. Please ahead. go

Alan Mark Finkelstein

joining Officer. Businesses; on Chief Rob Shannon. call. Vice Strangfeld, Rob Chairman; you, Good Falzon, Head and Financial Head Grier, you Thank Axel, of of Lowrey, International Businesses; morning CEO; Mark and Representing Pelletier, Principal call today's for Prudential Charlie are Steve Accounting John Officer; thank our Domestic

John, by may Mark Rob will It start predictions comments We today. your may presentation prepared we we then Today's is results answer the include and will materially actual with and statements. from differ make possible questions. that forward-looking

this include In presentation measures. references may non-GAAP addition, to

GAAP that from see of our measures and found at John. For www.investor.prudential.com. release, and of it statements, And the forward-looking hand reconciliation a our statements which could website can differ to measures materially actual non-GAAP that comparable factors will results those to I in section titled with please forward-looking of such measures the the in press cause discussion over earnings be to

John Robert Strangfeld

to I underlying for higher Thank objectives hand We expenses. share our you, the provide morning, quarter. then thank which for the Rob year estimate Recall fees, the and our quarter $X.XX trends fundamental and fourth current by of Mark for quarter reflects deployment increase (X:XX) will year, exceeded include growth per some typically driven expenses, us. the excluding underwriting year to level full share. solid I margins Mark. businesses. in fourth we approximately that The elevated and XXXX will $X.XX and and observations be on Fourth higher the and specifics. the results per quarter strong it a and $X.XX go for and to earnings, our everyone joining earnings businesses, are over results capital lower operating year and prior for market discrete in an partially exceeded of was across the offset you share per incentive showing increase Good Prudential. business items through momentum

discrete to the guidance earnings, a the the on of Turning This $X.XX equity established objective. top XXXX, per $XX.XX driven for end share prior and the operating we results, also nearly above XX% intermediate-term to was December operating were exceeded to XX% of well year Similarly, in excluding items above market our full XXXX. of range year XX% of for year near-term return share. the

from While other results pleased XX% fluctuate, increased markets full results with prior are our in would that can investment share book businesses highlight also core overall. value I year benefited per margins adjusted favorable and the year and as items growth as end. the underlying over we well that

this includes X%, value discuss benefit will the in Cuts solid more this a a book Acts Tax Mark adjusted share While increased from which per and detail, benefit. excluding Jobs

good So measures. on all was a very overall, it year almost

in around return underlying on of case assume that growth. also in for the to expectations, to business, to underwriting which Pension future industry our those touch Transfer did with continues us flow, base our and businesses in on now will perform I'll exceeding the I equity not the discussing Core XXXX, our to to of our cash in will XXXX some returns the $X in continue year-over-year enabling generate invest themes margins significant XX% same growth should remains averages during Retirement While and Likewise, we the to value free to for with billion execution net businesses we Risk particularly produce flagship continue exceed flows business. of while contributed growth. positive continue that XXXX, business enable us which consistency account well. exceptionally themes does businesses. our in robust performance nearly produce start our of quality our

Our the and source that capabilities consecutive success institutional continue deliver net Retirement of is we see retail important achieved clients. consecutive as from and another the going as a XXXX direct In flows of in milestone differentiated Management, to a we reflection year long-term business forward. XXth of XXth this growth we marked positive from Investment year clients

XX%, XXXX. years, third-party five assets unaffiliated annually including last management above the in grown under have Over at XX%

active we're growth there to continue facing across overall positive and continue model, multimanager to, favorable from our under initiatives. managers, many out and seeing from positive benefit strategies, a our are while immune strong also which not performance Individual business. financial to We Annuities outlook are investment We results rates, assets recent And in to investment and performance challenges outcomes our management fee stable strong strong generate leading of we

and Although industry-wide margins, volatility. in higher the of free thoughtful increased flow, reduced sales has have and this more we've business efficiently effectively. manage capital And under cash been pressure, steps taken resulted amounts to

of continue anticipated and to part while Life, were below is results well-underwritten XXXX our $X what Life to benefits billion solid ratio Over excess the business Group Disability. composition was targeted our both Individual steady the the underwriting XXXX. of of evolves. as for and capital taken billion deployable ROE XXXX XX% in deliver and we actions annual growth of in several of generated mortality with this last Annuities In due Individual and review assumptions, business, actively we're returns, including an pleased results our low range to underwriting Insurance, the as Group following we business adverse we in of ago. two of In the from core actions continue including a and to we solid have performance with and manage in for International turning operations, earnings years the And XXXX. we the environment pricing over the end years sales took at X The

in Yen the how Japan's of denominated particularly grew products to and XXXX through dollar currency business foreign Notably, pleased early Japanese year. U.S. of adapted increased sales sales are We at products. for comprised changes XX% in our over XXXX price XX% products on

forward, we model notable we more And be distribution that stable to I next to others that impact the at growth will markets some like meaningful in deliver we attractive and expect continue newer fourth headwinds which our differentiated will Japan. now XX% on a returned optimistic we deployment. be Looking to margins face over We several years. time. our despite earnings cash results free have now share Brazil quarter. billion, generate capital to to about in repurchases. year We brings of dividends equally turn to returns This shareholders to and about the shareholder between considerable estimate million full our split $XXX about businesses, over flow from $X.X continue

earnings In are higher the that deployable, quarterly yesterday XXXX with board follows that announced of As we level we similar a our in returning in along our are This increased to a December. have increased regard, a the our result are increase earnings dividend. we the share pleased authorization capital shareholders. our amount of share authorized of increase that XX% in repurchase

structure pleased We're results. balance continue continue while year including our XXXX we organizational term we our to realignment put fundamentals excited good also connect over about our and and the making, domestic a to in to show quite will are sheet. return margin time, capital facilitate these strong sum that To to us so continuing with We we're generation We will of across priority businesses. and longer objectives on earnings exceeded investments business with with businesses up, rate. a invest do for shareholders growth greater our maintaining and accelerate recent to our those high customers initiatives. growth agility, and enable The help the

from mix Act been of provide boost, like on confident our the will focus near-term that. and track items business enable always remain and value innovation a While delivering and the positive is to to that the impact and us do record combination has growth our of and long-term execution superior just we will shareholder Tax earnings

So over to it like to hand with Mark. I'd that,

Mark B. Grier

it our $X.XX share ago. who from of $X.XX businesses driven currency items X. partially to discrete John. leverage cover a then for afternoon, year highlights. take $X.XX businesses to by quarter on $X.XX evening. up and business with over for Thanks, quarter Core morning, a higher for higher continued International and Insurance $X.XX income the offset amounted Falzon, through share, Rob Investment adjusted ago. basis, overall performance good constant After Management good per adjusting and of you expenses. compared market our quarter, results and slide from will on the Annuities growth fees EPS in and amounted to the a in our start Good I'll in benefiting solid operating year or was results I'll per turn After-tax I'll capital liquidity,

and In discussed such estimate included share. for and to pattern, advertising, prepayment $XXX the Tax basis, million these This investing in also impact pre-tax variable or net quarter per current income, In we annual results expectations. items the quarter. and million Retirement to refinements approximately reflect expectations were net a of The Management million third This $XX our for communications and was addition, stronger costs realized estimated from $X.XX share in expenses fees our investment mentioned $X.XX business of related and Individual other other about results would we results. billion share to billion I in historical higher quarter share a about expectations of quarter than that about for less related with of net and effect impact offset technology Together, on higher by million strategic investment above revenues quarter Life includes of consistent our the our policyholder result average a and also the were of than or current $X.XX pattern $XXX a to above per the varied million. $X.X the returns a which that we billion current amounted earnings income $XX higher about Investment net items and million from results. $X.X $X.XX $X.XX of thinking quarter items year-ago was quarterly Jobs items resulted tax Current On adjusted comparison $X.X when these the GAAP $XX benefit were reported GAAP year, development, non-coupon a enactment operating note per as in we other incentive after-tax average underwriting business our the year average benefit favorable quarter the net Cuts of relative as Act in favorable share. about our a benefit net or certain losses. per $XX quarter ago. income businesses income that our had and the of our the per about of results in

a Turning components: Jobs corporate Tax quarter billion of includes financial part to one-time the of slide Tax earnings $XXX taxable arising the of liabilities of the of I'll net The Cuts and impacts expense the adoption foreign from address a rate from the transition Act of of of two from the territorial repatriation the a and U.S. system. key $X.X to Act. X, tax benefit tax the tax current million system; the billion as remeasurement unremitted deferred $X.X tax benefit about from lower tax and of enactment a deemed territorial tax subsidiaries

to per an impact other and value $X.X related deferred comprehensive for increased to losses. established book of increase December share. XXXX by book were value the income, relates the billion addition, In accumulated share adjustment as This per benefit in adjusted unrealized $X.XX $X.XX. to originally through common difference primarily tax that of of taxes XX, gains deferred GAAP tax compares common The net an

in to Looking compared forward, XXXX tax as the lower primarily rate our expectation due earnings. financial to The adjusted XXXX income our XX% to connection operating XX% effective in reduction expect provided December tax a U.S. is to be outlook. now our applying approximately we with on rate business

from which the in the benefit quarter, and in and in performance driven impact market the which These a we of quarterly in to include experience results. equities slide completed & Corporate cover X. the items mainly driven partially relatively Annuity for discrete related by Moving by transaction costs small our to Other items had accounts, offset exchange December. market unlockings on a business, incurred a customer I'll debt

net Moving pre-tax on not the which in income X, income. to affecting included operating are that slide adjusted items shows

from certain underlying The from equity which realized other activities currencies impact risk value equity Slide after mitigation. income ROE year Act. earlier, million gains our and associated share for derivatives the driven non-economic net related to hedges our Of $XX.XX after-tax business start calculation December and the an quarter X. and GAAP XX% credit and $XXX X as Product Annuities on highlights million by business by was security full $XX investment largely per in spreads (XX:XX) for note, in the $XXX includes non-performance per gain hedging current our from a a benefits. other compared risk risk $XXX of results increased by income Our financial of related I $X.XX net our million. pre-tax and losses million XXXX dollar driven living embedded $XX.XX Tax the to management the share adjusting XX.X%. Also, the weakened the income driven general from loss by XXXX, and non-coupon of net items derivatives amounting XXXX benefit as tailwinds used (XX:XX). based of related amounted operations. a year market the pre-tax investment currency I'll investment outside for tighter discrete strong of adjusted results, losses on slide U.S. businesses to driven of activities on to applying of of Earnings share includes portfolio gain from as adjusted items, impact of divested operating adjusted million, the and negative markets by returns. and fixed across and of income performance driven noted other had implies shows International impact $XXX of book was The earnings in related per operating XX,

current million charges the and impact I highlight actuarial organized market structure ago. separate discrete from due Partially above average up income, was year contribution that mentioned second lower existing primarily in year-ago driven and policy fees business lower basis values realigns and greater quarter's points level. risk modestly XXX costs, new segment, but favorable ROA Let business Annuities each markets me divisions. the spread increase The a on segments under results annuity by Returns consistent from our our results by them this on our was is reinvestment the and we in a I quarter from of variable investment offsetting or hedging July. expectations of yields. for investments return non-coupon benefit update by both and management first the to quarter. average comparative and the X% quarter, effective structure quarter U.S. record driven our prepayment earnings were and the a were of account $XXX primarily approximately this ongoing discuss contribution excluding net items assumptions. increase retains previously. from the are The results, new down $XXX million last million Annuities in the from quarter assets $XX lower a with announced segments, fee increase organizational new will driven for our reflecting

during call, the updates, impact ROA a including actuarial of outlook therefore elevated target about our term. long-term exceed short our we basis assumption the medium last financial sustainable, to in to to compared year As expect we and is ROA the of portion of mentioned the XXX points annual

sequential in higher was result quarter a October. below billion to higher year migrate of our fee sales than in risk HDI our Annuity ago, last management to ROA to our re-pricing target X million cause level. over expect Annuity higher long-term the quarter. of but time, The quarter costs actions average Total driven and presents rates slightly However, Slide increase by lower $XXX $X.X we the sales the sales. are as

a billion driven values net sales due of withdrawals. $XXX appreciation, account levels market historical continue we than new lower to Although experience record by set outflows to higher and

related updates, The adverse and experience X. slide million $XX the results year and favorable approximately the and current compared above about of million million expectations large expectations fees from to was of unfavorable quarter. more level decrease annual quarter. higher-than-expected income associated amortization The and assumptions update approximately $XX favorable review this quarter, than Earnings greater quarter than current a million was and the to of reflects net balances reserve claim experienced contribution $X in negatively in quarter impact decrease to to year-ago of included investments quarter earnings average and from Turning were actuarial $XXX expectations. items, a year-ago less by our XXXX claims the our the contribution our compared inclusive of average for for experience reinsurance, $XX reserve the current prepayment primarily offsetting absence million million, refinements. Life quarter this We claims non-coupon net other and year, a activity other spread investment Individual $XX updates the impacted average second results. to from ago. which Partially the ongoing

across the in Turning XX. other our premiums Life as to diversification Guaranteed sales were in annualized and product million higher the business increase sales year-ago we actions quarter. with of specific have large Variable the product well were strategy Individual based placements distribution reflecting new as life an $XXX and on quarter. case by products, sales Lower taken, Universal Life consistent offset slide

$XXX investments about net expenses, million XX, Retirement case investment million included from Turning a results million current above less were expectations more about to spread $XX The our a prepayment average million Current year case greater experience quarter was investment than experience for The decrease and expectations expectations, $XX above average a results. quarter the a returns less compared spread ago. year average returns by to offset earnings to to offset slide than our $XXX by continued favorable ago, expectations year $XX were which quarter, $XX partially partially higher to favorable about non-coupon compared favorable compared on million fees, reflects spread ago. compression. net and million about contribution contribution greater

at the XX, $X for between a was investment as This Turning to Longevity Full Total billion our XX% about Service institutional $X market includes funded Retirement increase current Risk including gross as $X.X $XX.X offset about of Reinsurance wraps. were value included for Transfer cases, funded total ago. compared which past gross $XX.X $X billion record year transactions, from values In-Force the billion, of year of flows Transfer to the about business. stable of $XXX.X billion up and This billion over increase a in deposits net the account $X.X to driven and current the I split runoff benefit amounted quarter $X.X slide earlier. products Pension sales the net roughly billion year institutional Retirement were sales that of billion, Risk a evenly billion appreciation, billion well new quarter, would flows which and highlight more of of investment products. than institutional Pension cases positive by

in of underwriting a result favorable unfavorable premium less and XX, quarter to underwriting $XX ago. taxes The year higher were net to Life decrease including refinements. results. spread earnings for million Included higher $XX slide quarter, a of $XX expenses, Group contribution from million reflects the by approximately such results, Insurance non-linear the items million Turning premium compared was Group investment the as reserve and offset current impact partially

were million above included quarter returns results net approximately our $X expectations in average spread prepayment in fees, $XX million the current the average addition, our quarter. expectations In comparison and non-coupon to on which returns approximately year-ago above investment investments

$XX and in above earnings results. Revenues of million from stronger about changing Related Revenues increase trailing in reflects the strategic $XX year quarter, Related variable of Management by $XXX the to of the XX, Turning Other of $XXX valuations quarter, current to The earnings Investment higher to XX as and compared is Other was million fees were million the the timing greater result incentive average and a investing $XX inherently earnings amounted driven contribution a quarters. contribution a it since million transactions for The ago. slide million

in average net fixed net excluding flows by activity. $X.X management and retail offset slightly income equities. Management asset outflows assets of inflows reflect equity under Income of market The net higher market Net third-party driven driven were the quarter by a business net fees positive billion money related Fixed in expenses Investment unaffiliated strategies institutional management, addition, driven X% by In appreciation. reported increase billion inflows of by $X.X

Investment we year billion Management year, the produced net another for strong flows, For of $XX.X growing third-party unaffiliated positive business. our

slide a Planner million Moving year businesses Insurance million to International ago. for compared quarter earnings the $XXX to turning to $XXX for the business Life Our were and XX,

of with X% Excluding a year-ago average constant in favorable business impact million from by a $X decrease Claims ago. higher policy by continued the with year million the current and dollar negative quarter offset by expenses experience, our a was growth Insurance The foreign by experience currency consistent than decreased expectation. driven and quarter from $XX in year more million was rates, exchange earnings benefits ago. average revenues $X partially less favorable up expectations our was approximately

the results addition, spread non-coupon returns net fees, our $XX prepayment quarter contribution investments approximately current investment on expectation. above million In average and included from

reflects experience over growth, for and denominated driven $XXX by Gibraltar past were to slide benefits This policy the Turning continued in Life sales year. increase to primarily U.S. million the year business favorable product the million a quarter more compared $XXX XX. ago. increase earnings

Japan year. Yen-based lower This and million compared reflects the half year-ago decreased year slide of sales to $XXX the to sales million, We've basis both Japan by a prior rate by the sales in primarily sales which in of dollar operations partially decrease second International This the further year sales $XXX XX. due an Planner current decreased were of million, the of million in Gibraltar denominated level U.S. product by XX%, introduction products year. levels increases discount dollar in by million continued quarter. the quarter. attractiveness Insurance sales in experienced elevated which the the driven sales the $XX the occurred in dollar increase Whole by a standard similar offset U.S. to constant ago. was Life this earlier from for was or advance first $XX U.S. of following lower in that driven Japan in year dollar $XX from the compared benefited half down effective were products trends on $XX of Turning new and in where respectively, million of environment, first elevated the in this quarter, rate Life current which to

XXXX full-year Japan in and sales $X.X markets. were total result, of a the declines a As consistent dollar were of modest On a year; with in prior however, with quarter. sales consistent the billion basis, XX% U.S. sale. dollar of U.S. greater of Brazil XXXX mix was in sales denominated were the offset Sales denominated billion as in Japan – outside with sales growth of $X quarter, Japan year-ago other by

& from relation quarterly I drove the Other. in overall loss. the about our the last sequential in fourth at million the Other Corporate Partially pension a was including our ago. million to current expenses, lower million $XXX expenses million the was slide expenses the which quarter Turning XX. Higher items to loss net company's higher loss increased following updates to driven The Corporate quarter this year excess mentioned, costs. compared can income, of in year. increase investment that increase loss year-end non-linear quarter year average income for offsetting The for Of & interest $XXX higher and of plan a was by $XX fluctuate resides $XXX assumption

reserves wanted pool of Before it cover a Guaranteed to Group I may to hand disclosure one I'd annuitants. that now. MetLife's address strengthen be The thus Annuities on plans to other topic it to and missing over your mind, and address relates topic that Rob, like to to it

We specifics have situation. the don't we know disclosures, read but MetLife's of their

and we our terms tools obligations we our customers to of internal our our Under and policies In resources to fulfilling use seriously. customers. and procedures, take locate Retirement business, external

policies have the also reserve our development of We estimates. on

our and policies and our and comfortable meeting we're are overall with complying our procedures with customers. obligations We to that reserves

and we test a size be locate number of are business, but (XX:XX). and, what is customers and a see divergent the greater regularly industry reasons, to over straight enhance time, of in practices that locate the our certainly block across processes could we Given the review, currently customers This age of inevitably tools can't there We market, number attention see we some to is for small. of use evolve. to ultimately lot the standardization we of issue them and continue expect may getting the – and

turn I'll Rob. it over to Now,

Robert Michael Falzon

Thank you, Mark.

on of at level level moderate the Prudential ability Now XX. that, risks slide ratios PICA to total our be measures that previously, and turning sheet to XX through our important maintain financial manage balance the provide annuity and we've with well said stresses. Having to I'm highlighted economic using We view strength. as CTE financial an that an RBC or going update to shown framework as items we a includes measures. holding as assets RBCs to key composite here Insurance, PALAC the

ratio. RBC of over As the in PALAC's we see a consequence, variability over excess target time some may our

assets part reserves, Act will that insurance reduction XXXX. the which deferred result the in expect a Tax tax We corporate adversely affect companies XX% the our an statutory rate to statutory domestic for tax certain statutory XX% in from of of and as in capital of reduction will the position increase

impacts as targets Japan margins In we above and be to Insurance, strong of are AA PALAC, Gibraltar the and continue our as while Tax of and are estimate expect of RBC Life Act. However, the including XXX% not of the target from Prudential respectfully reported comfortably will statutory so that be estimated XXX% XXX% of current solvency as Prudential These solvency and above ratios that filed, margins they the Japan, end to our our year-end, continue of yet composite year. we each XX. results September

highlights deployment assets $XXX also of which liquid of the and last at the the other that capital $X.X of was $XXX on $XXX during approximately and consistent to company parent and are leverage, million the with evenly million, and amounted inflows supported quarter cash XX, about operations. quarter. and quarter shareholder liquidity, at at million debt Looking of maturities slide which billion distributions dividends between business were funded repurchases Cash share split end

also quarter book leverage net the Our ratios year implement to billion. of quarterly to of investors dividends standard impact retained guidance noted, remained $XXX reclass adjusted items new and as in $X.X first and equity communicated of a we of will the yesterday. I AOCI targets. year-end we gains XX% in unrealized accounting increase that leverage the our have of total dividend $X shareholders repurchases that from in million two and on within value to through treatment and of We'll share we in our approximately announced billion the expect our financial a would as returned during a result And investments positive XXXX of John earnings. which roughly impacts remind

March intend results, Gibraltar our earnings result instead In in that our lag but Gibraltar's reflect addition, operations equity. we in in would Gibraltar would to to the eliminate first of XXXX one-month month an opening essentially This through activity. so quarter result January reporting results an extra not adjustment in

turn it I'll Now, John. back over to

John Robert Strangfeld

now you, up questions. Thank open We'll Rob. you, Thank Mark. for it

Operator

the begin now will we gentlemen, and question-and-answer session. Ladies you. Thank

with the of question. Our first question Krueger proceed your with from is Ryan KBW. line Please

Ryan Krueger

thanks, morning. Hi, good

taxes still the Following and guidance? and cash the XX% of both cash impacts comfortable flow to conversion tax effective tax you do free with impacts the varying GAAP reform rates, feel

Robert Michael Falzon

reform, taxes of time, from expect cash free be XX% the repatriations will and credits Yeah, average to flow If produce. impact taxes course our is not at the Japan U.S. Rob. on businesses U.S. taxes. the over continue look on we tax something on to we of that utilization cash ratio of years, from the again, accelerated next lower tax of the the we're it's primarily few actually comfortable that, Ryan, over incurring

to but we or $XXX tax So resulting after-tax – come the the expect future play, flow. increase amortization one-time cash from neutral of free generally flow, there even to near-term including Longer cash about reform more year's variables mentioned most into in of that positive we cash term, to into are million. translate that AOI the be of we a expect tax actually reform toll

free cash XX% the around flow guidance our ratio. with remained we so, And

Ryan Krueger

related outlook the the remain you factors. the, was still then ratio the expected changes as stated XXX, that denominator And believe on on the the case call, that if Thanks. PICA/RBC above a question even Is you to it well? NAIC I

Robert Michael Falzon

is. it Yes,

pieces as So, biggest to year-end. through what that of came saw of the two is, you related

around So in that DTAs the reduction that primarily lower adjusted reserves, was the the of taxes. get increasing and the as a of AAT result reserves

the any of still the both – had we our that of itself target AA the we ahead how a impact out that. available piece into of numbers something given our we capacity. (XX:XX), baked XX above our RBC and we've assumed our come we're produce remaining is reform. capital – XXX about or from but a would those without maintain and published going we the cash number in is we're currently want down available RBC haven't XXX% where year-end, the to able that the XX specific, be tax yet, of decline is for comfortable to totality impact for that's that our metrics while to therefore XXX% would and basis of are labeling point as overly When as adjustments unknown, The that half going be recalibration those represent using manifests potential of still of don't to (XX:XX) that that we'll that actually So,

year within capital earnings sheet, sheet, of we on-balance exists our capacity the Some and well. off-balance that during as generate course of obviously that the

Ryan Krueger

Okay. Great. Thank you.

Operator

ahead Please your go of Autonomous. is question next line the question. from The Bass with with Erik

Erik Bass

on Sticking dynamics the how look competitive as and topic businesses, pricing? see you taxes, you your reform affecting you. thank tax across do Hi, of U.S.

Stephen P. Pelletier

is Erik, Steve. this

me as we review update pricing being and number we them. product a just appropriate. of key And know, one as part tax as are by regularly you your that question. start our assumptions I'll there Let impact that, And that, saying of consider of address just factors

rates tax the regard for simply think new In-Force lower be tax of results most rather meaningful not likely sales, impact I but our from the will business. really the reform derived to applying in from product

I that that to away tax will issue over be reasonable benefit portion our think do, it'd realized at products time. benefits expect be from competed returns For the from reform, some of where do that the

And this our businesses. we be varying depending at rates on time in each varying price throughout our that we see speed and of profitable of our businesses, landscape over primary those products However, competitive for in continue growth. the ensuring will to happening sustainable this, focus

In does proposition terms solutions customers' proposition to value insurance to help and that to offer rates tax so. financial lower a We we value believe our offer don't and rates, continue tax strong meet of of the the even lowering impact that needs. customers, we believe our that at

Erik Bass

plans. when amongst I that And we've PBGCs, large to a of guess number PRT tax post also transactions, you seeing interest reform announced and plan in with interest that contributions have pension increase their jumbo sponsors? combine And rates you. in we corporates particularly seen are an rising Thank higher

Stephen P. Pelletier

Yes, mentioned. see and is funding that for of plan the XXXX by you a in Erik, by and driven mentioned. plans Ability advantage in very, so to year, tax lower healthy to the take do very uptick increasing the A transact of the that XXXX to and they to bolstered have of we start have you pipeline rates. made do that's rates contributions it's their sponsors and levels the both and significant at an until reasons number contributions September

being and by the awareness and on transact awareness transact is rising increasing very to reinforced that to we've bolstered of So, premiums, before continues mortality longevity the to mentioned such by calls, ability strong these be tables. that increasing as factors risk, new propensity PBGC

propensity healthy So, around those here a pipeline both really ability and for factors at all early of year. to the the transact of stages make

Erik Bass

you. Thank Great.

Operator

Kamath Please from your with Citi. line And the proceed the of next with question. is Suneet question

Suneet Kamath

start the morning. the Wanted with Thanks, program. particular business, to good in VA hedging on

volatility the week just lot to related program a products, exposure seen your in you we've in volatility-related hedging just the about any given talk you've seen to recently? what just have or of do past that you particularly Just those can products

Robert Michael Falzon

Sure Suneet, Rob. it's

a that with around Annuities giving it's the picture we've So, messaging is our – increased consistent first and been business. of big the all, good this prior story stability and predictability around

So let down break into it me pieces.

talk the part performance which the course during me of first last the of about your hedge is the question quarter. Let

the and so, volatility directly, is and VICs include volatility hedge and – We in other have they hedging. we expressed through we things So, options but don't that. our

month-to-date only breakage was $XX for February actual Our around million.

on $X that's of I'll Now a billion. you, that's in liability remind excess

– years. that's and with consistent hedging so that that the of effectiveness and And prior in prior kind efficiencies we've quarters been seeing

If hedge terms way effectiveness. the you at quarter, our in look in which we or look XX% back of at at we're our the effectiveness, above fourth

volatility. second piece the terms in of then So,

of there increases that direct volatility think gives a about. volatility multiple pieces to obviously that well. the you So costs to hedge period. that want are There rise as have you indirect cost increase breakage, within volatility a in is when And extent to

I and the – fact that Now, hedge declining associated one, those us (XX:XX). fixed noted that into equities as rebalancing volatility costs at we Recall of are we're is to auto-rebalance have with as that X allows subject out and typically we our markets, feature income.

our as exposure decline. that markets and volatility And to so in is increase declining

flow to we period. opposed included upfront to AP in period of costs, any and or the cost our we is liability. at AOI needed The period order that in to earnings, is what's the factor the That's plus terms fees then, when minus, the as of that our impact part hedging out given in of how is broader, we settle look going much how into breakage we long-term the in of set define vol our on anticipate AOI. the In that our of

positive modestly goes So, our well. be hedging elevated gets cost breakage. ROAs the to been we've into that the reporting. in That any if our that's And benefit in actually then, to-date, And to contributed a that volatility inefficiencies, number going our AOI we of to be and as extent changes there have that's the defined in up our via will amortized been ratios. that and up, it's goes

that. we as migrate over as the I'll we part XXX-ish is hedging did and coming that as of time you of opportunity expecting would what that we did an the were relatively in took our the annuities to recalibrate profitability our so we about ROA business high hedges And go to out of book, equity remind of we guidance, that that markets said how use down and high we derivatives increase mid

there's And reversion mean described hedge addition And we that's capital the in again, that the vol's we of last in for around, we from equity are ratios. business capital that But that declines considered, so therefore, it. good and I One of going the assumption overlay And was a things: had, ROA a and that all given over the we've of of a earnings be fourth that, other we markets a equity through our – Final And unlocking the particularly place the we what markets: cash because K volatility that that the by product – but And quarters. hedging ultimately exchange markets the hedge market equity is, profitability as to – quarters that four been slight equity Annuities been That both think there consistent of our messaging piece the decline and in further expect all a significantly rather to (XX:XX) the well. benefit hedge we equity businesses and decline mutes not our only less fully elevated of both undertook on top our being the and levels is our in markets reflected that's is quarter. the which obviously our couple offset volatility. do, and impact product we earnings things in fact of are in few end about, impact factor of against the with before, a we've the that in profitability. the equity benefited our talking flow, that last were and up up: of market if any trade, the that recall markets. in hedges, what down, enhances of in

volatility or are of using volatility level earnings up to higher that. our We the then and the reduce earnings reduce and our cash that around shore flow

a expect we downturns likes equity markets. and volatility well of muted impact from but – we're we in a market, combination from of earnings in So, in protected the saw we February do what directions better saw and what the rising

Suneet Kamath

Okay, that's helpful.

follow-up auto-rebalance. the The other was I related had to

interest up working What markets equity if has trend the point? value funds you and income And into rise? at and i.e., we drop happens rates auto-rebalance some against interest would environment, markets as think out, rates. Doesn't rising this option. I fixed end type pointed So, falling been, of the that to sustain growth algorithm account continue equity shift

Robert Michael Falzon

people the auto-rebalance equity begins – to extent So, leaves rise to until a which that markets position bonds stay and point auto-balance in the within work direction. other the the in and more they toward equities, at skewed

an income they'll I where Obviously, fund six have be markets if of you equity five a mid-range sort – specifically, that. income So is remain flat, instruments. of duration. relatively in that environment a it's remember duration fixed years, years, the fixed it of something sort like

in yield higher the interest yields they're fund out rise, as over on that time, assets as of get – rates they'll in as that So that in the increase. the

into if fixed because they're Now, equities income. we'll obviously continue from of out to to auto-rebalance going further equity protected that be markets decline, and

where a And those equity – further of hit insulated Steve, I know from that. will market be they'll be eventually movements. don't elaborate kind so, to you they'll if fully floor declines want on

Stephen P. Pelletier

of couple a just points, add I'll Yeah, Rob.

that and value and That's able design. of the offer fixed product risk well. do fund, time the benefit It's a that income also, profile about. to just period sure it's optimizer. our account is responsibly all, fundamental support what that not we've so our an consistently that into we a over First an of the in extended remember we're of not about making The auto-rebalancing But spreads point more play corporate bond is vehicle just emphasized. as program come

meant we that's optimize to account discuss values. the auto-rebalancing fundamental So that very underlying not much really and about customers' the program. purpose It's our with

Suneet Kamath

thanks. Okay,

Operator

is question. line next proceed the question from Goldman with the with your of Alex And Sachs. Please Scott

Alex Scott

Morning.

that First will question have of you discuss incentive Investment fees timing in if of you visibility on of they some strategic and the or transaction and the period those some you here fees, remain for any the just kind Can XXXX? and Management mentioned. business the elevated

Stephen P. Pelletier

Alex, it's question. I'll Steve. address your

to often if some fees earned not of have in incentive First emerge performance It's them. the unusual see we've quarter, fourth all, them seasonality. do and

In business. asset we it happened we it actually in and quarter, multiple fixed we estate; classes: in this in saw what we of strategies saw have and elevated those we carry incentive private; public fees across Over both as income, true businesses terms real increasing income and time, our saw fees it in flows well. particularly to drawing equity been our do that's that fixed incentive saw

our a not the emergence be in growth So, in see to unusual of strategies earnings greater fees incentive time over would it patterns over and time. possibly

Alex Scott

of or follow-up The relatedly And offset rebalancing surrenders Are Annuities. don't Individual that to things require on escalate? that offer you'd ticked more that quarters. that in of and help on a front doing the and you'd kind products question outflow? any like things expect you're there some maybe to Is sales that to up withdrawals trend the bit a expect than previous sales

Stephen P. Pelletier

couple all things. for is to in again, address a at Alex, It I'll your of surprising and this see mention us I'd quarter. questions. withdrawals lapses elevated not

with is terms rising is in associated becoming the management of see how interest lapses expect built rates elevated our to usually the and correlation market also business. First into. in assumptions of risk conditions, all, just that of clients alternative that recall in the And solutions would I may our go that actuarial rates interest into rise. in business our interest rising manage we we rates as – available

that. into of and expect that of as term we longer is to a lapsation a basis, On rising interest built surrender relationship more our and business rates between So, period, we that also do. dynamic kind more would recall what In-Force from emerges really see I'd

of new launched a just terms fixed-index In annuity product last product. week design, we

year the a offering the fuller their that introduce we products this expect our marketplace. distribution designs partners and of to other so, product And as in and clients of we have that into we to suite course see

Alex Scott

answers. the for Thanks

Operator

line Tom The comes with proceed from of question. Please your the ISI. next question Gallagher with Evercore

Thomas Gallagher

I Daily that the Highest with the one Steve, you again. on another are value auto-rebalance want dynamics and morning, the just make sure to product Good works, way for the I just understand it happening product.

So, I'm Daily program related And weaken? way Highest wrong, correct do has respond moves market decline would just me the And vast hedge scenario of Is how if fully that a to you income and markets in the with question, think – altering is down XX%, XX fixed start the largely If reallocation? (XX:XX). a your the ROA at portfolio I your majority over income moves would into or equity that the works? big your in do pretty you kicks to understanding what into but the have and asset continues my feature. auto-rebalance that the product fixed to

Stephen P. Pelletier

evaluation one profile address every emphasize, our kick drives the activity: profile our risk the Again, of in individual That's contract. products then risk I'll circumstances, activation market before not your is in the every based change by of The of program all of market would, normal the and auto-rebalancing level and in auto-rebalancing decline. those HDI certain on question. Tom, overall well Actually, change contracts. of aggregation what auto-rebalancing each program is that driven auto-rebalancing and profile of risk each in of under a XX% decline. to

ask on to comment I'd reallocation that to As asset maybe Rob the topic,

Robert Michael Falzon

Yeah.

So, things, Tom. a couple

February, we of down if income result February, million a the of numbers over It – we at some in put look a auto-rebalance of transfer you movement that the were out equities about so X%. was as to if big a just into happened point, the Steve's Xth on First, in $XXX little movement. fixed on what

lower not that before that of have first hedging itself in fixed fees the hit return liability that markets sort and billion is was how and we then fees what hedging sort change – respect longer-term we're interim, costs or asset the implications on life therefore than otherwise, $X and rebalancing over something for that in particular of have the – hedging our in returns works. on hedging again, getting of are in XX%. sense overall the costs in charged context that. And actually we by we're well a are going periodic as that cost, the – more over if if the the view extent fixed less or look we're at the we're on is would what more we secondly, to like in being But some we be your that of to Recall we're out equities, going diminished income the guaranteed the going changing income I assets to algorithm, of a the that that before, through life down, of to virtue had in is With of that the would the Tom, fact so, So, and costs, get on absent that, that you contract, and to that business. of contract. of the going just amortize is it those move case, the value, not actually itself of the not and the ROA – put

way we'd hedging in, to impact was and less question, there any positive but So, I'm built modest either. highly not sorry, volatile in And probably another have what terms we've your of a in Tom? not material than costs part

Thomas Gallagher

care, No, I say on of ago four maybe did is, to all then was something VA. several it's you I'm or know a just my years ago. on took on five it That that long-term years that And the just topic back, follow-up going good, years charge Rob.

have, standpoint, comment Just should Can Is still seeing is that for we you're there? to-date, that watching there on just based out of trend from out you there? curiosity, still do what charge, after be you ongoing on margin about development XXXX-XXXX? your bit a a experience something

Robert Michael Falzon

me observations, let so Tom. share Yeah, couple a

the let relatively book. First, our caveat start that with me a book is here small

at kind lay put and more couple book. more two-thirds – of XXX,XXX recent it's others got policies And, respect I'd Tom, nature that's designs in significantly our much product. of as our sort the to the X the Individual. that also just the opposed designs when so Group again, conservative of A more the to were we vintage of industry plan year. of we've Group the that Individual. reserves, out So, things this context plan mention care And than look policies, long-term got in in book in We're billion a other is every to more With are can book, they were about those in assumptions, you the in conservative.

recognition So, event. assumption yeah, we the had XXXX did in big GAAP loss and update the

to experience we think our what own have to I end line, But look every for that's regard that's if with And we and more year in to. at available the book, are that. you're industry look continue industry that place of and generally experience experience we us. we that not the to at conservative to on both that referring in with assumptions regard

and still payout that that of – seen. at for the little is got relatively the in our what may a that currently actually in say of industry, same is Now, I so of I'd over throw point that all a watch I'd nascent change, book to that thing book caveat the we And is people as X% mentioned, experience in we've is which there, it's have this evolving how time. experience and is the

assumptions. the So, status. very to active then, as of of with that that's while experience the be our a the we from get change that question, And have million, next in so that's say look cushion level recognition quarter to-date, feel we'll to goes second book comfortable in assumptions status constantly And and more with pretty that we'll updating experience loss reflect more so excess do specific that of our realization above to and year. the your $XXX not of deferred may to we can't cushion

Thomas Gallagher

Rob. Thanks, Okay.

Operator

question The proceed Jimmy JPMorgan. question. with of Bhullar is from next line the with your Please

Jimmy Bhullar

Hi, couple had good of a I morning. questions.

the on VA just one, business. first The

is has up Your I but the aging, pick significantly the up picked surrender realize quarter. they from book previous did noticeably and

And VA that in then So, what just withdraw count. rates for business? your what's the agent secondly, just and in general drove outlook international on

Life agent was well. little it seasonality outlook well. is Is that on? So, as your or count going a down think something Gibraltar, else that more And Japan plan for are sequentially. the declined as I bit

Stephen P. Pelletier

Jimmy, the your answer it's I'll question. Steve. part of first

mentioned, reason interest lapsation that of only that usually associated rate lapses variable to natural Rising term of mentioned charges, would again, for we you assumptions to business. and lapsation. rising between a the we emergence in this the in actuarial see solutions, as The interest risk a expect with that to rates for mentioned, I just addition in rates longer in relationship As and would a withdrawals increased trend. be see thus and have the annuities are and into surrender for environment, it thoroughly dynamic emergence interest make alternative underpinnings our we from call management as And correlation that I direction incorporated business.

Charlie F. Lowrey

Jimmy, it's Charlie.

then, and Planners as mentioned, you Consultants. Life both about Life talk me Let

with So, to up Planners, are Life regard point, Japan but seasonality X%, in Life in your they you is Planners. were to correct. There some

had the we year, of twice quarter, by had a year-over-year in in LPs – high So, fourth the generally XX%. and sales sales this resulting recall increase very second quarter managers managers an happen and to that number transfers in we a quarter, transferred a

good because sales new lower Now, recruits they to managers the LP growth. continued contribute future will LP But these do that's current count. and

also We transferred of were to bank number secondees had a higher that the channel.

Planners lot frankly, are in for especially long-term X%. about Life to POJ second ins quarter, but general of the and average a outs, for the and, X% is there So fourth in and

you Prudential so. in over or five-year LP the look So of for been Insurance, a all growth about total X% rate period if International has

anticipate. steady So, what long-term slow is should the over and you of growth X%

of Consultant bit a story. a the Life with Now, that's count, different

effect that is more last this about due processes that we quarter. X% into Consultant So decreased and that the and year-over-year, recruiting the validation talked stringent has And count about effect. Life to really we adherence by and put a of double

because that to with more that do but when have The of requirements of sorts. tough from this, And first do is elect there's stringent are validation a J-curve less higher there also to terminations are you being this, recruiting it's standards, enforced, you a recruits. bit

outside the flat we think the yet we the bottom eighteen think of not Korea and But of to were quality year, this most quarter, Taiwan, said and including over versus and it'll later prior of it's J-curve. bottom exactly back going year of the at get Japan last hit quarter, bottom. we'll So to months what several we've in And past operations take basics the we're the while the done I really increasing to the we field. this

the and go quarter to to the count. the what see Consultants, saw. is the expect X%, Planner we the off every you're you in X% And will, while what especially saw. won't sales at That what performing that's you'd that's first a the And point see expect we we're aren't decreased you'd ones count, happen Life bottom first and quarter, count seeing to less decreased Life by the expect to Life is that doing that if than it did exactly well, down you by take essentially as Consultant what sales see of we what but in Now proof market. this fact LC therefore, only that

Jimmy Bhullar

you. Thank

Alan Mark Finkelstein

Shannon, – have more time we for one question. call

Operator

your Partners. & final question with from proceed question. comes with the Lee line Humphrey Please And Dowling of the

Humphrey Hung Fai Lee

taking questions. Thank on you my Investment Management. question A for

your towards fee part better at stable fee versus average fee the your for I like, how guess improving mix your slightly is income. rates it rates is a fixed believe much I and the been pretty inflows average of to for high-level, your has So, the shift from rates outflows?

Stephen P. Pelletier

seen pretty it's been to I'll just Humphrey, face And secular actually on in not in pressure the keep but also active been that's considerable space, passive the compression. we've overall. Investment We've able fee overall There's that, fees stable actually, in our space. been the Management Steve. your of In address the question. industry fees in book.

all portions. parts point stable fee immune about in fee to fee have our not platform, where our particular, in question, in to versus we comes platform and various your the compression. rate That's portions than experienced inflows, out, address rather fee – Now in retail I'd been of compression that outflows speak of from. our rate on rate We've on not fee

However, been and fixed in such mentioned, to particularly into well in higher other income, able areas strategies flows in as draw real we as estate. – fee-yielding you have as

fees, the our pressure of of on including given feel fees. draw to given a flows even ones we model period multi-manager this compete yield to into well So positioned higher in strategies, ability and that variety secular

Humphrey Hung Fai Lee

And Tom's follow-up long-term then it. just on Got care. to earlier question a question

or there's that So reserves. for X you mentioned Stat? billion GAAP Is

Stephen P. Pelletier

That was Stat.

Humphrey Hung Fai Lee

kind should the and and to that? the the about Okay, how similar or side, split reserves of then the one-third/two-thirds, Group we would be between Individual think

Stephen P. Pelletier

size Humphrey, we'll two-thirds of follow order if someone it's don't yeah, up with I the top the but that off book would look indicator. magnitude, remember of have head, my a the pretty probably versus good being the the at roughly but be you think about is So would one-third – you books. it both of nascent because they're – specifically, relatively that have I I think number

Humphrey Hung Fai Lee

Okay, got you. Thank it.

Operator

you your for our for Teleconference. conference participation Thank AT&T Ladies and gentlemen, that conclude today. and does using for

disconnect. now may You

Prudential Financial (PRU) 8 Feb 182017 Q4 Earnings call transcript