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    PRU
    Earnings call· Dec 2024(Q4 FY24)

    PRUDENTIAL FINANCIAL INC PRU

    Feb 5, 2025 Source

    Executive summary

    Prudential Q4 FY24 — Strong Sales Growth Across Businesses and New Long-Term Financial Targets

    Prudential delivered strong Q4 FY24 results driven by robust sales and flows across its retirement and insurance businesses, supported by strategic capital deployment and a focus on capital-efficient products. The company introduced new financial targets through 2027, aiming for 5% to 8% annual core EPS growth and an adjusted ROE of 13% to 15%, despite near-term headwinds from new business strain and runoff blocks.

    Highlights

    5

    • Full-year 2024 adjusted operating income per share up 6% to $12.62.

    • PGIM's assets under management increased 6% to $1.4 trillion, with full-year net flows of $38 billion.

    • Retirement Strategies sales of $50 billion in 2024, including $36 billion in institutional sales (up 27% YoY) and $14 billion in individual sales (up 84% YoY).

    • Individual Life sales reached a quarterly record high of $326 million in Q4, up 60% YoY, and increased 23% for the full year 2024.

    • Returned nearly $3 billion to shareholders in 2024, with a new $1 billion share repurchase authorization for 2025 and 17th consecutive dividend increase.

    Concerns

    3

    • Q4 earnings were lower than anticipated due to adverse underwriting experience, primarily from elevated large individual life claims.

    • PGIM experienced $300 million of third-party net outflows in Q4 2024.

    • International businesses saw less favorable underwriting results due to elevated U.S. dollar product surrenders with continued yen weakness.

    Guidance & targets

    21
    CategoryTargetConfidence
    Core earnings per share growth
    5% to 8%
    high materiality
    High
    Adjusted return on equity
    13% to 15%
    high materiality
    High
    Operating expense ratio (global retirement and insurance)
    8.5% to 10.5%
    medium materiality
    Medium
    Capital deployment towards organic growth
    30% to 40%
    medium materiality
    High
    Free cash flow ratio
    approximately 65%
    medium materiality
    High
    Capital deployment towards dividends
    35% to 45%
    medium materiality
    High
    Capital deployment towards share repurchases
    20% to 30%
    medium materiality
    High
    Share repurchases authorization
    $1 billion
    high materiality
    High
    PGIM earnings growth
    Low double-digit
    medium materiality
    Medium
    PGIM asset management fee growth
    6% to 9%
    medium materiality
    Medium
    PGIM adjusted operating margin
    25% to 30%
    medium materiality
    Medium
    U.S. businesses earnings growth
    Mid-single-digit
    medium materiality
    Medium
    Retirement Strategies annual gross sales
    $35 billion to $45 billion
    medium materiality
    Medium
    Retirement Strategies annual net runoff (pension and longevity risk transfer)
    $8 billion to $10 billion
    medium materiality
    Medium
    Retirement Strategies annual net runoff (legacy variable annuities)
    $12 billion to $16 billion
    medium materiality
    Medium
    Group Insurance premium growth
    2% to 4%
    medium materiality
    Medium
    Individual Life sales growth
    Flat to 5%
    medium materiality
    Medium
    International businesses earnings growth
    Low to mid-single-digit
    medium materiality
    Medium
    International businesses sales growth
    4% to 6%
    medium materiality
    Medium
    Highly liquid assets at holding company
    over $3 billion
    low materiality
    High
    Yen assumption
    JPY 135
    low materiality
    Medium

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    PGIM
    Higher asset management fees driven by strong net flows, market appreciation, favorable investment performance, and contributions from Deerpath Capital acquisition. Higher incentive fees also contributed. Partially offset by higher expenses to support business growth.
    AUM: $1.4 trillion (up 6% from YE23)5-year outperformance: 78% of AUM10-year outperformance: 85% of AUMTotal net flows Q4: $8.6 billionAffiliated net flows Q4: $8.9 billionThird-party net outflows Q4: $300 millionTotal net flows FY24: $38 billionAffiliated net flows FY24: $24 billionThird-party net flows FY24: $14 billionPrivate alternatives AUM: nearly $250 billionPrivate credit origination growth FY24: 37%
    		———25.6%
    Retirement Strategies
    Strong sales in both institutional and individual lines, with record pension risk transfer and individual annuity sales. Product pivots and innovation led to strong RILA sales and doubled fixed annuity sales.
    Total sales FY24: $50 billionInstitutional Retirement sales Q4: $10 billionInstitutional Retirement sales FY24: $36 billion (up 27% YoY)U.S. funded pension risk transfer sales FY24: over $16 billionLongevity risk transfer sales FY24: over $10 billionIndividual Retirement sales Q4: $3.6 billionIndividual Retirement sales FY24: over $14 billion (up 84% YoY)
    		————
    Group Insurance
    Sales growth driven by supplemental health. Benefits ratio at the low end of the target range due to improved profitability and performance actions.
    Sales FY24: $550 million (up 4% YoY)Benefits ratio FY24: 83.1%
    		————
    Individual Life
    Record sales driven by distribution strength, expanded product offerings (capital-efficient products), and increased estate planning sales in Q4.
    Sales Q4: $326 million (record high, up 60% YoY)Sales FY24: up 23% from 2023
    		————
    International Businesses
    Less favorable underwriting results due to elevated U.S. dollar product surrenders (yen weakness) and higher expenses. Partially offset by increased spread income from higher yields and portfolio reinvestment.
    Sales FY24: up 6% compared to prior year
    		————
    Japan
    Sales benefiting from recent retirement and savings product launches. Surrender headwinds expected to lessen.
    Retirement and savings product sales FY24: up 14% compared to FY23Yen sales as % of total: 35% (up 10% YoY)
    		————
    Emerging Markets
    Sales growth driven by Brazil due to expanded third-party distribution and strong performance of Life Planners.
    Sales FY24: up 12% versus prior year
    		————

    Operational metrics

    20
    Pretax adjusted operating income per share
    $2.96
    Q4 FY24

    Lower than anticipated due to adverse underwriting experience, primarily from elevated large individual life claims.

    Pretax adjusted operating income per share
    $12.62up 6% from 2023
    FY24

    Reflects execution of strategy to grow market-leading businesses, driven by higher fee and spread income, higher interest rates and equity markets, net of increased expenses.

    Adjusted operating return on equity
    13.1%improved 70 basis points from 2023
    FY24

    Reflects strength of businesses and benefits from pivot to more capital-efficient and higher-growth products.

    Cash and liquid assets (holding company)
    $4.6 billion
    Q4 FY24

    Above minimum liquidity target of $3 billion.

    Total industry annuity sales
    $425 billion
    FY24

    Extremely strong year for annuities, with some softening in traditional fixed annuity sales expected with rate decreases.

    RILA sales growth (industry)
    up over 35%
    FY24

    Across the industry.

    Fixed annuities coming due
    $70 billion
    Ongoing

    Estimated.

    Money market fund balances
    over $7 trillion
    Ongoing

    Estimated.

    Capital generated deployed to organic growth
    30% to 40%
    Ongoing

    Expected allocation of capital generated.

    Free cash flow ratio
    approximately 65%
    Ongoing

    Of net income.

    Capital generated deployed to dividends
    35% to 45%
    Ongoing

    Expected allocation of free cash flow.

    Capital generated deployed to share repurchases
    20% to 30%
    Ongoing

    Expected allocation of free cash flow.

    Annual payout of adjusted book value
    approximately 6%
    FY24

    Represents annual payout of adjusted book value as of year-end 2024.

    PGIM adjusted operating margin
    25.6%
    Q4 FY24

    Pleased with progress, but still depressed due to higher rate environment and real estate slowdown.

    GUL reinsurance transactions (cumulative exposure reduction)
    60%
    Ongoing

    Reduced cumulative exposure to Guaranteed Universal Life product.

    Yen sales in Japan (as % of total)
    35%up 10% year-over-year
    Ongoing

    Diversifying portfolio with increased yen offerings.

    Legacy variable annuities runoff
    $12 billion to $16 billion
    Annual

    Expected annual net runoff.

    Pension and longevity risk transfer runoff
    $8 billion to $10 billion
    Annual

    Expected annual net runoff.

    Individual Life sales
    $325 millionup 60% over prior year quarter
    Q4

    Record sales, across virtually every product.

    Individual Life sales growth
    up nearly 25%versus prior year
    FY24

    Across virtually every product.

    Industry KPIs

    3
    MetricValueDetails
    Capital returns$3 billionUSD
    ROE operating ROE13.1%%
    Statutory regulatory capitalAA rating

    Deals & partnerships

    2
    PrismicReinsurance of a $7 billion block of Japanese whole-life policies.$7 billion

    Second Prismic transaction, addressing longer-duration dollar-denominated product under ESR regime.

    Deerpath CapitalAcquisition contributing to private credit origination growth.

    Acquisition part of PGIM's direct lending businesses.

    Risks & headwinds

    5
    Adverse underwriting experience in Individual LifeQ4 2024

    Elevated level of large individual life claims

    Mitigation: Management states large claim activity will vary quarterly, but fundamentals remain strong. Proactive management of in-force block, including GUL derisking.

    Elevated U.S. dollar product surrenders in International businesses (Japan)Q4 2024, expected to continue near-term

    Less favorable underwriting results

    Mitigation: Diversifying product portfolio with yen offerings (yen sales up 10% YoY to 35% of total). Expect surrender headwinds to lessen as yen appreciates.

    Near-term strain from new business and runoff blocksThrough 2027, particularly 2025

    Impacts non-linear EPS growth, requiring 30-40% of capital generated for organic growth.

    Mitigation: Investing in strong growth opportunities, expecting upward trajectory in core earnings as headwinds moderate.

    Litigation against pension risk transfer industryOngoing

    Threatens ongoing health of the industry.

    Mitigation: Prudential emphasizes its strong regulatory backing, extensive history in PRT, and ability to fulfill promises. Strong funded statuses and favorable market conditions are expected to maintain an active pipeline.

    Depressed PGIM margins due to higher rate environment and real estate slowdownOngoing

    Q4 FY24 margin at 25.6%, target 25-30%.

    Mitigation: Expect margin expansion towards 30% driven by improving fixed income/real estate environment, continued traction in growth investments (private credit), and disciplined expense management.

    What to watch in Q1 FY25

    5

    ESR position disclosure in Japan

    Summer 2025
    CurrentCapital levels expected to be above target for AA financial strength upon implementation.
    TargetSpecific information about ESR position.

    Why it matters

    Provides transparency on capital adequacy under new regulatory regime, impacting capital flexibility and potential for further Prismic transactions.

    We expect upon implementation of ESR that our capital levels will continue to be above target levels that would support AA financial strength ratings. And as we said before🔁, our intent is to start providing information about our ESR position in the summer.

    Q&A highlights

    6

    How does Prudential's annuity sales outlook align with LIMRA's expectation of industry sales being down, especially given the strong Q4 sales?

    Caroline Feeney noted that while traditional fixed annuity sales might soften due to rate decreases, RILA sales are strong. Prudential's diversified product portfolio and strong distribution position it to capture demand from aging demographics and money in motion, leading to continued strong sales.

    “RILA sales were up over 35% across the industry last year. So in our own business, we continue to see positive results. In the fourth quarter, we delivered roughly $3.5 billion in sales, which was our ninth consecutive quarter of sales growth.”

    asked by Suneet Kamath · answered by Caroline Feeney-Pfundstein

    2 min read6 chapters

    Detailed Narrative

    01

    Leadership Transition and Strategic Direction

    Prudential announced significant leadership changes, with Andy Sullivan appointed as the next CEO effective March 31, and Caroline Feeney taking an expanded role overseeing global retirement and insurance businesses. Jacques Chappuis will lead PGIM. The company emphasizes a smooth transition, leveraging the new leaders' involvement in strategy execution, as it marks its 150th anniversary and aims for continued growth and capital efficiency.

    02

    Capital Deployment and Shareholder Returns

    The company maintained a disciplined approach to capital deployment, returning nearly $3 billion to shareholders in 2024. The Board authorized up to $1 billion in share repurchases for 2025 and increased the common stock dividend for the 17th consecutive year, reflecting confidence in its financial strength and future growth. This strategy balances preserving financial strength, investing in long-term growth, and returning capital to shareholders.

    03

    Prismic Platform Expansion and Strategy

    Prudential successfully executed two Guaranteed Universal Life reinsurance transactions, reducing cumulative exposure by 60%. A second Prismic transaction was announced to reinsure a $7 billion block of Japanese whole-life policies, further scaling the Prismic platform. Management views Japan as a significant growth opportunity for Prismic, driven by the ESR regime's impact on legacy books and the underserved third-party reinsurance market, with an active pipeline of multiple reinsurance transactions.

    04

    Annuity Market Dynamics and Product Diversification

    Despite industry softening in traditional fixed annuity sales due to rate decreases, Prudential's individual retirement business saw its ninth consecutive quarter of sales growth, with $3.6 billion in Q4 sales. The company is benefiting from a shift towards index products like RILAs, which were up over 35% across the industry last year. Prudential has diversified its product portfolio to capture demand from aging demographics and an estimated $70 billion in fixed annuities coming due, along with over $7 trillion in money market fund balances.

    05

    ESR Implementation in Japan

    Prudential expects its capital levels in Japan to remain above target levels under the new ESR regime, which will be adopted for the fiscal year beginning April 1, 2025, with the first mandatory reporting date being March 31, 2026. The company has executed affiliated reinsurance transactions to mitigate volatility and continues to optimize its balance sheet. Prudential plans to provide specific information about its ESR position in the summer, emphasizing its broad product portfolio and strong underwriting capabilities for profitable growth in Japan.

    06

    Free Cash Flow and Capital Allocation Philosophy

    Prudential introduced a free cash flow ratio of approximately 65% of net income, with 35% to 45% allocated to dividends and 20% to 30% to share repurchases. The company clarified that GAAP net income is a closer proxy for free cash flows in the near term, acknowledging that while organic growth requires significant investment (30-40% of capital generated), the overall capital allocation strategy balances growth, financial strength, and shareholder returns, with non-linear EPS growth expected due to near-term headwind📎s.

    AI-generated summary of the company’s earnings call. Not investment advice.