PRU Q3 2026 earnings call transcript, November 4, 2026

with our expense saves, the original $150 million commitment. So that's coming through within the businesses and in corporate. And then the offset to that is that we do expect higher losses and higher expenses in the fourth quarter in corporate. That is due to higher benefit expenses, higher brand spend in the fourth quarter. And there is some timing of initiative spend from earlier in the year that got pushed to the fourth quarter. Thank you.

Yeah, thanks, Ryan. Well, maybe let me start with that last part of your question. There are many opportunities in the marketplace, so we're not for. lack of things to look at and conversations to have, and that's not surprising. Look, when you talk about asset management and when you talk about group insurance, these are very attractive spaces. They're capital light, cash flow generative type businesses that people want to continue to grow and add on. And people want to be in. So it is competitive for these assets. Both these industries scale matters more than than ever. And I think I think that's clear. But, you know, I think the most important thing is we have a lot to offer counterparties as Prudential. You know, our capabilities, our size, our scale, our breadth is highly attractive to many of the counterparties that we talk to. If you think about the asset management business, you know, first and foremost, we have a trillion and a half asset manager that is well diversified with with nearly 300 billion in private alternatives. That's an attractive platform in and of itself. But when you couple that with our liability generation capability and our balance sheet, what we see is is counterparties want to talk to us. Similarly, in the group insurance business, you know, we're one of the biggest out there in national account life and disability. So counterparties look. Could say that, you know, they could see where you could produce real synergy. So, you know, I would just frame it as it is it is a competitive M&A environment, but there are a multitude of opportunities. And we think that we have very special characteristics and capabilities that make us highly attractive to counterparties.

Thank you. And then on any color you can provide, Janela, on the improvement in ESR from, I think, about 20 points, I guess, at the midpoint of your guide from last quarter. Yeah, Ryan. So, you know, so a couple of things there. As you know, we manage ESR to a cushion above our 150% operating target. And that cushion is meant to support volatility that has absorbed some of the volatility we've seen around rates and yend. So it has worked as intended. In addition, we continue to execute actions to manage ESR and help offset the headwinds that we see. The last item I would highlight is that we did refine some of the assumptions used in the ESR calculation, which, when you combine that with the natural buildup of earnings, did also drive the ESR slightly higher. Thank you.

leadership. So, you know, I think we've we've talked about in the past, but we would expect, as an example, in asset management, we said we want to go from 12 percent of earnings to twenty five. You know, at least half of that journey we see line of sight to from an organic growth perspective. So I think it's really important that we we don't lose focus on the organic. Growth potential of the company with this capital rotation strategy. It's it's about both. OK, that makes sense. And then I guess just drilling into the annuity business, I think your sales were up maybe 15 percent year over year. I haven't seen the industry data, but, you know, my guess is you probably gained some some share. If that's the case, what would you attribute that to? And then separately or relatedly, are you seeing anything in terms of features or offerings in the market that give you a little bit of pause when we hear these annuity guys get aggressive in terms of sales? Sometimes there's a downside to it in terms of more aggressive features and. That kind of thing. So any thoughts there would be helpful. Thanks. Yeah. So maybe let me just give you some overall thoughts and then I'll answer your specific questions. So first and foremost, the individual annuities market continues to just be incredibly strong and growing. You know, this is the market, again, is is is going to be over 120 billion this quarter.

The 12th consecutive quarter, it's been above 100 billion. You know, we expect that the market will just continue to grow. You know, it's a 500 billion dollar market as we sit here today. The aging of society that needs protected income, the trillions of dollars of retirement that are that are in motion. So, you know, we're executing in this business against a backdrop of a market that has incredible tailwinds. As far as, you know, why we're being so successful, it really gets to our strengths and our capabilities. You know, we have a broad all weather product portfolio across RILA and across fixed annuities. We have incredible distribution that's very expansive, but that we're adding to as we've entered the IMO space. And then we feel very strongly that we have a brand that's second to none. So we sell on our value prop in that space. You know, I see just continued growth for us. As for any particular, you know, product features that might give me pause, I'm going to be very upfront about this. We focus on us. We focus on making sure that we put product into the market that provides great consumer value and a great return for the shareholder. We've been an innovation leader. You've seen us do that with FlexGuard and Flex. FlexGuard 2.0. So really nothing specific I'd point to that gives me pause in the marketplace.

Trillion and a half asset manager, you know, it takes time to move your average fee rate. So you should expect to see that move over years, not over quarters. That doesn't mean that it's not meaningful because you change that fee rate by a couple bips, you know, over. A trillion and a half, it makes a big difference. But you shouldn't be looking quarter to quarter on that. As far as margins, you know, we have a very intentional strategy to expand our margin to 30 percent over the multi-year and over the longer period of time to go north of 30 percent. We are very pleased. With what we're showing in PGM from a margin perspective, you know, as Janela noted in her remarks, we're well on track to exceed the expectation we set to improve margins 200 years, 200 bps year over year. And we expect that that's going to continue, first and foremost, because we expect over time. Fixed income in real estate market will improve. That has been delayed by the macro environment up to this point. Second, we are absolutely seeing positive organic traction in higher fee, higher margin products like direct lending, asset backed finance, and as we mentioned, ETFs. And finally, and we're very proud of this, we have a laser focus on expense management. And we are ahead of our commitments overall. And we are also ahead of our commitments in our asset management business. So over time, why that margin might fluctuate quarter to quarter, we feel very confident in marching it to 30% and then over a longer timeframe marching it north of there.

Hi, Wes.

So, yes, we had a nice healthy increase in quarter over quarter core earnings. And the majority... The majority of that is the benefit of growth in the business. We've had very healthy retail annuities sales, and that is driving the growth. We did have slightly higher prepayment income this quarter versus last quarter. So in second quarter 26, we had 22 million of prepays in retirement. Quarter, we had 30 million. So quarter over quarter, an $8 million variance. If you strip that out, that still shows quarter over quarter growth of $20 million in core earnings. But the 615 does have 30 million of prepays. Got it. That's helpful.

Thanks, Janela.

Next question is coming from Jack Matten from BMO Capital Markets. Your line is now live.

and control. First, ensuring that we have extreme discipline in pricing and underwriting. And where we are seeing higher experience, we are putting rate into the book. Second, and I've been consistent on this all the time, investing in our claims operation as a risk management operation. That investment... investment is paying off. And you saw we had very strong resolutions this quarter. We had the best resolutions in over two years. So while we have a cautious outlook about incidents and severity looking forward, we know that we have the discipline and the capabilities to navigate the environment as it comes.

That's helpful. Thank you. And then regarding strong growth in third-party sales in Japan, I'm just curious how the return profile or the product profile of the business you sell through those channels compares to what you sell through your captive distribution. And would you expect to continue to see stronger growth in those channels even after the sales suspension ends? Yeah, Jack, you know, I would say we're very pleased with the growth in that independent channel. I think it does demonstrate our diverse business there and distribution. And in terms of profitability, we are very comfortable with the profitability of those products, and they are well in. nexus of our cost of capital as intended. So, Jack, I would add, you know, when we talk about we expect to emerge from the issues in Japan a stronger company. There's reasons behind why we say that. And this third-party channel success, I think, is a big reason. First, the market opportunity in Japan for retirement and savings products is very, very strong and is a high-growth area. The third-party channels are higher-growth channels versus the captive channels. So we see great potential to continue to growing in both independent agency and bank channel. We saw this quarter a 9% overall growth year-over-year in the third-party channels and 53% in independent agencies. What we're seeing is institutions candidly vote with their feet and give us a vote of confidence. So we've expanded the number of agencies that we work with and we've

expanded the shelf space that we have with the banks that we do business with in Japan. That is because they know that we're a high-quality organization with a great product portfolio that always follows through and is why we believe that our brand will be stronger at the end of the day and why we feel so strongly about our resilience. Thank you.

Okay. Another follow-up. It's good to see the ESR at 200%. I'm curious, how many points of that would you attribute to the ESR? The refinements to the ESR calculation assumptions that you mentioned. Also, how much of the improvement came from sales suspension at POJ? Is it fair to say that with less new business means less capital strain? Yeah, Tracy. So, first of all, we don't do that. We don't provide that detailed attribute. In addition to ESR, you know, there are a number of moving pieces, the earnings buildup, et cetera. So, you know, obviously it's gone in the right direction. How we manage ESR is working as intended, so I would leave it at that. In terms of the suspension, no, that's not really driving too much of the increase in ESR. Obviously, we... We have lower earnings, which, because of the suspension, including the expenses that we're incurring to sustain the business, and that...that those two things kind of offset. Thank you.

Hi, Wilma.

So year-over-year, we did have a decline. We are obviously still seeing the impact of business growth, net of... ...sales expenses, mainly that increase in annuities. But that has been partially offset by two things. The runoff of PRT, it has been a slower year in general in the industry, although, as we said, we had strong October results. So we have the runoff of PRT, and we also have seen... Less favorable underwriting mortality in retirement as well.

Thanks, Wilma.

So let me just start by talking about how pleased we are with the flows that we are seeing in PGM. You know, our total net flows improved again this quarter. This is the third quarter in a row that total flows have improved in a very good trajectory with a predominance of this. Given the softness of the PRT market this year coming from third party assets that are flowing in into the business. You know, as you look at the nine billion in third party flows that came in, it was both on the institutional and retail client side. So we're seeing success on both. The majority of those. Assets are public credit assets. You are correct that some of the flows are private credit. But the way that works is, you know, we fundraise and then when we call the capital, that's when the private credit shows up in the business. That is becoming a stronger, more important part of our business over. As I mentioned, we have a private business now that's approaching 300 billion. That is higher fee and higher margin. It is part of what is strengthening our average fee rate. But I'll go back to the comments I made earlier that, you know, that will be a change that occurs over over a few years. As we march the margin towards 30 percent and north of 30 percent. But that is absolutely core to the strategy and is playing through. Thank you.

Hi, Alex.

So, yeah, let me start with sort of how we think about reinsurance and use reinsurance. So we use reinsurance. Especially this internal reinsurance to manage reserves and capital in jurisdictions that best reflect the economics of the products. We have two captives in Bermuda. That is what we use them for. We've been reinsuring business out of Japan since 2019 for this reason. So this was well. before ESR. So the 70% of Japan business being reinsured out of Japan is something that's, you know, accumulated since 2019. Obviously, we have continued to use reinsurance and will continue to use reinsurance to manage ESR volatility. But there's been no particular increase in reinsurance out of Japan. over the last few quarters. And we did announce a transaction in October with Prismic for $5 billion of U.S. dollar whole life Japan product. That was actually out of debris. So that had already been managed within our internal captive framework. And that was just a transaction with Prismic for balance. Sheet optimization. So, and Alex, the reinsurance we've done, Bermuda since 2019, we were using the PICA entity before that. Okay. So the 70% wasn't materially different going back at your... No. No. Absolutely not. It's been a long time. Got it. Okay. Thanks. And then, you know, just to follow up, are you able to answer at all the question around the dividend? Because I think Japan usually sends up a dividend in 3Q. Is that something you could tell us about?

Yeah. No, I mean... You know, obviously timing of dividends varies between these operating companies. And what I would say is what we said consistently, the impact of the sales suspension will have no impact on cash flows or dividends out of the Japan businesses. Thank you.

It is just shifting it to be less compensation focused on new sales and more compensation focused on an additional number of elements like compliance orientation, like customer retention. And the pay stream will be over a longer time frame, much less in year one. And pay out over a multitude of number of years. But it's not a higher level of compensation. I see.

That's helpful. So it's not literally a shift from sort of variable comp to fixed. It's just kind of spreading out variable.

There's some of both. Because we're also implementing a higher base salary that is fixed cost. So it's both effects. But if you look in total, the dollars spent across the categories aren't expected to go up or down. Okay, thanks. The last one was just on data center finance. Curious about... your activity and PGM in that asset class, both like originating for third parties, but also your exposure on the general account. Thank you. Yes. So, Mike, let me take PGM first and then Janela will talk about the general account. So... You know, this is a capability that we have in PGM. You know, if you think about both our private credit business and our real estate business, we have digital infrastructure funds and have done loans for data centers. So it has been an area of growth in our private... ...alternatives business, where we, candidly, this isn't new for us. We've been in these businesses for a very long time and have seen some lift in the space. In the overall story of PGM, though, it's only a component of many different things we're doing to both... accelerate the growth and expand the margin. Yeah, Mike, and then in terms of the exposure, let me take sort of AI exposure in total because I know it's been an important topic. So we have a total of $7.2 billion of AI-related exposure. In the general account, that is less than 2% of the general account. 60% of that exposure is tied to hyperscaler credit with diversified revenue streams.

And we believe that diversification is quite important. $3.1 billion of the exposure is data centers that are either backed by long-term investment-grade leases or diversified tenant pools with no specific... construction risk. Again, important, speculative construction risk. And then lastly, we have $1.1 billion of that $7.2 billion is GPU exposure backed by investment-grade leases.