Capital Deployment Priorities
Q: What are your capital deployment priorities, M&A or buybacks?
A: Management emphasized a consistent and balanced approach to capital deployment, focusing on maintaining a strong balance sheet, investing organically and through acquisitions for long-term growth, and returning excess capital to shareholders. They see significant opportunities in areas like Pension Risk Transfer (PRT) and intend to evaluate buybacks relative to investment opportunities.

PGIM Flows Outlook
Q: What do you expect for PGIM flows as headwinds abate?
A: Management is not satisfied with recent PGIM flows but remains optimistic. They highlighted strengthened investment performance, continued investment in distribution, and expansion into private alternatives through acquisitions like Montana Capital Partners and Deerpath. They expect improved flows, noting a pickup in gross inflows towards the end of Q4 that has continued into this year.

Commercial Real Estate Exposure
Q: Update on commercial real estate and LTV deterioration?
A: Management estimates a 16% correction in institutional-quality real estate from peak to trough, with another 5–6% decline expected. Office properties have seen a 30% decline, with potentially another 10–15% to go. Prudential's portfolio is underweight in office (only 2% of assets), with strong loan-to-value ratios around 58% and debt service coverage ratios of 2.5%. They feel the portfolio is holding up well and have increased reserves to $370 million, representing 72 basis points of the portfolio.

Impact of Japan Regulation
Q: How will Japan's solvency regulation affect capital generation?
A: Management believes their Japanese businesses are well-capitalized and financially strong under any reasonable capital standard. They are working with regulators and have strategies like internal reinsurance to adapt to the new regime.

Lapse Rates in Japan
Q: Can you discuss lapse rates in Japan due to exchange rates?
A: There was a decline in life insurance in-force amounts due to a shift towards investment contracts without a material life component, natural runoff in older blocks, and modestly elevated surrenders from yen depreciation. Management remains confident in growing and diversifying their Japanese businesses.

Buyback Plans
Q: How are you thinking about share buybacks for 2024?
A: The Board approved $1 billion in share repurchases for 2024, considering their capital position, free cash flow outlook, and opportunities for organic growth, especially in the robust PRT market. They also increased the dividend for the 16th year in a row.

SGUL Deal Update
Q: What's the update on the SGUL deal with Somerset Re?
A: The deal is proceeding towards closing, expected in the current quarter, and is retrospective to 1/1/24. Financial impacts, including proceeds and earnings effects, will be updated upon closing.

Group Insurance Outlook
Q: Why did you reduce the Group Insurance benefit ratio target?
A: The benefit ratio guidance was lowered to 83% to 87% due to strong performance, diversification efforts, and improved claims management. The business is growing with attractive margins, and management expects continued improvement in underwriting performance and earnings power.

Pension Reform in Chile
Q: What's the impact of Chile's pension reform on your business?
A: A proposed pension reform in Chile could impact their Habitat joint venture. While monitoring the situation closely, management noted that the JV, though a larger component of emerging markets, is not a material contributor to Prudential's earnings.

Programmatic M&A in PGIM
Q: Any update on M&A plans for PGIM?
A: Management remains interested in augmenting organic growth with acquisitions in higher-growth, higher-fee areas like private alternatives and real assets. They are seeing increased market activity but will remain patient and disciplined.

RBC Ratio Improvement
Q: What drove the improvement in the RBC ratio?
A: The RBC ratio improved due to free surplus generation from in-force businesses, the benefit of admitting negative IMR from a regulatory change, and a reduction in AAT reserves from reaggregation efficiencies. Overall, capital position and flexibility have improved.

Interest Rate Sensitivity
Q: How sensitive are you to short-term interest rates?
A: Management does not expect a significant net impact from short-term rates. Earnings on cash and collateral balances are offset by paying short-term rates on interest rate derivatives used for duration management.

Update on Prismic Initiative
Q: Any activity with Prismic and its growth opportunities?
A: Management is enthusiastic about Prismic's role in financing growth across businesses. They expect to expand beyond the initial $10 billion structured settlements transaction, including balance sheet optimization and third-party blocks, increasing assets under management for PGIM.

Expense Savings in Disability
Q: Is there an expense savings opportunity in disability insurance?
A: Administrative expenses improved by 100 basis points due to business growth and expense discipline. Investments in claims management, including a partnership with EvolutionIQ for AI-driven monitoring, are expected to enhance recoveries and maintain pricing competitiveness.

Globalizing PGIM Business
Q: How are you expanding PGIM globally?
A: Management is focusing on growing in Europe and Asia by investing in distribution and diversifying asset classes and geographies. They see key growth opportunities in these regions, with Prismic playing a role, especially in Japan.