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PF

PRUDENTIAL FINANCIAL INC (PRU)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered solid adjusted operating income (AOI) EPS of $2.96, up 16% YoY, but down sequentially; GAAP showed a net loss of $0.17 per share driven by realized investment losses tied to portfolio repositioning and assets intended for the Prismic reinsurance transaction .
  • Segment mix remained resilient: PGIM margin expanded to 25.6% with strong flows, while U.S. Businesses and International saw higher spread income offset by elevated expenses and underwriting headwinds; Individual Life faced large-case mortality and one-time transaction costs (GUL reinsurance/captive consolidation) .
  • Capital return and capital flexibility are clear positives: dividend raised 4% to $1.35, 2025 buyback authorization of up to $1.0B, and a second Prismic deal to reinsure ~$7B of Japanese whole life (pending approvals) .
  • New multi‑year targets through 2027 (5–8% core EPS growth, 13–15% adjusted ROE, and an 8.5–10.5% operating expense ratio trending down) frame a credible path despite near‑term headwinds from new business strain and runoff; 2025 likely tracks the lower end given nonlinearity .

What Went Well and What Went Wrong

  • What Went Well

    • PGIM strength: AUM rose 6% YoY to $1.375T and Q4 net flows were +$8.6B; adjusted operating margin improved to 25.6% (Q4) with momentum in private credit and incentive fees .
    • Retirement momentum: Institutional account values hit a record $279B; Q4 sales of $10B included $6B LRT; Individual Retirement Q4 sales rose 73% YoY to $3.6B on RILA/fixed annuity demand .
    • Capital and cash: Holding company liquidity at $4.6B, dividend increased to $1.35 (17th consecutive annual raise), and a $1.0B 2025 buyback authorization .

  • What Went Wrong

    • GAAP loss: Q4 GAAP net loss ($57mm) and -$0.17 EPS driven by realized investment losses (including assets to be transferred to Prismic) and portfolio repositioning .
    • Underwriting/expenses: U.S. Businesses AOI declined YoY on higher expenses and less favorable underwriting; Individual Life swung to a $57mm AOI loss on one‑time reinsurance/captive consolidation costs and elevated large‑case mortality .
    • International headwinds: Elevated U.S. dollar product surrenders in Japan with yen weakness pressured underwriting; management expects stabilization as yen appreciates and product mix shifts, but near‑term pressure persists .

Financial Results

Headline metrics (GAAP unless noted)

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($mm)$15,084 $14,881 $12,523
After-tax AOI ($mm)$926 $1,260 $1,068
AOI EPS ($)$2.54 $3.48 $2.96
Net Income ($mm)$1,317 $448 $(57)
Net EPS ($)$3.61 $1.24 $(0.17)

Segment AOI (pre‑tax)

Segment ($mm)Q4 2023Q4 2024
PGIM$172 $259
U.S. Businesses$964 $860
International Businesses$748 $742
Corporate & Other$(653) $(490)
Total AOI (pre‑tax)$1,231 $1,371

Selected KPIs

KPIQ4 2023Q4 2024
PGIM AUM ($bn)$1,298.1 $1,375.2
PGIM Net Flows (Quarter, $bn)n/a$8.6
Institutional Retirement Net Account Value ($bn)$258.4 $279.2
Institutional Retirement Sales (Quarter, $bn)n/a$10.0 (incl. $6.0 LRT)
Individual Retirement Sales (Quarter, $bn)$2.102 $3.636
Individual Retirement Net Account Value ($bn)$117.9 $127.1
Group Insurance ANBP ($mm)$60 $63
Individual Life ANBP ($mm)$205 $326

Drivers and quality

  • GAAP vs AOI: AOI excludes realized gains/losses, MRB fair value changes, certain hedging and divested/run-off items to better reflect underlying profitability; Q4 GAAP loss was mainly realized losses tied to assets associated with the Prismic transaction and modest portfolio repositioning .
  • U.S. Businesses: Lower AOI YoY on higher expenses (GUL reinsurance/captive consolidation), lower fee income, and less favorable underwriting, partly offset by higher spreads .
  • International: Less favorable underwriting and higher expenses offset by better spreads; continued product and distribution diversification in Japan/Brazil .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core AOI EPS Growth2024–2027n/a5%–8% CAGR (from 2024 base) Introduced
Adjusted ROE2024–2027n/a13%–15% Introduced
Operating Expense Ratio (Global Retirement & Insurance)2024–2027n/a8.5%–10.5%, trending down Introduced
Capital Deployment – DividendsOngoingn/a35%–45% of capital generated to dividends Introduced
Capital Deployment – Buybacks2025n/aBoard authorized up to $1.0B in 2025 New
Common DividendMar 2025$1.30/qtr$1.35/qtr (+4%) Raised
PGIM Earnings Growth2024–2027n/aLow double‑digit; adj. margin 25%–30% Introduced
U.S. Businesses Earnings Growth2024–2027n/aMid‑single‑digit Introduced
International Earnings Growth2024–2027n/aLow to mid‑single‑digit Introduced
Retirement Strategies Gross SalesAnnualn/a$35–$45B; with annual runoff: PRT/LRT $8–$10B; legacy VA $12–$16B Introduced
Group Insurance Premium GrowthAnnualn/a2%–4% Introduced
Individual Life Sales GrowthAnnualn/aFlat to +5% Introduced

Notes: Management reiterated guidance nonlinearity; 2025 likely toward the low end of EPS growth range given near‑term new business strain and runoff .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Annuity mix shift (RILA vs MYGA)Q2/Q3: Strong FlexGuard/RILA momentum; fixed annuity demand rising; individual annuity sales up materially Industry MYGA softening with falling rates; RILA +35% industry; PRU Q4 sales ~$3.5–3.6B, 9th straight quarterly growth Continued pivot to RILA with sustained sales tailwinds
Prismic & reinsurance strategyQ3: Announced $11B GUL reinsurance; mix shift to capital‑efficient products Second Prismic deal to reinsure ~$7B Japanese whole life; building pipeline incl. third‑party Japan opportunities Scaling reinsurance platform; third‑party optionality
Free cash flow conversion & deploymentQ3: Robust capital return; steady repurchases/dividends 65% FCF of net income over time; 35%–45% to dividends, 20%–30% to buybacks; 2025 $1B buyback; context for using net income vs AOI Clearer framework; near‑term headwinds acknowledged
Japan ESR and surrendersQ3: International AOI pressured by underwriting; FX headwinds ESR adoption FY25; expect capital above AA targets; yen‑linked surrenders easing; yen assumption ~135 on forward curve Transition planning; stabilization expected
PGIM margins & private creditQ3: Strong private credit originations; AUM +15% YoY; flows mix Target 25%–30% margins; Q4 at 25.6% with improving cycle and disciplined expenses Margin expansion underway

Management Commentary

  • “Earnings for the fourth quarter were lower than we anticipated… largely due to adverse underwriting experience, primarily driven by an elevated level of large individual life claims.”
  • “Our GAAP net loss for the quarter… was primarily due to interest rate‑driven realized losses on the investment portfolio that will be transferred to Prismic… and some modest repositioning of our investment portfolio.”
  • “We maintained a AA rating… holding more than $4 billion in highly liquid assets… and returned nearly $3 billion to shareholders in 2024.”
  • “We are introducing new financial targets through 2027… annual core EPS growth of 5% to 8%… adjusted ROE of 13% to 15%… operating expense ratio of 8.5% to 10.5%, trending down.”

Q&A Highlights

  • Annuity outlook/mix: Management expects continued strength despite industry MYGA softening as money rotates to index products (RILA); PRU has five products >$1B annual sales and sees tailwinds from “money in motion” (e.g., ~$70B fixed annuities maturing; >$7T in money market funds) .
  • Prismic growth path: Beyond internal blocks, a significant third‑party reinsurance opportunity in Japan is expected given ESR dynamics and legacy foreign currency blocks; PRU’s brand/local presence and recent Japan whole life deal bolster credibility .
  • FCF conversion framework: 65% of net income over time (vs AOI) due to statutory impacts from realized items/hedging; 35%–45% to dividends, 20%–30% to buybacks; nonlinearity from new business strain and runoff .
  • PRT litigation: Management argued litigation targeting plan sponsors harms the industry; sees continued strong pipeline and PRU’s positioning as a leading risk holder .
  • Japan ESR and yen: ESR adoption FY25 with capital above AA targets; yen assumption ~135 (forwards) with surrender pressures expected to lessen as yen appreciates; product diversification into yen‑denominated offerings continues .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 was not available due to a temporary data access limit; therefore, we cannot formally assess beat/miss vs consensus in this report. We will update when S&P Global estimates are accessible.

Key Takeaways for Investors

  • Underlying AOI remains resilient despite Q4 noise; sequential step‑down reflects higher expenses/underwriting, while GAAP loss was largely technical (realized losses tied to Prismic/portfolio repositioning) rather than core earnings deterioration .
  • Structural levers to compound: multi‑year targets (EPS growth, ROE, expense ratio) plus sustained annuity/retirement tailwinds and PGIM margin expansion provide a credible grow‑and‑optimize path .
  • Reinsurance platform (Prismic) is scaling and could become a durable capital efficiency engine with third‑party Japan flow/block opportunities catalyzed by ESR .
  • Distribution/product pivots (RILA/fixed annuities; diversified life) and record institutional account values underpin spread income durability as rates normalize .
  • International execution hinges on Japan: surrender normalization and FX path are key watch items; management’s yen assumption and product diversification mitigate risk .
  • Capital return remains attractive: dividend raised, $1B 2025 buyback, and a clear FCF allocation framework—supportive for shareholder yield while investing for growth .
  • Near‑term setup: 2025 likely tracks the low end of EPS growth range as new business strain and runoff weigh; progress on Prismic, PGIM margin lift, and surrender normalization are potential upside catalysts .

Appendix: Additional Detail

Segment and business line notes

  • U.S. Businesses: Retirement Strategies AOI $851mm vs $890mm YoY (Institutional $427mm vs $432mm; Individual $424mm vs $458mm); Individual Retirement Q4 sales +73% YoY to $3.6B; Group Insurance ANBP $63mm; Individual Life ANBP record $326mm; Individual Life AOI loss of $57mm on one‑time transaction costs .
  • International: AOI $742mm vs $748mm YoY; Life Planner constant‑currency sales $272mm (-3% YoY), Gibraltar $247mm (-21% YoY); headwinds from U.S. dollar product surrenders amid yen weakness .
  • PGIM: Q4 AOI $259mm vs $172mm on higher fees/incentives; AUM +6% YoY to $1.375T; Q4 net flows +$8.6B (affiliated +$8.9B; third‑party -$0.3B) .

Non-GAAP reminder

  • AOI excludes realized gains/losses, MRB fair value changes, certain FX/hedging and run‑off impacts to better reflect ongoing operations; reconciliations provided in the company’s release and supplement .

Sources

  • Q4 2024 earnings press release and financial tables .
  • Q4 2024 earnings call transcript (prepared remarks and Q&A) .
  • Q3 2024 earnings press release .
  • Q2 2024 earnings press release .
  • 8‑K Item 2.02 and Quarterly Financial Supplement tables (Q4 2024 and prior period reconciliations) .
  • Prismic Japan whole life reinsurance press release (Jan 22, 2025) .