Q4 2024 Earnings Summary
- Prudential Financial is experiencing strong sales growth across its businesses, with a 39% increase in sales for retirement strategies and a 23% increase in sales for Individual Life for the full year 2024, contributing to earnings growth.
- The company is confident in achieving a 5% to 8% EPS growth target over the next three years, supported by strong opportunities and tailwinds, and expects an upward trajectory in core earnings as headwinds such as new business strain and runoff blocks moderate.
- In the Individual Life business, Prudential achieved record quarterly sales of over $325 million in Q4, an increase of 60% over the prior year quarter, and full-year sales were up nearly 25%. Sales increases are seen across virtually every product, leveraging their established brand and distribution strength amid a flight to quality in the industry.
- Prudential is facing near-term headwinds due to strain from new business and the impact of runoff, which may pressure earnings growth and require higher capital allocation. Despite a 65% free cash flow conversion, they need to allocate 30% to 40% of that towards growth capital, even though some businesses are growing at sub-5% rates. ,
- The individual life insurance segment is experiencing adverse mortality experience and negative underwriting results due to large claims from legacy blocks, which have been a meaningful headwind over the past couple of years, potentially impacting profitability and causing variability in underwriting results.
- Elevated U.S. dollar product surrenders in Japan are causing headwinds in the company's international operations, impacting earnings growth. While they expect surrenders to stabilize over time, the company is having to overcome these challenges to achieve low to mid-single-digit earnings growth in its international segment.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS (Baseline) | Q4 2024 | $3.34 | no current guidance | no current guidance |
EPS (Adjusted) | Q4 2024 | $3.67 | no current guidance | no current guidance |
International Annual Premiums | Q4 2024 | Seasonal decrease of $50 million | no current guidance | no current guidance |
Corporate and Other Loss | FY 2024 | $1.8B | no current guidance | no current guidance |
Core EPS Growth | FY 2025 | no prior guidance | 5% to 8% | no prior guidance |
Adjusted ROE | FY 2025 | no prior guidance | 13% to 15% | no prior guidance |
Operating Expense Ratio | FY 2025 | no prior guidance | 8.5% to 10.5% | no prior guidance |
Capital to Organic Growth | FY 2025 | no prior guidance | 30% to 40% | no prior guidance |
Capital to Dividends | FY 2025 | no prior guidance | 35% to 45% | no prior guidance |
Capital to Share Repurchases | FY 2025 | no prior guidance | 20% to 30% | no prior guidance |
Free Cash Flow Conversion | FY 2025 | no prior guidance | 65% | no prior guidance |
PGIM Earnings Growth | FY 2025 | no prior guidance | Low double-digit | no prior guidance |
PGIM Asset Management Fee Growth | FY 2025 | no prior guidance | 6% to 9% annually | no prior guidance |
PGIM Adjusted Operating Margin | FY 2025 | no prior guidance | 25% to 30% | no prior guidance |
U.S. Businesses Earnings Growth | FY 2025 | no prior guidance | Mid-single-digit | no prior guidance |
Retirement Strategies Annual Gross Sales | FY 2025 | no prior guidance | $35B to $45B | no prior guidance |
Retirement Strategies Annual Net Runoff (Pension) | FY 2025 | no prior guidance | $8B to $10B | no prior guidance |
Retirement Strategies Annual Net Runoff (Variable) | FY 2025 | no prior guidance | $12B to $16B | no prior guidance |
Group Insurance Premium Growth | FY 2025 | no prior guidance | 2% to 4% | no prior guidance |
Individual Life Sales Growth | FY 2025 | no prior guidance | 0% to 5% | no prior guidance |
International Earnings Growth | FY 2025 | no prior guidance | Low to mid-single-digit | no prior guidance |
International Sales Growth | FY 2025 | no prior guidance | 4% to 6% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Earnings Per Share (EPS) | Q4 2024 | $3.34 per share | -$0.14 per share | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Retirement Strategies and Annuities | Emphasized strong sales growth and product diversification in Q1 and Q2 (over $50B in sales for 2024, driven by fixed annuities, RILA, and institutional pension risk transfer). | Continued positive tailwinds in Q4, highlighted by the highest annual PRT level since 2012 and over $14B in individual retirement sales. | Consistently bullish, underpinned by demographic trends and broad portfolio offerings. |
Individual Life | Q1 noted 12% YoY growth; no explicit Q2 discussion. | Q4 posted record $325M sales but faced underwriting headwinds due to large claims from a legacy block. | Strong sales continue, though mortality experience created short-term challenges. |
PGIM’s Institutional Flow Variability | Noted large institutional inflows in Q1; new focus on variability introduced in Q2 due to overfunded defined benefit plans and PRT activity. | Not specifically mentioned in Q4. | Introduced in Q2, then not repeated in subsequent calls. |
Winding Down Assurance IQ | Wind-down announced in Q1, moved results to divested businesses. | Not discussed in Q4. | Discontinued in Q1, with no further updates. |
Emerging Markets Expansion | Q1 featured exit from Argentina; focus on select high-growth markets. Q2 centered on accelerating expansion in Brazil and Asia, noting 27% sales growth in Brazil. | Mentioned Japan, but only regarding elevated surrenders; no broader emerging markets detail in Q4. | Continued strategic priority, overshadowed in Q4 by Japan surrender commentary. |
Regulatory Changes in Japan and Bermuda | Addressed in Q1, including ESR transition in Japan and BMA updates in Bermuda. | No updates in Q4. | No new developments after Q1. |
Interest-Rate Sensitivity on Annuity Sales | Q2 spotlighted fixed annuity softening under lower rates and strong overall market. | Q4 still showed robust annuity sales with a shift toward RILA as interest rates fluctuated. | Persistent factor, with product mix shifts responding to rate environment. |
Capital Strain from New Business | Acknowledged upfront distribution costs for new product sales in Q2; viewed as manageable. | In Q4, capital strain cited as a near-term headwind, though the company remains confident in its 5–8% EPS growth target. | Heightened in Q4, expected to ease as new business matures. |
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Free Cash Flow Conversion
Q: Why allocate 30%-40% of 65% free cash flow to growth?
A: Yanela explained they see strong opportunities evidenced by 39% increase in retirement strategies sales and 23% increase in Individual Life sales, contributing to earnings but facing near-term headwinds due to new business strain and runoff. They invest in growth materializing in earnings, expecting an upward trajectory as headwinds moderate, with core earnings growth of 5%-8%, while maintaining healthy dividends and buybacks. -
Japan ESR Implementation
Q: How will ESR impact capital levels in Japan?
A: Yanela stated that upon ESR implementation in April 2025, they expect capital levels to remain above targets supporting AA financial strength ratings. They have executed affiliated reinsurance transactions to mitigate volatility and don't anticipate significant changes in capital position. Andy added they offer a broad product portfolio, including ESR-friendly offerings, to continue profitable growth in Japan. -
EPS Growth Outlook
Q: Expectations for '25 EPS growth relative to 5%-8% target?
A: Yanela reaffirmed confidence in the 5%-8% EPS growth target over three years, acknowledging near-term headwinds from new business strain and runoff. Growth won't be linear; as headwinds moderate and investments take hold, they expect an upward trajectory in core earnings over the period. -
Prismic Growth in Japan
Q: Will Prismic pursue more transactions in Japan?
A: Rob confirmed they are working on an active pipeline of reinsurance transactions, including balance sheet optimization and third-party blocks, focusing almost exclusively in Japan. They see significant market opportunity and expect to continue leveraging Prismic to address it. -
PGIM Margin Improvement
Q: How will PGIM improve margins significantly?
A: Andy highlighted progress, ending the year with a 25.6% margin, though still depressed due to higher rate environment. They aim to expand margins toward 30%, driven by improving fixed income and real estate markets, traction in growth investments like private credit, and disciplined expense management, balancing efficiencies with reinvesting in growth. -
Annuity Sales Outlook
Q: Sales growth expectations amid industry slowdown?
A: Caroline noted a strong year with $425 billion in industry annuity sales, despite softening in traditional fixed annuities. PRU's $3.5 billion in Q4 sales marked the ninth consecutive quarter of growth. They see tailwinds from aging demographics and money in motion, emphasizing their diversified product portfolio with five products over $1 billion in annual sales, positioning them well to capture demand. -
Pension Risk Transfer Litigation Impact
Q: Will recent lawsuit affect PRT pipeline?
A: Caroline stated that while not a party to the lawsuit, such litigation threatens the PRT industry's health but doesn't accurately represent Prudential. They continue to see strong funded statuses and favorable market conditions, expecting an active pipeline and are well-positioned as a market leader to meet plan sponsors' needs. -
International Growth Outlook
Q: Does growth outlook assume surrenders normalize?
A: Andy explained that low to mid-single-digit earnings growth is driven by favorable net spreads, stronger underwriting, and expense discipline, offsetting near-term pressure from U.S. dollar product surrenders in Japan. Q4 had the lowest surrenders in 2024, and they expect stabilization over time, leading to solid growth despite headwinds. -
Individual Life Sales Volatility
Q: Does life sales surge risk earnings volatility?
A: Caroline reported record $325 million in Q4 Individual Life sales, up 60% year-over-year, across virtually every product. While increased estate planning activity contributed, she doesn't expect added volatility. They anticipate continued customer focus due to macro factors and are pleased with growth and quality of new business. -
Capital Allocation and M&A
Q: Will freed capital be used for M&A?
A: Charlie emphasized that while organic growth is priority, they are open to opportunistic and selective M&A to accelerate strategy and meet financial objectives. They focus on expanding capabilities, distribution, and scale, including through Prismic, and will remain strategic and selective in M&A interests, consistent with prior focus areas like PGIM and emerging markets.
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