Ladies and gentlemen, thank you for standing by, and welcome to Prudential's Quarterly Earnings Conference Call. As a reminder, today's call is being recorded. I will now turn the call over to Mr. Bob McLaughlin. Please go ahead.

Good morning, and thank you for joining our call. Representing Prudential on today's call are Charlie Lowrey, Chairman and CEO; Rob Falzon, Vice Chairman; Andy Sullivan, Head of International Businesses and PGIM, our Global Investment Manager; Caroline Feeney, Head of U.S. Businesses; Yanela Frias, Chief Financial Officer; and Rob Axel, Controller and Principal Accounting Officer. We will start with prepared comments by Charlie, Rob, and Yanela, and then we will take your questions. Today's discussion may include forward-looking statements. It is possible that actual results may differ materially from the predictions we make today. In addition, our presentation includes references to non-GAAP measures. For a reconciliation of such measures to the comparable GAAP measures and a discussion of factors that could cause actual results to differ materially from those in the forward-looking statements, please see the slides titled Forward-Looking Statements and Non-GAAP Measures in the appendix of today's presentation and the quarterly financial supplement, both of which can be found on our website at investor.prudential.com. And now, I'll turn it over to Charlie.

Thank you, Bob, and thanks to all of you for joining us today. Our third quarter performance reflects continued positive momentum in growing our businesses, increasing capital efficiency, and pivoting our product suite to address the investing, insurance, and retirement needs of our customers and clients around the world. We reported robust sales across our U.S. and international insurance and retirement businesses as well as strong investment performance and private credit originations in PGIM. We also maintained our disciplined approach to capital deployment while continuing to invest in our businesses and returning excess capital to shareholders. Our strategic progress and performance are backed by our financial strength. Turning to Slide 3. This morning, I will highlight how we continue to become a higher-growth, more capital-efficient company. We are growing our market-leading businesses while increasing our capital flexibility. Let's start by taking a closer look at how our Retirement Strategies business is benefiting from the global retirement opportunity. On the Institutional side, our continued leadership in pension risk transfer was reinforced through a second transaction with IBM, this time to reinsure $6 billion of pension liabilities. With this latest transaction, we have now closed seven out of the 10 largest pension risk transfer deals in the U.S. On the Individual side, five of our annuity products have exceeded $1 billion in sales so far this year, validating our product diversification strategy. Our Japan business is another great example of how we are addressing the growing demand for retirement products. While life insurance has traditionally comprised the bulk of our business in Japan, year-to-date sales of retirement and savings products are up 30% compared to the prior year. Meanwhile, PGIM is well-positioned to help plan sponsors deliver benefits to millions of retirement beneficiaries through its diversified investment solutions. As a market leader, with nearly $0.5 trillion of assets under management supporting defined benefit and defined contribution plans, PGIM serves more than half of the world's 300 largest pension funds. Now, let's look at how we are further growing our market-leading businesses by diversifying our products and expanding our global distribution networks. In our Retirement Strategies business, we're increasing the number of individual annuity solutions and adding new workplace partnerships, like the relationship we recently announced with JPMorgan Asset Management. In our Group Insurance business, we are expanding our disability and supplemental health products and growing our position in the under 5,000 lives and association market segments. Turning to our Individual Life business. We continue to launch innovative, more capital-efficient products, and we have positive momentum across our distribution channels. In our International Businesses, we're benefiting from recent product launches and our strong multi-channel distribution in both Japan and Brazil. And lastly, PGIM continues to benefit from our deeply connected and reinforcing business mix, resulting in strong affiliated flows on a year-to-date basis. In addition, private alternatives capital deployment has increased 24% year-to-date, underscoring the demand in the market and PGIM's private credit capabilities. PGIM is also well-positioned to continue to capture the growing retail demand for fixed-income products. In addition, our investments in technology across our insurance, retirement and asset management businesses are helping us to deliver exceptional sales, service, and claims experiences, supporting our growth strategy. At the same time, we're improving the quality of earnings from the continued shift of our business mix. This quarter, we announced a transaction with Wilton Re to reinsure an $11 billion guaranteed universal life block. Following this transaction, we will have reduced our guaranteed universal life reserves by 60%, advancing our strategic progress to become a higher-growth, more capital-efficient company. Turning to Slide 4. Our continued investments in our businesses are supported by our disciplined approach to capital deployment, which included returning more than $700 million to shareholders during the third quarter. Turning to Slide 5. Our growth strategy is further supported by our financial strength and our risk and capital management framework. We maintain a AA rating which reflects a healthy capital position, including more than $4 billion in highly liquid assets at the end of the third quarter. We also maintain a well-diversified, high-quality portfolio and a disciplined approach to Asset-Liability Management. In closing, we're operating from a position of strength with confidence in our strategy, our capabilities and our path to deliver long-term sustainable value for all our stakeholders. And with that, I'll turn it over to Rob.

Thanks, Charlie. I'll provide an overview of our financial results and business performance for our PGIM, U.S. and international businesses. I'll begin on Slide 6 with our financial results. Our pretax adjusted operating income was $1.6 billion or $3.48 per share on an after-tax basis for the third-quarter of 2024 and $9.98 on a year-to-date basis, which is up 6%. These results reflect the execution of our strategy to grow our market-leading businesses and were driven by higher spread and fee income due to continued strong sales and the benefit of higher interest rates and equity markets, net of increased expenses to support the growth of our businesses. Year-to-date adjusted operating return-on-equity of 13.7% has improved a 0.5 percentage point from the prior year. This reflects the strength of our businesses, the benefits from the deliberate actions we have taken to pivot to more capital-efficient and higher-growth products. Turning to the operating results from our businesses compared to the year-ago quarter. PGIM, our global investment manager, had higher asset management fees driven by favorable investment performance, contributions from the Deerpath Capital acquisition and market appreciation. This was partially offset by higher expenses to support business growth. Earnings growth in our U.S. businesses reflected more favorable underwriting results from better-than-expected mortality experience in individual life and higher spread income driven by business growth and the benefit of higher interest rates. This was partially offset by lower legacy traditional variable annuity fee income as we intentionally pivot to less market-sensitive products as well as higher expenses to support business growth. Results of our international businesses included less favorable underwriting results, primarily reflecting elevated U.S. dollar product surrenders with the weakness in the yen and higher expenses to support business growth, partially offset by higher joint-venture earnings driven by Encaje performance in Chile and higher spread income due to higher yields from the reinvestment of the portfolio.

PGIM, our global investment manager, has diversified capabilities in both public and private asset classes across fixed-income, equities and alternatives. PGIM's strong investment performance continues to improve with 86% of assets under management exceeding their benchmarks over the past year. This has contributed favorably to strong long-term performance with 79% and 85% of assets under management outperforming their benchmarks over the last five and 10-year periods, respectively. PGIM's assets under management increased by 15% to $1.4 trillion from the year-ago quarter, driven by market appreciation, investment performance and net flows. Total net flows in the quarter of $3.2 billion included affiliated net flows of $6.4 billion, driven by strong retirement strategy sales, partially offset by $3.2 billion of third-party net outflows. On a year-to-date basis, total net flows were $29 billion, including $15 billion in affiliated flows and $14 billion from third-party clients. These inflows reflect the net benefit from large episodic institutional pension plan activity. As the investment engine of Prudential, PGIM's capabilities support the success and growth of our U.S. and international businesses in retirement, asset management and insurance. PGIM's asset origination capabilities, investment management expertise and access to institutional and other sources of private capital, including through our sponsored reinsurer Prismic, are a competitive advantage, helping our businesses bring enhanced solutions and create more value for our customers.

Our insurance and retirement businesses in turn provide a source of growth for PGIM through affiliated net flows as well as unique access to insurance liabilities. In addition, our diversified PGIM private alternatives platform, which has assets under management of over $250 billion, experienced strong private credit origination activity driven by our direct lending businesses, including the benefit from our recent acquisition of Capital. Turning to Slide 8. Our U.S. businesses produced diversified earnings from fees, net investment spread and underwriting income and benefit from our complementary mix of longevity and mortality businesses and diversified sources of earnings. We continue to focus on growing our market-leading businesses by expanding our addressable market with new financial solutions delivered through a broader distribution footprint, leveraging capabilities across Prudential and enhancing those capabilities to improve the experience of our customers and distribution partners while driving operating efficiencies. Retirement strategies generated strong sales of nearly $15 billion in the third-quarter across its institutional and individual lines of business. Institutional retirement sales totaled $11 billion in the quarter. U.S. funded pension risk transfer transactions of $6.3 billion included the second PRT transaction with IBM. Additionally, longevity risk transfer sales totaled $2.8 billion for the quarter. Year-to-date, institutional retirement sales were over $26 billion as we have captured about 40% of the PRT market. Individual Retirement posted $3.6 billion in sales, its best quarter of sales in over a decade. Our product pivots and innovation have resulted in continued strong sales of our registered index-linked annuities and fixed annuity products have more than doubled from the prior year. Additionally, we continue to reduce market sensitivity by running off our legacy variable annuities. Group Insurance sales primarily occur in the first quarter of the year based on annual enrollments. On a year-to-date basis, sales increased 3% compared to the prior year, driven by growth in supplemental health. We are executing our strategy of both product and client segment diversification, while leveraging technology to increase operating efficiency and enhance the customer experience. These actions to improve profitability and performance resulted in a benefits ratio of 83.4%, which is at the low end of our target range. In Individual Life, sales increased 13% from the year ago quarter and 9% year-to-date. These increases include the benefit from the strength and breadth of our distribution capabilities and expansion of our product offerings, including our pivot towards more capital-efficient products like FlexGuard Life, which reached its highest sales quarter since its launch in 2022.

Our international businesses include our Japanese life insurance companies where we have a differentiated multichannel distribution model as well as other businesses aimed at expanding our presence in targeted high-growth emerging markets. In Japan, we are focused on providing high-quality service and expanding our distribution and product offerings. Our needs-based selling approach and protection and retirement product focus continue to provide important value to our customers as we extend our product offerings to meet their evolving needs. Sales in our international businesses were up 25% compared to the year-ago quarter. Higher sales in Japan are benefiting from recent product launches as we expand our retirement and savings offerings, which are gaining traction with customers and represented 75% of the current quarter sales. In addition, emerging market sales were also higher, driven by growth in Brazil as we continue to expand third-party distribution and benefit from the strong performance of our world-class Life Planners. As we look ahead, we are well-positioned across our businesses to be a global leader in expanding access to investing, insurance and retirement security. We continue to focus on investing in growth businesses and markets delivering industry-leading customer and client experiences and creating the next generation of financial solutions to serve the diverse needs of a broad range of customers.

Thank you, Rob. I will begin on Slide 10, which provides insight into earnings for the fourth quarter of 2024 relative to our third quarter results. Pre-tax adjusted operating income for the third quarter was $1.6 billion and resulted in earnings per share of $3.48 on an after-tax basis. To get a sense of how our fourth quarter results might develop, we suggest adjustments for the following items. First, variable investment income was below expectations by $50 million in the third quarter, driven by lower private equity returns. Beginning next quarter, we plan to pre-announce our estimated variable investment income results. Next, underwriting experience was above expectations by $15 million in the third quarter. And last, we include an adjustment of $100 million for expenses and other items. Higher expenses in the third quarter reflect the timing of investments in enterprise initiatives to support growth. We expect higher initiative investments to continue in the fourth quarter and maintain the full year 2024 expected loss in Corporate & Other of $1.8 billion. We also expect seasonally lower annual premiums of $50 million in international in the fourth quarter. These adjustments combined get us to a baseline of $3.34 per share for the fourth quarter. I will note that if you exclude items specific to the fourth quarter, earnings per share would be $3.67. The key takeaway is that our underlying earnings power increased and reflects the improved quality of earnings from intentionally shifting our business mix and continued investment in the growth of our market-leading businesses. While we have provided these items to consider, please note that there may be other factors that affect earnings per share in the future. A few items that I would highlight. We continue to benefit from new money rates that were higher than our portfolio yield in the third quarter, and we do not expect a significant impact from the potential decline in short-term rates. We have cash at the holding company, floating rate assets across our businesses and collateral in Individual Retirement Strategies that earn short-term yields, which is generally offset by interest-rate derivatives that manage duration across our businesses where we pay short-term rates and receive fixed. The earnings benefit from the recent pension risk transfer transactions grows over time as we reposition the investment portfolio and is viewed by In-Force runoff. In addition, our legacy variable annuities In-Force is running off at $3 billion to $4 billion per quarter and we have been experiencing an elevated level of surrenders in our businesses in Japan associated with U.S. dollar products as the yen has weakened relative to the U.S. dollar. The exchange rate hit a 38-year low in the second quarter. And while we have experienced a reduction in surrender levels as the yen strengthened during the third quarter, we expect some continued near-term pressure on earnings before surrenders normalized. Also of note, in order to provide greater insight into our financial outlook and to better align with the longer-term nature of our business, we plan to introduce new intermediate-term financial targets. These targets will replace our quarterly baseline disclosure concurrent with the release of our fourth quarter earnings results. Turning to Slide 11. Our regulatory capital ratios are strong and above levels that we believe represent AA financial strength as we continue to maintain margins to support strong organic growth prospects and are prepared for the potential impacts of market-driven volatility. Our cash and liquid assets were $4.3 billion, which is above our minimum liquidity target of $3 billion and we have substantial off-balance sheet resources. We remain thoughtful in our capital deployment, preserving financial strength and flexibility, investing in our businesses for long-term growth and returning capital to shareholders. Turning to Slide 12, and in summary, we are becoming a higher growth, more capital-efficient company. We are maintaining a disciplined approach to capital deployment and our growth is supported by the strength of our balance sheet. And with that, we will be happy to take your questions.

Our first question today is coming from Ryan Krueger from KBW. Your line is now live.

Hi, thanks. Good morning. I guess one question and kind of a related follow-up would be, one, can you give an update on Prismic and potential activity there? And then the second one was just how you plan to use capital that you free up from both external and internal reinsurance transactions going forward? Because I think you freed up some capital from various transactions, but what are your key priorities for returning that over time?

Ryan, it's Rob. I'll address the first part of your question, and I believe Charlie will tackle the second part. To begin, Ryan, I want to emphasize what we mentioned last quarter; we would be disappointed if we don't announce an additional transaction before the year concludes. We're actively working on a robust pipeline that includes various reinsurance transactions of different types, focusing on optimizing our balance sheet, exploring opportunities for flow or new sales financing, as well as engaging with third-party blocks, particularly in Japan. As you may have seen, Prismic has recently announced that we've established a dedicated licensed team in Tokyo to advance this opportunity. While all options are in play, we anticipate that the next transaction is likely to involve back-book activities among the various initiatives underway, with a potential focus on Japan. This interest is particularly significant as it would establish a framework and precedent for conducting third-party transactions in that market, which we believe holds considerable potential for our competitive advantage. Overall, I can confidently say that we have a clear pipeline, available capital, strong underwriting expertise, and sufficient staffing at Prismic. All these elements combine to bolster our confidence in scaling Prismic in alignment with both our goals and those of our investors.

And Ryan, this is Charlie. Let me add on to what Rob said in terms of capital deployment. You know, we've always said that we want to be good stewards of capital and that we have a consistent disciplined and balanced approach to the redeployment of that capital with our businesses and to our shareholders and there are really three aspects to our approach on which we focus. The first is just maintaining our rock-solid balance sheet and financial strength, which is fundamental to us in terms of fulfilling our promises, which we've done for almost 150 years. The second is investing, both organically and through programmatic acquisitions to support the sustainable long-term growth of our businesses. And finally, returning excess capital to shareholders as we've done in the past. And in this quarter, we deployed capital to support strong sales across our businesses, including several new products to meet the evolving needs of our customers, and we returned over $700 million to shareholders. So we have a consistent process and we're going to follow that through.

Great. Thank you.

Hi, thanks. Good morning. I wanted to start with Japan. Can you talk about how the margins or the returns on these retirement products that you're selling compare to the protection products, death protection products that you used to sell? I mean, my recollection is those death protection products had very attractive margins and I just want to get a sense of the new business that you're writing and how that compares.

Yes. Suneet. Good morning. It's Andy. I'll take the question. So we're pleased with the profitability of the sales that we're seeing in Japan and we do not expect an impact on the margins given the mix-shift between the product types. We're actually quite excited. We see a long-term opportunity to help the citizens in Japan prepare for and enjoy their retirement. Given the longevity aspects of Japan and the low bank savings yields, we believe that we're going to see a continued strengthening of demand for a broader set of retirement products. While we already have a broad product portfolio there, we've been methodically diversifying and expanding our capabilities to really lean into this opportunity and you saw that success of that strategy in third quarter with our retirement investment product sales increasing about 30% year-to-date versus the prior year. And those sales accounted for the majority of Japan sales in the quarter. So, we don't expect an impact on the margin given that mix shift and we're very excited as we see this as early days and what should be a very long-term opportunity tailwind.

Okay. That makes sense. Thanks for that. And then I guess for Caroline, it looks like your prediction that 2024 would be another record year for annuity sales is playing out. Just curious if you can give some color around like where the growth is kind of coming from? Is it coming out of 401(k) plan rollovers or product exchanges? And how sustainable do you think this level of sales is as we think about moving into 2025? Thanks.

Yes, sure. Thanks for your question, Suneet. So first of all, let me say, we are extremely pleased with our individual retirement results. And as you saw in the third quarter, we drove over $3.5 billion of sales, making it our best quarter in over a decade. And this strong performance is the direct result of our efforts over the past few years to diversify our annuity portfolio, allowing us to meet more of the consumer need for protected savings and income. In fact, we now have the broadest individual product portfolio we've ever had. And to put that in perspective, Suneet, as Charlie mentioned in his opening comments, just two years ago, we had only one product that generated over $1 billion in sales. Now we already have five products that have exceeded that mark this year. So in terms of your question on sustainability, the outlook for our individual annuity franchise remains strong. Beyond our diversified portfolio, what we see is a clear tailwind coming from aging demographics. That's over 11,000 Americans turning 65 every day and 30 million Americans turning 65 between now and 2030. So a lot of that growth to need is coming from that tailwind. And we're also seeing increased demand in the marketplace for protected savings and income solutions. So combining those factors, the industry is on pace for a third sequential record-setting sales year as you say, with year-to-date sales outpacing last year by more than 25%. And we'll meet that demand head-on with our diverse portfolio of solutions and the strength of our brand and our distribution.

Got it. Okay. Thanks for that.

Good morning. My first question is about Japan. Can you discuss your sales mix between yen products and foreign currency products? I understand that foreign currency has played a significant role recently, but with the rise in interest rates in Japan, are you beginning to see a shift back toward yen-oriented products? How do you view that trend moving forward? Thank you.

Yes, Tom, it's Andy. I'll address your question. In the third quarter, approximately 30% of our sales in Japan were in yen. Notably, our yen-based sales have nearly doubled over the past three years, thanks to a series of deliberate actions we have taken. We believe in maintaining a well-diversified product range in every market where we operate. For Japan, this means ensuring a solid mix of life insurance, retirement, and savings products, as well as balancing our U.S. dollar and yen offerings. Over the past year, we have been intentionally enhancing the options available for yen-based products. The introduction of these new products has significantly contributed to the 29% year-over-year increase in sales. We stand by our broad portfolio strategy, and the expansion of our yen-based offerings is proving successful.

Thank you. I have a follow-up question that relates to a broader industry issue. Swiss Re Research Institute recently released a report that suggests excess mortality may continue for another 5 to 10 years. It's difficult to determine the specifics they are referring to, but they mentioned the U.S. and Japan, which are significant markets for Prudential. Do you share this perspective, and if this scenario occurs, do you believe your reserves are adequately positioned to manage it? I would appreciate any additional thoughts you might have on this matter. Thank you.

Hi, Tom, it's Yanela. And let me take that question. So yes, the observations and the expectations from the report are consistent with our internal view and with the approach that we have taken for our mortality assumptions. So our assumptions reflect some continued excess mortality through 2028 before returning to the pre-pandemic trend line. And obviously, we regularly monitor mortality trends in advances and adjust accordingly every year during our annual assumption process in the second quarter. I would remind you that we have a diversified mix of businesses providing natural mortality hedges, right? So life insurance and PRT and also throughout globally within the U.S. and other significant insurance markets such as Japan and the U.K. And so a few data points on what we are seeing. In individual life, we have experienced mortality that is broadly in line with expectations since updating our mortality base table assumptions in 2022 and this quarter we saw favorable experience. Now the individual life insured population is less impacted by COVID than the general population. Our PRT mortality experience has trended heavier in 2023 that is consistent with continued excess mortality. And what I would say is that our PRT population tends to be more closely correlated to the general population.

That's great. Thanks.

Thank you. Next question today is coming from Nick Annitto from Wells Fargo. Your line is now live.

Hi, good morning. Thanks. I just wanted to hit on PGIM first. Maybe could you talk about what went on institutional in the quarter, what drove the outflows and maybe how you're expecting them to come into '25? I mean, I know it's episodic, but any color there would be helpful. Thanks.

Sure, Nick. It's Andy. And let me actually comment on institutional and retail. So starting on institutional, I'd reiterate what I said last quarter. We expect to continue experiencing more near-term variability in our institutional fixed income flows. We are the sixth largest manager of DB assets globally and many of these DB plans remain overfunded and we're seeing these clients derisk. That is leading to more money in motion creating this near-term variation. But as the rate curve normalizes, money will flow back more consistently into institutional fixed income, and we obviously expect to benefit from that given our world-class business. Stepping back from that dynamic, we believe in analyzing our flows over a longer timeframe and looking inclusively at affiliated flows. Affiliated flows stem from when we win pension risk transfer transactions as well as from flow from asset-intensive annuities and life insurance. In the pension space, often the activity within third-party and affiliated are linked. So you're really talking about the same universe of DB plans. So the bottom line is you have to look at both, third-party and affiliated to get the full picture on our PGIM assets under management. If you look across 2024 year-to-date, our third-party institutional flows are a positive $14 billion and our affiliated institutional flows are a positive $15 billion. So we like that track record of success. Just a minute on retail. On the retail side of the business, we continue to achieve improving results. And in the quarter, we saw positive $1.3 billion in inflows. We are seeing in retail, the investors return to fixed income strategies and we would expect that will accelerate given the anticipated Fed direction. So really if you step back, the strength of our fixed-income franchise is very, very strong. And we think over time, we're going to experience significant tailwinds and will be a net winner over the long-term.

Thanks. That's helpful. And then maybe just more of a higher-level one. You know, I guess following the GUL deal that you guys just did and some of the other deals that you guys have done, is there any block in the business that you guys kind of view non-core that can be shopped?

Hi, Nick, it's Charlie. Let me take that one and I'll take a step back and then directly answer your question. But, you know, we feel really good about the considerable progress we've made in shifting our business mix to be more capital efficient and the fact that we're well-positioned to capture market opportunities for higher growth. We'd executed on several transactions that have driven a 50% reduction in our traditional variable annuities portfolio and also a 60% reduction in the guaranteed universal life reserves and then following the transaction we announced in the third quarter with Wilton Re. And while we've been quite successful in increasing our capital efficiency as part of our strategy, we've been equally focused on investing in our market-leading businesses to drive growth with some of those proceeds. Having said that, and this gets to your question, we will consider additional opportunities as long as they meet our strategic and financial objectives and make sense for all our stakeholders. So we'll continue to review our portfolios, but it needs to meet the strategic and financial objectives that we talked about.

That's helpful. Thanks.

Good morning. Thank you for the opportunity. On the variable investment income pre-announcement that you're going to do for disclosure going forward. Will that be a wholly separate pre-announcement from the AUM one that comes out as an 8-K? Thanks.

Hi, John, it's Yanela. That will be included in the current disclosure that we provide on AUM. So it will be all-inclusive.

Thank you for that. And then it sounds like you were upbeat about the growth opportunity at Workplace Solutions. Can you maybe talk about partnerships there that you're working on? Thank you.

Yes. Hi, John, it's Caroline. Thank you for your question. And yes, we are very much upbeat and confident in terms of our Group results going-forward. And we have a number of strategic partnerships that we've recently executed. And most of these are very much focused on elevating the customer enrollment experience, but they're also going to be a key contributor to our overall focus on things like claims management. And I'll just give you a few examples, John. One of those is a partnership with a leading-edge technology firm that's really transforming the benefits experience for millions of people. And essentially their innovative platform walks employees through the enrollment process, connecting them with credential counselors for one-on-one support. Another partnership we have is with Evolution IQ. This is an AI-driven platform that leverages data to expedite claim evaluations in short as well as long-term disability claims. And the platform is going to help us eliminate manual work. It's going to help us provide better outcomes for customers overall for disability claims. And I would just say in terms of how we're feeling about our group business overall, John, it is growing nicely as we've demonstrated another strong quarter driven by solid underlying fundamentals. We're growing at attractive market margins. And when I think about our overall diversification strategy, improving claims management capabilities and investments in those strategic partnerships I just mentioned, we're very much positioned to continue to see that profitable growth and solid earnings.

Hi, thanks, good morning. My first question, I guess, was on the comments regarding away from the quarterly EPS baseline and moving towards new financial targets. Is there any more color you can provide us on what you're considering for those and realize it's still maybe in flux?

Hi, Wes. This is Yanela. And so yes, let me start with just kind of reaffirming what we're doing. So we plan to introduce new intermediate-term financial targets beginning for 2025. And really we're making this change to provide greater insight into our financial outlook and to better align with the longer-term nature of our business where the economics emerge over a longer period of time. We also think it will help investors better understand our business outlook and earnings power. So that is really what we're doing. We will be replacing the quarterly baseline. And again, as we shared also, we will be pre-announcing VII. We plan to implement these changes beginning with the release of the fourth quarter earnings results. So we will share the targets and the information at that time.

Okay, thanks, Yanela. My second question was, sorry, was there something else?

No, sorry.

My second question is on the group business. I saw a press release, I think last quarter that entering the stop-loss business. I guess just curious how meaningful that could be over time and kind of what that business brings through?

Yes, of course, Wes, it's Caroline, and I'll take your question. So our entry into the medical stop loss builds upon our strategy to diversify our portfolio across both client segments and products. And this move allows us to better serve the evolving needs of our clients by offering a broader range of solutions, particularly in the mid-market. And as you know, employers frequently purchase medical stop loss in conjunction with other group products, making it attractive from a portfolio perspective and allowing us to leverage our deep customer and our broker relationships. In the near-term, Wes, we plan to take a thoughtful approach to scaling with a disciplined underwriting process and robust reinsurance program with experienced partners. And given the size of our total book, we expect it to be a small portion of our business mix. Our longer-term success will be guided by a disciplined approach to scale. We're committed to sustainable growth and ensuring that our expansion in this area is both strategic and measured.

Our next question is coming from Wilma Burdis from Raymond James. Your line is now live.

Hi, good morning. Could you provide more details about the Prismic team in Japan that you are developing? Additionally, could you share some examples of the types of deals that might be appropriate and the size of the market? Thanks.

Wilma, it's Rob. In order for us to effectively conduct reinsurance transactions in Japan, we need to establish an agency license business specifically for Prismic in that market. We've initiated this in response to what we consider a significant opportunity. Throughout our discussions, we've talked about the foreign currency products traditionally sold in Japan, particularly those denominated in U.S. dollars. With the upcoming new economic solvency regime set to be implemented in Japan, which we believe will be quite restrictive concerning long-duration and foreign currency-denominated liabilities in a manner that may not be justified economically, we anticipate that this will spur a continued demand from insurers to satisfy customer interest in these products. Japanese customers remain keen on dollar-denominated products and the returns associated with them. However, it's essential to balance this with the ability to finance the necessary reserves and capital in a way that remains economically viable for Japanese customers. We are quite enthusiastic about this opportunity, as the reputation, quality, and scale of our business can provide us with significant credibility among other insurers who are interested in pursuing similar strategies as we have done with our own operations focused on optimization.

Okay, thank you. And then my understanding is that there are some tailwinds for U.K. longevity blocks. Is that something you're seeing? And maybe just talk a little bit about why that market is attractive? Thanks.

Yes, Wilma, it's Caroline, and I'll address your question. In the short term, for longevity reinsurance and international reinsurance overall, we are concentrating on the U.S., the U.K., and the Netherlands. Specifically regarding the U.K., we continue to experience very strong funding levels, reaching 113%. We anticipate the market size in the U.K. to be around $70 billion for pension risk transfer this year, with most of that looking for reinsurance solutions. We are pleased to be a leader in this market not only in the U.S. but also in the U.K., and as you noted, we expanded in the Netherlands last year. For now, these three regions are our main focus, and we're happy to maintain our leadership position.

Hi, good morning. First one I had for you is on the comments that were made on, I guess, surrenders in foreign currency products being a bit elevated. And it was noted that there was some earnings pressure from that. I wanted to also get a feel for what kind of revenue pressure is that exhibiting on the international franchise, particularly Life Planner?

So Alex, it's Andy. I'll answer your question. Let's start by explaining the dynamics to ensure everyone understands. The weaker yen is leading to an increased level of U.S. dollar policy surrenders. This is primarily due to two factors. First, for U.S. dollar recurring premium products, affordability has become a concern for customers since it requires more yen to pay the premium. Second, some customers in our U.S. dollar investment products are looking to cash in their gains. As a result, they either reduce their coverage or cash out their policies. This situation does have an impact on our sales, but it's important to note that without this recent surrender experience, we would have seen low-single-digit earnings growth in our PII business segment instead of flat performance. This is affecting both the premium and the AOI.

Got it. That's helpful. I have a follow-up regarding the potential for reinsurance in Japan and the comments on Prismic. When considering Pru's business, it closely aligns with what has been described in terms of longer duration and a significant amount of foreign currency denominated in USD. If you were to engage in a transaction involving your own business, should we view that primarily as a way to mitigate any potential impact from the economic solvency regime, or does it go beyond that? Should we consider it as potentially releasing capital that could be redeployed elsewhere in your business? Let me address that question.

Sorry, it's Rob. When we consider reinsurance, whether it's for Prismic or other opportunities within our portfolio, we see it as a way to reduce risk and grow our portfolio, ultimately financing growth and diversifying against risk. We also view it as a chance to optimize our backbook in response to regulatory changes like the TSR regime and economic solvency regime, especially in Japan. Evaluating the benefits of reinsurance, we assess what the best business and economic outcome is for us. There will be times when we pursue reinsurance to deliver products to the market with a strong value proposition, while at other times we focus on optimizing our capital in light of evolving regulations. Additionally, we often notice discrepancies in how different blocks of business are valued publicly compared to private transactions, where the private market typically offers a higher valuation, thus providing our investors and shareholders with better risk-adjusted returns through monetization.

And Alex, maybe if I could add specifically to Japan and our business and ESR, I did share in the first quarter that we reinsured $3 billion of U.S. dollar-denominated whole life products from Japan to our Bermuda affiliate Gibraltar. And in the second quarter, we executed a transaction for U.S. dollar new business from Gibraltar to PICA. So definitely is a tool that will help us stabilize capital in all of our operating entities, including in Japan. Yes. Thank you.

Thank you. Next question is a follow-up from Wes Carmichael from Autonomous. Your line is now live.

Hi, thanks for the follow-up. I wanted to discuss the topic of ESR further. Rob, you mentioned that this regime is punitive and possibly uneconomic for long-duration liabilities. I'm aware that you have options for reinsurance for your own portfolio, but I’m curious about the transition to ESR. Is this outside of reinsurance? Could this potentially create issues for Pru in terms of needing additional capital for the business? I'm trying to grasp the challenges that you and the Japanese insurers might be encountering.

Yes. No, Wes, it's Andy. You want to start Yanela, and then I'll add in?

Yes, Wes, let me start in terms of the impact to our capital position. So I'll reiterate that we believe our Japan businesses are well-capitalized and financially strong and that strength would be reflected under any reasonable capital standard, including the new ESR framework like as we mentioned that we have tools like reinsurance. We have transacted in a couple of blocks of business, but we expect that upon implementation of our capital levels will continue to be above target levels that would support a AA financial strength ratings in Japan.

Yes, Wes, and it's Andy. I was just going to add. We've managed changing capital regimes at Prudential over a very long period of time. In Japan, we have a very broad product portfolio that meets the needs of our customers. We've continued to innovate and expand that portfolio, including with ESR-friendly type products. So the bottom line is as a management team, between the product capabilities combined with our strong underwriting, our ALM capabilities, hedging and reinsurance, we believe we have everything we need to continue to profitably grow in Japan and navigate these changes.

Got it. That's all very helpful. And I guess my follow-up would be, just any help with the outlook for the pension risk transfer market into the fourth quarter. I know the third quarter was a big one with IBM. But as you look to this quarter and maybe even to 2025, any thoughts there?

Yes. Of course, Wes, it's Caroline, and I'll take that one. So with over $16 billion and a 40% market share in PRT sales this year, clearly we're continuing to demonstrate our strong market leadership. And as we look forward to '25, we continue to view the U.S. PRT market as highly attractive with $3 trillion in outstanding U.S. corporate pension liabilities, favorable funding positions and a robust long-term pipeline of opportunities. And while the market remains highly competitive, we believe we are uniquely positioned to execute. Of course, our scale, our depth of underwriting experience as well as our ability to originate attractive assets enable us to price competitively while generating attractive returns for our shareholders. We also delivered deep expertise, have a demonstrated ability to handle complex deals and provide industry-leading service. And Wes, we believe that combination is evident in our sales this year where over half of our transactions have been with existing clients. And those traits are exactly why Prudential remains one of the few companies to have successfully executed transactions over $1 billion and why we continue to feel very confident about our go-forward business.

Great. Thank you.

We have reached the end of our question-and-answer session. I would like to hand it back to Mr. Lowrey for any closing remarks.

Okay. Thank you, and thank you again for joining us today. We've entered the last quarter of this year, pleased with the progress we've made to become a higher-growth and more capital-efficient company. We are well-positioned to address the growing needs of our customers and clients around the world as they seek to protect their life's work and live better lives longer. So thank you again and enjoy the rest of the day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.