Q3 2023 Prudential Financial Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Prudential's Quarterly earnings Conference call. At this time, all participants have been placed in a listen only mode. Later, we'll conduct a question and answer session and instructions will be given at that time.

If you should require any assistance during the call. Please press star zero and an operator will assist you offline.

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, Bob Thousand Vice Chairman, Andy Sullivan head of international businesses in PJM are global investment manager Carillon Feeney head of U S businesses, Ken <unk>, Chief Financial Officer and Ron.

Axel controller and principal accounting officer, we will start with prepared comments by Charlie Robyn can and then we will take your questions. Today's presentation may include forward looking statements. It is possible that actual results may differ materially from the predictions we make today.

In addition, this presentation may include references to non-GAAP measures.

For a reconciliation of such measures.

The comparable GAAP measure.

A discussion of factors that could cause actual results to differ materially from those in the forward looking statements. Please see the slide titled forward looking statements and non-GAAP measures in the appendix to today's presentation and our quarterly financial supplement both of which can be found on our website at investor Prudential Dot Com and now I'll turn it over to Charlie.

Thank you Bob and thanks to everyone for joining us today, our third quarter results reflect continued momentum across our businesses, including the benefits from strong sales in the fifth consecutive quarter of underlying earnings growth.

We continued to execute on our strategy to become a higher growth less market sensitive and more nimble company. This quarter, we increased our capital efficiency and enhanced our capabilities and mutually reinforcing business system. We are also optimizing our operating model to drive both efficiency and growth.

Our strategic progress and financial strength position us well to navigate the current macroeconomic environment and maintain a disciplined approach to capital deployment.

Turning to slide three.

During the quarter, we launched prismatic, our life and annuity reinsurance company alongside Warburg Pincus and other investors. It is one of our most exciting opportunities to drive sustainable long term growth across our investment management insurance and retirement businesses.

Through prism, we can reinsurer portions of our life and annuity in force and new business to reduce market sensitivity free up capital and invest in growth opportunities Prisma.

<unk> can also offer it services to other insurance companies in need of reinsurance support.

<unk> into additional sources of third party capital to drive further growth. In addition, prismatic expands P Jim's assets under management.

Christmas is a great example of how prudential can unlock value for customers shareholders and other stakeholders with a mutually reinforcing business system, which combines the power of our brand global asset and liability origination capabilities and multichannel distribution.

We're also growing and investing in our businesses to better serve our customers through both the products and services, we offer and through the ways. We do business our distribution channels continue to evolve and expand to provide more people around the world with our products and services in the way they want them.

I'll provide a few examples from the third quarter.

In Brazil, we achieved the second consecutive quarter of record sales driven by continued expansion in the third party distribution channel and the strong performance of our life planner channel in.

In the U S individual retirement strategies posted its strongest sales quarter in three years driven by the continued success of flex guard as well as the expansion of our fixed annuity suite with the launch of our new wealth guard multi year guaranteed annuity.

Within the institutional market retirement strategies secured $2 $5 billion of new pension risk transfer transactions and entered the health savings account space by securing a 1.2 billion dollar transaction, where they top HSA provider expanding our addressable market.

And then our Prudential advisors distribution channel, we announced a strategic relationship with LPL financial which upon completion in the latter part of next year will enhance both our advisor and customer experience by leveraging <unk> expertise industry, leading technology and robust broker dealer and.

Registered investment advisor services.

Alongside these investments in our businesses, we continued to focus on improved customer service through enhanced sales service and claims platforms. For example, this year, we have announced seven customer experience technology partnerships within group insurance. These include enroll a phy and innovative platts.

Transforming the enrollment experience for millions of employees.

And evolution IQ and AI driven platform that will streamline the disability claims process.

We're also working to create a leaner faster and more agile company. So that we can better meet the changing needs and expectations of our customers around the world, while driving growth and efficiency to further strengthen our competitive position.

We're taking new steps to simplify our organizational structure by reducing management layers complexity and costs, while making investments in technology and data platforms. Our goal is to empower faster decision, making and bring our integrated business teams closer to our customers and clients.

Turning now to slide four.

<unk> rock solid balance sheet, and robust risk and capital management frameworks have allowed us to confidently navigate the current macroeconomic environment.

Our double a financial strength is supported by our strong capital position, including approximately $48 billion of unrealized insurance margins for $3 billion in highly liquid assets at the end of the third quarter and a high quality well diversified investment portfolio and disciplined approach to asset liability match.

<unk>.

Moving to slide five.

Our disciplined approach to capital deployment, coupled with the added capital efficiency from the prisoner transaction enables us to effectively balance investing in the long term growth of our businesses with returning capital to shareholders in the third quarter, we returned over $700 million of capital to shareholders and with that.

I'll turn it over to Rob.

Thank you Charlie I'll provide an overview of our financial results and business performance for our PGM U S and international businesses I'll begin on slide six with our financial results for the third quarter of 2023 or.

Our pre tax adjusted operating income was $1 6 billion or $3 44 per share on an after tax basis up 45% from the year ago quarter. These results reflect underlying business growth, including the benefits from a higher interest rate environment more favorable variable investment income and underwriting experience, partially offset by lower fee.

Income.

Our GAAP net loss was $2 $1 billion lower than our after tax adjusted operating income primarily driven by mark to market losses on interest rate derivatives due to the higher rates.

Turning to the operating results from our businesses compared to the year ago quarter.

<unk>, our global investment manager had lower other related revenues driven by lower agency in seed and co investment earnings and higher expenses.

Results of our U S business is primarily reflected higher spread income, including more favorable variable investment income and lower expenses, partially offset by lower fee income.

And the increase in earnings in our international businesses, primarily reflected higher spread income turning to slide seven P. J Mark Global active investment manager has diversified capabilities in both public and private asset classes across fixed income equities and alternatives Pgm's long term investment performance remains attractive with 80% or more of assets under.

You've been outperforming their benchmarks over the last five and 10 year periods. In addition, our short term performance continues to improve with 83% of assets exceeding their benchmarks over one year period.

PGM experienced third party net outflows of $5 7 billion in the quarter institutional outflows were primarily driven by lower than normal fixed income inflows and a large client outflow retail outflows were driven by sub advised equity mandates.

As the investment engine of Prudential for success and growth of teach them and of our U S and international insurance and retirement businesses are mutually reinforcing <unk> asset origination capabilities investment management expertise and access to institutional and other sources of private capital, including through the recently launched reinsurer President are a competitive advantage helping.

Our business is bring enhanced solutions and create more value for our customers our insurance and retirement businesses in turn provide a source of growth for <unk> through affiliated net flows as well as unique access to insurance liabilities.

Additionally, we continue to grow both organically and through acquisitions, our private alternatives in credit business, which has assets of approximately $230 billion across private corporate and infrastructure credit real estate equity or debt and secondary private equity.

Capital deployment across pizza as private assets platform of $8 billion during the quarter benefited from robust private placement in direct lending originations.

Turning to slide eight our U S business has produced diversified earnings from fees net investment spread and underwriting income and benefit from our complementary mix of longevity and mortality businesses, we continue to drive towards our higher value higher growth and less market sensitive mix of earnings invest in our businesses to deliver best in class customer experiences and.

Expand our addressable market with new financial solutions, leveraging the capabilities across Prudential.

Retirement strategies generated strong sales of $6 $7 billion in the third quarter across its institutional and individual lines of business.

Our institutional retirement business has leading market capabilities, which helped to produce third quarter sales of $4 7 billion.

Including $2 5 billion of pension risk transfer transactions as well as strong stable value sales individual retirement posted $2 billion in sales up 40% from the prior year quarter. Our productivity have resulted in continued strong sales of flex startups like <unk> income, which represented about two thirds of sales and fixed annuities that accounted for.

Approximately one third of sales this quarter.

Our individual life sales increased 24% from the year ago quarter, reflecting our earlier product pivot strategy with variable life products, representing approximately 73% of sales in the quarter, including the benefit from our recently launched flex card life product and in group insurance, we continue to execute on our strategy of product and clients segment diversification.

While leveraging technology to increase operating efficiency and enhance the customer experience. Our strong results. This quarter included favorable group life underwriting experience, which resulted in a benefit ratio of 82, 4%.

Turning to slide nine 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 and Japan, we are focused on providing high quality service and expanding our distribution of product offerings our needs based.

Roach and protection product focus continue to provide important value to our customers as we expand our product offerings to meet their evolving needs. During the third quarter, we launched our new U S dollar indexed annuity products and Prudential of Japan was ranked as the number one Japanese life insurer in the Forbes world's best life insurance companies. This year, we are proud to be.

We're recognized for the value we provide to our customers in emerging markets. We are focused on creating a select portfolio of businesses and regions, where our customer needs are growing where there are compelling opportunities to build market, leading businesses and where the prudential enterprise can add value.

Our international business sales were up 19% compared to the year ago quarter life planner sales were up 18% driven by our second consecutive quarter of record sales in Brazil, as well as higher sales in Japan.

<unk> sales were up 20%, primarily driven by growth in the bank channel 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 experiences and creating the next generation of financial solutions to serve.

The diverse needs of a broad range of customers and with that I'll now turn it over to Ken.

Thanks, Rob I'll begin on slide 10, which provides insight into earnings for the fourth quarter of 2023 relative to our third quarter results as noted pre tax adjusted operating income in the third quarter was $1 6 billion and resulted in earnings per share of $3 44 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 in the third quarter by $25 million second we adjust underwriting experience by $10 million to normalize for third quarter experience.

Last we include an adjustment of $350 million for expenses and other items. This includes elevated seasonal expenses and lower international earnings due to timing of seasonal premiums in the fourth quarter in.

In addition, as Charlie mentioned, we are implementing changes to our organizational structure as part of our continuous improvement process and we have included an estimated restructuring charge of approximately $200 million.

That will be incurred in the fourth quarter.

We expect these actions will create operating efficiencies and provide reinvestment capacity to build capabilities. This will allow us to realize additional efficiencies strengthen our competitiveness and fuel future growth. These.

These adjustments combined get us to a baseline of $2 75 per share for the fourth quarter I'll note that if you exclude items specific to the fourth quarter earnings per share would be $3 48.

The key takeaway is that our underlying earnings power continued to improve due to business growth, including the benefit of higher interest rates.

While we have provided these items to consider please note that there may be other factors that affect earnings per share in the fourth quarter.

Turning to slide 11.

Our capital position continues to support our double a financial strength rating.

Our cash and liquid assets were $4 $3 billion within our liquidity target range of $3 billion to $5 billion.

Regulatory capital ratios are above our targets and we have substantial off balance sheet resources, including approximately $9 billion of contingent capital and liquidity facilities, we remain thoughtful in our capital deployment balancing the preservation of financial strength and flexibility investment in our businesses for long term growth and shareholder distributions.

Turning to slide 12, and in summary, we are transforming our business for sustainable growth. We continue to navigate the current macro environment with the financial strength of our rock solid balance sheet, and we are maintaining a balanced and disciplined approach to capital deployment now alternative to the operator for your questions.

Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.

So please let me yourself to one question and one follow up you May press star two if he'd like to remove your question from the queue. Once again Thats star one to be placed in the question queue. Please ask one question and one follow up our first question is coming from Tom Gallagher from Evercore ISI. Your line is that life.

Good morning, just a couple of questions on capital did did the GAAP net income loss you had this quarter also impact statutory capital at all and if so did that require any contribution to subsidiaries or otherwise.

Yeah, Hey, Tom it's Ken.

Our GAAP results.

Included the mark to market on interest rate hedges.

A portion of that increased our negative RMR balance for staff.

But our RBC ratios remain above our target and didn't require a capital contribution.

Okay. Thanks, Ken and then the follow up is.

When I think about the transition that lies ahead to ESR for massive <unk> in Japan.

Do you have enough clarity at this point to know how you should be positioned.

Is it likely to consume capital release capital what what do you think it should mean for Peru.

Yeah sure.

First let me, let me start with our Japan businesses financial profile, which the businesses are high quality profitable financially strong.

<unk>, earning.

Earnings strong earnings and have good solvency margin ratios under the current regime.

The FSA has taken steps to implement new capital standards and that's that's underway with adoption still in a couple of couple of years away.

But generally we.

Still believe are there.

Our businesses are well capitalized financially strong and that would be evident under any reasonable capital standards.

We also have ways to manage the outcomes, we could reinsure business internally or externally.

Better match, the economics of the business, if we need to do that.

And so we're it's something that we're looking at and working on we're also advocate advocating for reasonable responsive standards.

And we will have strategies to adapt to the new.

<unk> regime.

Okay. Thank you.

Thank you next question is coming from Ryan Krueger from <unk>. Your line is now live.

Hi, Good morning. My first question was on the restructuring charge can you talk a little bit about the potential economic.

Benefits of that on a go forward basis in terms of potential expense reduction.

Hey, Ryan It's Charlie let me take that at a high level and provide you some context and then and then turn it over to Ken to specifically answer your question, but.

In terms of the other restructuring program, we've made good progress towards becoming a higher growth less market sensitive and more nimble company.

And if you think about what we've done that's including releasing a significant amount of capital through the disposition of market sensitive and or low growth businesses and products executing a series of programmatic acquisitions to expand our investment capabilities and growth potential launching prismatic another hour arrow in our quiver, if you will and enhancing our mute.

Reinforcing business system, and then exceeding our initial expense goal that we established a number of years ago.

But we've also said that we plan to continuously improve and build upon the progress we've made to further accelerate our vision and our growth objective.

We operate in an increasingly competitive environment and in order to remain competitive and grow sales and earnings. We will continue to focus on further investing in our businesses and technology, reducing our cost of capital enhancing the risk adjusted returns, we earn on our products and investments and transforming our operations to produce.

Efficiencies, while enhancing both our customer and employee experience.

So we're taking steps to create a leaner faster and more agile company, including simplifying our management structure by reducing management layers complexities and cost with the goal of bringing our integrated teams closer to our customers and our clients. We're also empowering our employees with faster decision, making in part through.

Our investments in technology and data platforms and as we make progress in each of these areas will update you as we have in the past so with that as context, Ken Let me turn it over to Hugh to answer the specific question Ryan had.

Yeah. So I think you know Ryan we expect as you just heard from Charlie in a number of benefits and the way we're transforming.

But also financially.

The restructuring will result in annual cost savings there.

That will be greater than the restructuring charge of $200 million and those savings will provide expense capacity to invest in capabilities and gain further efficiencies sort of as Charlie described there to help offset inflation and also to grow our businesses and.

The way, we think when we put that altogether.

Where we will be keeping expenses flat over the near term.

And that is that again, how we think of things holistically not just the saves but also combined with the investments in growing our businesses, while keeping operating expenses flat and improving margins and that's that's that's the continuous improvement mindset, where we're striving for.

Thank you and then a question on prismatic.

You you've watched it with $1 billion.

Capital I assume that the structured settlements transaction consumed a good amount of that can you give us.

Any color on how much committed capital that you have already in place for future growth.

Okay.

Okay.

All right, Rob maybe let.

Let me give a perspective about that if youre asking that from the perspective of sort of.

<unk> standpoint in terms of the appetite there.

Couple of thoughts one is as Charlie actually indicated in her opening remarks.

We see very interesting opportunities growth opportunities that are at the intersection of asset management and insurance.

Expect to play a material role in executing against that and we think the benefit of that is going to actually accelerate growth across all of our businesses.

And in the course of doing so actually.

<unk> helped to shift the business mix so that is.

Higher growth less market sensitive and more highly valued at the end of the day with respect to <unk> itself I think what we've articulated before is that we and our investors share aspirations that go well beyond the initial $10 billion structured settlement transaction, we anticipate that that will include opportunities to further optimism.

<unk> is our balance sheet.

It's going to include.

It's called flow, So the reserve and capital financing for our new sales across our across our businesses and importantly, third party blocks that will be reassured that we are looking to reinsure enterprises as well.

Thank you.

Okay.

Thank you the next.

Question is coming from John Barnidge from Piper Sandler Your line is now live.

Great. Thank you very much appreciate the opportunity the restructuring program you talk about a portion being there to invest can you talk about the human capital versus automation and then.

The offshore opportunity as well thank you.

Sure. It's it's Charlie again, it's part of the continuous improvement process will be simplifying our operating model and organizational structure. As you said really streamlined decision, making to create a leaner faster and more agile company. So we can better meet the needs and better meet the needs of our customers while driving growth in our inefficiency.

So we are we are far more focused on optimizing the organizational structure through organizational design and investments in technology as opposed to offshore and that is that is the predominant direction, which we're doing.

Fantastic. Thank you and my follow up question can you maybe talk about M&A interest do you have what you need to grow organically from a product perspective.

And is there opportunities for PJM to get larger in certain products. Thank you.

Yeah. It is Charlie again, let me take that.

We've done many acquisitions that have significantly grown the company over time and these acquisitions include companies of various sizes as well as our teams of specialists and programmatic M&A to your point, we will continue to play a role as we think about the development.

But the.

What we want to do going forward and a series of well executed programmatic M&A transactions will become material over time as a result, we continue to look at a variety of opportunities in different sizes, but we're continuing to be thoughtful about the deployment of capital, especially in light of the current macroeconomic.

Conditions in our M&A interest continued to be focused on mature companies that support our strategy of growing teach them in emerging markets by which we can extend our capabilities or our distribution and continue to increase the scale of our existing businesses, but regardless of size, we're going to be thoughtful about evaluating the suit. Please.

Strategic and financial merits of each transaction.

Hey, John It's Andy maybe I'll just add in because you asked about about P. J, we're going to continue to work to globalize the business and as we've talked about before our focus on higher growth higher fee areas. So you should think about private alternatives and real asset capabilities.

Thank you very much.

Thank you next question is coming from West Carmichael from Wells Fargo. Your line is now live.

Hey, good morning.

Question on RBC I think your slide show that Pike as RBC ratio is in excess of 375 I. Just wanted to confirm is the benefit of negative INR within that RBC ratio and could you maybe just size that for us.

Yes, sure, it's Ken yes that the benefit of admitting.

The negative <unk> <unk> as part of the new RBC.

RBC standard as it has been adopted.

And is in effect for our third quarter results, we were able to admit a $1 3 billion.

Which is at the cap level relative to our surplus.

So that that is already reflected in there.

Thanks, Ken and maybe just to follow up on an earlier question on Japan, and ESR could you maybe just help us understand how your USD denominated products are.

Post to be treated under ESR versus the current FMR framework.

Got it.

Rob, Let's let me take it.

I'll take that question.

First of all this is a regulatory framework that is still in development do want to emphasize that it's a regulatory framework that to date has been based on the international Ics.

Capital standards.

That's been developed and those standards are actually.

Not.

Don't necessarily reflect the underlying economics.

<unk> product, particularly in the U S.

So we continue to work on the international front on the Ics and we continue to work with Japan.

Well in terms of how that ultimately gets reflected into their regime, whether it's.

Modified at the international level or not but what we found is one of the shortcomings of the current set of proposals is that they don't quite get the economics right. When you get into the loan types of long duration products that are typically sold in the U S. Both on the life side and on the retirement side. So that's an area where.

Industry continues to.

To work with the regulators and hopefully, making making progress there.

As Ken mentioned earlier.

It's challenged anyway.

We do have alternatives that are available to us to think about how we would manage that product on a go forward basis as strong demand for the product in the.

Japan marketplace so far.

Japanese consumers like the U S dollar denominated products and so the industry will want to continue to sell those products to the marketplace and we'll come up with.

Our solutions for being able to do that yet you have to be able to finance the money.

On this basis.

Yes. This is Andy I was just going to I was just going to add in.

We have a lot of ability and flexibility to navigate those changes that are coming at us. We're obviously have incredibly strong distribution, both captive and third party, we have a very wide product portfolio from both a yen and U S dollar perspective, and single premium and recurring premium and we've been very successful at delivering a top notch.

<unk> a great customer experience that we've been recognized for so the strength of that business complex will really enable us to navigate the changes that are coming coming down the road.

Thank you next question is coming from Jimmy Mueller from JP Morgan. Your line is now live.

Hi, first a question on region flows if you could just talk about what drove the negative.

The negative flows in both retail and institutional funds and to what extent do you think it's a function of just the industry wide issues that asset managers are seeing versus maybe a slight dip that you saw in your performance and then related the impact on fees should it be commensurate to the to the assets or the fees.

Lower or higher on the assets.

You've lost.

So do you have any it's Andy I'll take your question. So this quarter, we experienced third party outflows of $5 7 billion on the retail and outflows were $1 9 billion that was predominantly an equity story.

We've seen clients rebalance for a variety of reasons, including to recognize gains as the funds have performed well we have produced strong equity performance with 89% of our equity assets outperforming benchmark in the last year.

On the institutional side outflows were $3 8 billion net outflows were primarily fixed income we are seeing a lower level of gross inflows into this asset class.

Investors are hesitant to come back in until it's clear rates have stabilized.

We also saw one large low fee rate mandate lapse in institutional as to your question industry or specific these are are consistent with the industry and in particular the <unk>.

Fixed income headwinds are consistent.

As far as our outlook looking forward.

Stable higher rate environment will be good for our flows. So we know that once rates stabilize we expect to benefit flow wise.

Your question around fees, obviously, it depends very much on the mix of assets, but we're being very successful in bringing inflows into higher fee rate strategies in particular into the private all areas of our business.

Okay, and then on individual life, that's a business where the results have been weak the last several quarters, but this quarter. It was actually a good quarter I think.

You mentioned in the presentation, there was a benefit from lower expenses and a legal reserve release.

Can you quantify how much each was so that one gets an idea on sort of the underlying earnings in the business and.

What your outlook is for individual life earnings Yeah, Yeah, So Jimmy it's Caroline and I will take your question and two as you mentioned this quarter individual life and did see favorable expense experience.

And that includes a number of one time items, but it also as you mentioned does that include the release of a legal reserve.

So can you talk practice to regularly review our legal reserves and then make appropriate adjustments, reflecting activity with the network the corner and the release that's quite it reflects the results of that work on.

And in terms of.

The outlook for for life overall.

I would say in addition to what you saw in the paper electric favorable expenses on the life side. We also saw strong indefinite myself and also underwriting results that were largely aligned to our expectations and overall the fundamentals of the business.

Continue to remain very solid and we're very optimistic about it.

That's there.

And just any color on the size of the legal reserve cause that I view that more as sort of a onetime expenses tend to move around.

Yeah.

But not comment on that specific sites that particular legal reserve as I said.

Favorable expenses overall and part of that or at least about a legal reserve that we cannot comment on that specific sizes. Okay.

Okay.

Okay.

Thank you next question is coming from Tracy Bengie from Barclays. Your line is now live.

Thank you good morning, I know, it's early but I was wondering if you could just share your thoughts on D O L and the impact on your FIA business.

Sure Tracy, it's Caroline and I'll take your question and Jim I'll first start off by saying we've been a longtime supporter of regulations that provide consumer protections.

Ensuring that all Americans continue to have access to the quality of advice and solutions they need for a secure retirement.

So the propel it's always just released two days ago and so we're very much still on the net steps thoroughly reviewing and analyzing it and say we can assess any potential impact on our customers and specifically their ability to access critical retirement products and you specifically asked Tracy about CR. So we do realize that in the proposed rule there.

There appears to be a focus on fixed indexed annuities and.

Which today for us accounts for less than 20% of our total annuity sales, but are also part of our well diversified suite of annuity installations that we continue to focus on delivering valuable observations to help our customers meet their retirement savings needs.

That being said I will just reiterate that we're still in the process that are feeling the perpetual and finally I'll just add that under the last proposed rule change, we implemented policies and procedures to comply with the final prohibited transaction exemption in a timely fashion and we'd expect to do the same here.

Do you think that evolution also took place on the IMI with channel.

Or they could comply with new standards.

I'm, sorry, I tried to make sure I heard your question.

I am all channel.

Yeah.

The independent Yeah would be would they also be well equipped since the last.

So what I could improve on yeah take Tracy when I couldn't comment on it is the others in terms of their IMS channels, and whether they'd be prepared or not.

What I will say I'm, particularly at all I'll just reiterate what the last.

D O L prepare this well and we were very much ready.

As an entire enterprise across all of the various businesses, where there was any impact and we are ready to comply with the rule and as I mentioned.

We'd expect to do the same here that would include.

I'll, let that distribution channels that would in any way impacted by the new perpetual.

Got it.

I wanted to touch on praise Mac.

And thinking about the Investor consortium.

Let me know like what Theyre thinking in terms of an investment time horizon.

Will there be a call option being arbitrary here, but let's say like in 10 years.

Puneet to provide liquidity to those investors after a set period of time or do you envision raising new funds.

Tracy it's Rob So we're partnering with a group of very large global institutional investors their intent is to operate with scale.

And their investment horizon very much aligned with our own is quite long term.

Prisma itself has an independent board of directors and that will govern it.

The.

Routes towards liquidity.

Growth and otherwise.

But there are no put or call provisions.

In the agreement that we've got with Krishna.

Thank you.

As a reminder, that star one to be placed in the question queue. Our next question is coming from Wilma British from Raymond James Your line is that a lot.

Hey, good morning, a couple of earnings related questions. First I think you guys previously signed and $65 million deal closing costs with Somerset re.

I just wanted to bet with lower the 275 baseline for <unk>.

Or maybe just an update on timing there and then the other is if you could walk us through the trajectory of benefits from the restructuring will we see a benefit in <unk> or is it can take a little bit longer.

Yes, Thanks, Ken.

The deal related costs for the reinsurance with Somerset re will be will be incurred at the time of closing and.

And those have not been included in the baseline.

Okay.

Alright, and obviously I think your second part of the question was the benefits of the restructuring or the benefits of the reinsurance will occur subsequent to close obviously.

Mhm.

Yeah, the restructuring should we start to see some benefits coming in in <unk> or is it going to take some time.

Are you, saying that the.

The organizational restructuring is that what you're referring to or the reinsurer I'm sorry.

Yes, we will.

We will see we will see benefits.

In 2024.

Yeah.

Pretty soon thereafter, there'll be a portion of that's highly that's effective in the first quarter and then thereafter.

And could you talk about the impact of prisoners on Pecos RBC I'm, just I know there was a little bit of a holdco liquidity impacts from the initial investment. So could you just talk about that aspect as well.

Sure the initial.

Impact of of the reinsurance of the structured settlement the prismatic was modest.

And that was impact that was in our RBC ratio for September.

So we had the impact of the initial portion of that but over time.

It will also enable capital benefits as we reallocate the retained investment portfolio.

And so we had some impact immediately but.

Also we will have continued impact as we reallocate the investment portfolio.

Okay. Thank you.

Yeah.

Yeah.

Take the next question today is coming from city come off from Jefferies. Your line is now live.

Great. Thank you.

Wanted to go to prison make again.

Charlie I think in your prepared remarks, he talked about further optimization of your in force block and I think you specifically referred to life and annuity blocks.

Is that sort of the extent to where we should be thinking about in terms of where you'd optimized I guess, where I'm going with this is is there an opportunity for something like.

Our long term care in terms of your in force and re insuring that the prismatic.

Sure, let me take a step back and just tell you generally how we're thinking about this.

Brisbane is really an example of our open architecture solutions and is a very important additional component of our strategy to become a higher growth less market sensitive and more nimble company, we formed prismatic with Warburg Pincus and other global investors, because we see significant opportunities that exist at the intersection as Rob said of asset management and insurance.

And we're perfectly positioned to take advantage of those opportunities given the business mix, we have and.

And we're excited about our ability to leverage third party capital and reinsurance to drive the incremental growth in our insurance retirement and asset management businesses.

And prismatic to get to your point really reinforces and enhances our mutually reinforcing business system in three ways first we can reinsurer portions of our in force business like the structural settlements transaction. We just completed and have and have continued to manage the majority of assets, while freeing up capital to become less mark.

<unk> sensitive and to your point, we will look to our.

Retirement and life businesses for for those assets.

Lee we can write new business that could be reinsured to prismatic, so forward flow and since prisma, because mainly supported by third party capital. We can write additional retirement and insurance business to further accelerate our growth and at the same time increase PGM assets under management and finally, Prisma can reinsure third party blocks, which would again.

Increased AUM.

So theres a lot of potential we see for Prisma and we're being thoughtful about how we execute against these opportunities and have recently reallocated resources to further optimize them.

<unk> will further optimize our capabilities since prismatic is such an important component of our mutually reinforcing business system.

It's going to be in the in the life and retirement businesses, mainly that we think about reinsurance other blocks, but we could think about others as we go forward.

So you need it it's Robert.

And it's sort of a general market observation to Charlie's remarks is that.

We've seen it.

Factors that are behind many of the reinsurance vehicles and partnership and otherwise are having a increasingly.

A higher appetite for a variety of different products and it started out very much. If you look at the yearly reinsurance transactions.

In this sort of very vanilla insurance space.

Right.

Annuity sales of fixed annuities.

And over time, what you're seeing through our own transactions as well as others. This effort that was expanded into variable annuities, it's expanded into <unk>.

And we do see that that's a trend that's likely to continue there's a robust appetite and that appetite is as it gets as investors get more comfortable with the dynamics.

The insurance market place of business models that their appetite will continue to grow so we see interesting opportunities both domestically and I would add importantly internationally as well.

Okay got it and then.

I guess on the on the VA deal.

The proceeds from that transaction still in pica and is the expectation that they will just sort of stay there and be used to support organic growth or would you expect to take those proceeds up to holdco for other uses.

Yes, Ken so the reinsurance of our variable annuity block.

Closed in April and so we had the benefit of that effective April one.

And it is one of the considerations, we made as we looked at our RBC and our dividend capacity.

And factored into the dividends that we made in the third quarter, which was $1 billion from from Pica. So so we did we did get the benefit it's one of the things we thought about when we when we looked at the overall level of RBC and then.

Decided to make a dividend to pick up $1 billion in the third quarter.

Sorry dividend out of pica.

Yes, I'm sorry, yes.

Just a quick follow up there I was just trying to track the holdco cash because it looked like it went down a little bit sequentially.

Can you just kind of give us some of the bigger moving pieces there.

Sure Yeah, the bigger moving pieces like I, just mentioned was the $1 billion of at the holding company received from quite goes as a dividend.

And and then we also made a $200 million investment in prismatic.

And then the other would be ordinary course interest expense and shareholder distributions.

And those are the main components that led to a very small change in our HLA.

Got it okay. Thanks.

Thanks, Ken.

Thank you. Your next question is coming from Michael Ward from Citi. Your line is now live.

Hey, guys. Thank you and good morning.

Another one on Prisma, but for the third party component.

The mechanics, if PJM could get.

AUM of new blocks being reinsured wouldn't the general account of the external box go on your balance sheet.

Because I wouldn't have thought that your targeting.

Exposure to third party capital intensive business.

Mike It's Rob.

So yes, we will have an appetite for doing.

Both flow and balance sheet from from from Prudential as well as third parties.

We will look to partner and yes, we will get the.

Asset management.

On on those blocks as they are brought into price mix. So that's part of the arrangement that we have with seismic.

And then and then separately it will make a decision as to how much we invest our integration that kind of go forward basis.

As of now our ownership in <unk> is at a 20% level.

It's not a contractual obligation for us to stay at that level.

But having said that we think that the returns that we get for our capital that could be deployed through prismatic when you think about the.

The returns on the underlying blocks enhanced by the fees that we get from our from our asset management business can be quite attractive on our own.

Fort worth basis.

So we would have some appetite for continuing to invest in those sorts of business when they significantly enhance the key components that we get out of that business, which on an overall basis with a reduced risk profile of the earning stream on a go forward.

Okay.

Thank you that's helpful. And then maybe one thing we didn't touch on CRE commercial real estate any developments for you guys in the office area.

No I would say that it's Rob again sort of like that nothing material to update you on from last quarter.

We have a very high quality overall real estate portfolio, including the office components to that are a component of that and.

And we continue to see resiliency within that portfolio as you would expect given the experience that we have there is a dedicated team that we have from an underwriting standpoint.

Quality of the overall portfolio. So one on the on the from a valuation standpoint, we've been updating our valuations and valuations of the Oh, the collateral supporting office loans continues to come down.

Our ltvs still remained quite low on a relative basis, and we feel very comfortable with the with your overall portfolio exposure there.

Thanks, Rob.

Thank you. Our next question is a follow up from Wes Carmichael from Wells Fargo. Your line is now live.

Hey, Thank you for taking my follow up just had a couple of earnings when it should be quick but.

But on the baseline for Q4, the $2 75 that includes normal variable investment income. So I was just hoping if you could help us with your outlook in the near term it was pretty modest headwind in the third quarter, but just wondering if you expect that to be a bit challenged going forward.

He from VII standpoint, West it's Rob.

Think about that as having two components to it one of those.

The returns that we get from our alternatives portfolio in the second thing level of prepayment income that we get from our.

From the fixed income portfolio I think we've guided to the fact that we expect lower levels of prepayment income on a go forward basis that was the primary.

Mary contributor to the below expectations in the current quarter. So I think you should expect to see that on a go forward basis, we generally don't provide an outlook.

I would say is that as evidenced in the current quarter, we have a good portfolio, that's very well diversified.

And so while there are different components of it that performed up and down in the current quarter, we would expect that to continue in future quarters as well in this particular quarter.

Real estate performance was off as you would expect but our actually our private equity portfolio performed quite well.

Just to be very clear within our private equity portfolio, we have very small exposure to sort of a D. C area. So it was more core private equity and even within that it's a fairly significant.

A component of that that's in high yield and debt strategies.

And so that's that's sort of course, there's some stabilization within that private equity portfolio.

I think that.

With areas markets too.

We continue to believe that will perform on a relative basis quite well.

Got it thanks, and then on PJM I think you've lowered your expected range for other related revenues by about $10 million on a quarterly basis. Just curious if you can provide us some color on what's driving that there.

Yeah, Wes it's Andy I'll take your question.

So.

<unk> came in at the quarter at 37 million. It was predominantly driven by the real estate space. So this is a pretty consistent story.

It's been the last few quarters, our agency earnings declined from the real estate slowdown and we saw lower real estate valuations and transactions as far as the go forward look you are correct. We now expect our overall average about $40 million per quarter that lower run rate again, it's flowing directly from the slowdown in the real estate markets.

We're expecting to see lower agency earnings as well as well as lower private incentive fees.

And while this will vary quarter to quarter as always we expect the patterns that we've been seem to be more muted in this environment.

Thank you very much.

Thank you we reached end of our question and answer session I'd like to turn the floor back over to Mr. Bauer for any further closing comments.

Okay. Thank you again for joining us today, we're entering into the next chapter of our evolution with a unique business model and growth strategy that positions Prudential to help current and future generation secure their financial future. We are confident that our strategy and mutually reinforcing business model will enable prudential to be a global leader in expanding.

Access to investing insurance and retirement security, Thank you again and stay well.

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.