Prudential Financial Q4 Earnings Call Highlights

Prudential Financial NYSE: PRU used its quarterly earnings call to outline full-year 2025 performance while addressing an employee misconduct issue in its Japan business that management said will have a meaningful earnings impact in 2026. Chief Executive Officer Andy Sullivan said the company is taking the matter “extremely seriously,” emphasizing that “doing right by our customers is a core value” and that Prudential is committed to restoring trust in Japan.

Japan misconduct prompts 90-day halt in new sales

Sullivan said Prudential of Japan (POJ) announced findings from an internal investigation in January related to misconduct by certain employees. In consultation with Japanese regulators, Prudential decided to voluntarily halt new sales at POJ for a 90-day period. Sullivan added the company will not resume distribution through its Life Planner channel until leadership is comfortable that the compliance and oversight environment supports doing so, noting the pause could be extended beyond 90 days.

Management described a set of actions intended to address root causes, including:

• Strengthening oversight of sales practices, governance, and risk management
• Restructuring employee compensation
• Enhancing education and compliance training
• Raising recruiting standards for POJ employees
• Establishing a customer reimbursement program administered by an independent oversight committee

During Q&A, Sullivan said the 90-day timeframe was chosen based on the time needed to make “meaningful progress” on four initial actions: customer reimbursement, Life Planner training, enhanced sales supervision, and redesigning Life Planner compensation. He said Prudential consulted with Japan’s Financial Services Agency (J-FSA) before announcing the voluntary decision, but declined to comment on any specific regulatory actions, including reports of potential on-site investigations.

Management also said it is conducting a similar review of Gibraltar Life, Prudential’s other Japan operation, with Sullivan saying the review is “underway and in process” and expected to conclude “a few months from now.” He noted the only effect seen so far at Gibraltar was “modest pressure” on recruiting life consultants.

Estimated 2026 earnings impact and components

Chief Financial Officer Yanela Frias said Prudential currently estimates the POJ issue will reduce 2026 pre-tax adjusted operating earnings by $300 million to $350 million. She broke the estimate into three components:

• $150 million to $180 million related to the 90-day new sales suspension, reflecting costs to sustain the business and compensate the distribution force, the impact of suspended sales, and anticipated higher surrenders
• $70 million of estimated one-time costs, with roughly 70% tied to customer reimbursement
• ~$80 million of lower earnings from a gradual ramp-up in new sales through the remainder of the year after resumption

Frias said the lower sales and higher surrenders expected in 2026 will also affect 2027 results, but under the assumption of a 90-day suspension, the overall impact is expected to be “considerably lower” in 2027. She also said that within the $150 million to $180 million suspension impact, roughly 20% was attributed to lost sales and roughly 20% to higher surrenders, with the remainder tied to discretionary financial support for the distribution force during the suspension period.

Regarding the company’s intermediate EPS growth target of 5% to 8% for 2024 through 2027, Frias said the POJ issue could bring Prudential to the low end of the range by the end of 2027, and that if the magnitude or duration differs from current expectations, the company “may not hit the low end” of the EPS range by the end of 2027.

2025 results and fourth-quarter performance

Sullivan said Prudential delivered “solid progress and results” in 2025, reporting full-year pre-tax adjusted operating income of $6.6 billion, or $14.43 per share, and an adjusted operating return on equity of approximately 15%, up nearly 200 basis points from the prior year. He also said the company returned nearly $3 billion to shareholders through dividends and buybacks during the year.

For the fourth quarter, Frias reported after-tax adjusted operating income of approximately $1.2 billion, or $3.30 per common share. Results included an after-tax one-time charge of $107 million (or $0.30 per share) primarily related to severance. Excluding the charge, she said after-tax adjusted operating income per share was $3.60, up 22% versus the prior-year quarter.

Business segment updates: PGIM, U.S. operations, and international

PGIM reported fourth-quarter pre-tax adjusted operating income of $249 million, down slightly year over year. Frias said higher asset management fees driven by market appreciation were more than offset by higher expenses tied to business investments, including expansion of the asset-backed finance platform and technology and data strategy. PGIM’s assets under management were approximately $1.5 trillion, up 7% year over year. However, PGIM posted net outflows of about $10 billion in the quarter, reflecting the industry shift away from active equities and a single low-fee fixed income client withdrawal. Sullivan also cited systemic outflows at Jennison amid the active-to-passive trend as a headwind, though he noted the firm generated more than $30 billion of total net inflows last year from public fixed income, private credit, and real estate.

In the U.S. businesses, Prudential delivered fourth-quarter pre-tax adjusted operating income of approximately $1.1 billion, up 22% year over year, driven by higher spread income in retirement strategies, more favorable underwriting in Individual Life and Group Insurance, and lower expenses in Individual Life compared with the prior-year quarter. Partially offsetting these positives was lower fee income tied to the ongoing runoff of the legacy variable annuity block. Frias reiterated expectations for $3 billion to $4 billion of quarterly account value runoff in 2026, equating to about $10 million to $15 million of pre-tax adjusted operating income runoff per quarter, or $100 million to $150 million annually before market impacts.

International businesses generated fourth-quarter pre-tax adjusted operating income of $757 million, modestly higher year over year. Sales in international businesses were $525 million, up 4% on a constant currency basis, driven by retirement and savings demand in Japan and record sales in Brazil. Frias said surrender activity in Japan moderated in 2025 but remains a headwind, and estimated the impact to 2026 earnings from excess surrenders experienced in 2025 to be roughly $50 million. She also said yen depreciation since 2022 has elevated U.S. dollar product surrenders, with the fourth-quarter 2025 surrender rate rising to 6.3% from 5.6% in the third quarter amid renewed yen weakening.

Capital, liquidity, and shareholder returns

Frias said Prudential’s capital position and regulatory capital ratios support its AA financial strength objective. Holding company cash and liquid assets were $3.8 billion, above the company’s $3 billion minimum liquidity target. The board authorized up to $1 billion of share repurchases in 2026 and increased the common stock dividend for the 18th consecutive year.

On questions about Japan and capital deployment, Frias said the company does not expect a significant impact to cash flows out of its Japan businesses and does not expect an impact to capital deployment plans or shareholder distributions based on current assumptions. She noted cash flows are generated from multiple sources and legal entities, including POJ, Gibraltar, and PGFL, as well as reinsurance arrangements involving Prudential’s U.S. statutory entity and Gibraltar Re in Bermuda.

Looking to organizational efficiency, Frias said Prudential recorded a $135 million pre-tax charge in corporate and other operations related to efforts to improve organizational efficiency, with changes expected to deliver about $150 million in pre-tax run-rate benefits in 2027.

About Prudential Financial NYSE: PRU

Prudential Financial, Inc, headquartered in Newark, New Jersey, is a diversified financial services company with roots dating to 1875. The firm provides a range of insurance, retirement and investment products aimed at helping individual and institutional clients manage risk, accumulate and protect wealth, and plan for retirement. Prudential’s long history in life insurance and related financial services has positioned it as a major participant in the U.S. insurance market and a provider of services to a broad client base.

Prudential’s core business activities include individual life insurance, annuities, retirement solutions and group insurance products for employers.

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