Prudential Financial, Inc. Investor update

Good morning, everyone, and thank you for joining us to discuss an update on our Japan business following the business suspension and improvement orders received from Japan's Financial Services Agency. Representing Prudential on this morning's call are Andy Sullivan, Chairman and Chief Executive Officer, and Yanela Frias, Chief Financial Officer. We will begin with prepared remarks from Andy and Yanela, and then we will address your questions. Before we begin, I want to remind you that today's discussion includes forward-looking statements, and actual results may differ materially from those statements. In addition, remarks made on today's call and in the accompanying investor presentation posted to our website at investor.prudential.com include references to non-GAAP measures.

For a discussion of the factors that could cause actual results to differ materially from those in the forward-looking statements and the non-GAAP measures, please see the slides titled Forward-Looking Statements and Non-GAAP Measures in the appendix to the investor presentation. Please note that we will not be discussing our third quarter 2026 results today. Accordingly, we ask that you limit your questions to the topic of the call. With that, let me turn the call over to Andy.

Good morning, everyone. We appreciate you making time for this call. Today, we will provide an update on two developments in our Japan business, including the related financial implications and our path forward. The first is the business suspension order issued to Prudential of Japan, or POJ, by Japan's Financial Services Agency, or FSA, that will conclude on January 31, 2027, and the related business improvement orders for POJ and Prudential Holdings of Japan, or PHJ. As part of this, I will touch on the findings of our independent third-party investigation and of the FSA inspection, which were largely consistent with the remediation steps we are already implementing. I will also outline the phased approach we plan on taking to resume sales in POJ at the conclusion of the FSA suspension.

The second is the business improvement and partial business suspension order issued to Gibraltar Life Insurance, or GIB, which will also conclude on January 31, 2027. I want to begin by reinforcing my confidence in our Japan leadership team. When we spoke on our special call in April, the team was new and early in its assessment of the business. Since then, they have moved decisively, translating our assessment into a clear transformation roadmap and advancing it with urgency and discipline alongside employees, regulators, and other key stakeholders. They understand the scale of change required and the importance of getting it right. Their vision and progress to date strengthen my conviction that we have the right team to lead the business through this next phase and return it to the market well-positioned to serve our customers over the long term.

Let me now turn to the FSA orders received by POJ and PHJ. The POJ business suspension order extends the period in which it cannot solicit new business to January 31, 2027. The FSA's rationale for the extension is to allow additional time to advance the remediation actions we are already implementing. I will provide more detail on those actions in a moment. The POJ and PHJ business improvement orders require each business to submit a business improvement plan to the FSA by the end of November and report on our progress regularly. These plans will build on the remediation work already underway to strengthen governance, sales practices, and operations. We will continue working closely with the FSA.

Janella will provide more detail, but while the mix and timing differ from the estimates we provided in April, our assessment of the aggregate financial impact of the POJ suspension remains unchanged at roughly $1 billion in pre-tax adjusted operating income across 2026 and 2027. Let me now briefly review the findings of the independent third-party investigation and the FSA inspection. While the findings are serious, it is important to note that they largely reinforce the priorities we identified when we voluntarily suspended sales earlier this year. As I have previously mentioned, we have a detailed plan to reset POJ's business model, and over the past eight months, we have made substantial progress implementing it.

Both the investigation and inspection examined the root causes of the misconduct, which primarily related to the interplay between the business model, management framework, and organizational culture, and added specificity to the work underway, helping ensure the changes are comprehensive and durable. Our transformation is centered on four interconnected priorities designed to improve execution, strengthen accountability and oversight, and position POJ to deliver better customer and business outcomes. First, we are strengthening governance and accountability by clarifying roles, enhancing governance practices, and enabling PHJ to oversee POJ more effectively. We have also separated sales leadership from control functions to reinforce independent oversight. Second, we are redesigning the sales model to place greater emphasis on customer outcomes through compensation and performance management. Enhanced recruiting standards, training, monitoring of sales activity, and customer interactions support these changes.

Third, we are simplifying the organization by streamlining head office responsibilities, clarifying functional ownership, and consolidating the field organization into a branch network to improve supervision and management oversight. Finally, we are reinforcing a culture of accountability and customer focus through clearer expectations for conduct and greater engagement by senior leaders in the field to help ensure these enhancements are implemented effectively and sustained. With this work well underway, we remain focused on the next phase of remediation, a deliberate and carefully sequenced return to market. The phased reentry is fully reflected in our $1 billion estimate. The POJ team has made considerable progress, but completing the remediation is only one milestone. Sustaining its effectiveness is the measure of success as we reset the foundation for growth. That principle is central to our deliberate phased resumption of sales.

As we previously communicated, we expect the broader return to market to unfold over roughly 12 to 18 months. This phased approach will allow us to test the changes in practice, confirm the intended outcomes, and adjust where needed. Sales activity will expand as controls are proven and both we and the regulator are satisfied that the revised model is working as intended. This deliberate sequencing will allow us to build momentum from a position of strength, expanding sales as the revised operating model proves effective. Let me now turn to the business improvement and partial business suspension order received by Gibraltar. This suspension order applies to the life consultant sales force within Gibraltar, but not to the independent agency channel. The order runs parallel to the POJ suspension order, starting and concluding on the same dates.

This order reflects the FSA's focus on addressing the root causes of the misconduct, including strengthening customer protections, reforming incentives and oversight, and fostering a culture that places compliance and customer interests ahead of sales. This is consistent with the work we've been doing throughout the process. The business improvement order requires that Gibraltar submit a business improvement plan to the FSA by the end of November and report on our progress regularly. Consistent with our approach to the POJ and PHJ orders, we will continue working closely with the FSA. We recently completed our internal review of Gibraltar, which included reaching out to over 2 million of its customers. As of mid-September, 57 of those customers were eligible for reimbursement, totaling approximately $2.6 million. Based on what we know today, we are reaffirming that we do not believe we have systemic issues in this business.

Since 2019, we have made substantial changes to Gibraltar's governance, sales practices, and operations in efforts to address many of the same issues that we are now remediating in POJ. During this period, we have also migrated Gibraltar's compensation structure and performance management system to emphasize long-term customer outcomes. As a result of our proactive customer outreach, we have received valuable feedback that has informed additional enhancements to Gibraltar's operating model. We have also been making further refinements to this model and compensation structure as a result of what we have learned in POJ. That said, the process of enhancing how we operate and manage all of our businesses is ongoing. We are applying relevant lessons from POJ across our Japan platform, including Gibraltar, further strengthening governance and oversight while preserving each franchise's distinctive capabilities and growth potential.

Let me briefly address the additional financial implications of the partial Gibraltar sales suspension. Yanela will provide more detail, but we anticipate a pre-tax adjusted operating income impact of $100 million in 2026 and $175 million in 2027. While we are not planning a phased approach to resuming sales in Gibraltar, we expect to provide similar compensation support to life consultants as a result of the suspension. In closing, as I said in August, growing our Japan business is a key strategic priority. To do that, we need to complete our remediation efforts, demonstrate effectiveness, and continue rebuilding trust with our customers. We expect to begin resuming sales in POJ and Gibraltar on February 1st. Consumers in Japan have substantial and enduring needs across protection, retirement, and savings. Our differentiated model offers improved outcomes for them.

Prudential brings decades of experience, established customer relationships, and meaningful capabilities to serve those needs. That foundation positions the franchise to regain momentum, reestablish its leadership in Japan, and contribute meaningfully to our long-term growth. Let me now turn the call over to Yanela.