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What changed in Prudential Financial's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Prudential Financial's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+1016 added−1106 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-16)

Top changes in Prudential Financial's 2023 10-K

1016 paragraphs added · 1106 removed · 766 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

169 edited+41 added−105 removed173 unchanged
Biggest changeMarketing and Distribution Our distribution efforts, which are supported by a network of internal and external wholesalers, are executed through a diverse group of distributors, including: • Third-party distribution through: ◦ Independent brokers; ◦ Banks and wirehouses; and ◦ General agencies and producer groups. • Prudential Advisors (Prudential’s proprietary nationwide sales organization), which: ◦ Distributes Prudential life insurance, annuities and investment products with proprietary and non-proprietary investment options as well as select insurance, annuities and investment products from other financial services firms. ◦ Offers certain retail brokerage and retail investment advisory services (through our dually-registered broker-dealer and investment advisor, Pruco Securities, LLC) including brokerage accounts, discretionary and non-discretionary investment advisory programs and financial planning services. ◦ Executes a solutions-oriented business model centered around client relationships while strengthening and driving Prudential’s brand promise. ◦ Receives a market-based allowance from other Prudential business segments for distributing their products, which is eliminated between the segments in consolidation. • Assurance IQ: ◦ A wholly-owned consumer solutions platform that leverages data science and technology to distribute proprietary simplified products consisting of term life and final expense insurance (as well as other third-party life, health and financial wellness solutions) directly to retail shoppers primarily through its digital and agent channels. • Direct-to-Consumer through: ◦ The digital platform, Prudential.com, provides distribution of our simplified products online. ◦ Personal Advisory Group is Prudential’s sales desk where customers can speak to an agent via phone to fulfill their insurance or investment needs. 9 Table of Conten t s Individual Life (Continued) Revenues and Profitability Our revenues primarily come in the form of: • Premiums that are fixed in accordance with the terms of the policies. • Policy charges and fee income consisting of in-force policy- and/or asset-based fees. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
Biggest changeMarketing and Distribution Our distribution efforts, which are supported by a network of internal and external wholesalers, are executed through a diverse group of distributors, including: • Third-party distribution through: ◦ Independent brokers; ◦ Banks and wirehouses; and ◦ General agencies and producer groups. • Financial professionals associated with Prudential Advisors, Prudential’s proprietary nationwide sales organization. • Assurance IQ, which distributes proprietary simplified products consisting of term life and final expense insurance (as well as other third-party life, health and financial wellness solutions) directly to retail shoppers primarily through its digital and agent channels. • Direct-to-Consumer through: ◦ Prudential.com, a digital platform that provides distribution of our simplified products online. ◦ Personal Advisory Group, Prudential’s sales desk where customers can speak to an agent via phone to fulfill their insurance or investment needs. 9 Table of Contents Individual Life (Continued) Revenues and Profitability Our revenues primarily come in the form of: • Premiums that are fixed in accordance with the terms of the policies. • Policy charges and fee income consisting of in-force policy- and/or asset-based fees. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
Our Gibraltar Life and Other operations also provide similar products, as well as advisory and administration services to broad middle income and mass affluent customers across Japan, and through our joint ventures in Chile, China, India and Indonesia, and our strategic investments in Ghana, Kenya and South Africa through multiple distribution channels (including banks, independent agencies and Life Consultants).
Our Gibraltar Life and Other operations also provide similar products, as well as advisory and administration services, through multiple distribution channels (including banks, independent agencies and Life Consultants) to broad middle income and mass affluent customers across Japan, through our joint ventures in Chile, China, India and Indonesia, and through our strategic investments in Ghana, Kenya and South Africa .
SEC Best Interest Regulation In June 2019, the SEC adopted a package of rulemakings and interpretative guidance that, among other things, requires broker-dealers to act in the best interest of retail customers when recommending securities transactions or investment strategies to them. The guidance also clarifies the SEC’s views of the fiduciary duty that investment advisers owe to their clients.
SEC Regulation Best Interest In June 2019, the SEC adopted a package of rulemakings and interpretative guidance that, among other things, requires broker-dealers to act in the best interest of retail customers when recommending securities transactions or investment strategies to them. The guidance also clarifies the SEC’s views of the fiduciary duty that investment advisers owe to their clients.
Insurers that have lower solvency ratios than the regulators require are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. Japan Capital and Solvency Regulation. Our Japan insurance operations are currently subject to a capital standard known as the Solvency Margin Ratio framework (“SMR”).
Insurers that have lower solvency ratios than the regulators require are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. Japan Capital and Solvency Regulation. Our Japan insurance operations are currently subject to a capital standard known as the Solvency Margin Ratio (“SMR”) framework.
Congress from time to time considers or enacts legislation that could decrease or increase the attractiveness of certain of our retirement products and services to retirement plan sponsors and administrators, or have an unfavorable or favorable effect on our ability to earn revenues from these products and services.
Congress from time to time considers or enacts legislation that could decrease or increase the attractiveness of certain of our retirement products and services to retirement plan sponsors and administrators or that could have an unfavorable or favorable effect on our ability to earn revenues from these products and services.
The most significant changes for the Company were: (1) the reduction of the corporate tax rate from 35% to 21%; (2) revised methodologies for determining deductions for tax reserves and the DRD; (3) an increased capitalization and amortization period for acquisition costs related to certain products; and (4) the change from a worldwide deferred taxation system to a modified territorial system of taxation on applicable earnings of foreign subsidiaries, which includes (a) a new tax on earnings of foreign subsidiaries (the Global Intangible Low-Taxed Income (“GILTI”) provision ) and (b) a new alternative tax with respect to payments to non-U.S. affiliates that are at least 25% owned (the Base Erosion Anti-Abuse Tax (“BEAT”)).
The most significant changes for the Company were: (1) the reduction of the corporate tax rate from 35% to 21%; (2) revised methodologies for determining deductions for tax reserves and the DRD; (3) an increased capitalization and amortization period for acquisition costs related to certain products; and (4) the change from a worldwide deferred taxation system to a modified territorial system of taxation on applicable earnings of foreign subsidiaries, which includes (a) a tax on earnings of foreign subsidiaries (the Global Intangible Low-Taxed Income (“GILTI”) provision ) and (b) an alternative tax with respect to payments to non-U.S. affiliates that are at least 25% owned (the Base Erosion Anti-Abuse Tax (“BEAT”)).
State Insurance Regulation State insurance authorities have broad administrative powers with respect to all aspects of the insurance business including: (1) licensing to transact business; (2) licensing agents; (3) admittance of assets to statutory surplus; (4) regulating premium rates for certain insurance products; (5) approving policy forms; (6) regulating unfair trade and claims practices; (7) establishing reserve requirements and solvency standards; (8) fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; (9) regulating the type, amounts and valuations of investments permitted; (10) regulating reinsurance transactions, including the role of captive reinsurers; and (11) other matters.
State insurance authorities have broad administrative powers with respect to all aspects of the insurance business including: (1) licensing to transact business; (2) licensing agents; (3) admittance of assets to statutory surplus; (4) regulating premium rates for certain insurance products; (5) approving policy forms; (6) regulating unfair trade and claims practices; (7) establishing reserve requirements and solvency standards; (8) fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; (9) regulating the type, amounts and valuations of investments permitted; (10) regulating reinsurance transactions, including the role of captive reinsurers; and (11) other matters.
In some cases, our international investment operations are also subject to U.S. securities laws and regulations. Derivatives Regulation Prudential Financial and our subsidiaries use derivatives for various purposes, including hedging interest rate, foreign currency and equity market exposures. Dodd-Frank established a framework for regulation of the over-the-counter derivatives markets.
In some cases, our international investment operations are also subject to U.S. securities laws and regulations. Derivatives Regulation Prudential Financial and our subsidiaries use derivatives for various purposes, including hedging interest rate, foreign currency, equity market and other exposures. Dodd-Frank established a framework for regulation of the over-the-counter derivatives markets.
Index strategies credit interest to the cash value that is linked to, but not an investment in, the performance of an external index, subject to certain parameters such as cap, step, participation, and buffer rates, and contractual minimums/maximums.
Index strategies credit interest to the cash value that is linked to, but not an investment in, the performance of an external index, subject to certain parameters such as cap, step, participation, and buffer rates, as well as contractual minimums/maximums.
Also, we require U.S. employees to attend training programs addressing core issues such as understanding racism and everyday bias, building cultural intelligence, and using tools and techniques to support an inclusive culture.
Also, we require eligible U.S. employees to attend training programs addressing core issues such as understanding racism and everyday bias, building cultural intelligence, and using tools and techniques to support an inclusive culture.
Universal Life —permanent coverage for life with the potential to accumulate policy cash value. ◦ Our universal life policies offer flexibility in payment options and the potential to accumulate cash value in an account that earns interest based on a crediting rate determined by the Company, subject to contractual minimums. ◦ Indexed universal life policies provide interest credited to the cash value that is linked to, but not an investment in, the performance of an external index subject to certain cap and participation rates and contractual minimums/maximums.
Universal Life —permanent coverage for life with the potential to accumulate policy cash value. • Our universal life policies offer flexibility in payment options and the potential to accumulate cash value in an account that earns interest based on a crediting rate determined by the Company, subject to contractual minimums. • Indexed universal life policies provide interest credited to the cash value that is linked to, but not an investment in, the performance of an external index subject to certain cap and participation rates as well as contractual minimums/maximums.
Among other provisions, the Inflation Reduction Act imposes (1) a 15% alternative minimum tax on corporations (“CAMT”) with average applicable financial statement income over $1 billion for any three-year period ending with 2022 or later; and (2) a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates.
The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), among other provisions, imposes (1) a 15% alternative minimum tax on corporations (“CAMT”) with average applicable financial statement income over $1 billion for any three-year period ending with 2022 or later; and (2) a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates.
Short-term disability generally provides weekly benefits for three to six months while long-term disability benefits are typically paid monthly, following a waiting period, and generally continue until the insured either returns to work or reaches normal retirement age. • Other supplemental health solutions, including accident and critical illness insurance. • Plan administration and absence management services.
Short-term disability generally provides weekly benefits for three to six months while long-term disability benefits are typically paid monthly, following a waiting period, and generally continue until the insured either returns to work or reaches normal retirement age. • Other supplemental health solutions, including accident, hospital indemnity and critical illness insurance. • Plan administration and absence management services.
In 2021, as part of its Global Anti-Base Erosion Model Rules (Pillar Two), the OECD recommended a 15% global minimum tax on adjusted financial reported income. Many jurisdictions, including Japan, the European Union, the United Kingdom and South Korea, have adopted or announced an intention to adopt Pillar Two for tax years beginning in 2024.
In 2021, as part of its Global Anti-Base Erosion Model Rules (Pillar Two), the OECD recommended a 15% global minimum tax on adjusted financial reported income. Many jurisdictions, including Japan, the European Union, and the United Kingdom, have adopted or announced an intention to adopt Pillar Two for tax years beginning in 2024.
Privacy and Cybersecurity Regulation We are subject to laws, regulations and directives that require financial institutions and other businesses to protect the security and confidentiality of personal, proprietary, or other non-public information, including intellectual property, health-related, and customer information, and to notify their customers and other appropriate individuals of their policies and practices relating to the collection, use and disclosure of such information.
Privacy, Data Protection and Cybersecurity Regulation We are subject to laws, regulations and directives that require financial institutions and other businesses to protect the security and confidentiality of personal, proprietary, or other non-public information, including intellectual property, health-related, and customer information, and to notify their customers and other appropriate individuals of their policies and practices relating to the collection, use and disclosure of such information.
As discussed in Note 15 to the Consolidated Financial Statements, if the performance of the Closed Block is more or less favorable than we originally assumed in funding, total dividends paid to Closed Block policyholders in the future may be greater or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales that were in effect in 2000 had been continued.
As discussed in Note 16 to the Consolidated Financial Statements, if the performance of the Closed Block is more or less favorable than we originally assumed in funding, total dividends paid to Closed Block policyholders in the future may be greater or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales that were in effect in 2000 had been continued.
See Note 22 to the Consolidated Financial Statements for revenues, income and loss, and total assets of the Closed Block division. Our strategy is to maintain the Closed Block as required by our Plan of Reorganization over the time period of its gradual diminution as policyholder benefits are paid in full.
See Note 23 to the Consolidated Financial Statements for revenues, income and loss, and total assets of the Closed Block division. Our strategy is to maintain the Closed Block as required by our Plan of Reorganization over the time period of its gradual diminution as policyholder benefits are paid in full.
New Jersey insurance law and the insurance laws of the other states in which our insurance companies are domiciled regulate the amount of dividends that may be paid by PICA and our other U.S. insurance companies. See Note 16 to the Consolidated Financial Statements for additional information. Risk-Based Capital.
New Jersey insurance law and the insurance laws of the other states in which our insurance companies are domiciled regulate the amount of dividends that may be paid by PICA and our other U.S. insurance companies. See Note 17 to the Consolidated Financial Statements for additional information. Risk-Based Capital.
Our Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and Run-off Businesses described above. See Note 22 to the Consolidated Financial Statements for revenues, income and loss, and total assets by segment.
Our Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and Run-off Businesses described above. See Note 23 to the Consolidated Financial Statements for revenues, income and loss, and total assets by segment.
The principal differences between the Company’s actual income tax expense and the applicable statutory federal income tax rate are generally deductions for non-taxable investment income, including the Dividends Received Deduction (“DRD”), foreign taxes applied at a different tax rate than the U.S. rate and certain tax credits.
The principal differences between the Company’s actual income tax expense and the applicable statutory federal income tax rate are generally deductions for non-taxable investment income, including the Dividends Received Deduction (“DRD”), foreign taxes applied at a different tax rate than the U.S. rate and certain tax credits. The applicable statutory federal income tax rate is 21%.
Businesses — Retirement Strategies Serves the retirement needs of both our institutional and individual customers. Our Institutional Retirement Strategies business develops and distributes retirement investment and income products and services to retirement plan sponsors in the public, private and not-for-profit sectors, both domestically and internationally in the United Kingdom.
Businesses — Retirement Strategies Serves the retirement needs of both our institutional and individual customers. Our Institutional Retirement Strategies business develops and distributes retirement investment and income products and services to retirement plan sponsors in the public, private and not-for-profit sectors, both domestically and internationally, primarily within the United Kingdom.
The payments are guaranteed, cannot be changed and are higher than those guaranteed on products that provide liquidity. 5 Table of Conten t s Retirement Strategies (Continued) Revenues and Profitability Our revenues primarily come in the form of: Institutional Retirement Strategies • Premiums associated with insurance and reinsurance contracts and our payout annuities. • Policy charges and fee income based on account values of our fee-based stable value and longevity reinsurance products. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
The payments are guaranteed, cannot be changed and are higher than those guaranteed on products that provide liquidity. 5 Table of Contents Retirement Strategies (Continued) Revenues and Profitability Our revenues primarily come in the form of: Institutional Retirement Strategies • Premiums associated with insurance and reinsurance contracts and our payout annuities. • Policy charges and fee income based on account values of our fee-based stable value and longevity reinsurance products. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
Products Our products and services are offered through the following businesses: • PGIM Fixed Income —provides global active asset management services across public fixed income markets. • Jennison Associates —provides active fundamental public equity and fixed income asset management services across an array of growth, value, global and specialty equity strategies, as well as fixed income strategies. • PGIM Quantitative Solutions —provides a range of systematic, customized solutions across equity, multi-asset, and liquid alternative platforms. • PGIM Private Capital —provides private credit solutions across the risk spectrum including investment grade, high yield, direct lending and mezzanine financing. • PGIM Real Estate —provides a broad range of public and private real estate debt and equity strategies as well as private equity investments with a focus on secondary transactions in the small and mid-cap market. • PGIM Investments —offers actively managed investment solutions, including mutual funds, exchange-traded funds (“ETFs”) and separately managed accounts to individual investors and financial intermediaries in the U.S., as well as Undertakings for the Collective Investment in Transferable Securities (“UCITS”) and other investment solutions to financial intermediaries in select countries across Europe, Asia and Latin America.
Products Our products and services are offered through the following businesses: • PGIM Fixed Income —provides global active asset management services across public fixed income markets. • Jennison Associates —provides active fundamental public equity and fixed income asset management services across an array of growth, value, global and specialty equity strategies, as well as fixed income strategies. • PGIM Quantitative Solutions —provides a range of systematic, customized solutions across equity, multi-asset, and liquid alternative platforms. • PGIM Private Capital —provides private credit solutions across the risk spectrum including investment grade, high yield, direct lending and mezzanine financing. • PGIM Real Estate —provides a broad range of public and private real estate debt and equity strategies as well as private equity investments with a focus on secondary transactions in the small and mid-cap market. • PGIM Investments —offers actively managed investment solutions, including mutual funds, listed and unlisted closed-end funds, exchange-traded funds (“ETFs”) and separately managed accounts to individual investors, defined contribution plans and financial intermediaries in the U.S., as well as Undertakings for the Collective Investment in Transferable Securities (“UCITS”) and other investment solutions to financial intermediaries in select countries across Europe, Asia and Latin America.
Our organizational stability and robust institutional and retail businesses have helped attract and retain talent critical to delivering investment results for clients. Our private credit and commercial real estate lending businesses compete based on price, terms, execution and the strength of our relationship with the borrower. 4 Table of Conten t s U.S.
Our organizational stability and robust institutional and retail businesses have helped attract and retain talent critical to delivering investment results for clients. Our private credit and commercial real estate lending businesses compete based on price, terms, execution and the strength of our relationship with the borrower. 4 Table of Contents U.S.
Investment Products —primarily represented by U.S. dollar-denominated investment contracts sold by our Gibraltar Life operations in Japan. • Represents single-pay whole life products where credited interest rates are reset periodically for certain products. • Most of our investment contracts impose a market value adjustment if the contract is not held to maturity.
Investment Products —primarily represented by U.S. dollar-denominated investment contracts sold by our operations in Japan. • Represents single-pay products where credited interest rates are reset periodically for certain products. • Most of our investment contracts impose a market value adjustment if the contract is not held to maturity.
Under ceded reinsurance, we remain liable to the underlying policyholder if a third-party reinsurer is unable to meet its obligations. On a Company-wide basis, we evaluate the financial condition of reinsurers, monitor the concentration of counterparty risk and maintain collateral, as appropriate, to mitigate this exposure.
Under ceded reinsurance, we remain liable to the underlying policyholder if a third-party reinsurer is unable to meet its obligations. On a companywide basis, we evaluate the financial condition of reinsurers, monitor the concentration of counterparty risk and maintain collateral, as appropriate, to mitigate this exposure.
Our profitability is substantially impacted by our ability to appropriately price our products. We price our products based on our assumptions of future: • Mortality and morbidity; • Policyholder behavior; • Interest rates; • Expenses; • Premium payment patterns; • Performance of ceded reinsurance; • Separate account fund performance; and • Product-generated tax deductions.
Our profitability is substantially impacted by our ability to appropriately price our products. We price our products based on our assumptions of future: • Mortality and morbidity; • Policyholder behavior; • Interest rates and investment returns; • Expenses; • Premium payment patterns; • Performance and cost of ceded reinsurance; • Separate account fund performance; and • Product-generated tax deductions.
Marketing and Distribution We primarily distribute products through the following channels: • Institutional ◦ Proprietary sales force for each PGIM business with independent marketing and client service teams. ◦ PGIM’s Institutional Relationship Group, which develops relationships with, and introduces PGIM’s broad capabilities to, large institutions globally. • Retail ◦ Third-party intermediaries and product manufacturers/distributors globally who include our investment options in their products and platforms. ◦ Distribution channels associated with other Prudential business segments. ◦ Licensed sales professionals within Prudential Advisors, Prudential’s proprietary nationwide sales organization. • General Account ◦ Provide investment management services across a broad array of asset classes for our general account. 3 Table of Conten t s PGIM (Continued) Revenues and Profitability Our revenues primarily come from: • Asset management fees, which are typically calculated based upon a percentage of assets under management.
Marketing and Distribution We primarily distribute products through the following channels: • Institutional ◦ Proprietary sales force for each PGIM business with independent marketing and client service teams. ◦ PGIM’s Institutional Relationship Group, which develops relationships with, and introduces PGIM’s broad capabilities to, large institutions globally. • Retail ◦ Third-party intermediaries and product manufacturers/distributors globally who include our investment options in their products and platforms. ◦ Distribution channels associated with other Prudential business segments. ◦ Financial professionals associated with Prudential Advisors, Prudential’s proprietary nationwide sales organization. • General Account ◦ Provide investment management services across a broad array of asset classes for our general account. 3 Table of Contents PGIM (Continued) Revenues and Profitability Our revenues primarily come from: • Asset management fees, which are typically calculated based upon a percentage of assets under management.
The Company made the 952 election effective for the 2017 and later tax years with respect to its affiliates incorporated in Brazil. In October 2019, the IRS issued a legal memorandum applicable to all taxpayers in which the IRS argues that the election became inoperable in 1998.
The Company made the 952 election effective for the 2017 and later tax years with respect to its affiliates incorporated in Brazil. In October 2019, the IRS issued a legal memorandum applicable to all taxpayers in which the IRS argues that the election became inoperable in 1998. The Company disagrees with the IRS’s position.
Previously he had been a managing director at PREI, Head of PREI’s Global Merchant Banking Group and Chief Executive Officer of its European business; a managing director at Prudential Securities; and regional vice president at Prudential Capital Group (now known as PGIM Private Capital). Ann M.
Previously he had been a managing director at PREI, Head of PREI’s Global Merchant Banking Group and Chief 32 Table of Contents Executive Officer of its European business; a managing director at Prudential Securities; and regional vice president at Prudential Capital Group (now known as PGIM Private Capital). Ann M.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information. 2 Table of Conten t s PGIM Provides investment management services and solutions related to public fixed income, public equity, real estate debt and equity, private credit and other alternatives, and multi-asset class strategies, to institutional and retail clients globally, as well as our general account.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information. 2 Table of Contents PGIM Provides investment management services and solutions related to public fixed income, public equity, real estate debt and equity, private credit and other alternatives, and multi-asset class strategies, to institutional and retail clients globally, as well as our general account.
We are well-positioned to meet the needs of customers and tap into significant market opportunities through PGIM, our U.S. Businesses and our International Businesses.
We believe that we are well-positioned to meet the needs of customers and tap into significant market opportunities through PGIM, our U.S. Businesses and our International Businesses.
We have relationships with each of Japan’s four largest banks, as well as many regional banks, and we continue to explore opportunities to expand our distribution capabilities through this channel, as appropriate. ◦ Independent Agency Distribution Channel — sells protection products and high cash value products for retirement benefits through the corporate market, and a variety of other products including protection and investment products through the individual market.
We have relationships with Japan’s major banks, as well as many regional banks, and we continue to explore opportunities to expand our distribution capabilities through this channel, as appropriate. ◦ Independent Agency Distribution Channel — sells protection products and high cash value products for retirement benefits through the corporate market, and a variety of other products including protection and investment products through the individual market.
Human capital is discussed by management at every Board meeting and, at least once per year, the Board devotes time to discuss human capital at each business and functional leadership level across the Company. Attracting Employees We believe that our success depends on our ability to attract, develop and retain talented, skilled, and motivated employees.
Human capital is discussed by management at every Board meeting and, at least once per year, the Board devotes time to discuss human capital 30 Table of Contents at each business and functional leadership level across the Company. Attracting Employees We believe that our success depends on our ability to attract, develop and retain talented, skilled, and motivated employees.
Our focus is to maintain a diverse mix of independent agency relationships, including corporate agencies and other independent agencies, with a balanced focus on individual and corporate markets. 13 Table of Conten t s International Businesses (Continued) Revenues and Profitability Our revenues primarily come in the form of: • Premiums that are fixed or flexible in accordance with the terms of the policies. • Policy charges and fee income consisting of in-force policy- and/or asset-based fees. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
Our focus is to maintain a diverse mix of independent agency relationships, including corporate agencies and other independent agencies, with a balanced focus on individual and corporate markets. 11 Table of Contents International Businesses (Continued) Revenues and Profitability Our revenues primarily come in the form of: • Premiums that are fixed or flexible in accordance with the terms of the policies. • Policy charges and fee income consisting of in-force policy- and/or asset-based fees. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
The asset management fees are determined as a percentage of the average assets of our proprietary mutual funds in our variable annuity products (net of sub-advisory expenses related to non-proprietary sub-advisors). • Policy charges and fee income representing mortality, expense and other fees for various insurance-related options and features based on the average daily net asset value of the annuity separate accounts, account value, premium, or guaranteed value, as applicable. • Investment income (which contributes to the net spread over interest credited on certain products and related expenses).
The asset management fees are determined as a percentage of the average assets of our proprietary mutual funds in our variable annuity products (net of sub-advisory expenses related to non-proprietary sub-advisors). • Policy charges and fee income representing mortality, expense and other fees for various insurance-related options and features based on the average daily net asset value of the annuity separate accounts, account value, premium, or guaranteed value, as applicable. • Investment income (which contributes to the net spread ove r interest credited on certain products and related expenses) and interest income on collateral posted to counterparties.
Compliance with such laws may result in higher technology, administrative and other costs for us and affect how products and services are offered or require us to structure our businesses, operations and systems in less efficient ways. 30 Table of Conten t s Regulatory and legislative activity in the areas of privacy, data protection and information and cybersecurity continues to increase worldwide.
Compliance with such laws may result in higher technology, administrative and other costs for us and affect how products and services are offered or require us to structure our businesses, operations and systems in less efficient ways. Regulatory and legislative activity in the areas of privacy, data protection and information and cybersecurity continues to increase worldwide.
Our U.S. registered broker-dealer subsidiaries are subject to federal net capital requirements that may limit the ability of these subsidiaries to pay dividends to Prudential Financial. 29 Table of Conten t s International Investment and Retirement Products and Investment Management Operations Our non-insurance international operations are supervised primarily by regulatory authorities in the countries in which they operate.
Our U.S. registered broker-dealer subsidiaries are subject to federal net capital requirements that may limit the ability of these subsidiaries to pay dividends to Prudential Financial. 25 Table of Contents International Investment and Retirement Products and Investment Management Operations Our non-insurance international operations are supervised primarily by regulatory authorities in the countries in which they operate.
Compensation Program and Retirement Plans The philosophy underlying our compensation program is to provide an attractive, flexible, and market-based total compensation program tied to performance and aligned with the interests of our shareholders. Our objective is to recruit and retain the caliber of employees necessary to deliver sustained high performance to our shareholders, customers, and communities.
See “Available Information.” Compensation Program and Retirement Plans The philosophy underlying our compensation program is to provide an attractive, flexible, and market-based total compensation program tied to performance and aligned with the interests of our shareholders. Our objective is to recruit and retain the caliber of employees necessary to deliver sustained high performance to our shareholders, customers, and communities.
Products We offer a variety of products, consisting of base contracts and riders, that serve different protection needs and goals, including: Variable Life —permanent coverage for life with potential to accumulate policy cash value based on underlying investment options. • Our variable life policies offer flexibility in payment options and the potential to accumulate cash value through a suite of underlying investment options or a fixed rate option. • Indexed variable life policies provide index-linked investment options (index strategies) in addition to a suite of underlying investment options or a fixed rate option.
Products We offer a variety of products, consisting of base contracts and riders (such as our accelerated death benefit rider), that serve different protection needs and goals, including: Variable Life —permanent coverage for life with potential to accumulate policy cash value based on underlying investment options. • Our variable life policies offer flexibility in payment options and the potential to accumulate cash value through a suite of underlying investment options or a fixed rate option. • Indexed variable life policies provide index-linked investment options (index strategies) in addition to a suite of underlying investment options or a fixed rate option.
(“Prudential Financial” or “PFI”), a global financial services leader and premier active global investment manager with approximately $1.377 trillion of assets under management as of December 31, 2022, has operations in the United States, Asia, Europe and Latin America.
(“Prudential Financial” or “PFI”), a global financial services leader and premier active global investment manager with approximately $1.450 trillion of assets under management as of December 31, 2023, has operations in the United States, Asia, Europe and Latin America.
We periodically adjust product offerings, prices and features based on the market and our strategy, with a goal of achieving customer and enterprise value. 6 Table of Conten t s U.S.
We periodically adjust product offerings, prices and features based on the market and our strategy, with a goal of achieving customer and enterprise value. 6 Table of Contents U.S.
Our profitability is dependent, in part, on the voluntary coverage marketplace, which will be affected by future employment and compensation rates. 8 Table of Conten t s U.S.
Our profitability is dependent, in part, on the voluntary coverage marketplace, which will be affected by future employment and compensation rates. 8 Table of Contents U.S.
State Standard of Care Regulation In February 2020, the NAIC adopted revisions to the model suitability rule applicable to the sale of annuities.
NAIC Standard of Care In February 2020, the NAIC adopted revisions to the model suitability rule applicable to the sale of annuities.
See “Income Taxes” in Note 2 to the Consolidated Financial Statements and Note 16 to the Consolidated Financial Statements for a description of the Company’s tax position. As discussed further below, new tax legislation and other potential changes to the tax law may impact the Company’s tax position and the attractiveness of our products.
See “Income Taxes” in Note 2 to the Consolidated Financial Statements and Note 17 to the Consolidated Financial Statements for a description of the Company’s tax position. As discussed further below, new tax legislation and other potential changes to the tax law may impact the Company’s tax position and the attractiveness of our products. The U.S.
Over time, these changes could limit our sales of defined benefit and defined contribution pension products and services and cause sponsors to discontinue existing plans for which we provide investment management, administrative, or other services; conversely, these changes could also increase the 28 Table of Conten t s attractiveness of certain products and services we offer in connection with such plans.
Over time, these changes could limit our sales of defined benefit and defined contribution pension products and services and cause sponsors to discontinue existing plans for which we provide investment management, administrative, or other services; conversely, these changes could also increase the attractiveness of certain products and services we offer in connection with such plans.
This framework sets out requirements regarding the clearing and reporting of derivatives transactions, as well as collateral posting requirements for uncleared swaps. Affiliated swaps entered into between our subsidiaries are generally exempt from most of these requirements. We continue to monitor the potential hedging cost impacts of new initial margin requirements, and increased capital requirements for derivatives transactions.
This framework sets out requirements regarding the clearing and reporting of derivatives transactions, as well as collateral posting requirements. Affiliated swaps entered into between our subsidiaries are generally exempt from most of these requirements. We continue to monitor regulatory developments and the potential hedging cost impacts of margin requirements, and increased capital requirements for derivatives transactions.
The Tax Act of 2017 changed the taxation of businesses and individuals by lowering tax rates and broadening the tax base through the acceleration of taxable income and the deferral or elimination of certain deductions, as well as changing the system of taxation of earnings of foreign subsidiaries.
Tax Cuts and Jobs Act of 2017 (“Tax Act of 2017”) changed the taxation of businesses and individuals by lowering tax rates and broadening the tax base through the acceleration of taxable income and the deferral or elimination of certain deductions, as well as changing the system of taxation of earnings of foreign subsidiaries.
Our strategy centers on our mix of high-quality protection, retirement and investment management businesses which creates growth potential due to earnings diversification and the opportunity to provide customers with integrated cross-business solutions, as well as capital benefits from a balanced risk profile.
Our business system includes a mix of high-quality protection, retirement and investment management businesses which creates growth potential due to earnings diversification and the opportunity to provide customers with integrated cross-business solutions, as well as capital benefits from a balanced risk profile.
Accordingly, changes in tax law, our ability to generate taxable income, or other factors impacting the 33 Table of Conten t s availability or value of the tax characteristics generated by our products, could impact product pricing, increase our tax expense or require us to reduce our sales of these products or implement other actions that could be disruptive to our businesses.
Accordingly, changes in tax law, our ability to generate taxable income, or other factors 29 Table of Contents impacting the availability or value of the tax characteristics generated by our products, could impact product pricing, increase our tax expense or require us to reduce our sales of these products or implement other actions that could be disruptive to our businesses.
For tax years starting in 2018, the applicable statutory federal income tax rate is 21%. A future increase in the applicable statutory federal income tax rate above 21% would adversely impact the Company’s tax position. In addition, as discussed further below, the tax attributes of our products may impact both the Company’s and our customers’ tax positions.
A future increase in the applicable statutory federal income tax rate above 21% would adversely impact the Company’s tax position. In addition, as discussed further below, the tax attributes of our products may impact both the Company’s and our customers’ tax positions.
For the years ended December 31, 2022, 2021 and 2020, we paid $0.4 million, $0.5 million and $1 million, respectively, in assessments pursuant to state insurance guaranty association laws.
For the years ended December 31, 2023, 2022 and 2021, we paid $0.7 million, $0.4 million and $0.5 million, respectively, in assessments pursuant to state insurance guaranty association laws.
As a ceding entity, exposure to the risks reinsured is reduced by transferring certain rights and obligations of the underlying insurance product to a counterparty. Conversely, as an assuming entity, exposure to the risks reinsured is increased by assuming certain rights and obligations of the underlying insurance products from a counterparty.
Conversely, as an assuming entity, exposure to the risks reinsured is increased by assuming certain rights and obligations of the underlying insurance products from a counterparty.
We also use numerous federal, state, common law and foreign service marks, including in particular “Prudential”, the “Prudential logo”, our “Rock” symbol and “PGIM”. We believe that the value associated with many of our patents, copyrights and trade secrets, and the goodwill associated with many of our service marks, are significant competitive assets.
We also use numerous federal, state, common law and foreign service marks, including in particular “Prudential,” the “Prudential logo,” our “Rock” symbol and “PGIM.” We believe that the value associated with many of our patents, copyrights and trade secrets, and the goodwill associated with many of our service marks, are significant competitive assets.
These solvency ratios are used by regulators to assess the sufficiency of 27 Table of Conten t s an insurer’s capital and claims-paying ability and include the impact of transactions with affiliated entities. Certain jurisdictions require the disclosure of solvency ratios to the public.
These solvency ratios are used by regulators to assess the sufficiency of an insurer’s capital and claims-paying ability and include the impact of transactions with affiliated entities. Certain jurisdictions require the disclosure of solvency ratios to the public.
The respective appointed actuaries for each of our life insurance companies must each submit an opinion that our reserves, when considered in light of the assets we hold with respect to those reserves, make adequate provision for our contractual obligations and related expenses.
State insurance laws require us to analyze the adequacy of our reserves annually. The respective appointed actuaries for each of our life insurance companies must each submit an opinion that our reserves, when considered in light of the assets we hold with respect to those reserves, make adequate provision for our contractual obligations and related expenses.
Information About our Executive Officers The names of the executive officers of Prudential Financial and their respective ages and positions, as of February 16, 2023, were as follows: Name Age Title Other Public Directorships Charles F. Lowrey 65 Chairman, Chief Executive Officer and President None Robert M. Falzon 63 Vice Chair None Ann M.
Information About our Executive Officers The names of the executive officers of Prudential Financial and their respective ages and positions, as of February 21, 2024, were as follows: Name Age Title Other Public Directorships Charles F. Lowrey 66 Chairman, Chief Executive Officer and President None Robert M. Falzon 64 Vice Chair None Ann M.
The best interest standards became effective on June 30, 2020. The standards apply to recommendations to purchase certain products offered by our PGIM, Retirement Strategies and Individual Life businesses, and have resulted in increased compliance costs, in particular in our Prudential Advisors distribution system, which we include in the results of our Individual Life segment. U.S.
The best interest standards became effective on June 30, 2020. The standards apply to recommendations to purchase certain products 19 Table of Contents offered by our PGIM, Retirement Strategies and Individual Life businesses, and have resulted in increased compliance costs, in particular in our Prudential Advisors distribution system, which we include in the results of our Corporate and Other operations.
We are permitted under the Plan of Reorganization, with the prior consent of the Commissioner of Banking and Insurance for the State of New Jersey, to enter into agreements to transfer all or any part of the risks underlying the Closed Block policies. 16 Table of Conten t s Seasonality of Key Financial Items The following chart summarizes our key areas of seasonality in our results of operations: First Quarter Second Quarter Third Quarter Fourth Quarter PGIM Higher compensation expense(1) Other related revenues tend to be higher(2) Retirement Strategies - Institutional Higher reserve gains(3) Higher reserve gains(3) Lower reserve gains(3) Lower reserve gains(3) Individual Life Lowest underwriting gains Highest underwriting gains Assurance IQ Higher expenses ahead of annual Medicare enrollment Higher revenue, and associated variable expenses, driven by annual Medicare enrollment International Businesses Highest premiums Lowest premiums Corporate & Other Higher compensation expense(1) All Businesses Impact of annual assumption updates(4) Higher expenses(5) __________ (1) Long-term compensation expense for retirement eligible employees is recognized when awards are granted, typically in the first quarter of each year.
We are permitted under the Plan of Reorganization, with the prior consent of the Commissioner of Banking and Insurance for the State of New Jersey, to enter into agreements to transfer all or any part of the risks underlying the Closed Block policies. 14 Table of Contents Seasonality of Key Financial Items The following chart summarizes our key areas of seasonality in our results of operations: First Quarter Second Quarter Third Quarter Fourth Quarter PGIM Higher compensation expense(1) Individual Life Lowest underwriting gains Highest underwriting gains International Businesses Highest premiums Lower premiums Lowest premiums Corporate & Other Higher compensation expense(1) and lower Assurance IQ revenue Lower Assurance IQ revenue Lower Assurance IQ revenue Higher Assurance IQ revenue (annual Medicare enrollment) All Businesses Impact of annual assumption updates(2) Higher expenses(3) __________ (1) Long-term compensation expense for retirement eligible employees is recognized when awards are granted, typically in the first quarter of each year.
While the majority of our premiums are derived from the National segment, we are actively seeking to grow our Premier and Association segments. Employee-paid coverage is important as employers attempt to control costs and shift benefit decisions and funding to employees who continue to value workplace benefits.
While the majority of our premiums are derived from the National Market segment, we continue to diversify our book through growth of the Premier Market and Association segments. Employee-paid coverage is important as employers attempt to control costs and shift benefit decisions and funding to employees who continue to value workplace benefits.
Previously, he was Senior Financial Officer of Prudential Annuities and was Prudential’s business representative for its retail brokerage joint 37 Table of Conten t s venture with Wachovia Securities from 2003 through 2009. He also served as Vice President of Finance for Prudential’s asset management business and held various positions with Prudential Securities’ Private Client and Debt Capital Markets Groups.
Previously, he was Senior Financial Officer of Prudential Annuities and was Prudential’s business representative for its retail brokerage joint venture with Wachovia Securities from 2003 through 2009. He also served as Vice President of Finance for Prudential’s asset management business and held various positions with Prudential Securities’ Private Client and Debt Capital Markets Groups. Mr. Tanji joined Prudential in 1988.
BUSINESS Table of Contents Page Overview 2 PGIM 3 Retirement Strategies 5 Group Insurance 7 Individual Life 9 Assurance IQ 11 International Businesses 13 Corporate and Other 15 Closed Block Division 16 Seasonality of Key Financial Items 17 Reinsurance 18 Intangible and Intellectual Property 19 Regulation 19 Human Capital Resources 35 Information About our Executive Officers 37 1 Table of Conten t s Overview Prudential Financial, Inc.
BUSINESS Table of Contents Page Overview 2 PGIM 3 Retirement Strategies 5 Group Insurance 7 Individual Life 9 International Businesses 11 Corporate and Other 13 Closed Block Division 14 Seasonality of Key Financial Items 15 Reinsurance 16 Intangible and Intellectual Property 17 Regulation 18 Human Capital Resources 30 Available Information 32 Information About our Executive Officers 32 1 Table of Contents Overview Prudential Financial, Inc.
On policies sold since 2000, we have reinsured a significant portion of our mortality risk externally, with that portion varying over time depending on market factors and strategic objectives. Assumed reinsurance in conjunction with our 2013 acquisition of The Hartford’s individual life insurance business.
On policies sold since 2000, we have reinsured a significant portion of our mortality risk externally, with that portion varying over time depending on market factors and strategic objectives. Assumed reinsurance in conjunction with our 2013 acquisition of The Hartford’s individual life insurance business. International Businesses Ceded Ceded reinsurance to mitigate mortality and morbidity risk for certain products.
Internationally, a number of countries such as Brazil and Japan have enacted GDPR-like regulations, while others, such as India and Argentina, are considering such regulations or, in the case of China, have enacted other privacy and data security regulations. In October 2017, the NAIC adopted the Insurance Data Security Model Law.
Internationally, a number of countries such as Brazil, India, and Japan have enacted GDPR-like regulations, while others, such as Argentina, are considering such regulations or, in the case of China, have enacted other privacy and data security regulations.
Those non-U.S. subsidiaries intend to operate in a manner that will not cause any to be treated as being engaged in a trade or business within the U.S. or subject to current U.S. federal income taxation on their net income.
The Company has a number of subsidiaries incorporated under the laws of non-U.S. jurisdictions. Those non-U.S. subsidiaries intend to operate in a manner that will not cause any to be treated as being engaged in a trade or business within the U.S. or subject to current U.S. federal income taxation on their net income.
We define our market segments as follows: • National—large corporations and other organizations having over 5,000 individuals. • Premier—corporations and other organizations that have between 100 and 5,000 individuals. • Association—affinity groups, regardless of size. 7 Table of Conten t s Group Insurance (Continued) Revenues and Profitability Our revenues primarily come in the form of: • Premiums and policy charges for our group life and group disability products. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
We define our market segments as follows: • National Market—employer groups having over 5,000 individuals. • Premier Market—employer groups having between 100 and 5,000 individuals. • Association—affinity groups, regardless of size. 7 Table of Contents Group Insurance (Continued) Revenues and Profitability Our revenues primarily come in the form of: • Premiums and policy charges for our group life, group disability and supplemental health products. • Investment income (which contributes to the net spread over interest credited on our products and related expenses).
Certain of our insurance subsidiaries are subject to SEC public reporting and disclosure requirements based on offerings of these products. Federal and some state securities regulation similar to that discussed below under “—U.S. Investment and Retirement Products and Investment Management Operations” and “—U.S.
Certain of our insurance subsidiaries are subject to SEC public reporting and disclosure requirements based on offerings of these products. Federal and some state securities regulation similar to that discussed below under “—U.S. Investment and Retirement Products and Investment Management Operations” and “—U.S. Securities and Commodities Regulation” affect investment advice, sales and related activities with respect to these products.
In addition, the marketing and sale of Medicare Advantage products by Assurance IQ is subject to federal laws, regulations and guidelines issued by the U.S. Centers for Medicare and Medicaid Services (“CMS”). In December 2022, CMS proposed certain changes to regulations governing the marketing and sale of Medicare Advantage products.
In addition, the marketing and sale of Medicare Advantage products by Assurance IQ is subject to federal laws, regulations and guidelines issued by the U.S. Centers for Medicare and Medicaid Services (“CMS”).
It is our objective to provide our employees with a benefits package that is at or around the median of the competitive market when compared to other employers. Available Information Prudential Financial files periodic and current reports, proxy statements and other information with the SEC.
It is our objective to provide our employees with a benefits package that is at or around the median of the competitive market when compared to other employers. Available Information Prudential Financial files periodic and current reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained through the SEC’s website (www.sec.gov).
Insurance & Retirement Businesses from January 2021 to December 2022, which consisted of Group Insurance, Individual Life Insurance, Prudential Retirement Strategies, the Retail Advice and Solutions organization, as well as key support functions which include Enabling Solutions and Enterprise Capabilities.
Prior to this role, she served as CEO of U.S. Insurance & Retirement Businesses from January 2021 to December 2022, which consisted of Group Insurance, Individual Life Insurance, Prudential Retirement Strategies, the Retail Advice and Solutions organization, as well as key support functions which include Enabling Solutions and Enterprise Capabilities.
The profitability of certain products is significantly dependent on these characteristics and our ability to continue to generate taxable income, which is taken into consideration when pricing products and is a component of our capital management strategies.
The profitability of any particular product is significantly dependent on the unique characteristics of the product and our ability to continue to generate taxable income, which is taken into consideration when pricing a product and is a component of our capital management strategies.
Congress from time to time considers health care reform that could decrease or increase the attractiveness of health insurance products sold by Assurance IQ, or have an unfavorable or favorable effect on our ability to earn revenues from sales of these products.
Congress from time to time considers health care reform that could decrease or increase the attractiveness of health insurance products sold by Assurance IQ, which we include in the results of our Corporate and Other operations, or have an unfavorable or favorable effect on our ability to earn revenues from sales of these products.
The sale was completed in the third quarter of 2020. 15 Table of Conten t s Closed Block Division In connection with the demutualization in 2001, we ceased offering domestic participating individual life insurance and annuity products under which policyholders are eligible to receive policyholder dividends reflecting experience.
The sale was completed in the second quarter of 2021. 13 Table of Contents Closed Block Division In connection with the demutualization in 2001, we ceased offering domestic participating individual life insurance and annuity products under which policyholders are eligible to receive policyholder dividends reflecting experience.
Our compensation program is an important component of these overall human resources policies. Equally important, we view compensation practices as a means for communicating our goals and standards of conduct and performance and for motivating and rewarding employees in relation to their achievements. We view retirement benefits as a key component of our compensation program because they encourage long-term service.
Equally important, we view compensation practices as a means for communicating our goals and standards of conduct and performance and for motivating and rewarding employees in relation to their achievements. 31 Table of Contents We view retirement benefits as a key component of our compensation program because they encourage long-term service.
Competition We compete with other large, well-established life insurance companies in a mature market. We compete primarily based on price, service (including the speed and ease of underwriting), distribution channel relationships, brand recognition and financial strength. Due to the large number of competitors, pricing is competitive.
Competition We compete with many large, well-established life insurance companies in a mature market. We compete primarily based on price, service (including the speed and ease of underwriting), distribution channel relationships, brand recognition and financial strength.
Our assumptions also include our estimate of the timing and amount of anticipated future premium rate increases and policyholder benefit reductions, including those which may require approval by state regulatory authorities. • Full Service Retirement Business— In the third quarter of 2021, we entered into a definitive agreement to sell our Full Service Retirement business.
Our assumptions also include our estimate of the timing and amount of anticipated future premium rate increases and policyholder benefit reductions, including those which may require approval by state regulatory authorities, and a discount rate assumption based on an upper-medium grade fixed-income instrument yield. • Full Service Retirement Business— In the third quarter of 2021, we entered into a definitive agreement to sell our Full Service Retirement business.
Securities and Commodity Operations • International Investment and Retirement Products and Investment Management Operations • Derivatives Regulation • Privacy and Cybersecurity Regulation 19 Table of Conten t s • Anti-Money Laundering and Anti-Bribery Laws • Environmental Laws and Regulations • Unclaimed Property Laws • Taxation ◦ U.S.
Securities and Commodity Operations • International Investment and Retirement Products and Investment Management Operations • Derivatives Regulation • Privacy, Data Protection and Cybersecurity Regulation • Anti-Money Laundering and Anti-Bribery Laws • Environmental Laws and Regulations • Unclaimed Property Laws • Taxation ◦ U.S.
Kappler was elected Executive Vice President and General Counsel for Prudential Financial and PICA in September 2020. She served as Senior Vice President, Deputy General Counsel and Head of External Affairs from 2015 to 2020.
Kappler was elected Executive Vice President and General Counsel for Prudential Financial and PICA in September 2020, and was named the Company’s Chief Compliance Officer in February 2024. She served as Senior Vice President, Deputy General Counsel and Head of External Affairs from 2015 to 2020.
For additional details related to certain of these agreements, see Note 14 to the Consolidated Financial Statements. Segment Primary Type of Reinsurance Purpose Corporate & Other Ceded Ceded reinsurance of certain retirement products in conjunction with our 2022 sale of the Full Service Retirement business. See Note 1 to the Consolidated Financial Statements for additional information regarding this sale.
For additional details related to certain of these agreements, see Note 15 to the Consolidated Financial Statements. 16 Table of Contents Segment Primary Type of Reinsurance Purpose Corporate and Other Ceded Ceded reinsurance of certain retirement products in conjunction with our 2022 sale of the Full Service Retirement business.
In addition, there are local income taxes that are applied to our income earned in Japan. Insurance commissions paid to our Life Planners and Life Consultants are subject to a 10% consumption tax for individuals exceeding certain earnings thresholds; however, the tax is not charged on employee compensation (other than commissions) or insurance premiums.
Insurance commissions paid to our Life Planners and Life Consultants are subject to a 10% consumption tax for individuals exceeding certain earnings thresholds; however, the tax is not charged on employee compensation (other than commissions) or insurance premiums.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

65 edited+19 added−14 removed129 unchanged
Biggest changeIn addition, certain of our products provide for recurring premiums which may be invested at interest rates lower than the rates included in our pricing assumptions. Market-sensitive cash flows exist with other product liabilities including products whose cash flows can be linked to market performance through secondary guarantees, minimum crediting rates, and/or changes in insurance assumptions.
Biggest changeMarket-sensitive cash flows exist with other product liabilities including products whose cash flows can be linked to market performance through secondary guarantees, minimum crediting rates, and/or changes in insurance assumptions. 37 Table of Contents Our exposure to interest rates can manifest over years as in the case of earnings compression or in the short term by creating volatility in both earnings and capital.
We are exposed to morbidity incidence risk primarily through the short-term disability, long-term disability and long-term care products in the U.S., and through the accident and health products in Japan. • Morbidity continuation is the risk that the length of time for which policyholders remain unhealthy deviates adversely from what is expected.
We are exposed to morbidity incidence risk primarily through short-term disability, long-term disability and long-term care products in the U.S., and through accident and health products in Japan. • Morbidity continuation is the risk that the length of time for which policyholders remain unhealthy deviates adversely from what is expected.
As a financial services company, we are exposed to model risk, which is the risk of financial loss or reputational damage or adverse regulatory impacts caused by model errors or limitations, incorrect implementation of models, or misuse of or overreliance upon models.
Model Risk As a financial services company, we are exposed to model risk, which is the risk of financial loss or reputational damage or adverse regulatory impacts caused by model errors or limitations, incorrect implementation of models, or misuse of or overreliance upon models.
While we maintain certain standards for all vendors that provide us services, our vendors, and in turn, their own service providers, may become subject to a security breach, including as a result of their failure to perform in accordance with their contractual obligations. • Hardware, software or applications developed by, obtained from, or implemented in accordance with specifications provided by third parties may contain vulnerabilities in design, maintenance or manufacturing that could be exploited to compromise the Company’s information security. • Continuing use of remote or flexible work arrangements, including remote access tools and mobile technology (including use of personal devices), have expanded potential attack surfaces. • The proliferation of third-party financial data aggregators and emerging technologies, including the development and use of artificial intelligence (“AI”), increase our information security risks and exposure.
While we maintain certain standards for all vendors that provide us services, our vendors, and in turn, their own service providers, have become subject to security breaches, including as a result of their failure to perform in accordance with their contractual obligations. • Hardware, software or applications developed by, obtained from, or implemented in accordance with specifications provided by third parties may contain vulnerabilities in design, maintenance or manufacturing that could be exploited to compromise the Company’s information security. • Continuing use of remote or flexible work arrangements, including remote access tools and mobile technology (including use of personal devices), have expanded potential attack surfaces. • The proliferation of third-party financial data aggregators and emerging technologies, including the development and use of artificial intelligence (“AI”), increase our information security risks and exposure.
Many attacks leverage social engineering schemes (such as phishing, vishing, or smishing) to coax an internal user to click on a malicious attachment or link to introduce malware into companies’ systems or steal the user’s username and password. Such social engineering schemes are becoming increasingly sophisticated and sometimes may involve emerging technologies such as deep-fakes.
Many attacks leverage social engineering schemes (such as phishing, vishing, or smishing) to coax an internal user to click on a malicious attachment or link to introduce malware into companies’ systems or steal the user’s username and password. Such social engineering schemes are becoming increasingly sophisticated and may involve emerging technologies such as deep-fakes.
Such campaigns have targeted online applications and services. • Nation-state sponsored or affiliated organizations are engaged in cyber-attacks, not only for monetization purposes, but also to gain information about foreign citizens and governments, or to influence or cause disruptions in commerce or political affairs.
Such campaigns have targeted online applications and services. • Nation-state sponsored or affiliated organizations are engaged in cyber-attacks, not only for monetization purposes, but also to gain information about foreign citizens, businesses and governments, or to influence or cause disruptions in commerce or political affairs.
We may experience a disruption in business continuity as a result of, among other things, the following: • Severe pandemic, epidemic, or other public health crises, either naturally occurring or resulting from intentionally manipulated pathogens; • Geo-political risks, including armed conflict and civil unrest; • Terrorist events; • Significant natural or accidental disasters; • Cyber-attacks, both systemic (e.g., affecting the internet, cloud services, and/or other financial services industry infrastructure) and targeted (e.g., failures in or breach of our systems or that of third-parties on whom we rely); • Insider threats; • Physical infrastructure outages; • Workforce unavailability resulting from any of the above events, among others.
We may experience a disruption in business continuity as a result of, among other things, the following: • Severe pandemic, epidemic, or other public health crises, either naturally occurring or resulting from intentionally manipulated pathogens; 40 Table of Contents • Geo-political risks, including armed conflict and civil unrest; • Terrorist events; • Significant natural or accidental disasters; • Cyber-attacks, both systemic (e.g., affecting the internet, cloud services, and/or other financial services industry infrastructure) and targeted (e.g., failures in or breach of our systems or that of third-parties on whom we rely); • Insider threats; • Physical infrastructure outages; and • Workforce unavailability resulting from any of the above events, among others.
Our mitigation efforts with respect to interest rate risk are primarily focused on maintaining an investment portfolio with diversified maturities that has a key rate duration profile that is approximately equal to the key rate duration profile of our liability and surplus benchmarks; however, these benchmarks are based on estimates of the liability cash flow profiles which are complex and could turn out to be inaccurate, especially when markets are volatile.
Our mitigation efforts with respect to interest rate risk are primarily focused on maintaining an investment portfolio with diversified maturities that has a key rate duration profile that is approximately equal to the key rate duration profile of our liability and surplus benchmarks; however, these benchmarks are based on estimates of the liability cash flow profiles which are complex and could be inaccurate, especially when markets are volatile.
While third-party distributing firms have an independent regulatory accountability, some regulators have been clear with expectations that product manufacturers retain significant sales practices accountability.
While third-party distributing firms have an independent regulatory accountability, regulators have been clear with expectations that product manufacturers retain significant sales practices accountability.
Certain of our insurance products are subject to policyholder behavior risk, which is the risk that actual policyholder behavior deviates adversely from what is expected. • Lapse calamity is the risk that lapse rates over the short-term deviate adversely from what is expected, for example, surrenders of certain insurance products may increase following a downgrade of our financial strength ratings or adverse publicity.
Certain of our insurance products are subject to policyholder behavior risk, which is the risk that actual policyholder behavior deviates adversely from what is expected. • Lapse calamity is the risk that lapse rates over the short-term deviate adversely from what is expected, for example, surrenders of certain insurance products may increase following a downgrade of our financial strength ratings, adverse publicity or economic conditions.
Violations of these regulations could subject our affiliated distributors to litigation and regulatory inquiries that result in penalties or damages. See Note 23 to the Consolidated Financial Statements for additional information regarding litigation and regulatory matters relating to the distribution of products. Many of our distribution personnel are independent contractors or franchisees.
Violations of these regulations could subject our affiliated distributors to litigation and regulatory inquiries that result in penalties or damages. See Note 25 to the Consolidated Financial Statements for additional information regarding litigation and regulatory matters relating to the distribution of products. Many of our distribution personnel are independent contractors or franchisees.
Liabilities we may incur as a result of operational failures are described further under “Contingent Liabilities” in Note 23 to the Consolidated Financial Statements. In addition, certain pending regulatory and litigation matters affecting us, and certain risks to our businesses presented by such matters, are discussed in Note 23 to the Consolidated Financial Statements.
Liabilities we may incur as a result of operational failures are described further under “Contingent Liabilities” in Note 25 to the Consolidated Financial Statements. In addition, certain pending regulatory and litigation matters affecting us, and certain risks to our businesses presented by such matters, are discussed in Note 25 to the Consolidated Financial Statements.
We have experienced cybersecurity events resulting in the compromise of personal and confidential information, including sensitive health information, of our customers and other stakeholders. See “Business—Regulation—Privacy and Cybersecurity Regulation” for a discussion of the applicable laws and regulations (including those requiring notice, disclosure or remediation) relating to cybersecurity events.
We have experienced cybersecurity events resulting in, among other things, the compromise of personal and confidential information, including sensitive health information, of our employees, customers and other stakeholders. See “Business—Regulation—Privacy and Cybersecurity Regulation” for a discussion of the applicable laws and regulations (including those requiring notice, disclosure or remediation) relating to cybersecurity events.
We are also at risk that key distribution partners may merge, change their business models in ways that affect how our products are sold, or terminate their distribution contracts with us, or that new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts.
We are also at risk that key distribution partners may merge, change their business models in ways that affect how our products are sold, or 43 Table of Contents terminate their distribution contracts with us, or that new distribution channels could emerge and adversely impact the effectiveness of our distribution efforts.
Operational Risk Types • Processes: Processing failure; failure to safeguard or retain documents/records; errors in valuation/pricing models and processes; project management or execution failures; improper sales practices; improper administration of our products; failure to adhere to clients’ investment guidelines. • Systems: Failures during the development and implementation of new systems; systems failures. 44 Table of Conten t s • People: Internal fraud, breaches of employment law, unauthorized activities; loss or lack of key personnel, inadequate training; inadequate supervision. • External Events: External crime; cyber-attack, outsourcing risk; vendor risk; natural and other disasters; changes in laws/regulations. • Legal: Legal and regulatory compliance failures.
Operational Risk Types • People: Internal fraud, breaches of employment law, unauthorized activities; loss or lack of key personnel, inadequate training; inadequate supervision. • Processes: Processing failure; failure to safeguard or retain documents/records; errors in valuation/pricing models and processes; project management or execution failures; improper sales practices; improper administration of our products; failure to adhere to clients’ investment guidelines. • Technology: Failures during the development and implementation of new systems; systems failures. • External Events: External crime; cyber-attack, outsourcing risk; vendor risk; natural and other disasters; changes in laws/regulations. • Legal and Regulatory: Legal and regulatory compliance failures.
In light of recent geopolitical events, including Russia’s invasion of Ukraine, state-sponsored or affiliated parties and/or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, and/or result in the compromise of our systems or data. • Increasingly, malicious actors can be in companies’ systems for an extended period of time before being detected.
In light of recent geopolitical events, including conflicts in Europe and the Middle East, state-sponsored or affiliated parties and/or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, and/or result in the compromise of our systems or data. • Increasingly, malicious actors can be in companies’ systems for an extended period of time before being detected.
Changes from period to period in the valuation of these policy benefits, and in the amount of our obligations effectively hedged, will result in volatility in our results 43 Table of Conten t s of operations and financial position under U.S. GAAP and the statutory capital levels of our insurance subsidiaries.
Changes from period to period in the valuation of these policy benefits, and in the amount of our obligations effectively hedged, will result in volatility in our results of operations and financial position under U.S. GAAP and the statutory capital levels of our insurance subsidiaries.
Affiliate and third-party distributors of our products present added regulatory, competitive and other risks to our enterprise. Our products are sold primarily through our captive/affiliated distributors and third-party distributing firms. Our captive/affiliated distributors are made up of large numbers of decentralized sales personnel who are compensated based on commissions.
Affiliate and third-party distributors of our products present added regulatory, competitive and other risks to our enterprise. Our products are sold primarily through captive/affiliated distributors and third-party distributing firms. Our captive/affiliated distributors are made up of sales personnel who are generally compensated based on commissions.
See “Business—Regulation” for a discussion of certain recently 48 Table of Conten t s enacted and pending proposals by international, federal and state regulatory authorities and their potential impact on our business, including in the following areas: • Financial sector regulatory reform. • U.S. federal, state and local and non-U.S. tax laws, including BEAT, GILTI and CAMT. • Fiduciary rules and other standards of care. • Our regulation under U.S. state insurance laws and developments regarding group-wide supervision and capital standards, accounting rules, RBC factors for invested assets and reserves for life insurance, variable annuities and other products. • Insurer capital standards in Japan and other non-U.S. jurisdictions. • Privacy, big data, AI and cybersecurity regulation.
See “Business—Regulation” for a discussion of certain recently enacted and pending proposals by international, federal and state regulatory authorities and their potential impact on our business, including in the following areas: • Financial sector regulatory reform. 44 Table of Contents • U.S. federal, state and local and non-U.S. tax laws, including BEAT, GILTI and CAMT. • Fiduciary rules and other standards of care. • Our regulation under U.S. state insurance laws and developments regarding group-wide supervision and capital standards, accounting rules, RBC factors for invested assets and reserves for life insurance, variable annuities and other products. • Insurer capital standards in Japan and other non-U.S. jurisdictions. • Privacy, data, artificial intelligence and cybersecurity regulation.
If this risk were to emerge, the Company would update assumptions used to calculate reserves for in-force business, which may result in additional assets needed to meet the higher expected annuity claims or earlier expected life claims.
If this risk were to emerge, the Company would update assumptions used to calculate reserves for in-force business, which may result in additional assets needed to meet the higher expected annuity claims or earlier expected life 35 Table of Contents claims.
We seek to manage this risk through various hedging strategies, including the use of foreign currency hedges and through holding U.S. dollar-denominated securities in the investment portfolios of certain of these operations. Additionally, our Japanese insurance operations offer a variety of non-Japanese yen denominated products. We seek to mitigate this risk by holding investments in corresponding currencies.
We seek to manage this risk through various hedging strategies, including the use of foreign currency hedges and through holding U.S. dollar-denominated securities in the investment portfolios of certain of these operations. Additionally, our Japanese insurance operations offer a variety of non-Japanese yen-denominated products.
In our investments in which we hold a minority interest, or that are managed by third-parties, we lack management and operational control over operations, which may subject us to additional operational, compliance and legal risks and prevent us from taking or causing to be taken actions to protect or increase the value of those investments. For example, see “Business—Regulation—ERISA”.
In our investments in which we hold a minority interest, or that are managed by third parties, we lack management and operational control over operations, which may subject us to additional operational, compliance and legal risks and prevent us from taking or causing to be taken actions to protect or increase the value of those investments.
Additionally, our valuation of investments may include methodologies, inputs and assumptions which are subject to change and different interpretation and could result in changes to investment valuations that may materially impact our results of operations or financial condition. For information about the valuation of our investments, see Note 6 to the Consolidated Financial Statements.
Additionally, our valuation of investments may include methodologies, inputs and assumptions which could result in changes to investment valuations that may materially impact our results of operations or financial condition. For information about the valuation of our investments, see Note 6 to the Consolidated Financial Statements.
The third-party distributing firms generally are not dedicated to us exclusively and may frequently recommend and/or market products of our competitors. Accordingly, we must compete intensely for their services.
The third-party distributing firms are rarely dedicated to us exclusively and may frequently recommend and/or market products of our competitors. Accordingly, we must compete for their services.
Certain of our products, particularly certain index-linked annuity and individual life products, include interest crediting guarantees based on the performance of an index.
Certain of our products, particularly certain index-linked annuity and individual life products, include interest crediting guarantees based on the performance of an 38 Table of Contents index.
The Company’s risks are further discussed below. Our risk management framework is described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management.” Investment Risk Our investment portfolios are subject to the risk of loss due to default or deterioration in credit quality or value.
Our risk management framework is described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management.” Investment Risk Our investment portfolios are subject to the risk of loss due to default or deterioration in credit quality or value.
Our cybersecurity risk and exposure remains heightened because of, among other things, the rapidly evolving nature and pervasiveness of cyber threats (including supply-chain attacks), our brand and reputation, our size and scale, our geographic presence and our role in the financial services industry and the broader economy.
Our cybersecurity risk remains heightened because of, among other things, the rapidly evolving nature and pervasiveness of cyber threats, our brand and reputation, our size and scale, our geographic presence and our role in the financial services industry and the broader economy.
Technological advances, changing customer expectations, including related to digital offerings, access to customer data, or other changes in the marketplace may present opportunities for new or smaller companies 49 Table of Conten t s without established products or distribution channels to meet consumers’ increased expectations more efficiently than us.
Technological advances, changing customer expectations, including related to digital offerings, access to customer data, or other changes in the marketplace may present opportunities for new or smaller companies without established products or distribution channels to meet consumers’ increased expectations more efficiently than us.
In those jurisdictions where we are constrained by law from owning a majority interest in jointly owned operations, our remedies in the event of a breach by a joint venture partner may be limited (e.g., we may have no ability to exercise a “call” option).
For example, see “Business—Regulation—ERISA.” In those jurisdictions where we are constrained by law from owning a majority interest in jointly owned operations, our remedies in the event of a breach by a joint venture partner may be limited (e.g., we may have no ability to exercise a “call” option).
For example, in PGIM, we expect to see continued pressure on fees given the focus on passive investment and the growth of the robo-advice channel. • Climate change may increase the severity and frequency of calamities, or adversely affect our investment portfolio or investor sentiment. Climate change may increase the frequency and severity of weather-related disasters and pandemics.
For example, in PGIM, 45 Table of Contents we expect to see continued pressure on fees given the focus on passive investment and the growth of the robo-advice channel. • Climate change may increase the severity and frequency of calamities, or adversely affect our investment portfolio or investor sentiment.
As these investments typically do not trade on public markets and indications of realizable market value may not be 39 Table of Conten t s readily available, valuations can be infrequent and/or more volatile.
As these investments typically do not trade on public markets and indications of realizable market value may not be readily available, valuations can be infrequent and/or more volatile.
Morbidity risk is a biometric risk that can manifest in the following ways: 40 Table of Conten t s • Morbidity incidence is the risk that the rate at which policyholders become unhealthy (and qualify for benefits under insurance policies) deviates adversely from what is expected.
Morbidity risk is a biometric risk that can manifest in the following ways: • Morbidity incidence is the risk that the rate at which policyholders become unhealthy (and qualify for benefits under insurance policies) deviates adversely from what is expected.
Examples include: ◦ A change in market conditions, such as higher inflation and higher interest rates, like we started to see in 2022, could cause a change in consumer sentiment and behavior adversely affecting sales and persistency of our savings and protection products.
Examples include: ◦ A change in market conditions, such as higher inflation and higher interest rates, like we have seen since 2022, could cause a change in consumer sentiment and behavior adversely affecting sales and persistency of our savings and protection products.
It could take considerable additional time for us to determine the scope of compromise, and the extent, amount, and type of information compromised, if any, and to fully remediate and recover. • Employees or other individuals purportedly acting on behalf of the Company may fail (as a result of human error or misconduct) to comply with applicable policies and procedures, and/or circumvent controls or safeguards for unauthorized purposes. • We rely on third-parties to provide services, as described further below.
Even if the malicious actors are discovered quickly, it could take considerable additional time for us to determine the scope of compromise, and the extent, amount, and type of information compromised, if any, and to fully contain the malicious actors, remediate and recover. • Employees, third-party service providers or other individuals purportedly acting on behalf of the Company may fail (as a result of human error or misconduct) to comply with applicable policies and procedures, and/or circumvent controls or safeguards for unauthorized purposes. 41 Table of Contents • We rely on third-parties to provide services, as described further below.
Fraudulent schemes to solicit information via call centers and interactive voice response systems are becoming more prevalent. • Cyber-attacks involving the encryption and/or threat to disclose personal or confidential information (i.e., ransomware) or disruptions of communications (i.e., denial of service) for the purposes of extortion or other motives persist and are on the rise. • Financial services companies and their third-party service providers (including their downstream service providers) are increasingly being targeted by hackers and fraudulent actors seeking to monetize personal or confidential information to extort money, or for other malicious purposes.
Fraudulent schemes to solicit information via call centers, remote help desks and interactive voice response systems continue to increase in both volume and sophistication. • Cyber-attacks involving the encryption and/or threat to disclose personal or confidential information (i.e., ransomware) or disruptions of communications (i.e., denial of service) for the purposes of, among other things, extortion or other motives persist and are on the rise. • Financial services companies and their third-party service providers (including their downstream service providers) are increasingly being targeted by hackers and fraudulent actors seeking to monetize personal or confidential information to extort money, or for other malicious purposes.
Failure to effectively manage risks across a broad range of risk issues exposes the Company to reputational harm. If the Company were to suffer a significant loss in reputation, both policyholders and counterparties could seek to exit existing relationships.
Reputational risk could manifest from any of the risks as identified in the Company’s risk identification process. Failure to effectively manage risks across a broad range of risk issues exposes the Company to reputational harm. If the Company were to suffer a significant loss in reputation, both policyholders and counterparties could seek to exit existing relationships.
We may have to litigate to enforce and protect our copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant, and our efforts may not prove successful.
Although we endeavor to protect our rights, third-parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant, and our efforts may not prove successful.
For a discussion of the Company’s liquidity and sources and uses of liquidity, including information about legal and regulatory limits on the ability of our subsidiaries to pay dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity.” Operational Risk Our operations are exposed to the risk of loss resulting from inadequate or failed processes or systems, human error or misconduct, and as a result of external events.
If such events were to occur, the Company may face unexpectedly high levels of claim payments to policyholders. 39 Table of Contents For a discussion of the Company’s liquidity and sources and uses of liquidity, including information about legal and regulatory limits on the ability of our subsidiaries to pay dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity.” Operational Risk Our operations are exposed to the risk of loss resulting from inadequate or failed processes or systems, human error or misconduct, and as a result of external events.
Risks related to cyber-attack arise in various areas, including: 45 Table of Conten t s • Protecting both “structured” and “unstructured” sensitive information is a constant need; however, some risks cannot be fully mitigated using administrative, technological, or physical controls, or otherwise. • Employees, customers, or other users of our systems continue to be a key avenue for malicious external parties to gain access to our network, systems, data, or that of our customers.
Risks related to cyber-attack arise in various areas, including: • Protecting sensitive information is a constant need; however, some risks cannot be fully mitigated using administrative, technological, or physical controls, or otherwise. • Employees, customers, third-party service providers on whom we rely, or other users of our systems continue to be a key avenue for malicious external parties to gain access to our network, systems, data, or that of our customers.
We rely on a combination of contractual rights with employees and third-parties and on copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we endeavor to protect our rights, third-parties may infringe or misappropriate our intellectual property.
We may not be able to protect our intellectual property and may be subject to infringement claims . We rely on a combination of contractual rights with employees and third-parties and on copyright, trademark, patent and trade secret laws to establish and protect our intellectual property.
The Company’s risks include investment, insurance, market, liquidity, and operational risk, as well as strategic risks that may cause the Company’s core business model to change, either through a shift in the businesses in which it is engaged or a change in execution. The Company’s strategic risks include regulatory and technological changes and other external factors.
Overview The Company uses an integrated risk management framework to manage and oversee its risks. The Company’s risks include investment, insurance, market, liquidity, operational, and model risk as well as strategic risks that may cause the Company’s core business model to change, either through a shift in the businesses in which it is engaged or a change in execution.
Market risk is the risk of loss from changes in interest rates, equity prices and foreign currency exchange rates. The profitability of many of our insurance and annuity products depends in part on the value of the separate accounts supporting these products, which can fluctuate substantially depending on market conditions.
The profitability of many of our insurance and annuity products depends in part on the value of the separate accounts supporting these products, which can fluctuate substantially depending on market conditions.
As our businesses continue to grow and evolve, the number and complexity of models we utilize expands, increasing our exposure to error in the design, implementation or use of models, including the associated input data and assumptions.
As our businesses continue to grow and evolve, the number and complexity of models we utilize expands, increasing our exposure to error in the design, implementation or use of models, including the associated input data and assumptions. Furthermore, model risk will be elevated during periods of transformation or due to new or changing laws or regulations.
Similarly, changing economic conditions and unfavorable public perception of financial institutions can influence customer behavior, including increasing claims or surrenders in certain products. ◦ Sales of our investment-based and asset management products and services may decline, and lapses and surrenders of certain insurance products and withdrawals of assets from investment products may increase if a market downturn, increased market volatility or other market conditions result in customers becoming dissatisfied with their investments or products. ◦ Changes in our discount rate, expected rate of return, life expectancy, health care cost and assumptions regarding compensation increases for our pension and other postretirement benefit plans may result in increased expenses and reduce our profitability. • Geopolitical risk, rapidly rising interest rates and significant equity market declines, as we have seen since the first half of 2022, among other factors, adversely impact our liquidity and capital positions, cash flows, results of operations, and financial position .
Similarly, changing economic conditions and unfavorable public perception of financial institutions can influence customer behavior, including increasing claims or surrenders in certain products. ◦ Sales of our investment-based and asset management products and services may decline, and lapses and surrenders of certain insurance products and withdrawals of assets from investment products may increase if a market downturn, increased market volatility or other market conditions result in customers becoming dissatisfied with their investments or products. ◦ Changes in our discount rate, expected rate of return, life expectancy, health care cost and assumptions regarding compensation increases for our pension and other postretirement benefit plans may result in increased expenses and reduce our profitability. • Our reputation may be adversely impacted if any of the risks described in this section are realized.
Our practices may be judged by ESG standards that are continually evolving and not always clear. Prevailing ESG standards and expectations may also reflect contrasting or conflicting values or agendas.
Certain of our regulators have proposed or adopted, or may propose or adopt, ESG rules or standards that would apply to our business. Our practices may be judged by ESG standards that are continually evolving and not always clear. Prevailing ESG standards and expectations may also reflect contrasting or conflicting values or agendas.
Policyholder behavior risk is generally a long-term risk that emerges over time. An increase in reserves due to revised assumptions has an immediate impact on our results of operations and financial condition; however, from an economic or cash flow perspective, the impact is generally long term as the excess outflow is paid over time.
An increase in reserves due to revised assumptions has an immediate impact on our results of operations and financial condition; however, from an economic or cash flow perspective, the impact is generally long term as the excess outflow is paid over time. 36 Table of Contents Our ability to reprice products is limited and may not compensate for deviations from our expected insurance assumptions.
Many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others.
Many of these risks are interrelated and could occur under similar business and economic conditions, and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such a combination could materially increase the severity of the impact of these risks on our businesses, results of operations, financial condition and liquidity.
For a discussion of the impact of current market conditions on our liquidity and capital resources outlook, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Current Market Conditions.” For a discussion of the impact of changes in market conditions on our financial condition see Item 7A “Quantitative and Qualitative Disclosures About Market Risk.” Our insurance and annuity products and certain of our investment products, and our investment returns, are subject to interest rate risk, which is the risk of loss arising from asset/liability duration mismatches within our general account investments as well as invested assets of other entities and operations .
Quantitative and Qualitative Disclosures About Market Risk.” Our insurance and annuity products and certain of our investment products, and our investment returns, are subject to interest rate risk, which is the risk of loss arising from asset/liability duration mismatches within our general account investments as well as invested assets of other entities and operations .
Since many of our policies and contracts have guaranteed minimum crediting rates or limit the resetting of crediting rates, the spreads could decrease or go negative. 42 Table of Conten t s Alternatively, when interest rates rise, we may not be able to replace the assets in our general account with the higher-yielding assets as quickly as needed to fund the higher crediting rates necessary to keep these products and contracts competitive.
Alternatively, when interest rates rise, we may not be able to replace the assets in our general account with the higher-yielding assets as quickly as needed to fund the higher crediting rates necessary to keep these products and contracts competitive.
Global, U.S. or Japanese economic activity and financial markets may in turn be negatively affected by adverse developments or conditions in specific geographical regions.
Global, U.S. or Japanese economic activity and financial markets may in turn be negatively affected by adverse developments or conditions in specific geographical regions. For a discussion of the impact of changes in market conditions on our financial condition see “Item 7A.
Models are utilized by our businesses and corporate areas primarily to project future cash flows associated with pricing products, calculating reserves and valuing assets, as well as in evaluating risk and determining capital requirements, among other uses. These models may not operate properly and may rely on assumptions and projections that are inherently uncertain.
Models are utilized by our businesses and corporate areas primarily to project future cash flows associated with pricing products, calculating reserves and valuing assets, as well as in evaluating risk and determining capital requirements, among other uses. Because models are used across the Company, model risk impacts all risk types.
In addition, if we experience higher than expected claims our liquidity position may be adversely impacted, and we may incur losses on investments if we are required to sell assets in order to pay claims. If it is necessary to sell assets at a loss, our results of operations and financial condition could be adversely impacted.
In addition, if we experience higher than expected surrenders, withdrawals or claims, our liquidity position may be adversely impacted, and we may incur losses on investments if we are required to sell assets in order to fund surrenders, withdrawals or claims.
Third-parties (outsourcing providers, vendors and suppliers and joint venture partners) present added operational risk to our enterprise. The Company's business model relies heavily on the use of third-parties to deliver contracted services in a broad range of areas.
The Company's business model relies heavily on the use of third parties to deliver contracted services in a broad range of areas.
Even if permitted under the policy or contract, other factors may impact our decision whether to raise premiums or adjust other charges sufficiently, or at all.
Even if permitted under the policy or contract, other factors may impact our decision whether to raise premiums or adjust other charges sufficiently, or at all. Accordingly, significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our products.
In addition, climate change regulation may affect the prospects of companies and other entities whose securities we hold, or our willingness to continue to hold their securities. It may also impact other counterparties, including reinsurers, and affect the value of investments, including real estate investments we hold or manage for others.
Climate change may increase the frequency and severity of weather-related disasters and pandemics. In addition, climate change regulation may affect the prospects of companies and other entities whose securities we hold, or our willingness to continue to hold their securities.
A liquidity shortfall may arise in the event of insufficient funding sources or an immediate and significant need for cash or collateral. In addition, it is possible that expected liquidity sources, such as our credit facilities, may be unavailable or inadequate to satisfy the liquidity demands described below.
In addition, it is possible that expected liquidity sources, such as our credit facilities, may be unavailable or inadequate to satisfy the liquidity demands described below. The Company has four primary sources of liquidity exposure and associated drivers that trigger material liquidity demand.
We cannot predict the long-term impacts on us from climate change or related regulation. Climate change may also influence investor sentiment with respect to the Company and investments in our portfolio. • We may fail to meet expectations relating to environmental, social, and governance standards and practices.
Climate change may also influence investor sentiment with respect to the Company and investments in our portfolio. • We may fail to meet expectations relating to environmental, social, and governance standards and practices. Certain existing or potential investors, customers and regulators evaluate our business or other practices according to a variety of environmental, social and governance (“ESG”) standards and expectations.
Additionally, our failure to timely or accurately communicate cyber incidents to relevant parties could result in regulatory, privacy, operational and reputational risk. 46 Table of Conten t s To the extent we maintain cyber insurance, liabilities or losses arising from certain cyber incidents may not be covered or fully covered under such policies, and the amount of insurance may not be adequate.
To the extent we maintain cyber insurance, liabilities or losses arising from certain cyber incidents may not be covered or fully covered under such policies, and the amount of insurance may not be adequate. 42 Table of Contents Third parties (outsourcing providers, vendors and suppliers and joint venture partners) present added operational risk to our enterprise.
For example, a significant amount of our sales in Japan are derived through four major Japanese banks and a significant portion of our sales in Japan through Life Consultants is derived through a single association relationship.
For example, a significant amount of our sales in Japan are derived through major Japanese banks and a significant portion of our sales in Japan through Life Consultants is derived through a single association relationship. We periodically negotiate the terms of these relationships, and there can be no assurance that such terms will remain acceptable to us or such third-parties.
An operational risk failure may result in one or more actual or potential impacts to the Company. Operational risk may be elevated as a result of organizational changes, including recent and planned changes related to the Company’s business transformation efforts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview” for additional information regarding our business transformation efforts.
An operational risk failure may result in one or more actual or potential impacts to the Company. Operational risk may be elevated as a result of significant changes to how the Company operates, including organizational changes and transformation efforts underway that increase execution risk.
We may also incur significant costs in connection with our response, recovery, remediation, and compliance efforts.
We may also incur significant costs in connection with our response, recovery, remediation, and compliance efforts. Additionally, our failure to timely or accurately communicate cyber incidents to relevant parties could result in regulatory, operational and reputational risk.
Liquidity Risk As a financial services company, we are exposed to liquidity risk, which is the risk that the Company is unable to meet near-term obligations as they come due. Liquidity risk is a manifestation of events that are driven by other risk types (market, insurance, investment, operational).
Changes in the fair value of embedded derivatives are included in “Realized investment gains (losses), net” on the Consolidated Statements of Operations, whereas changes in the fair value of assets are recorded in “Accumulated other comprehensive income.” Liquidity Risk As a financial services company, we are exposed to liquidity risk, which is the risk that the Company is unable to meet near-term obligations as they come due.
Accordingly, significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our products. 41 Table of Conten t s Market Risk The profitability of many of our insurance and annuity products, as well as the fees we earn in our investment management business, are subject to market risk.
Market Risk The profitability of many of our insurance and annuity products, as well as the fees we earn in our investment management business, are subject to market risk. Market risk is the risk of loss from changes in interest rates, equity prices and foreign currency exchange rates.
Any negative public perception, founded or otherwise, can be widely and rapidly shared over social media or other means, and could cause damage to our reputation. 50 Table of Conten t s • Risks related to COVID-19 could reemerge .
Our business is anchored in the strength of our brand, our alignment to our values, and our proven commitment to keep our promises to our customers. Any negative public perception, founded or otherwise, can be widely and rapidly shared over social media or other means, and could cause damage to our reputation. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
These transactions expose the Company to counterparty risk. Counterparties include commercial banks, investment banks, broker-dealers and insurance and reinsurance companies. In the event of a counterparty deterioration or default, the magnitude of the losses will depend on then current market conditions and the length of time required to enter into a replacement transaction with a new counterparty.
In the event of a counterparty deterioration or default, the magnitude of the losses will depend on current market conditions and the feasibility (dependent on the complexity) and time requirement of entering a replacement transaction with a new counterparty. Highly bespoke transactions (e.g. strategic reinsurance) may not be replicable with any degree of certainty.
Removed
Such a combination could materially increase the severity of the impact of these risks on our businesses, results of operations, financial condition and liquidity. 38 Table of Conten t s Overview The Company’s risk management framework documents the definition, potential manifestation, and management of its risks.
Added
The Company’s strategic risks include regulatory and technological changes and other external factors. The Company’s risks are further discussed below.
Removed
Our ability to reprice products is limited and may not compensate for deviations from our expected insurance assumptions.
Added
Reinsurance treaties may also be used to further strategic goals of the Company by facilitating the acquisition or divestiture of a block of business if an entity purchase or sale is not practical. These transactions expose the Company to counterparty risk. 34 Table of Contents Counterparties include commercial banks, investment banks, broker-dealers and insurance and reinsurance companies.
Removed
Our exposure to interest rates can manifest over years as in the case of earnings compression or in the short term by creating volatility in both earnings and capital.
Added
If it is necessary to sell assets at a loss, our results of operations and financial condition could be adversely impacted.
Removed
The Company has four primary sources of liquidity exposure and associated drivers that trigger material liquidity demand.
Added
Policyholder behavior risk is generally a long-term risk that emerges over time.
Removed
If such events were to occur, the Company may face unexpectedly high levels of claim payments to policyholders.
Added
In addition, certain of our products provide for recurring premiums which may be invested at interest rates lower than the rates included in our pricing assumptions.
Removed
We periodically negotiate the terms of these relationships, and there can be no assurance that such terms will remain acceptable to 47 Table of Conten t s us or such third-parties.
Added
Since many of our policies and contracts have guaranteed minimum crediting rates or limit the resetting of crediting rates, the spreads could decrease or go negative.
Removed
Furthermore, model risk will be elevated during periods of transformation or due to new or changing laws or regulations (e.g., Accounting Standards Update (“ASU”) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts). We may not be able to protect our intellectual property and may be subject to infringement claims.
Added
Rapidly rising interest rates may also adversely impact, and have adversely impacted, our liquidity and capital positions, cash flows, results of operations, and financial position.
Removed
Certain existing or potential investors, customers and regulators evaluate our business or other practices according to a variety of environmental, social and governance (“ESG”) standards and expectations. Certain of our regulators have proposed or adopted, or may propose or adopt, ESG rules or standards that would apply to our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also conduct back-office functions in leased properties outside of the United States. For our International Businesses, as of December 31, 2022, we own and lease home offices located in Japan, Argentina, Brazil, Mexico and Malaysia. We also conduct our business in owned and leased properties, primarily field offices, located throughout these same countries.
Biggest changeWe also conduct back-office functions in leased properties outside of the United States. For our International Businesses, as of December 31, 2023, we own and lease home offices located in Japan, Argentina, Brazil and Mexico. We also conduct our business in owned and leased properties, primarily field offices, located throughout these same countries.
For home office properties in the U.S. and Brazil, we are also developing waste diversion measures including internal recycling and composting infrastructures and availing ourselves of third-party waste diversion programs. Our Prudential Tower home office property in Newark, New Jersey has been awarded LEED Gold Certification from the U.S. Green Building Council.
For home office properties in the U.S., Brazil and Japan, we are also developing waste diversion measures including internal recycling and composting infrastructures and availing ourselves of third-party waste diversion programs. Our Prudential Tower home office property in Newark, New Jersey has been awarded LEED Gold Certification from the U.S. Green Building Council.
ITEM 2. PROPERTIES We own our headquarters building located at 751 Broad Street, Newark, New Jersey. Excluding our headquarters building and properties used by our International Businesses and the international operations of PGIM, which are discussed below, as of December 31, 2022, we conduct our business and home office functions in both owned and leased locations throughout the United States.
ITEM 2. PROPERTIES We own our headquarters building located at 751 Broad Street, Newark, New Jersey. Excluding our headquarters building and properties used by our International Businesses and the international operations of PGIM, which are discussed below, as of December 31, 2023, we conduct our business and home office functions in both owned and leased locations throughout the United States.
For PGIM’s international operations, as of December 31, 2022, we lease home offices located in Japan, Taiwan, the United Kingdom, Switzerland, India and Ireland. We also lease principal properties and other branch and field offices in other countries where PGIM conducts business. We believe our properties are adequate and suitable for our business as currently conducted and are adequately maintained.
For PGIM’s international operations, as of December 31, 2023, we lease home offices located in Japan, Taiwan, the United Kingdom, Switzerland, India and Ireland. We also lease principal properties and other branch and field offices in other countries where PGIM conducts business. We believe our properties are adequate and suitable for our business as currently conducted and are adequately maintained.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities (c) The following table provides information about purchases by the Company during the three months ended December 31, 2022, of its Common Stock: Period Total Number of Shares Purchased(1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased under the Program October 1, 2022 through October 31, 2022 1,309,560 $ 95.95 1,302,833 November 1, 2022 through November 30, 2022 1,178,286 $ 106.32 1,175,686 December 1, 2022 through December 31, 2022 1,237,783 $ 101.25 1,234,426 Total 3,725,629 $ 100.99 3,712,945 $ 0 __________ (1) Includes shares of Common Stock withheld from participants for income tax withholding purposes whose shares of restricted stock units vested during the period.
Biggest changeIssuer Purchases of Equity Securities (c) The following table provides information about purchases by the Company during the three months ended December 31, 2023, of its Common Stock: Period Total Number of Shares Purchased(1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet Be Purchased under the Program October 1, 2023 through October 31, 2023 913,505 $ 92.35 902,146 November 1, 2023 through November 30, 2023 893,291 $ 93.75 889,728 December 1, 2023 through December 31, 2023 828,114 $ 101.72 818,899 Total 2,634,910 2,610,773 $ 0 __________ (1) Includes shares of Common Stock withheld from participants for income tax withholding purposes whose shares of restricted stock units vested during the period.
Such restricted stock units were originally issued to participants pursuant to the Prudential Financial Inc. Omnibus Incentive Plan. On February 7, 2023, Prudential Financial’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $1.0 billion of its outstanding Common Stock during the period from January 1, 2023 through December 31, 2023.
Such restricted stock units were originally issued to participants pursuant to the Prudential Financial Inc. Omnibus Incentive Plan. On December 11, 2023, Prudential Financial’s Board of Directors authorized the Company to repurchase, at management’s discretion, up to $1.0 billion of its outstanding Common Stock during the period from January 1, 2024 through December 31, 2024.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES General Prudential Financial’s Common Stock trades on the New York Stock Exchange under the symbol “PRU.” On January 31, 2023, there were 1,096,339 registered holders of record for the Common Stock and 366 million shares outstanding.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES General Prudential Financial’s Common Stock trades on the New York Stock Exchange under the symbol “PRU.” On January 31, 2024, there were 1,057,537 registered holders of record for the Common Stock and 359 million shares outstanding.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

492 edited+188 added−219 removed261 unchanged
Biggest changeGAAP and as such do not include certain interest-related items, such as settlements of duration management swaps which are included in “Realized investment gains (losses), net.” 106 Table of Conten t s Year Ended December 31, 2022 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5) Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount ($ in millions) Fixed maturities(2) 4.56 % $ 7,036 2.75 % $ 3,831 3.71 % $ 10,867 $ 1,375 $ 12,242 Assets supporting experience-rated contractholder liabilities 1.68 123 1.01 30 1.49 153 0 153 Equity securities 1.95 56 3.59 67 2.59 123 37 160 Commercial mortgage and other loans 3.67 1,164 3.67 686 3.67 1,850 322 2,172 Policy loans 4.94 184 3.90 99 4.52 283 216 499 Short-term investments and cash equivalents 2.70 340 3.75 31 2.75 371 24 395 Gross investment income 4.19 8,903 2.86 4,744 3.61 13,647 1,974 15,621 Investment expenses (0.13) (350) (0.13) (281) (0.13) (631) (155) (786) Investment income after investment expenses 4.06 % 8,553 2.73 % 4,463 3.48 % 13,016 1,819 14,835 Other invested assets(3) 744 208 952 157 1,109 Investment results of other entities and operations(4) 93 0 93 0 93 Total investment income $ 9,390 $ 4,671 $ 14,061 $ 1,976 $ 16,037 107 Table of Conten t s Year Ended December 31, 2021 PFI Excluding Closed Block Division and Japanese Operations(6) Japanese Insurance Operations PFI Excluding Closed Block Division(6) Closed Block Division Total(5) Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount ($ in millions) Fixed maturities(2) 4.68 % $ 7,084 2.72 % $ 3,921 3.72 % $ 11,005 $ 1,461 $ 12,466 Assets supporting experience-rated contractholder liabilities 3.48 561 0.93 30 3.05 591 0 591 Equity securities 1.44 42 3.52 76 2.32 118 44 162 Commercial mortgage and other loans 4.16 1,401 3.92 768 4.07 2,169 367 2,536 Policy loans 5.09 196 4.05 114 4.65 310 222 532 Short-term investments and cash equivalents 0.48 55 0.48 4 0.48 59 3 62 Gross investment income 4.26 9,339 2.85 4,913 3.63 14,252 2,097 16,349 Investment expenses (0.14) (254) (0.14) (241) (0.14) (495) (124) (619) Investment income after investment expenses 4.12 % 9,085 2.71 % 4,672 3.49 % 13,757 1,973 15,730 Other invested assets(3) 1,413 457 1,870 527 2,397 Investment results of other entities and operations(4) 160 0 160 0 160 Total investment income $ 10,658 $ 5,129 $ 15,787 $ 2,500 $ 18,287 Year Ended December 31, 2020 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5) Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount ($ in millions) Fixed maturities(2) 4.59 % $ 7,416 2.78 % $ 3,875 3.75 % $ 11,291 $ 1,566 $ 12,857 Assets supporting experience-rated contractholder liabilities 3.22 637 1.88 52 3.06 689 0 689 Equity securities 2.01 48 3.62 72 2.74 120 42 162 Commercial mortgage and other loans 3.95 1,377 2.89 731 3.91 2,108 358 2,466 Policy loans 5.31 238 3.23 98 4.47 336 247 583 Short-term investments and cash equivalents 0.83 171 0.86 14 0.83 185 6 191 Gross investment income 4.06 9,887 2.89 4,842 3.58 14,729 2,219 16,948 Investment expenses (0.12) (272) (0.14) (245) (0.13) (517) (136) (653) Investment income after investment expenses 3.94 % 9,615 2.75 % 4,597 3.45 % 14,212 2,083 16,295 Other invested assets(3) 413 245 658 157 815 Investment results of other entities and operations(4) 300 0 300 0 300 Total investment income $ 10,328 $ 4,842 $ 15,170 $ 2,240 $ 17,410 __________ (1) The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance.
Biggest changeGAAP and as such do not include certain interest-related items, such as settlements of duration management swaps which are included in “Realized investment gains (losses), net.” 103 Table of Contents Year Ended December 31, 2023 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5) Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount ($ in millions) Fixed maturities(2) 5.18 % $ 8,218 2.92 % $ 4,004 4.13 % $ 12,222 $ 1,489 $ 13,711 Assets supporting experience-rated contractholder liabilities 0.00 0 1.13 25 1.13 25 0 25 Equity securities 2.82 95 3.61 61 3.09 156 41 197 Commercial mortgage and other loans 4.19 1,299 3.70 649 4.01 1,948 322 2,270 Policy loans 5.07 191 3.88 99 4.59 290 209 499 Short-term investments and cash equivalents 5.54 748 3.72 94 5.34 842 55 897 Gross investment income 5.01 10,551 3.03 4,932 4.15 15,483 2,116 17,599 Investment expenses (0.13) (528) (0.13) (318) (0.13) (846) (254) (1,100) Investment income after investment expenses 4.88 % 10,023 2.90 % 4,614 4.02 % 14,637 1,862 16,499 Other invested assets(3) 707 306 1,013 97 1,110 Investment results of other entities and operations(4) 256 0 256 0 256 Total investment income $ 10,986 $ 4,920 $ 15,906 $ 1,959 $ 17,865 Year Ended December 31, 2022 PFI Excluding Closed Block Division and Japanese Operations Japanese Insurance Operations PFI Excluding Closed Block Division Closed Block Division Total(5) Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount ($ in millions) Fixed maturities(2) 4.56 % $ 7,036 2.75 % $ 3,831 3.71 % $ 10,867 $ 1,375 $ 12,242 Assets supporting experience-rated contractholder liabilities 1.68 123 1.01 30 1.49 153 0 153 Equity securities 1.95 56 3.59 67 2.59 123 37 160 Commercial mortgage and other loans 3.67 1,164 3.67 686 3.67 1,850 322 2,172 Policy loans 4.94 184 3.90 99 4.52 283 216 499 Short-term investments and cash equivalents 2.70 340 3.75 31 2.75 371 24 395 Gross investment income 4.19 8,903 2.86 4,744 3.61 13,647 1,974 15,621 Investment expenses (0.13) (350) (0.13) (281) (0.13) (631) (155) (786) Investment income after investment expenses 4.06 % 8,553 2.73 % 4,463 3.48 % 13,016 1,819 14,835 Other invested assets(3) 744 208 952 157 1,109 Investment results of other entities and operations(4) 93 0 93 0 93 Total investment income $ 9,390 $ 4,671 $ 14,061 $ 1,976 $ 16,037 104 Table of Contents Year Ended December 31, 2021 PFI Excluding Closed Block Division and Japanese Operations(6) Japanese Insurance Operations PFI Excluding Closed Block Division(6) Closed Block Division Total(5) Yield(1) Amount Yield(1) Amount Yield(1) Amount Amount Amount ($ in millions) Fixed maturities(2) 4.68 % $ 7,084 2.72 % $ 3,921 3.72 % $ 11,005 $ 1,461 $ 12,466 Assets supporting experience-rated contractholder liabilities 3.48 561 0.93 30 3.05 591 0 591 Equity securities 1.44 42 3.52 76 2.32 118 44 162 Commercial mortgage and other loans 4.16 1,401 3.92 768 4.07 2,169 367 2,536 Policy loans 5.09 196 4.05 114 4.65 310 222 532 Short-term investments and cash equivalents 0.48 55 0.48 4 0.48 59 3 62 Gross investment income 4.26 9,339 2.85 4,913 3.63 14,252 2,097 16,349 Investment expenses (0.14) (254) (0.14) (241) (0.14) (495) (124) (619) Investment income after investment expenses 4.12 % 9,085 2.71 % 4,672 3.49 % 13,757 1,973 15,730 Other invested assets(3) 1,413 457 1,870 527 2,397 Investment results of other entities and operations(4) 160 0 160 0 160 Total investment income $ 10,658 $ 5,129 $ 15,787 $ 2,500 $ 18,287 __________ (1) The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance.
We expect account values, fee income, and spread income to be impacted by volatile market conditions. • Group Insurance. We are a leading group benefits provider with a focus on further diversifying our portfolio by expanding our Premier and Association segments and growing voluntary supplemental health, while maintaining leadership in the National segment. • Individual Life.
We expect account values, fee income, and spread income to be impacted by volatile market conditions. • Group Insurance. We are a leading group benefits provider with a focus on further diversifying our portfolio by expanding our Premier Market and Association segments and growing voluntary supplemental health, while maintaining leadership in the National Market segment. • Individual Life.
These strategies seek to match the characteristics of our products, and to closely approximate the interest rate sensitivity of the assets with the estimated interest rate sensitivity of the product liabilities. Our asset/liability management program also helps manage duration gaps, currency and other risks between assets and liabilities through the use of derivatives.
These strategies seek to match the liability characteristics of our products, and to closely approximate the interest rate sensitivity of the assets with the estimated interest rate sensitivity of the product liabilities. Our asset/liability management program also helps manage duration gaps, currency and other risks between assets and liabilities through the use of derivatives.
Policyholders’ Account Balances The policyholders’ account balances liability represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability is primarily associated with the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balance, as applicable.
Policyholders’ Account Balances Policyholders’ account balances liability represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability is primarily associated with the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balance, as applicable.
“Multi-asset” includes funds or products that invest in more than one asset class, balancing equity and fixed income funds and target date funds. (2) Primarily includes assets related to certain annuity, variable life, retirement and group life products in our U.S. Businesses and Corporate & Other operations, and certain general account assets in our International Businesses.
“Multi-asset” includes funds or products that invest in more than one asset class, balancing equity and fixed income funds and target date funds. (2) Primarily includes assets related to certain annuity, variable life, retirement and group life products in our U.S. Businesses and Corporate and Other operations, and certain general account assets in our International Businesses.
(2) Primarily includes assets related to certain annuity, variable life, retirement and group life products in our U.S. Businesses and Corporate & Other operations, and certain general account assets in our International Businesses.
(2) Primarily includes assets related to certain annuity, variable life, retirement and group life products in our U.S. Businesses and Corporate and Other operations, and certain general account assets in our International Businesses.
The increase in Institutional Retirement Strategies account values reflects net additions primarily driven by significant pension risk transfer transactions, including funded pension risk transfer and international reinsurance sales, and interest credited on customer funds, partially offset by the decline in the market value of account assets and the negative impact of foreign exchange rate changes. Individual Retirement Strategies.
The increase in Institutional Retirement Strategies net account values reflects net additions primarily driven by significant pension risk transfer transactions, including funded pension risk transfer and international reinsurance sales, and interest credited on customer funds, partially offset by the decline in the market value of account assets and the negative impact of foreign exchange rate changes. Individual Retirement Strategies.
As of December 31, 2022, our Japanese insurance operations had $77.5 billion, at carrying value, of investments denominated in U.S. dollars, including $1.5 billion that were hedged to yen through third-party derivative contracts and $67.4 billion that support liabilities denominated in U.S. dollars, with the remainder constituting part of the hedging of foreign currency exchange rate exposure to U.S. dollar-equivalent equity.
As of December 31, 2022, our Japanese insurance operations had $77.5 billion, at carrying value, of investments denominated in U.S. dollars, including $1.5 billion that were hedged to yen through third-party derivative contracts and $67.4 billion that support liabilities denominated in U.S. dollars, with the remainder constituting part of the hedging of foreign currency exchange rate exposure of U.S. dollar-equivalent equity.
The credit quality ratings of the investments of our Japanese insurance companies are based on ratings assigned by nationally recognized credit rating agencies, including Moody’s and S&P, or rating equivalents based on ratings assigned by Japanese credit ratings agencies.
The credit quality ratings of the investments of our Japanese insurance companies are based on ratings assigned by nationally recognized credit rating agencies, including Moody’s and S&P, or rating equivalents based on ratings assigned by Japanese credit rating agencies.
In managing the liquidity of our domestic insurance operations, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions when selecting assets to support these contractual obligations. We use surrender charges and other contract provisions to mitigate the extent, timing and profitability impact of withdrawals of funds by customers.
Domestic insurance operations. In managing the liquidity of our domestic insurance operations, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions when selecting assets to support these contractual obligations. We use surrender charges and other contract provisions to mitigate the extent, timing and profitability impact of withdrawals of funds by customers.
Ltd NR A+ NR NR Credit Ratings: Prudential Financial, Inc.: Short-term borrowings AMB-1 A-1 P-2 F1 Long-term senior debt a- A A3 A- Junior subordinated long-term debt bbb BBB+ Baa1 BBB The Prudential Insurance Company of America: Capital and surplus notes a A A2 A Prudential Funding, LLC: Short-term debt AMB-1 A-1+ P-1 F1+ Long-term senior debt a+ AA- A1 A+ PRICOA Global Funding I: Long-term senior debt aa- AA- Aa3 AA- __________ * “NR” indicates not rated.
Ltd NR A+ NR NR Credit Ratings: Prudential Financial, Inc.: Short-term borrowings AMB-1 A-1 P-2 F1 Long-term senior debt a- A A3 A- Junior subordinated long-term debt bbb BBB+ Baa1 BBB The Prudential Insurance Company of America: Capital and surplus notes a A A2 A Prudential Funding, LLC: Short-term debt AMB-1 A-1+ P-1 F1+ Long-term senior debt a+ AA- A1 NR PRICOA Global Funding I: Long-term senior debt aa- AA- Aa3 AA- __________ * “NR” indicates not rated.
The Finance Committee oversees our capital plan and receives regular updates on the sources and uses of capital relative to plan, as well as on our Risk Appetite Framework; • Investment Committee: investment risk, market risk, and review of investment performance and risk positions.
The Finance Committee oversees our capital plan and receives regular updates on the sources and uses of capital relative to plan, as well as on our Risk Appetite Framework; and • Investment Committee: investment risk, market risk, and review of investment performance and risk positions.
For a particular company, an outlook generally indicates a medium- or long-term trend (generally six months to two years) in credit fundamentals, which if continued, may lead to a rating change. These indicators are not necessarily a precursor of a rating change nor do they preclude a rating agency from changing a rating at any time without notice. A.M.
For a particular company, an outlook generally indicates a medium- or long-term trend (generally six months to two years) in credit fundamentals which, if continued, may lead to a rating change. These indicators are not necessarily a precursor of a rating change nor do they preclude a rating agency from changing a rating at any time without notice.
Our strategy is to maintain and strengthen our position in Japan while expanding our footprint in select high-growth emerging markets. We believe our needs-based selling and death protection focus are even more valuable to consumers based on the global experience of COVID-19 and will help support the continued long-term growth of our businesses.
Our strategy is to strengthen our position in Japan while expanding our footprint in select high-growth emerging markets. We believe our needs-based selling and death protection focus are even more valuable to consumers based on the global experience of COVID-19 and will help support the continued long-term growth of our businesses.
At the target accrual date (i.e., date of peak deficiency), the PFL liability transitions to a premium deficiency reserve and, for universal life products, will continue to be updated each quarter using current in-force and market data and as part of the annual assumption update.
At the target accrual date (i.e., date of peak deficiency), the PFL liability transitions to a premium deficiency reserve and, for universal life type products, will continue to be updated each quarter using current in-force and market data and as part of the annual assumption update.
Operating Results The results of our International Businesses’ operations are translated on the basis of weighted average monthly exchange rates, inclusive of the effects of the intercompany arrangement discussed in “—Results of Operations—Impact of Foreign Currency Exchange Rates” above.
International Businesses Operating Results The results of our International Businesses’ operations are translated on the basis of weighted average monthly exchange rates, inclusive of the effects of the intercompany arrangement discussed in “—Results of Operations—Impact of Foreign Currency Exchange Rates” above.
In general, the committees oversee the following risks: • Audit Committee: insurance risk and operational risk, including model risk, as well as risks related to financial controls, legal, regulatory, cyber security and compliance risk; • Compensation Committee: the design and operation of the Company’s compensation programs so that they do not encourage unnecessary or excessive risk-taking; • Corporate Governance and Business Ethics Committee: the Company’s overall ethical culture, political contributions, lobbying expenses and overall political strategy, as well as the Company’s environmental risk (which includes climate risk), sustainability and corporate social responsibility to minimize reputational risk and focus on future sustainability; • Finance Committee: liquidity risk and risk involving our capital and liquidity management, the incurrence and repayment of borrowings, the capital structure of the Company, funding of benefit plans and statutory insurance reserves.
In general, the committees oversee the following risks: • Audit Committee: insurance risk and operational risk, including model risk, as well as risks related to financial controls, legal, regulatory, cyber security and compliance risk; 136 Table of Contents • Compensation Committee: the design and operation of the Company’s compensation programs so that they do not encourage unnecessary or excessive risk-taking; • Corporate Governance and Business Ethics Committee: the Company’s overall ethical culture, political contributions, lobbying expenses and overall political strategy, as well as the Company’s environmental risk (which includes climate risk), sustainability and corporate social responsibility to minimize reputational risk and focus on future sustainability; • Finance Committee: liquidity risk and risk involving our capital and liquidity management, the incurrence and repayment of borrowings, the capital structure of the Company, funding of benefit plans and statutory insurance reserves.
The table below presents, for the periods indicated, the increase (decrease) to revenues and adjusted operating income for the International Businesses, PGIM and Corporate and Other operations, reflecting the impact of these intercompany arrangements.
The table below presents, for the periods indicated, the increase (decrease) to revenues and adjusted operating income for our International Businesses, PGIM and Corporate and Other operations, reflecting the impact of these intercompany arrangements.
Given the amount of plan assets as of December 31, 2021, the beginning of the measurement year, if we had assumed an expected rate of return for both our domestic pension and other domestic postretirement benefit plans that was 100 bps higher or 100 bps lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below.
Given the amount of plan assets as of December 31, 2022, the beginning of the measurement year, if we had assumed an expected rate of return for both our domestic pension and other domestic postretirement benefit plans that was 100 bps higher or 100 bps lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below.
In order to manage, to the extent possible, the impact that the current interest rate environment has on our net investment spread, our Japanese operations employ a proactive asset/liability management program. We continue to purchase long-term bonds with tenors of 30 years or greater. We also regularly examine our product offerings and their profitability.
In order to manage, to the extent possible, the impact that the current interest rate environment has on our net investment spread, our Japanese operations employ a proactive asset/liability management program. We continue to purchase long-term bonds with tenors of 10 years or greater. We also regularly examine our product offerings and their profitability.
As of December 31, 2022, the average duration of our international general account portfolios attributable to our Japanese insurance operations, including the impact of derivatives, was between 11 and 12 years and represented a blend of yen-denominated and U.S. dollar and Australian dollar-denominated investments, which have distinct average durations supporting the insurance liabilities we have issued in those currencies.
As of December 31, 2023, the average duration of our international general account portfolios attributable to our Japanese insurance operations, including the impact of derivatives, was between 11 and 12 years and represented a blend of yen-denominated and U.S. dollar and Australian dollar-denominated investments, which have distinct average durations supporting the insurance liabilities we have issued in those currencies.
Excluding this item, adjusted operating income increased $443 million, primarily reflecting higher underwriting results in our group life business, driven by a decline in COVID-19 impacts on non-experience-rated contracts, and higher underwriting results in our group disability business driven by more favorable claims experience and a favorable impact to reserves from higher interest rates on long-term disability contracts, as well as business growth.
Excluding this item, adjusted operating income increased $441 million, primarily reflecting higher underwriting results in our group life business, driven by a decline in COVID-19 impacts on non-experience-rated contracts, and higher underwriting results in our group disability business driven by more favorable claims experience and a favorable impact to reserves from higher interest rates on long-term disability contracts, as well as business growth.
See Note 22 to the Consolidated Financial Statements for additional information regarding the presentation of segment results and our definition of adjusted operating income. Annualized New Business Premiums. In managing our Individual Life, Group Insurance and International Businesses segments, we analyze annualized new business premiums, which do not correspond to revenues under U.S. GAAP.
See Note 23 to the Consolidated Financial Statements for additional information regarding the presentation of segment results and our definition of adjusted operating income. Annualized New Business Premiums. In managing our Individual Life, Group Insurance and International Businesses segments, we analyze annualized new business premiums, which do not correspond to revenues under U.S. GAAP.
Although the accounting guidance provides for an optional qualitative assessment for testing goodwill impairment, the Company performed the quantitative test for all reporting units and compared each reporting unit’s estimated fair value to its carrying value as of December 31, 2022. The carrying value represents the capital that the business would require if operating as a standalone entity.
Although the accounting guidance provides for an optional qualitative assessment for testing goodwill impairment, the Company performed the quantitative test for all reporting units and compared each reporting unit’s estimated fair value to its carrying value as of December 31, 2023. The carrying value represents the capital that the business would require if operating as a standalone entity.
Operating debt was $6.1 billion as of December 31, 2022 and 2021, and is utilized for business funding to meet specific purposes, which may include activities associated with our PGIM and Assurance IQ businesses. Operating debt also consists of debt issued to finance specific portfolios of investment assets, the proceeds from which will service the debt.
Operating debt was $6.1 billion as of December 31, 2023 and 2022, and is utilized for business funding to meet specific purposes, which may include activities associated with our PGIM and Assurance IQ businesses. Operating debt also consists of debt issued to finance specific portfolios of investment assets, the proceeds from which will service the debt.
Highly inflationary economy in Argentina Our insurance operations in Argentina, Prudential of Argentina (“POA”), have historically utilized the Argentine peso as the functional currency given it is the currency of the primary economic environment in which the entity operates. During 2018, Argentina experienced a cumulative inflation rate that exceeded 100% over a 3-year period.
Highly inflationary economies Our insurance operations in Argentina, Prudential of Argentina (“POA”), have historically utilized the Argentine peso as the functional currency given it is the currency of the primary economic environment in which the entity operates. During 2018, Argentina experienced a cumulative inflation rate that exceeded 100% over a 3-year period.
For a detailed description of the nature of each significant reconciling item, see Note 16 to the Consolidated Financial Statements. Unrecognized Tax Benefits The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the Internal Revenue Service or other taxing authorities.
For a detailed description of the nature of each significant reconciling item, see Note 17 to the Consolidated Financial Statements. Unrecognized Tax Benefits The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest that relate to tax years still subject to review by the Internal Revenue Service or other taxing authorities.
(2) Includes Prudential Gibraltar Financial Life Insurance Co., Ltd. (“PGFL”), a subsidiary of Gibraltar Life. Although not yet filed, we expect the solvency margin ratio for each of these subsidiaries to be greater than 700% (3.5 times the regulatory required minimums) as of December 31, 2022.
(2) Includes Prudential Gibraltar Financial Life Insurance Co., Ltd. (“PGFL”), a subsidiary of Gibraltar Life. Although not yet filed, we expect the solvency margin ratio for each of these subsidiaries to be greater than 700% (3.5 times the regulatory required minimums) as of December 31, 2023.
The primary focus of the ERC is the critical analysis of significant quantitative and qualitative risks and the appropriateness and alignment to the defined risk appetite of the Company.
The primary focus of the ERC is the critical analysis of significant quantitative and qualitative risks and the appropriateness and alignment of those risks to the defined risk appetite of the Company.
The impacts presented within this table exclude the following: • The impacts of our asset liability management strategy, which seeks to offset the changes in certain of the balances presented within this table and is primarily composed of investments and derivatives. See further below for a discussion of the estimates and assumptions involved with the application of U.S.
The impacts presented within this table exclude the impacts of our asset liability management strategy, which seeks to offset the changes in the balances presented within this table and is primarily composed of investments and derivatives. See further below for a discussion of the estimates and assumptions involved with the application of U.S.
The financial results of PGIM include the impact of an intercompany arrangement with our Corporate and Other operations designed to mitigate the impact of exchange rate changes on PGIM’s U.S. dollar-equivalent earnings. For additional information related to this intercompany arrangement, see “—Results of Operations—Impact of Foreign Currency Exchange Rates,” above.
The financial results of PGIM include the impact of an intercompany arrangement with our Corporate and Other operations designed to mitigate the impact of exchange rate changes on PGIM’s U.S. dollar-equivalent earnings. For additional information regarding this intercompany arrangement, see “—Results of Operations—Impact of Foreign Currency Exchange Rates,” above.
The remaining $2 billion of insurance liabilities and policyholder account balances in these operations relates to participating contracts for which the investment income risk is expected to ultimately accrue to contractholders. The crediting rates for these contracts are periodically adjusted based on the return earned on the related assets.
The remaining $1 billion of insurance liabilities and policyholder account balances in these operations relates to participating contracts for which the investment income risk is expected to ultimately accrue to contractholders. The crediting rates for these contracts are periodically adjusted based on the return earned on the related assets.
For additional information about the valuation techniques and the key estimates and assumptions used in our determination of fair value, see Note 6 to the Consolidated Financial Statements. General Account Investments We maintain diversified investment portfolios in our general account to support our liabilities to customers as well as our other general liabilities.
For additional information regarding the valuation techniques and the key estimates and assumptions used in our determination of fair value, see Note 6 to the Consolidated Financial Statements. General Account Investments We maintain diversified investment portfolios in our general account to support our liabilities to customers as well as our other general liabilities.
Risk Management Overview We employ a risk governance structure, overseen by senior management and our Board and managed by Enterprise Risk Management (“ERM”), to provide a common framework for: evaluating the risks embedded in and across our businesses and corporate centers; developing risk appetites; managing these risks; and identifying current and future risk challenges and opportunities.
Risk Management Overview We employ a risk governance structure, overseen by senior management and our Board and managed by Risk Management, to provide a common framework for: evaluating the risks embedded in and across our businesses and corporate centers; developing risk appetites; managing these risks; and identifying current and future risk challenges and opportunities.
The reserves for future policy benefits of our Corporate & Other operations, which as of December 31, 2022, represented 3% of our total future policy benefit reserves, primarily relate to our long-term care products and are generally calculated using the net premium valuation methodology, as described above.
The reserves for future policy benefits of our Corporate and Other operations, which as of December 31, 2023, represented 3% of our total future policy benefit reserves, primarily relate to our long-term care products and are generally calculated using the net premium valuation methodology, as described above.
Excluding this item, results decreased $786 million primarily driven by unfavorable impacts from changes in the market value of equity securities, changes in the market value of derivatives used for duration management and lower income on non-coupon investments. Other Divested and Run-off Businesses.
Excluding this item, results decreased $819 million primarily driven by unfavorable impacts from changes in the market value of equity securities, changes in the market value of derivatives used for duration management and lower income on non-coupon investments. Other Divested and Run-off Businesses.
See Note 15 to the Consolidated Financial Statements for additional information regarding the Closed Block. Fixed Maturity Securities In the following sections, we provide details about our fixed maturity securities portfolio, which excludes fixed maturity securities classified as assets supporting experienced-rated contractholder liabilities and classified as trading.
See Note 16 to the Consolidated Financial Statements for additional information regarding the Closed Block. Fixed Maturity Securities In the following sections, we provide details about our fixed maturity securities portfolio, which excludes fixed maturity securities classified as assets supporting experienced-rated contractholder liabilities and classified as trading.
Segment Measures Adjusted Operating Income. In managing our business, we analyze our segments’ operating performance using “adjusted operating income.” Adjusted operating income does not equate to “Income (loss) before income taxes and equity in earnings of operating joint ventures” or “Net income (loss)” as determined in accordance with U.S.
In managing our business, we analyze our segments’ operating performance using “adjusted operating income.” Adjusted operating income does not equate to “Income (loss) before income taxes and equity in earnings of operating joint ventures” or “Net income (loss)” as determined in accordance with U.S.
The reserves for future policy benefits of our Group Insurance segment, which as of December 31, 2022, represented 2% of our total future policy benefit reserves, primarily relate to reserves for group life and disability benefits. For short-duration contracts, a liability is established when the claim is incurred.
The reserves for future policy benefits of our Group Insurance segment, which as of December 31, 2023, represented 2% of our total future policy benefit reserves, primarily relate to reserves for group life and disability benefits. For short-duration contracts, a liability is established when the claim is incurred.
Gross account withdrawals for our domestic insurance operations’ products in 2022 were generally consistent with our assumptions in asset/liability management, and the associated cash outflows did not have a material adverse impact on our overall liquidity. International insurance operations.
Gross account withdrawals for our domestic insurance operations’ products in 2023 were generally consistent with our assumptions in asset/liability management, and the associated cash outflows did not have a material adverse impact on our overall liquidity. International insurance operations.
For the derivative portion of the ALM strategy, the net hedging impact (the extent to which the changes in value of the hedging instruments offset the change in value of the portion of the economic liability we are hedging) may be impacted by a number of factors, including: cash flow timing differences between our hedging instruments and the corresponding portion of the economic liability we are hedging, basis differences attributable to actual underlying contractholder funds to be hedged versus hedgeable indices, rebalancing costs related to dynamic rebalancing of hedging instruments as markets move, certain elements of the economic liability that may not be hedged (including certain actuarial assumptions), and implied and realized market volatility on the hedge positions relative to the portion of the economic liability we seek to hedge. iii.
For the derivative portion of the ALM strategy, the net hedging impact (the extent to which the changes in value of the hedging instruments offset the change in value of the portion of the MRBs we are hedging) may be impacted by a number of factors, including: cash flow timing differences between our hedging instruments and the corresponding portion of the MRBs we are hedging, basis differences attributable to actual underlying contractholder funds to be hedged versus hedgeable indices, rebalancing costs related to dynamic rebalancing of hedging instruments as markets move, certain elements of the MRBs that may not be hedged (including certain actuarial assumptions), and implied and realized market volatility on the hedge positions relative to the portion of the MRBs we seek to hedge.
The result of the net premium valuation methodology is that the liability at any point in time represents an accumulation of the portion of premiums received to date expected to be needed to fund future benefits (i.e., net premiums received to date), less any benefits and expenses already paid.
The result of the net premium valuation methodology is that the liability at any point in time represents an accumulation of the portion of premiums received to date expected to fund future benefits (i.e., net premiums received to date), less any benefits and expenses already paid.
The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term.
Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term.
Significant unobservable inputs used in their valuation included: issue specific spread adjustments, material non-public financial information, management judgment, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes from market makers. Separate account assets included in Level 3 in our fair value hierarchy primarily include corporate securities and commercial mortgage loans.
Significant unobservable inputs used in their valuation included: issue specific spread adjustments, material non-public financial information, management judgment, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes 98 Table of Contents from market makers. Separate account assets included in Level 3 in our fair value hierarchy primarily include corporate securities and commercial mortgage loans.
The future policy benefit reserves for the traditional participating life insurance products of the Closed Block division, which as of December 31, 2022, represented 16% of our total future policy benefit reserves are determined using the net premium valuation methodology, as described above.
The future policy benefit reserves for the traditional participating life insurance products of the Closed Block division, which as of December 31, 2023, represented 16% of our total future policy benefit reserves are determined using the net premium valuation methodology, as described above.
(3) Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income. (4) The benefits and administrative ratios are measures used to evaluate profitability and efficiency. Adjusted Operating Income 2022 to 2021 Annual Comparison.
(3) Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income. (4) The benefits and administrative ratios are measures used to evaluate profitability and efficiency. Adjusted Operating Income 2023 to 2022 Annual Comparison.
(2) The $2,080 million of surplus notes represents an intercompany transaction that eliminates upon consolidation. Prudential Financial has agreed to reimburse amounts paid under credit-linked notes issued in this structure up to $1,000 million.
(2) The $1,750 million of surplus notes represents an intercompany transaction that eliminates upon consolidation. Prudential Financial has agreed to reimburse amounts paid under credit-linked notes issued in this structure up to $1,000 million.
In addition, as of December 31, 2022, for purposes of financing Guideline AXXX non-economic reserves, one captive had $3,982 million of surplus notes outstanding that were issued to affiliates. The Company has introduced updated versions of its individual life products in conjunction with the requirement to adopt principle-based reserving by January 1, 2020.
In addition, as of December 31, 2023, for purposes of financing Guideline AXXX non-economic reserves, one captive had $3,982 million of surplus notes outstanding that were issued to affiliates. The Company introduced updated versions of its individual life products in conjunction with the requirement to adopt principle-based reserving by January 1, 2020.
We manage our public fixed maturity portfolio to a risk profile directed or overseen by the CIO Organization and ERM groups and to a profile that also reflects the market environments impacting both our domestic and international insurance portfolios.
We manage our public fixed maturity portfolio to a risk profile directed or overseen by the CIO Organization and Risk Management groups and to a profile that also reflects the market environments impacting both our domestic and international insurance portfolios.
The ability of our PGIM subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely unrestricted from a regulatory standpoint. See Note 19 to the Consolidated Financial Statements for information regarding specific dividend restrictions.
The ability of our PGIM subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely unrestricted from a regulatory standpoint. See Note 20 to the Consolidated Financial Statements for information regarding specific dividend restrictions.
Excluding this item, adjusted operating income increased $741 million primarily driven by the gain on sale of PALAC. Also contributing to the increase were higher net investment spread results, driven by growth in indexed variable annuities and more favorable interest rates, as well as lower expenses and market value gains on a strategic investment.
Excluding this item, adjusted operating income increased $1,156 million primarily driven by the gain on sale of PALAC. Also contributing to the increase were higher net investment spread results, driven by growth in indexed variable annuities and more favorable interest rates, as well as lower expenses and market value gains on a strategic investment.
Additions and withdrawals of these assets are attributable to third-party product inflows and outflows in other reporting segments. (2) Includes income reinvestment, where applicable. (3) Results for the year ended December 31, 2022 include a reduction in assets under management from the sales of the Full Service Retirement business and PALAC.
Additions and withdrawals of these assets are attributable to third-party product inflows and outflows in other reporting segments. (2) Includes income reinvestment, where applicable. (3) Results for the year ended December 31, 2022 include a reduction in assets under management from the sales of the Full Service Retirement business and PALAC. 2023 to 2022 Annual Comparison.
Liquidity associated with other activities Hedging activities associated with Individual Retirement Strategies For the portion of our Individual Retirement Strategies’ ALM strategy executed through hedging, as well as the capital hedge program, we enter into a range of exchange-traded, cleared and other OTC equity and interest rate derivatives in order to hedge certain capital market risks related to more severe market conditions.
Liquidity associated with other activities Hedging activities associated with Individual Retirement Strategies For the portion of our Individual Retirement Strategies’ ALM strategy executed through hedging, we enter into a range of exchange-traded, cleared and other OTC equity and interest rate derivatives in order to hedge certain capital market risks related to more severe market conditions.
We believe we are well-positioned to tap into market opportunities to meet the evolving needs of individual customers, workplace clients, and society at large. Our mix of high-quality protection, retirement and investment management businesses enables us to offer solutions that cover a broad range of financial needs and to engage with our clients through multiple channels.
We believe we are well-positioned to tap into market opportunities to meet the evolving needs of our clients and society at large. Our mix of high-quality protection, retirement and investment management businesses enables us to offer solutions that cover a broad range of financial needs and to engage with our clients through multiple channels.
The primary assumptions used in determining expected future benefits and expenses include mortality, lapse, morbidity, investment yield and maintenance expense assumptions. Reserves also include claims reported but not yet paid, and claims incurred but not yet reported. In addition, future policy benefit reserves for certain contracts also include amounts related to our deferred profit liability, as described above. Retirement Strategies.
The primary assumptions used in determining expected future benefits and expenses include mortality, lapse, morbidity, and investment yield assumptions. Reserves also include claims reported but not yet paid, and claims incurred but not yet reported. In addition, future policy benefit reserves for certain contracts also include amounts related to our deferred profit liability, as described above. Institutional Retirement Strategies.
Dividends in excess of these amounts and other forms of capital distribution require the prior approval of the FSA. The regulatory fiscal year end for both Prudential of Japan and Gibraltar Life is March 31, 2023, after which time the Common Stock dividend amount permitted to be paid without prior approval from the FSA can be determined.
Dividends in excess of these amounts and other forms of capital distribution may require the prior approval of the FSA. The regulatory fiscal year end for both Prudential of Japan and Gibraltar Life is March 31, 2024, after which time the Common Stock dividend amount permitted to be paid without prior approval from the FSA can be determined.
For a full discussion of our Individual Retirement Strategies’ risk management strategy, see “—Results of Operations by Segment—U.S. Businesses—Retirement Strategies.” This portion of our Individual Retirement Strategies’ ALM strategy and capital hedge program requires access to liquidity to meet payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations.
For a full discussion of our Individual Retirement Strategies’ risk management strategy, see “—Results of Operations by Segment—U.S. Businesses—Retirement Strategies.” This portion of our Individual Retirement Strategies’ ALM strategy requires access to liquidity to meet payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations.
Excluding this item, adjusted operating income decreased $651 million, driven by lower net investment spread results, primarily reflecting lower income on non-coupon investments, partially offset by higher reinvestment rates and business growth.
Excluding this item, adjusted operating income decreased $595 million, driven by lower net investment spread results, primarily reflecting lower income on non-coupon investments, partially offset by higher reinvestment rates and business growth.
Pension and employee benefits were favorable by $103 million, driven by higher earnings from our pension and post-retirement plans resulting from higher returns on plan assets, lower benefit costs for these plans resulting from the sale of the Full Service Retirement business, and a favorable impact from design changes to the Company’s Retiree Medical Savings Account plan.
Pension and employee benefits were favorable by $103 million , driven by higher earnings from our pension and post-retirement plans resulting from higher returns on plan assets, lower benefit costs for these plans resulting from the sale of the Full Service Retirement business, and a favorable impact from design changes to the Company’s Retiree Medical 93 Table of Contents Savings Account plan.
The impact of these actions, coupled with the introduction of certain new products, has generally resulted in an increase in sales of products denominated in USD relative to products denominated in other currencies. 2022 to 2021 Annual Comparison.
The impact of these actions, coupled with the introduction of certain new products, has generally resulted in an increase in sales of products denominated in USD relative to products denominated in other currencies. 2023 to 2022 Annual Comparison.
As of December 31, 2022, the average duration of our domestic general account investment portfolios attributable to PFI excluding the Closed Block division, including the impact of derivatives, was approximately 7 years.
As of December 31, 2023, the average duration of our domestic general account investment portfolios attributable to PFI excluding the Closed Block division, including the impact of derivatives, was approximately 7 years.
At December 31, 2022, the sensitivity of our domestic and foreign pension and postretirement obligations to a 100 basis point change in discount rate was as follows.
At December 31, 2023, the sensitivity of our domestic and foreign pension and postretirement obligations to a 100 basis point change in discount rate was as follows.
Given the amount of pension and postretirement obligations as of December 31, 2021, the beginning of the measurement year, if we had assumed a discount rate for both our domestic pension and other postretirement benefit plans that was 100 bps higher or 100 bps lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below.
Given the amount of pension and postretirement obligations as of December 31, 2022, the beginning of the measurement 68 Table of Contents year, if we had assumed a discount rate for both our domestic pension and other postretirement benefit plans that was 100 bps higher or 100 bps lower than the rates we assumed, the change in our net periodic costs would have been as shown in the table below.
Level 3 fixed maturity securities for PFI excluding the Closed Block division included approximately $1.1 billion of public fixed maturities as of December 31, 2022 with values primarily based on indicative broker quotes, and approximately $3.5 billion of private fixed maturities, with values primarily based on internally-developed models.
Level 3 fixed maturity securities for PFI excluding the Closed Block division included approximately $1.1 billion of public fixed maturities as of December 31, 2023, with values primarily based on indicative broker quotes, and approximately $4.5 billion of private fixed maturities, with values primarily based on internally-developed models.
For additional information regarding these sources of liquidity, see Note 17 to the Consolidated Financial Statements. Asset-based Financing We conduct asset-based or secured financing within our insurance and other subsidiaries, including transactions such as securities lending, repurchase agreements and mortgage dollar rolls, to earn spread income, to borrow funds, or to facilitate trading activity.
For additional information regarding these sources of liquidity, see Note 18 to the Consolidated Financial Statements. Asset-based Financing We conduct asset-based or secured financing within our insurance and other subsidiaries, including transactions such as securities lending, committed and uncommitted repurchase agreements and mortgage dollar rolls, to earn spread income, to borrow funds, or to facilitate trading activity.
While this changed how the results of POA are remeasured and/or translated into USD, the impact to our financial statements was not material nor is it expected to be material in future periods given the relative size of our POA operations.
While this changed how the results of POA are remeasured and/or translated into USD, the impact to our financial statements was not material nor 61 Table of Contents is it expected to be material in future periods given the relative size of our POA operations.
We continue to monitor current market conditions and the impact to our businesses from slowing or negative economic growth. In addition, we are subject to financial impacts associated with movements in equity markets and the evolution of the credit cycle as discussed in “—Segment Results of Operations”, where applicable, and more broadly in “Item 1A. Risk Factors”. • International Businesses.
We continue to monitor current market conditions and the impact to our businesses from slowing or negative economic growth. In addition, we are subject to financial impacts associated with movements in equity markets and the evolution of the credit cycle as discussed in “—Segment Results of Operations,” where applicable, and more broadly in “Item 1A. Risk Factors.” • International Businesses.
With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, DSI and VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and domestic and international variable life insurance products is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice.
With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating liabilities for future policy benefits for certain of our products, primarily our domestic and international variable life insurance products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice.
Alternative Sources of Liquidity In addition to asset-based financing as discussed below, Prudential Financial and certain subsidiaries have access to other sources of liquidity, including syndicated, unsecured committed credit facilities, membership in the Federal Home Loan Bank of New York, commercial paper programs, and contingent financing facilities in the form of a put option agreement and facility agreement.
Alternative Sources of Liquidity In addition to asset-based financing as discussed below, Prudential Financial and certain subsidiaries have access to other sources of liquidity, including syndicated, unsecured committed credit facilities, membership in the Federal Home Loan Bank of New York, commercial paper programs, and contingent financing facilities in the form of a put option agreement and facility 130 Table of Contents agreements.
For additional information regarding the key estimates and assumptions surrounding the determination of fair value of fixed maturity and equity securities, as well as derivative instruments, embedded derivatives and other investments, see Note 6 to the Consolidated Financial Statements and “—Valuation of Assets and Liabilities—Fair Value of Assets and Liabilities.” 73 Table of Conten t s For our investments classified as available-for-sale, the impact of changes in fair value is recorded as an unrealized gain or loss in AOCI, a separate component of equity.
For additional information regarding the key estimates and assumptions surrounding the determination of fair value of fixed maturity and equity securities, as well as derivative instruments, embedded derivatives and other investments, see Note 6 to the Consolidated Financial Statements and “—Valuation of Assets and Liabilities—Fair Value of Assets and Liabilities.” For our investments classified as available-for-sale, the impact of changes in fair value is recorded as an unrealized gain or loss in AOCI, a separate component of equity.
For the portion of the general account attributable to these operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately 7.7% of the fixed maturity security and commercial mortgage loan portfolios through 2024.
For this portion of the general account attributable to these operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately 7.7% of the fixed maturity security and commercial mortgage loan portfolios through 2025.
In general, the timing and amount of share repurchases are determined by management based on market conditions and other considerations, including any increased capital needs of our businesses due to, among other things, credit migration and losses in our investment portfolio, changes in regulatory capital requirements and opportunities for growth and acquisitions.
In general, the timing and amount of share repurchases are determined by management based on market conditions and other considerations, including compliance with applicable laws and any increased capital needs of our businesses due to, among other things, credit migration and losses in our investment portfolio, changes in regulatory capital requirements and opportunities for growth and acquisitions.
As discussed further under “—Impact of Changes in the Interest Rate Environment” below, interest rates in the U.S. have experienced a sustained period of historically low levels, followed by a sharp rise in 2022. We expect that a continued level of higher interest rates will benefit our results over time.
As discussed further under “—Impact of Changes in the Interest Rate Environment” below, interest rates in the U.S. experienced a prolonged period of historically low levels, followed by a sharp rise in 2022 and sustained higher levels in 2023. We expect that a continued level of higher interest rates will benefit our results over time.
Year ended December 31, 2022 2021 2020 (in millions) Segment impacts of intercompany arrangements: International Businesses $ (57) $ 15 $ 64 PGIM 11 (1) (4) Impact of intercompany arrangements(1) (46) 14 60 Corporate and Other: Impact of intercompany arrangements(1) 46 (14) (60) Settlement gains (losses) on forward currency contracts(2) 21 33 67 Net benefit (detriment) to Corporate and Other 67 19 7 Net impact on consolidated revenues and adjusted operating income $ 21 $ 33 $ 67 __________ (1) Represents the difference between non-USD-denominated earnings translated on the basis of weighted average monthly currency exchange rates versus fixed currency exchange rates determined in connection with the foreign currency income hedging program.
Year Ended December 31, 2023 2022 2021 (in millions) Segment impacts of intercompany arrangements: International Businesses $ (28) $ (57) $ 15 PGIM 1 11 (1) Impact of intercompany arrangements(1) (27) (46) 14 Corporate and Other: Impact of intercompany arrangements(1) 27 46 (14) Settlement gains (losses) on forward currency contracts(2) (31) 21 33 Net benefit (detriment) to Corporate and Other (4) 67 19 Net impact on consolidated revenues and adjusted operating income $ (31) $ 21 $ 33 __________ (1) Represents the difference between non-USD-denominated earnings translated on the basis of weighted average monthly currency exchange rates versus fixed currency exchange rates determined in connection with the foreign currency income hedging program.
The reserving methodologies used include the following: • For most long-duration contracts, we utilize a net premium valuation methodology in measuring the liability for future policy benefits. Under this methodology, a liability for future policy benefits is accrued when premium revenue is recognized.
The reserving methodologies used include the following: • For most long-duration contracts, we utilize a net premium valuation methodology in measuring the liability for future policy benefits. Under this methodology, the Company accrues a liability for future policy benefits when premium revenue is recognized.
Businesses decreased by $996 million primarily due to: • An unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements, primarily reflecting a net charge from these updates in the second quarter of 2022 in our Individual Life business, mainly driven by unfavorable impacts related to assumptions for policyholder behavior and mortality; • Lower net investment spread results driven by lower income on non-coupon investments, partially offset by higher reinvestment rates and business growth; and • Lower fee income, net of distribution expenses and other associated costs, primarily in our Individual Retirement Strategies business due to a reduction in account values as a result of the sale of PALAC and unfavorable equity markets. 80 Table of Conten t s • Partially offsetting these decreases were a gain in our Individual Retirement Strategies business from the sale of PALAC in the second quarter of 2022; and • Higher underwriting results, including lower COVID-19 related mortality claims, in our Group Insurance and Individual Life businesses, as well as more favorable disability results in our Group Insurance business.
Businesses decreased by $956 million primarily due to: • An unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements, primarily reflecting a net charge from these updates in the second quarter of 2022 in our Individual Life business, mainly driven by unfavorable impacts related to assumptions for policyholder behavior and mortality; • Lower net investment spread results driven by lower income on non-coupon investments, partially offset by higher reinvestment rates and business growth; and 75 Table of Contents • Lower fee income, net of distribution expenses and other associated costs, primarily in our Individual Retirement Strategies business due to a reduction in account values as a result of the sale of PALAC in the second quarter of 2022 and unfavorable equity markets. • Partially offsetting these decreases were a gain in our Individual Retirement Strategies business from the sale of PALAC; and • Higher underwriting results, including lower COVID-19 related mortality claims, in our Group Insurance and Individual Life businesses, as well as more favorable disability results in our Group Insurance business, partially offset by the unfavorable ongoing impact from our annual reviews and update of assumptions and other refinements in 2022 in our Individual Life business.
We maintain separate monitoring processes for public and private fixed maturities and create watch lists to highlight securities that require special scrutiny and management. For private placements, our credit and portfolio management processes help ensure prudent controls over valuation and management. We have separate pricing and authorization processes to establish “checks and balances” for new investments.
We maintain separate monitoring processes for public and private fixed maturities and create watch lists to highlight securities that require special scrutiny and management. For private placements, our credit and portfolio management processes help ensure prudent controls over valuation and management. We have separate pricing and authorization processes to establish 108 Table of Contents “checks and balances” for new investments.
Capital redeployment from our international insurance subsidiaries is subject to local regulatory requirements in the international jurisdictions in which they operate. Our most significant international insurance subsidiaries, Prudential of Japan and Gibraltar Life, are permitted to pay Common Stock dividends based on calculations specified by Japanese insurance law, subject to prior notification to the FSA.
Capital redeployment from our international insurance subsidiaries is subject to local regulatory requirements in the international jurisdictions in which they operate. Our most significant international insurance subsidiaries, Prudential of Japan and Gibraltar Life, are permitted to pay Common Stock dividends based on calculations specified by Japanese insurance business law.
Included in the $152 billion of fixed maturity securities and commercial mortgage loans are approximately $16 billion that are subject to call or redem ption features at the issuer’s option and have a weighted average interest rate of approximately 4%. Of this $16 billion , approximately 7% contain provisions for prepayment premiums.
Included in the $154 billion of fixed maturity securities and commercial mortgage loans are approximately $15 billion that are subject to call or redem ption features at the issuer’s option and have a weighted average interest rate of approximately 4%. Of this $15 billion , approximately 7% contain provisions for prepayment premiums.
The reserves for future policy benefits of our International Businesses, which as of December 31, 2022, represented 43% of our total future policy benefit reserves, primarily relate to non-participating whole life and term life products and endowment contracts, and are generally calculated using the net premium valuation methodology, as described above.
The reserves for future policy benefits of our International Businesses, which as of December 31, 2023, represented 42% of our total future policy benefit reserves, primarily relate to non-participating whole life and term life products and endowment contracts, and are generally calculated using the net premium valuation methodology, as described above.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe estimated changes in fair values are inclusive of any assets or liabilities held-for-sale as of December 31, 2021, but do not include separate account assets. 144 Table of Conten t s As of December 31, 2022 As of December 31, 2021 Notional Fair Value Hypothetical Change in Fair Value Notional Fair Value Hypothetical Change in Fair Value (in millions) Financial assets with interest rate risk: Fixed maturities(1) $ 316,070 $ (30,524) $ 415,769 $ (43,547) Commercial mortgage and other loans 52,479 (2,300) 67,998 (3,069) Derivatives with interest rate risk: Swaps $ 268,764 (8,565) (3,631) $ 269,823 (1,748) (5,389) Futures 19,452 (12) (309) 25,122 57 (1,327) Options 49,351 (938) 241 97,101 (187) (209) Forwards 38,899 (581) (185) 38,394 (159) (73) Synthetic GICs 84,338 0 (6) 81,984 1 0 Variable annuity and other living benefit feature embedded derivatives (4,746) 2,357 (13,231) 5,807 Indexed universal life contracts (986) 190 (1,436) 205 Indexed annuity contracts (2,506) (457) (2,041) (344) Total embedded derivatives(2) (8,238) 2,090 (16,708) 5,668 Financial liabilities with interest rate risk(3): Short-term and long-term debt 19,441 3,091 22,648 4,231 Policyholders’ account balances—investment contracts 66,602 1,944 103,064 3,520 Net estimated potential loss $ (29,589) $ (40,195) __________ (1) Includes assets classified as “Fixed maturities, available-for-sale, at fair value,” “Assets supporting experience-rated contractholder liabilities, at fair value” and “Fixed maturities, trading, at fair value.” Approximately $308 billion and $386 billion as of December 31, 2022 and 2021, respectively, of fixed maturities are classified as available-for-sale.
Biggest changeThe estimated changes in fair values do not include separate account assets. 139 Table of Contents As of December 31, 2023 As of December 31, 2022 Notional Fair Value Hypothetical Change in Fair Value Notional Fair Value Hypothetical Change in Fair Value (in millions) Financial assets with interest rate risk: Fixed maturities(1) $ 327,000 $ (31,628) $ 316,070 $ (30,524) Commercial mortgage and other loans 56,171 (2,275) 52,479 (2,300) Derivatives with interest rate risk: Swaps $ 276,414 (11,980) (3,768) $ 268,764 (8,565) (3,631) Futures 11,120 (20) (460) 19,452 (12) (309) Options 85,760 (777) (166) 49,351 (938) 241 Forwards 36,112 (116) (125) 38,899 (581) (185) Synthetic GICs 78,009 0 (9) 84,338 0 (6) Indexed universal life contracts (1,348) 169 (986) 190 Indexed annuity contracts (6,404) (645) (2,506) (457) Total embedded derivatives(2) (7,752) (476) (3,492) (267) Financial liabilities with interest rate risk(3): Short-term and long-term debt 18,886 3,026 19,441 3,091 Policyholders’ account balances—investment contracts 68,883 2,786 66,602 1,944 Insurance liabilities with interest rate risk: Benefit reserves (traditional and limited-payment contracts)(4) 192,302 25,711 182,304 28,942 Market risk benefits(5) 3,486 2,113 5,064 2,440 Net estimated potential loss $ (5,271) $ (564) __________ (1) Includes assets classified as “Fixed maturities, available-for-sale, at fair value,” “Assets supporting experience-rated contractholder liabilities, at fair value” and “Fixed maturities, trading, at fair value.” Approximately $316 billion and $308 billion as of December 31, 2023 and 2022, respectively, of fixed maturities are classified as available-for-sale.
We use asset/liability management and derivative strategies to manage our interest rate exposure by legal entity by matching the relative sensitivity of asset and liability values to interest rate changes, or controlling “duration mismatch” of assets and liability duration targets.
We use asset/liability management and derivative strategies to manage our interest rate exposure by legal entity by matching the relative sensitivity of asset and liability values to interest rate changes, or by controlling the “duration mismatch” of assets and liability duration targets.
Market Risk Related to Certain Variable Annuity Products The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions, such as equity market returns, interest rates and market volatility and actuarial assumptions.
Market Risk Related to Variable Annuity Products The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates, market volatility and actuarial assumptions.
The following table sets forth the net estimated potential loss in fair value from such a change as of December 31, 2022 and 2021. While these scenarios are for illustrative purposes only and do not reflect our expectations regarding future changes in foreign exchange markets, they represent reasonably possible near-term hypothetical changes that illustrate the potential impact of such events.
The following table sets forth the net estimated potential loss in fair value from such a change as of December 31, 2023 and 2022. While these scenarios are for illustrative purposes only and do not reflect our expectations regarding future changes in foreign exchange markets, they represent reasonably possible near-term hypothetical changes that illustrate the potential impact of such events.
(3) Excludes any offsetting impact of derivative instruments purchased to hedge changes in the embedded derivatives. Amounts reported net of third-party reinsurance.
(3) Excludes any offsetting impact of derivative instruments purchased to hedge changes in the embedded derivatives. Amounts reported net of third-party reinsurance. (4) Amounts reported net of third-party reinsurance.
The following table sets forth the net estimated potential loss in fair value on these financial instruments from a hypothetical 100 basis point upward shift as of December 31, 2022 and 2021. This table is presented on a gross basis and excludes offsetting impacts to insurance liabilities that are not considered financial liabilities under U.S GAAP.
The following table sets forth the net estimated potential loss in fair value on these financial instruments from a hypothetical 100 basis point upward shift as of December 31, 2023 and 2022. This table is presented on a gross basis and excludes offsetting impacts to certain insurance liabilities that are not considered financial liabilities under U.S. GAAP.
For an additional discussion of our variable annuity optional living benefit guarantees accounted for as embedded derivatives and related derivatives used to hedge the changes in fair value of these embedded derivatives, see “Market Risk Related to Certain Variable Annuity Products” below.
For an additional discussion of our variable annuity optional living benefit guarantees accounted for as MRBs and related derivatives used to hedge the changes in fair value of these MRBs, see “Market Risk Related to Certain Variable Annuity Products” below.
GAAP, the fair value of the embedded derivatives for certain features associated with variable annuity, indexed universal life, and indexed annuity contracts, reflected in the table above, includes the impact of the market’s perception of our NPR.
GAAP, the fair value of the MRBs and embedded derivatives for certain features associated with indexed universal life and indexed annuity contracts, reflected in the table above, includes the impact of the market’s perception of our NPR.
For additional information regarding our overall risk management framework and governance structure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” above. Market Risk Mitigation Risk mitigation takes three primary forms: • Asset/Liability Management: Managing assets to liability-based measures.
For additional information regarding our overall risk management framework and governance structure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” above. 138 Table of Contents Market Risk Mitigation Risk mitigation takes three primary forms: • Asset/Liability Management: Managing assets to liability-based measures.
For certain of our international insurance operations outside of Japan, we elect to not hedge the risk of changes in our equity investments due to foreign exchange rate movements.
For certain of our international insurance operations outside of Japan, we elect to not hedge the risk of changes in 141 Table of Contents our equity investments due to foreign exchange rate movements.
As of December 31, 2022 As of December 31, 2021 Fair Value Hypothetical Change in Fair Value Fair Value Hypothetical Change in Fair Value (in millions) Unhedged portion of equity investment in international subsidiaries and foreign currency denominated investments in domestic general account portfolio $ 3,797 $ 380 $ 3,375 $ 338 For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—General Account Investments—Portfolio Composition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations by Segment—International Businesses” above.
As of December 31, 2023 As of December 31, 2022 Fair Value Hypothetical Change in Fair Value Fair Value Hypothetical Change in Fair Value (in millions) Unhedged portion of equity investment in international subsidiaries and foreign currency denominated investments in domestic general account portfolio $ 3,808 $ 381 $ 3,797 $ 380 For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—General Account Investments—Portfolio Composition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations by Segment—International Businesses” above.
Additionally, changes in interest rates may impact other items including, but not limited to, the following: • Net investment spread between the amounts that we are required to pay and the rate of return we are able to earn on investments for certain products supported by general account investments; • Asset-based fees earned on assets under management or contractholder account values; • Estimated total gross profits and the amortization of deferred policy acquisition and other costs; • Net exposure to the guarantees provided under certain products; and • Capital levels of our regulated entities.
Additionally, changes in interest rates may impact other items including, but not limited to, the following: • Net investment spread between the amounts that we are required to pay and the rate of return we are able to earn on investments for certain products supported by general account investments; • Asset-based fees earned on assets under management or contractholder account values; • Net exposure to the guarantees provided under certain products; and • Capital levels of our regulated entities.
Market Risk Related to Equity Prices We have exposure to equity risk through asset/liability mismatches, including our investments in equity securities held in our general account investment portfolio and unhedged exposure in our insurance liabilities, principally related to certain variable annuity living benefit feature embedded derivatives.
Market Risk Related to Equity Prices We have exposure to equity risk through asset/liability mismatches, including our investments in equity securities held in our general account investment portfolio and unhedged exposure in our insurance liabilities, principally related to certain variable annuity living benefit feature MRBs. Our equity-based derivatives primarily hedge the equity risk embedded in these living benefit feature MRBs.
For further information, see “Management’s Discussion and 146 Table of Conten t s Analysis of Financial Condition and Results of Operations—Impact of Foreign Currency Exchange Rates—Impact of products denominated in non-local currencies on U.S. GAAP earnings” above.
For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of Foreign Currency Exchange Rates—Impact of products denominated in non-local currencies on U.S. GAAP earnings” above.
We target price sensitivities that approximate those of the benchmark indices. We estimate our equity risk from a hypothetical 10% decline in equity benchmark market levels. The following table sets forth the net estimated potential loss in fair value from such a decline as of December 31, 2022 and 2021.
We estimate our equity risk from a hypothetical 10% decline in equity benchmark market levels. The following table sets forth the net estimated potential loss in fair value from such a decline as of December 31, 2023 and 2022.
We manage equity risk against benchmarks in respective markets. We benchmark our return on equity holdings against a blend of market indices, mainly the S&P 500 and Russell 2000 for U.S. equities. We benchmark foreign equities against the Tokyo Price Index, and the MSCI EAFE, a market index of European, Australian, and Far Eastern equities.
We benchmark our return on equity holdings against a blend of market indices, mainly the S&P 500 and Russell 2000 for U.S. equities. We benchmark foreign equities against the Tokyo Price Index, and the MSCI EAFE, a market index of European, Australian, and Far Eastern equities. We target price sensitivities that approximate those of the benchmark indices.
The impact of basis risk could result in larger differences between the change in fair value of the equity-based derivatives and the related living benefit features in comparison to these scenarios. In calculating these amounts, we include assets and liabilities held-for-sale as of December 31, 2021, but exclude separate account equity securities.
The impact of basis risk could result in larger differences between the change in fair value of the equity-based derivatives and the related living benefit features in comparison to these scenarios. In calculating these amounts, we exclude separate account equity securities.
These scenarios consider only the direct impact on fair value of declines in equity benchmark market levels and not changes in asset-based fees recognized as revenue, changes in our estimates of total gross profits used as a basis for amortizing deferred policy acquisition and other costs, or changes in any other assumptions such as market volatility or mortality, utilization or persistency rates in our variable annuity contracts that could also impact the fair value of our living benefit features.
These scenarios consider only the direct impact on fair value of declines in equity benchmark market levels and not changes in asset-based fees recognized as revenue, or changes in assumptions such as market volatility or mortality, utilization or persistency rates in our variable annuity contracts that could also impact the fair value of our living benefit features.
GAAP values of both the embedded derivatives and the related derivatives used to hedge the changes in 147 Table of Conten t s fair value of these embedded derivatives are provided under “Market Risk Related to Interest Rates” and “Market Risk Related to Equity Prices” above.
GAAP values of both the MRBs and the related derivatives used to hed ge the changes in fair value of these MRBs are provided under “Market Risk Related to Interest Rates” and “Market Risk Related to Equity Prices” above.
For additional information regarding our risk management strategies, including our living benefit hedging program and other product design elements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations by Segment—Retirement Strategies” above. 148 Table of Conten t s
For additional information regarding our risk management strategies, including our ALM strategy and product design features, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations by Segment—U.S. Businesses—Retirement Strategies” above. 143 Table of Contents
For additional information about the key estimates and assumptions used in our determination of fair value, see Note 6 to the Consolidated Financial Statements. For information regarding the impacts of changes in the interest rate environment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Impact of Changes in the Interest Rate Environment” above.
For information regarding the impacts of changes in the interest rate environment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Impact of Changes in the Interest Rate Environment” above.
Additionally, changes in equity prices may impact other items including, but not limited to, the following: • Asset-based fees earned on assets under management or contractholder account value; 145 Table of Conten t s • Estimated total gross profits and the amortization of deferred policy acquisition and other costs; and • Net exposure to the guarantees provided under certain products.
Additionally, changes in equity prices may impact other items including, but not limited to, the following: 140 Table of Contents • Asset-based fees earned on assets under management or contractholder account value; and • Net exposure to the guarantees provided under certain products. We manage equity price risk against benchmarks in respective markets.
For additional information regarding the potential impacts of interest rate and other market fluctuations, as well as general economic and market conditions on our businesses and profitability, see Item 1A. “Risk Factors” above. See “—Current Market Conditions” above, for how rapidly rising interest rates, among other factors, adversely impact the Company’s financial results.
For additional information regarding the potential impacts of interest rate and other market fluctuations, as well as general economic and market conditions on our businesses and profitability, see “Item 1A. Risk Factors” above.
Asset/liability mismatches create the risk that changes in liability values will differ from the changes in the value of the related assets.
Market Risk Related to Interest Rates We perform liability-driven investing and engage in careful asset/liability management. Asset/liability mismatches create the risk that changes in liability values will differ from the changes in the value of the related assets.
Our equity-based derivatives primarily hedge the equity risk embedded in these living benefit feature embedded derivatives, and are also part of our capital hedging program. Changes in equity prices create risk that the resulting changes in asset values will differ from the changes in the value of the liabilities relating to the underlying or hedged products.
Changes in equity prices create risk that the resulting changes in asset values will differ from the changes in the value of the liabilities relating to the underlying or hedged products.
We believe that the interest rate sensitivities of these insurance liabilities would serve as an offset to the net interest rate risk of the financial assets and liabilities, including investment contracts. Under U.S.
(3) Excludes approximately $155 billion and $144 billion as of December 31, 2023 and 2022, respectively, of certain insurance reserve and deposit liabilities that are not considered financial liabilities. We believe that the interest rate sensitivities of these insurance liabilities would serve as an offset to the net interest rate risk of the financial assets and liabilities, including investment contracts.
For example, for our variable annuities business, potential living benefit claims resulting from more severe market conditions are hedged using derivative instruments. • Management of portfolio concentration risk.
For example, for our variable annuities business , potential living benefit claims resulting from more severe market conditions are hedged using derivative instruments. • Management of portfolio concentration risk. For example, ongoing monitoring and management at the enterprise level of key rate, currency and other concentration risks support diversification efforts to mitigate exposure to individual markets and sources of risk.
As of December 31, 2022 As of December 31, 2021 Notional Fair Value Hypothetical Change in Fair Value Notional Fair Value Hypothetical Change in Fair Value (in millions) Equity securities(1) $ 9,049 $ (905) $ 11,296 $ (1,130) Equity-based derivatives(2) $ 51,501 (961) (73) $ 103,944 (1,095) (934) Variable annuity and other living benefit feature embedded derivatives (4,746) (627) (13,231) (1,563) Indexed universal life contracts (986) 24 (1,436) 54 Indexed annuity contracts (2,506) 841 (2,041) 680 Total embedded derivatives(2)(3) (8,238) 238 (16,708) (829) Net estimated potential loss $ (740) $ (2,893) __________ (1) Includes equity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Equity securities, at fair value.” (2) The notional and fair value of equity-based derivatives and the fair value of embedded derivatives are also reflected in amounts under “Market Risk Related to Interest Rates” above, and are not cumulative.
As of December 31, 2023 As of December 31, 2022 Notional Fair Value Hypothetical Change in Fair Value Notional Fair Value Hypothetical Change in Fair Value (in millions) Equity securities(1) $ 10,282 $ (1,028) $ 9,049 $ (905) Equity-based derivatives(2) $ 61,701 (441) (679) $ 51,501 (961) (73) Indexed universal life contracts (1,348) 21 (986) 24 Indexed annuity contracts (6,404) 1,388 (2,506) 841 Total embedded derivatives(2)(3) (7,752) 1,409 (3,492) 865 Market risk benefits(4) 3,486 (1,069) 5,064 (1,026) Net estimated potential loss $ (1,367) $ (1,139) __________ (1) Includes equity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Equity securities, at fair value.” (2) The notional and fair value of equity-based derivatives and the fair value of embedded derivatives are also reflected in amounts under “Market Risk Related to Interest Rates” above, and are not cumulative.
For additional information regarding NPR related to the sensitivity of the embedded derivatives to our NPR credit spread, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies & Pronouncements—Application of Critical Accounting Estimates—Sensitivities for Insurance Assets and Liabilities” above.
For additional information regarding the key estimates and assumptions used in our determination of fair value, including NPR, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies & Pronouncements—Application of Critical Accounting Estimates—Market Risk Benefits (“MRBs”)” above.
In addition, we consider external reinsurance a form of risk mitigation as well as our capital hedge program. Certain variable annuity optional living benefit features are accounted for as embedded derivatives and recorded at fair value. The market risk sensitivities associated with U.S.
Our guaranteed living and death benefit features on variable annuities are accounted for as MRBs and recorded at fair value. The 142 Table of Contents market risk sensitivities associated with U.S.
For our capital markets assumptions, we manage our exposure to the risk created by capital markets fluctuations through a combination of product design elements, such as an automatic rebalancing element and inclusion of certain optional living benefits in our living benefits hedging program.
We manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of product design features, such as an automatic rebalancing feature and/or inclusion in our ALM strategy. In addition, we may also utilize external reinsurance as a form of addi tional risk mitigatio n.
(2) Excludes any offsetting impact of derivative instruments purchased to hedge changes in the embedded derivatives. Amounts reported net of third-party reinsurance. (3) Excludes approximately $349 billion and $356 billion as of December 31, 2022 and 2021, respectively, of insurance reserve and deposit liabilities which are not considered financial liabilities.
Changes in fair value of fixed maturities classified as available-for-sale are included in AOCI. (2) Excludes any offsetting impact of derivative instruments purchased to hedge changes in the embedded derivatives. Amounts reported net of third-party reinsurance.
Our derivatives also include those that are embedded in certain financial instruments, and primarily relate to certain optional living benefit features associated with our variable annuity products, as discussed in more detail in “Market Risk Related to Certain Variable Annuity Products” below. For additional information regarding our derivative activities, see Note 5 to the Consolidated Financial Statements.
These factors, among others, result in these contracts experiencing minimal changes in fair value, despite a more significant notional value. Additionally, our derivatives include embedded derivative instruments associated with the index-linked features of certain universal life and annuity products, and reinsurance with funds withheld arrangements. For additional information regarding our derivative activities, see Note 5 to the Consolidated Financial Statements.
Removed
For example, ongoing monitoring and management at the enterprise level of key rate, currency and other concentration risks support diversification efforts to mitigate exposure to individual markets and sources of risk. 143 Table of Conten t s Market Risk Related to Interest Rates We perform liability-driven investing and engage in careful asset/liability management.
Added
As a result of the adoption of ASU 2018-12 in the first quarter of 2023, the following tables have been updated to reflect the current impacts on hypothetical changes in fair value based on the new accounting standard.
Removed
These factors, among others, result in these contracts experiencing minimal changes in fair value, despite a more significant notional value.
Added
(4) Changes in fair value of benefit reserves (traditional and limited-payment contracts) are included in AOCI. (5) Amounts reported net of third-party reinsurance. Under U.S.

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