Prudential Financial (NYSE:PRU) reported lower third-quarter adjusted operating earnings as the cost of a sales suspension in Japan outweighed gains in asset management and parts of its U.S. insurance business.
After-tax adjusted operating income fell to $1.3 billion, or $3.77 per share, from $1.4 billion, or $4.05 per share, a year earlier. Year-to-date adjusted operating return on average equity was 14.5%, in line with the prior-year period.
Chairman and CEO Andy Sullivan said the company is narrowing its geographic footprint and concentrating resources on asset management, retirement and select protection businesses. Prudential recently agreed to sell its Brazil and Mexico businesses to CNP Assurances for $4.025 billion and has also closed or announced sales of several other overseas operations.
Japan Suspension Weighs on Earnings
Japan’s pre-tax adjusted operating income declined to $559 million from $750 million a year earlier. CFO Yanela Frias said the Prudential of Japan sales suspension reduced quarterly adjusted operating income by approximately $140 million, bringing the year-to-date impact to about $375 million.
Prudential continues to expect a full-year 2026 impact of approximately $500 million from the Prudential of Japan suspension and $100 million from Gibraltar. Japan sales fell 36% year over year to $291 million, although they rose 11% from the preceding quarter, supported by third-party distribution.
Sullivan said Prudential of Japan is expected to return to the market in phases beginning Feb. 1, with Gibraltar also expected to return on that date. He said the company is working on reforms identified by Japan’s Financial Services Agency and is applying lessons from the Prudential of Japan experience to Gibraltar.
The suspension orders do not apply to Prudential’s third-party channels, Sullivan said. Sales through independent agents rose 53% year over year, while overall third-party channel sales increased 9%.
Frias said policy surrenders rose after the October announcement concerning Japan but have since returned to normal levels. She also said Prudential does not expect the sales suspensions to materially affect capital, economic solvency ratios or cash flows in 2026 or 2027.
Sale Proceeds and Acquisition Plans
Frias said Prudential expects approximately $3.1 billion in net proceeds from the Brazil and Mexico sales after taxes, transaction fees and closing costs. The company expects the transaction to close in the second half of next year and will confirm the net proceeds then.
Prudential intends to use the proceeds for targeted acquisitions. Sullivan said the company is examining opportunities across PGIM, group insurance and European retirement, without favoring one area. He added that Prudential is working on potential acquisitions and divestitures simultaneously.
“We’re going to be patient, we’re going to be persistent, and we’re going to be disciplined,” Sullivan said, describing the company’s approach to acquisitions.
Frias said Prudential does not expect the proceeds to change its total capital deployment plans, which it expects to announce with fourth-quarter earnings in February.
PGIM Flows Improve as Annuity Sales Rise
PGIM reported pre-tax adjusted operating income of $263 million, up 8% from a year earlier. Its adjusted operating margin expanded by 280 basis points to 26.5%, helped by higher asset management fees and lower expenses, Frias said.
Third-party net inflows totaled $9 billion, the highest in 10 quarters, with contributions from institutional and retail clients. Sullivan said public fixed income was a key driver, while public equity outflows remained a challenge. PGIM’s active exchange-traded fund lineup attracted more than $6 billion in net inflows during the quarter.
Sullivan said Prudential aims to increase PGIM’s margin to 30% over a multiyear period and above that level over a longer timeframe. He cited potential improvement in fixed income and real estate markets, growth in higher-fee products and expense management as drivers.
In the U.S., retail annuity sales reached $3.9 billion, their highest quarterly level since 2013. Retirement pre-tax adjusted operating income nevertheless declined modestly year over year to $620 million, as growth in spread income was offset by pension risk transfer runoff and less favorable mortality, among other factors.
Sullivan said Prudential closed three mid-sized pension risk transfer transactions totaling approximately $1.6 billion in October and expects to close several more by year-end.
Insurance Results and Capital Position
Group Insurance pre-tax adjusted operating income rose 12% to $101 million, supported by favorable life underwriting. Disability results were weaker, however, with higher claim incidence and severity. Sullivan said the company is seeing more behavioral health claims and claims from high-wage earners.
Individual Life pre-tax adjusted operating income increased to $199 million from $153 million, aided by more favorable underwriting, including a roughly $30 million reserve refinement.
Prudential ended the quarter with $4 billion in cash and highly liquid assets, above its $3 billion minimum target. Frias said Prudential Holdings of Japan expects to report a consolidated economic solvency ratio of approximately 200% as of Sept. 30, above its 150% operating target.
The company lowered its full-year effective tax rate expectation to 20%–21% from 21%–22%, primarily because emerging markets businesses were moved into divested businesses.
About Prudential Financial (NYSE:PRU)
Prudential Financial, Inc is a financial services company headquartered in Newark, New Jersey. Founded in 1875 as the Prudential Friendly Society, it has grown into a provider of insurance, retirement and investment services.
The company offers life insurance, annuities, workplace benefits and retirement-related products and services. Through its asset management businesses, Prudential also serves individual and institutional investors.
Prudential serves customers in the United States and operates internationally, with a significant presence in Japan and other markets.
