[February 07, 2018]

Prudential Financial, Inc. Announces 2017 Results

Prudential Financial, Inc. (NYSE:PRU) today reported year end and fourth quarter results. Net income attributable to Prudential Financial, Inc., was $7.863 billion ($17.86 per Common share) for the year ended December 31, 2017, compared to $4.368 billion ($9.71 per Common share) for the year ended December 31, 2016. After-tax adjusted operating income was $4.652 billion ($10.58 per Common share) for 2017, compared to $4.107 billion ($9.13 per Common share) for 2016.

For the fourth quarter of 2017, net income attributable to Prudential Financial, Inc. was $3.765 billion ($8.61 per Common share), compared to $284 million (65 cents per Common share) for the fourth quarter of 2016. After-tax adjusted operating income was $1.173 billion ($2.69 per Common share) for the fourth quarter of 2017, compared to $1.090 billion ($2.46 per Common share) for the fourth quarter of 2016.

Adjusted operating income does not equate to net income as determined in accordance with GAAP, but is the measure used by the Company to evaluate segment performance and to allocate resources, and is the measure of segment performance presented below. Consolidated adjusted operating income is a non-GAAP measure of financial performance. Adjusted book value is a non-GAAP measure of financial position. These measures are discussed later in this press release under "Forward-Looking Statements and Non-GAAP Measures." Reconciliations of these measures to the most comparable GAAP measures are provided in the tables that accompany this release.

RESULTS OF ONGOING OPERATIONS

The Company's ongoing operations include the U.S. Individual Solutions, U.S. Workplace Solutions, Investment Management, and International Insurance divisions, as well as Corporate and Other operations. In the following business-level discussion, adjusted operating income refers to pre-tax results.

U.S. Individual Solutions Division:

The U.S. Individual Solutions division, consisting of the Individual Annuities and Individual Life segments, reported adjusted operating income of $639 million for the fourth quarter of 2017, compared to $560 million in the year-ago quarter.

The Individual Annuities segment reported adjusted operating income of $541 million in the current quarter, compared to $422 million in the year-ago quarter. Updated estimates of profitability driven by market performance in relation to our assumptions, resulted in a net benefit of $16 million in the current quarter and had no impact in the year-ago quarter.

Excluding this significant item, results for the Individual Annuities segment increased $103 million from the year-ago quarter. This increase reflects higher policy fees, net of associated risk management and other related costs, partially offset by a lower contribution from net investment spread results. The increase in net policy fees was driven by an increase in average variable annuity account values and lower risk management costs. The contribution from net investment spread included returns on non-coupon investments and prepayment fees that were approximately $10 million above our average expectations, in both the current quarter and the year-ago quarter.

The Individual Life segment reported adjusted operating income of $98 million for the current quarter, compared to $138 million in the year-ago quarter. The decrease primarily reflects unfavorable claims experience and the adverse ongoing impact of the second quarter 2017 annual review and update of actuarial assumptions and other refinements. Partially offsetting this decrease was a favorable variance from updates to other reserve balances and related items in the year-ago quarter of $25 million and a greater contribution from net investment spread results. The net contribution to current quarter results from claims experience, inclusive of reinsurance, associated reserve updates and amortization, was approximately $25 million less favorable than our average expectations compared to approximately $15 million more favorable than our average expectations in the year-ago quarter. The current quarter contribution from net investment spread included returns on non-coupon investments and prepayment fees that were approximately $5 million above our average expectations, as compared to returns approximately $15 million above our average expectations in the year-ago quarter.

U.S. Workplace Solutions Division:

The U.S. Workplace Solutions division, consisting of the Retirement and Group Insurance segments, reported adjusted operating income of $313 million for the fourth quarter of 2017, compared to $361 million in the year-ago quarter.

The Retirement segment reported adjusted operating income of $291 million for the current quarter, compared to $318 million in the year-ago quarter. Results for the year-ago quarter included a benefit of $20 million from settlement of legal matters.

Excluding this significant item, results decreased $7 million from the year-ago quarter. This decrease reflects a less favorable contribution from case experience and higher expenses, partially offset by a greater contribution from net investment spread results. The current quarter contribution to results from case experience was approximately $10 million less favorable than our average expectations in comparison to approximately $10 million more favorable than our average expectations in the year-ago quarter. The current quarter contribution from net investment spread included returns on non-coupon investments and prepayment fees that were approximately $50 million above our average expectations, as compared to returns approximately $30 million above our average expectations in the year-ago quarter.

The Group Insurance segment reported adjusted operating income of $22 million in the current quarter, compared to $43 million in the year-ago quarter. The decrease reflects higher expenses and less favorable group life underwriting results partially offset by a higher contribution from net investment spread results. Current quarter underwriting results included approximately $10 million of unfavorable reserve and premium refinements. The current quarter contribution from net investment spread results included returns on non-coupon investments and prepayment fees which were approximately $10 million above our average expectations in comparison to returns approximately $5 million above our average expectations in the year-ago quarter.

Investment Management Division:

Investment Management reported adjusted operating income of $306 million for the current quarter, compared to $224 million in the year-ago quarter.

The increase in Investment Management adjusted operating income was driven by a $70 million greater contribution from the segment's incentive, transaction, strategic investing and commercial mortgage activities, which amounted to $92 million in the current quarter and higher asset management fees, reflecting an increase in assets under management primarily from fixed income net inflows and equity market appreciation, partially offset by higher expenses.

International Insurance Division:

The International Insurance division reported adjusted operating income of $777 million for the fourth quarter of 2017, compared to $755 million in the year-ago quarter.

Adjusted operating income of Life Planner operations was $383 million for the current quarter, compared to $395 million in the year-ago quarter. This decrease was driven by higher expenses, less favorable policy benefits experience, and the impact of foreign currency exchange rates, partially offset by continued business growth. Foreign currency exchange rates, including the impact of the Company's currency hedging programs, had an unfavorable impact of $5 million in comparison to the year-ago quarter. Claims experience in the current quarter was consistent with our average expectations and in the year-ago quarter was approximately $15 million more favorable than our average expectations. In addition, the current quarter contribution from net investment spread results included returns on non-coupon investments and prepayment fees approximately $15 million above our average expectations in comparison to returns approximately $5 million above our average expectations in the year-ago quarter.

Adjusted operating income of Gibraltar Life and Other operations was $394 million for the current quarter, compared to $360 million in the year-ago quarter. This increase primarily reflects more favorable policy benefits experience and continued business growth. Foreign currency exchange rates had a negligible impact on results in comparison to the year-ago quarter.

Corporate and Other Operations:

Corporate and Other operations reported a loss, on an adjusted operating income basis, of $463 million in the fourth quarter of 2017, compared to a loss of $441 million in the year-ago quarter.

Corporate and Other results for the current quarter included $12 million of debt exchange costs. Excluding this item, the $10 million increase in loss compared to the year-ago quarter primarily reflects higher expenses and lower investment income, net of interest costs, partially offset by higher income from the qualified pension plan.

ASSETS UNDER MANAGEMENT

Assets under management amounted to $1.394 trillion at December 31, 2017, compared to $1.264 trillion a year earlier.

NET INCOME AND INVESTMENT PORTFOLIO

Net income attributable to Prudential Financial, Inc. amounted to $3.765 billion for the fourth quarter of 2017, compared to $284 million for the year-ago quarter.

Current quarter net income includes a tax benefit of $2.871 billion related to the enactment of the Tax Act,⁽¹⁾ driven by the remeasurement of net deferred tax liabilities arising from a lower U.S. corporate tax rate and the adoption of a territorial tax system, partially offset by the deemed repatriation of unremitted earnings of foreign subsidiaries.

Current quarter net income also includes $581 million of pre-tax net realized investment losses and related charges and adjustments. The foregoing net losses include net pre-tax losses of $500 million primarily related to derivatives used for risk management including foreign currency and asset and liability duration management and other risk mitigation activities, net pre-tax losses of $332 million from products that contain embedded derivatives or guarantees and associated hedging activities, largely driven by the impact of tightening credit spreads on our risk of non-performance, and $87 million from impairments and sales of credit-impaired investments. The foregoing losses were partially offset by net pre-tax gains of $338 million from general portfolio and related activities.

Net income for the current quarter reflects a pre-tax increase of $6 million in recorded asset values and a pre-tax decrease of $37 million in recorded liabilities representing changes in value which are expected to ultimately accrue to contractholders. These changes primarily represent mark-to-market adjustments.

Net income for the current quarter also reflects a pre-tax loss of $17 million from divested businesses, primarily reflecting the results from the Long-Term Care business.

Net income for the year-ago quarter included $824 million of pre-tax net realized investment losses and related charges and adjustments, including pre-tax losses of $1.283 billion from products that contain embedded derivatives or guarantees and associated hedging activities, and $53 million from impairments and sales of credit-impaired investments. The foregoing losses were partially offset by pre-tax gains of $347 million from general portfolio and related activities and $165 million primarily related to derivatives used in risk management activities including foreign currency and asset and liability duration management.

Excluding holdings of the Closed Block division, gross unrealized losses on general account fixed maturity investments at December 31, 2017, amounted to $1.507 billion, including $1.260 billion on high and highest quality securities based on NAIC or equivalent ratings, and amounted to $3.809 billion at December 31, 2016. Net unrealized gains on these investments amounted to $32.013 billion at December 31, 2017, compared to $27.585 billion a year earlier.

⁽¹⁾ Note: Net income for the fourth quarter and full year 2017, and book value per share and adjusted book value per share as of December 31, 2017, include the estimated impact of the enactment of the Tax Cuts and Jobs Act (Tax Act), which was signed into law on December 22, 2017. The final impact of the Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions made by the Company, additional guidance that may be issued by the U.S. Department of Treasury and actions that the Company may take. In addition, the Financial Accounting Standards Board (FASB) has released "Proposed Accounting Standards Update to Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which, if issued by the FASB in its current form and adopted by the Company prior to the release of the 2017 audited consolidated financial statements, then a portion of the cumulative impact from the remeasurement of deferred taxes will be reported in accumulated other comprehensive income rather than retained earnings. If this change is adopted, reported GAAP book value (total PFI equity) and adjusted book value at December 31, 2017, would remain unchanged.

FORWARD-LOOKING STATEMENTS AND NON-GAAP MEASURES

Certain of the statements included in this release constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on management's current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. Prudential Financial, Inc.'s actual results may differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. Certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements can be found in the "Risk Factors" and "Forward-Looking Statements" sections included in Prudential Financial, Inc.'s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Prudential Financial, Inc. does not undertake to update any particular forward-looking statement included in this document.

Information in this release regarding the impact of the Tax Act on Prudential Financial, Inc.'s results of operations and financial condition consists of estimates. These estimates are forward-looking statements based on current interpretations and expectations and may change, possibly materially, as described above. The 2018 expected adjusted operating income effective tax rate included in this press release reflects the estimated impact of the Tax Act on the 2018 effective tax rate included in Prudential Financial, Inc.'s 2018 Financial Outlook presentation and the related Current Report on Form 8-K dated December 14, 2017. Apart from the tax rate, Prudential Financial, Inc. is not updating or reaffirming the expectations or assumptions presented in its 2018 Financial Outlook as of such date.

Consolidated adjusted operating income and adjusted book value are non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in this release.

Adjusted operating income excludes "Realized investment gains (losses), net," as adjusted, and related charges and adjustments. A significant element of realized investment gains and losses are impairments and credit-related and interest rate-related gains and losses. Impairments and losses from sales of credit-impaired securities, the timing of which depends largely on market credit cycles, can vary considerably across periods. The timing of other sales that would result in gains or losses, such as interest rate-related gains or losses, is largely subject to our discretion and influenced by market opportunities as well as our tax and capital profile.

Realized investment gains (losses) within certain of our businesses for which such gains (losses) are a principal source of earnings, and those associated with terminating hedges of foreign currency earnings and current period yield adjustments are included in adjusted operating income. Adjusted operating income generally excludes realized investment gains and losses from products that contain embedded derivatives, and from associated derivative portfolios that are part of an asset-liability management program related to the risk of those products. However, the effectiveness of our hedging program will ultimately be reflected in adjusted operating income over time. Adjusted operating income also excludes gains and losses from changes in value of certain assets and liabilities relating to foreign currency exchange movements that have been economically hedged or considered part of our capital funding strategies for our international subsidiaries, as well as gains and losses on certain investments that are classified as other trading account assets.

Adjusted operating income also excludes investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes, because these recorded changes in asset and liability values are expected to ultimately accrue to contractholders. In addition, adjusted operating income excludes the results of divested businesses, which are not relevant to our ongoing operations. Discontinued operations and earnings attributable to noncontrolling interests, each of which is presented as a separate component of net income under GAAP, are also excluded from adjusted operating income. The tax effect associated with pre-tax adjusted operating income is based on applicable IRS and foreign tax regulations inclusive of pertinent adjustments.

Adjusted book value is calculated as total equity (GAAP book value) excluding accumulated other comprehensive income (loss), the cumulative effect of foreign currency exchange rate remeasurements and currency translation adjustments corresponding to realized investment gains and losses, and certain deferred taxes resulting from the change in the U.S. tax rate enacted with the Tax Cuts and Jobs Act on December 22, 2017. These items are excluded in order to highlight the book value attributable to our core business operations separate from the portion attributable to external and potentially volatile capital and currency market conditions. See "Other Financial Highlights" above for information related to the impact of the Tax Act on adjusted book value per share, as of December 31, 2017.

We believe that our use of these non-GAAP measures helps investors understand and evaluate the Company's performance and financial position. The presentation of adjusted operating income as we measure it for management purposes enhances the understanding of the results of operations by highlighting the results from ongoing operations and the underlying profitability of our businesses. Trends in the underlying profitability of our businesses can be more clearly identified without the fluctuating effects of the items described above. Adjusted book value augments the understanding of our financial position by providing a measure of net worth that is primarily attributable to our business operations separate from the portion that is affected by capital and currency market conditions and by isolating the accounting impact associated with insurance liabilities that are generally not marked to market and the supporting investments that are marked to market through accumulated other comprehensive income under GAAP. However, adjusted operating income and adjusted book value are not substitutes for income and equity determined in accordance with GAAP, and the adjustments made to derive these measures are important to an understanding of our overall results of operations and financial position. The schedules accompanying this release provide a reconciliation of adjusted operating income to net income in accordance with GAAP and a reconciliation of adjusted book value to GAAP book value. The information referred to above, as well as the risks of our businesses described in our Annual Report on Form 10-K for the year ended December 31, 2016, and subsequent Quarterly Reports on Form 10-Q, should be considered by readers when reviewing forward-looking statements contained in this release. Additional historic information relating to our financial performance is located on our Web site at www.investor.prudential.com.

EARNINGS CONFERENCE CALL

Members of Prudential's senior management will host a conference call on Thursday, February 8, 2018, at 11 a.m. ET, to discuss with the investment community the Company's fourth quarter results. The conference call and an accompanying slide presentation will be broadcast live over the Company's Investor Relations Web site at www.investor.prudential.com. Please log on 15 minutes early in the event necessary software needs to be downloaded. The call will remain on the Investor Relations Web site for replay through February 23. Institutional investors, analysts, and other members of the professional financial community are invited to listen to the call and participate in Q&A by dialing (877) 777-1971 (domestic callers) or (612) 332-0228 (international callers). All others are encouraged to dial into the conference call in listen-only mode, using the same numbers. To listen to a replay of the conference call starting at 2 p.m. on February 8, through February 15, dial (800) 475-6701 (domestic callers) or (320) 365-3844 (international callers). The access code for the replay is 439432.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with more than $1 trillion of assets under management as of December 31, 2017, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit news.prudential.com.

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