PRUDENTIAL FINANCIAL, INC. 2018 ANNUAL REPORT

[Pages:14]2018 ANNUAL REPORT

AWARDS AND ACCOLADES

Prudential's commitment to doing business the right way, strengthening communities and providing an inclusive work environment is reflected in the awards

and recognition we have proudly received from national and global organizations.

Change the World, FORTUNE? The World's Most Admired Companies?, FORTUNE?,

No. 1 in Insurance: Life and Health World's Most Ethical Companies?, Ethisphere

The JUST 100, Forbes and JUST Capital, No. 1 among life insurers

The Civic 50, Points of Light 100 Most Sustainable Companies, Barron's

FTSE4Good Index Series 100 Best Corporate Citizens, Corporate Responsibility Magazine

America's Best Employers, Forbes Top 50 Companies for Diversity, DiversityInc Top 12 Companies for People with Disabilities, DiversityInc Top 18 Companies for Veterans, DiversityInc

Bloomberg Gender-Equality Index Top Employers and Top LGBT-Friendly Companies,

HISPANIC Network Magazine Top Companies for Executive Women, National Association for Female Executives Best Companies for Diversity, Black Enterprise Corporate Inclusion Index, Hispanic Association on Corporate Responsibility 50 Best Companies for Latinas, Latina Style Corporate Equality Index, Human Rights Campaign Best Places to Work in IT, Computerworld Best for Vets Employers, Military Times Military Friendly Spouse Employer, Victory Media Leading Disability Employer SealTM, National Organization on Disability Best Place to Work for People with Disabilities, Disability:IN 100 Best Companies, Working Mother 100 Best Adoption-Friendly Workplaces, Dave Thomas Foundation for Adoption

Message from the Chief Executive Officer

In 2018 we focused on strategy and high-quality execution to further strengthen our fundamentals and deliver attractive financial outcomes to our stakeholders.

With our capabilities in offering protection, retirement and investment management solutions, we are positioned well to meet the needs of our customers. In fact, we have an even more vital role to play as our customers are facing harsher financial realities.

We're leveraging our distinctive mix of businesses in ways that produce better outcomes for our customers, who benefit from our integrated solutions, market access and enduring financial strength. Our market-leading businesses, complementary capabilities and global reach enable us to expand in the markets in which we choose to compete. In addition, our strong operations and solid financial profile position us well to support organic growth and seize upon emerging opportunities as they arise. Moreover, our carefully calibrated mix of businesses delivers greater earnings diversification and, therefore, increased capital benefits from a balanced risk profile.

Delivering innovative financial wellness solutions Prudential's strategic mix of high-quality and complementary businesses includes our U.S. Financial Wellness businesses, PGIM, our global investment management business, and our International Insurance business. By collaborating closely together, our operations have significant growth potential due to our ability to provide integrated cross-business solutions that meet our customers' evolving needs and expand our market opportunity by reaching more customers whose needs are not being served.

In the United States, we aspire to be the leading provider of financial wellness solutions. As a firm, we are absolutely committed to this goal because we understand the tremendous need for the services we deliver.

In 2018, we conducted our first-ever Financial Wellness Census. Surveying more than 3,000 U.S. adults, the census is one of the most comprehensive and in-depth studies of Americans' financial health since the 2008 financial crisis.

Among the findings:

? One-third of Americans do not have an accurate understanding of the state of their finances, thinking they are either better or worse off than they are.

? More than 50 percent of respondents believe they will achieve most of their financial goals, even though fewer than 50 percent are on track to do so.

? Nearly 40 percent said they do not have an emergency savings account.

Inspired by insights from our research, we launched our "State of US" brand campaign, which, through personal stories, spotlights some of the most common financial challenges facing Americans, such as longer life expectancies, the cost of higher education and the changing nature of employment.

We see a tremendous opportunity to address the critical financial needs of individual customers, workplace clients and society at large through our financial wellness solutions. We have the key components to do this successfully, including: a workplace platform; individual solutions that cover protection, retirement, savings, income and investment needs; and a customer-centric approach to enable customers to engage with us how, when and where they want, whether in a purely digital way, over the phone or face-to-face.

Our U.S. Financial Wellness businesses are aligned in two groups, both of which are oriented to the needs of specific customers.

Charles F. Lowrey

"We see a tremendous opportunity to address the critical financial needs of individual customers, workplace clients and society at large through our financial wellness solutions."

? Charles F. Lowrey

Prudential Financial, Inc. 2018 Annual Report 1

Our Workplace Solutions Group comprises our Retirement and Group Insurance segments and serves more than 20 million people.

? Retirement provides solutions for public, private and nonprofit organizations, as well as products and services to make long-term financial security a reality for millions of individuals. A global leader in pension risk transfer, Retirement has recorded pension risk transfer sales of $100 billion since launching that capability nearly a decade ago, with $12.6 billion in net flows in 2018.

? Group Insurance is a leading U.S. provider of group life and disability insurance, providing coverage to more than 14 million workers in over 2,700 companies.

Our Individual Solutions Group comprises our Individual Annuities and Individual Life Insurance segments and serves more than 5 million people.

? Individual Annuities is one of the industry's largest providers of variable annuities and offers a broad range of solutions to address customers' needs. Our variable annuity business, with its suite of diversified products, has a balanced risk profile and a stable capital base that generates a high rate of return and strong cash flow.

? Individual Life Insurance holds a leadership position in the industry due to its distinctive and diverse portfolio of products as well as a multi-channel distribution network that provides broad market access.

Our results speak to the interest in and high demand for our financial wellness solutions. Since the launch of our financial wellness capabilities in 2015, we have seen nearly $9 billion of Full Service retirement plan sales and more than $100 million in group insurance case wins that we attribute to this initiative.

Across our Workplace Solutions Group, more than 3,000 employers have adopted our digital financial wellness platform, representing over 5 million individuals. Also, our Prudential Pathways program, which provides financial wellness education, has been adopted by nearly 500 employers.

We've been increasing the level of our investments in our financial wellness platform, particularly in our digital, data and technology capabilities. Our goal is to leverage this technology investment across our businesses to expand our services to reach more customers, create engaging and personalized customer experiences that build deeper and longer-lasting relationships, and help more people achieve their financial goals. As an example, in 2018, we launched LINK by Prudential, a highly interactive education and hybrid advisory platform that connects customers to solutions and financial professionals.

Continuing growth in investment management and international insurance We are also creating new opportunities beyond our Financial Wellness businesses through PGIM, our premier global investment management business, and through our International Insurance business.

PGIM ranks among the world's largest asset managers, with approximately $1.2 trillion in assets under management across a broad range of asset classes. It has a track record of producing differentiated outcomes, with strong investment performance that has generated 16 consecutive years of positive third-party institutional net flows. With its distinctive multi-manager model, PGIM continues to supply clients with an increasing range of investment opportunities. Moreover, it continues to invest in its global distribution capabilities, which have significantly increased net flows. In addition to delivering solutions for third-party clients, PGIM provides Prudential with a competitive advantage through its investment expertise that enables the development of innovative products and services across our businesses, such as pension risk transfer.

Our International Insurance business includes our world-class Japanese life insurance operation, as well as other businesses, with some in high-growth markets with large populations such as Brazil, India, Indonesia, China and Africa. Our differentiated business model, centered around needs-based selling and an industry-leading captive agency force known as Life Planners, combined with a proven ability to execute, has delivered steady growth, attractive returns and significant capital generation. We continue to make strategic investments to enhance our long-term growth prospects.

During 2018, our International Insurance business demonstrated its power again by increasing its amount of individual life in-force to $830 billion, with more than 13 million policies. Its business growth continues to be underscored by strong customer retention.

Delivering strong financial performance Our businesses continued their positive momentum in 2018, again demonstrating their collective power by delivering strong performance with impressive fundamentals. We maintained a robust balance sheet and capital position, validating the resilience of our financial profile amidst difficult markets.

? On an after-tax adjusted operating income (AOI)* basis, Prudential earned $5.019 billion, or $11.69 per Common share, in 2018, compared to $4.652 billion, or $10.58 per Common share, in 2017.

? Our adjusted operating return on equity (ROE) based on AOI* for the full year was 12.7 percent, at the high end of our near- to intermediate-term objective of 12 percent to 13 percent.

2 Prudential Financial, Inc. 2018 Annual Report

? Our adjusted book value* per share grew by 8.3 percent to $96.06 at year-end, compared to $88.67 a year earlier, after paying quarterly Common Stock dividends totaling $3.60 per share.

Deploying capital efficiently Effective capital management remains a hallmark of our company. We have a conservatively positioned investment portfolio and a well-capitalized balance sheet with significant financial flexibility. Our strong capital and liquidity positions provide stability during volatile markets, while allowing us to seize opportunities that may arise during periods of stress.

We continue to adhere to a capital management philosophy of increasing shareholder distributions as our business grows. Over the past five years, we have generated strong financial returns to our shareholders, with growth in earnings per share, book value per share and ROE. This has resulted in significant capital generation, which we have deployed by increasing share repurchases and dividends and reducing leverage, as well as reinvesting in our businesses. In fact, since 2013, we have deployed about $13 billion in capital, while investing in financial wellness, digital and data initiatives to support our long-term growth.

In 2018, we again returned capital to shareholders in a highly disciplined manner, amounting to more than $3 billion, split between dividends and share repurchases. In December 2018, our Board of Directors authorized a 33 percent increase in our share repurchase program for 2019 to $2 billion and in February 2019, we announced an 11 percent increase in our quarterly dividend, to $1.00 per share of Common Stock.

Contributing to effective regulation In October 2018 the Financial Stability Oversight Council announced it had voted to rescind Prudential's designation as a nonbank systemically important financial institution. As a result, Prudential is no longer subject to supervision and examination by the Federal Reserve Board or to the standards applicable to designated companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

We welcomed this decision, which affirmed our longstanding belief that Prudential does not meet the standard for designation and does not pose systemic risk. The decision also corroborates that our sustainable business model, capital strength and comprehensive risk management will enable us to fulfill our promises to our customers, deliver consistent performance and meet regulatory obligations.

Prudential will continue to be well supervised, both domestically and internationally, by our primary insurance regulators. We will continue to work closely with our regulators to ensure informed public policy outcomes that benefit our customers and other stakeholders.

Promoting inclusive growth Our commitment to driving financial opportunity was recognized in 2018 by FORTUNE? magazine when Prudential was named to its prestigious "Change the World" list, which highlights companies that make a positive social impact through their core business strategy.

To amplify our global efforts to drive inclusive growth, we continue to leverage the power of our capabilities and strategy through public-private partnerships to serve more and more people. By drawing on expertise from talented people across our operations, we can multiply our impact and ability to create appropriate, affordable solutions.

One of our most effective tools has been impact investing. Since its founding in 1976, Prudential's Impact Investment group has invested more than $2.5 billion in impact-oriented assets, and currently has more than $860 million in assets under management, with a goal of reaching $1 billion by 2020.

In 2018, our Impact Investing group collaborated with PGIM Real Estate to design an impact-led real estate fund focused on affordable housing and transformative development projects in emerging, underpriced locations in the U.S. Through this new offering, we are leveraging the full breadth of the company's impact investment expertise and industry relationships to identify and source compelling investment opportunities, while expanding the availability of affordable housing and revitalizing historically underserved areas.

Our dedication to spurring inclusive growth is particularly visible in our hometown of Newark, N.J., where Prudential was founded in 1875. In 2018, we committed grants totaling $30 million to support nonprofit capital campaigns and endowments across the city. With a focus on meeting critical needs of organizations serving Newark communities, these grants recognize the vital partnerships Prudential has with many local organizations and will help them better serve the city's residents. These grants build on the more than $1 billion in philanthropic and investment capital that Prudential has committed toward the revitalization of Newark.

Strengthening our inclusive and collaborative culture We consider our talent and culture to be one of our most significant and sustainable competitive advantages. Our ability to deliver on our promises to our customers and shareholders depends on the talent, commitment and diversity of our people. The diversity of our employees' experience, backgrounds, skills and perspectives drives our ability to provide innovative and effective solutions to meet our customers' evolving needs.

We know that having an inclusive culture, where everyone's input is valued, is a business imperative. That commitment to inclusion and diversity starts with our Board of Directors,

Prudential Financial, Inc. 2018 Annual Report 3

which is more than two-thirds diverse. We are holding senior leaders accountable for achieving goals related to inclusion and diversity, just as we do with other key business objectives.

Providing both veterans and military spouses with on-the-job training and support, helping them build meaningful careers and financial security, remains another key aspect of our talent strategy and work to drive inclusive growth. In 2018, we were invited to share information about our initiatives to help veterans transition to the civilian workplace with members of the House Committee on Veterans Affairs' Subcommittee on Economic Opportunity. It was an exciting chance to highlight the success of our programs, one of which has been adopted by more than 60 other companies, expanding its impact and helping bring financial opportunity to more military families.

Our consistent work to promote inclusion and diversity and be an employer of choice was recognized by multiple organizations during 2018, as was our commitment to integrity. In January 2019, we were named by FORTUNE? as the No. 1 world's most admired company in the life and health insurance category for the fourth consecutive year. And in February 2019, for the fifth year in a row, we were named one of the World's Most Ethical Companies? by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices.

These distinctions serve as a strong endorsement for the culture we cultivate at Prudential every day.

Living our purpose I am honored to have the opportunity to lead Prudential. After working with John Strangfeld, my predecessor, for nearly 20 years, I look forward to building upon the consistent strategy, strong track record of execution and robust financial profile that he cultivated. John worked for Prudential for 42 years and led the company for over a decade. We are all grateful for his extraordinary leadership and vision during his tenure.

As I look ahead to the future, I am inspired by the talent, expertise and commitment of Prudential's people and the power of our distinctive culture; by the strength of our

complementary businesses, our strategy and our financial position; and by the opportunity we have to help more people achieve financial security and peace of mind.

To clearly articulate our future direction, in early 2019 we unveiled a new purpose statement: "We make lives better by solving the financial challenges of our changing world."

This statement speaks to Prudential's founding commitment to creating financial opportunity for individuals, families, institutions and communities. It highlights our ability to improve the quality of life for more people through solutions delivered at both small and large scale. And it underscores our determination to tackle the toughest problems to help shape our changing world for the better.

I can say with confidence that Prudential is well positioned to fulfill our purpose and bring financial opportunity to more people. There is still much work for us to do to achieve this vision. However, by leveraging capabilities across our businesses, deploying technology and continuing to innovate, we can expand our market. We will continue to generate outcomes for our customers that are difficult for other companies to replicate, creating value for all stakeholders. Moreover, we have the scale to invest for the long term and a robust balance sheet that provides stability through market cycles. Finally, we continue to work constructively with and add value to the communities in which we operate.

Thank you for your continued confidence and interest in Prudential. I look forward to sharing news of our growth in the future.

Charles F. Lowrey Chief Executive Officer

* AOI, adjusted book value, as well as operating return on average equity, which is based on AOI and adjusted book value, are non-GAAP measures. See footnote (1) on page 5 and footnote (A) on page 8 for further description of AOI. See footnote (1) on page 5 and footnote (B) on page 8 for further description of adjusted book value and operating return on average equity.

4 Prudential Financial, Inc. 2018 Annual Report

NOTES

(1) Adjusted operating income and adjusted book value, as well as operating return on average equity, which is based on 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 Annual Report.

Adjusted operating income is the measure used by the Company to evaluate segment performance and to allocate resources. 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 raterelated 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 designated as trading. Additionally, adjusted operating income excludes the changes in fair value of equity securities that are recorded in net income beginning on January 1, 2018 as a result of the adoption of ASU 2016-01. Adjusted operating income also excludes investment gains and losses on assets supporting experience-rated contractholder 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 and Run-off 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 as of December 31, 2017 certain deferred taxes resulting from the change in the U.S. tax rate enacted with the Tax Cuts and Jobs Act. 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. Adjusted operating return on equity is equal to the annualized year-to-date after-tax adjusted operating income divided by the average adjusted book value. Return on equity based on GAAP balances is calculated using after-tax net income and equity.

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. Adjusted return on equity is a useful measure of the operating return the Company achieves in relation to the capital available to our businesses. However, these non-GAAP measures are not substitutes for income, equity and return on 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.

All facts and figures are as of or for the year ended December 31, 2018, unless otherwise noted.

Insurance and/or annuities are issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ), Pruco Life Insurance Company of New Jersey (in NY and/or NJ), and Prudential Annuities Life Assurance Corporation (PALAC). Each is a Prudential Financial company located in Newark, NJ (main office), except for PALAC which is located in Shelton, CT (main office), and each is solely responsible for its own financial condition and contractual obligations. Prudential Annuities is a business of Prudential Financial, Inc.

Securities products and services are offered through: Pruco Securities, LLC or Prudential Investment Management Services LLC, both members SIPC and located in Newark, NJ, or Prudential Annuities Distributors, Inc., located in Shelton, CT. All are Prudential Financial companies.

Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company, Hartford, CT, or its affiliates.

LINK by Prudential is an umbrella marketing name for Prudential Customer Solutions LLC, an SEC-registered investment adviser, Prudential Annuities Distributors, Inc. and various subsidiaries of The Prudential Insurance Company of America.

Prudential, the Prudential logo, the Rock symbol and Prudential LINK are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Fortune? and "The World's Most Admired Companies?" are registered trademarks of Time Inc. 2019 ranking as of 1/22/2019.

Prudential Financial, Inc. 2018 Annual Report 5

FINANCIAL HIGHLIGHTS

Prudential Financial, Inc.

In millions, except per share amounts For the years ended December 31,

2018

2017

2016

RESULTS BASED ON ADJUSTED OPERATING INCOME (A)

Revenues

$58,130

$53,646

$51,574

Benefits and expenses

51,762

47,402

46,175

Adjusted operating income before income taxes

$6,368

$6,244

$5,399

Operating return on average equity (B)(C)

12.7%

12.9%

12.0%

GAAP RESULTS

Revenues

$62,992$59,689 $58,779

Benefits and expenses

58,158

53,202

53,074

Income (loss) before income taxes and equity

in earnings of operating joint ventures

$4,834

$6,487

$5,705

Return on average equity (B)(C)

8.2%

16.0%

8.8%

EARNINGS PER SHARE OF COMMON STOCK ? diluted

Adjusted operating income after income taxes

$11.69

$10.58

$9.13

Reconciling items:

Realized investment gains (losses), net, and related charges and adjustments

0.71(0.13) 1.17

Other reconciling items

(4.07)

0.52 (0.48)

Income taxes, not applicable to adjusted operating income

(1.17)

(6.89)

0.11

Net Income (loss) attributable to Prudential Financial, Inc. (after-tax)

$9.50

$17.86

$9.71

Prudential Financial, Inc.

In millions, unless otherwise noted

As of or for the years ended December 31,

2018

GAAP RESULTS

Total revenues

$62,992

Net Income (loss) (after-tax)

$4,088

Less: Income (loss) attributable to noncontrolling interests

14

Net income (loss) attributable to Prudential Financial, Inc. (after-tax)

$4,074

FINANCIAL POSITION

Invested assets

$479,245

Total assets (C)

$815,078

Prudential Financial, Inc. equity (C)

$48,617

Assets under management (in billions)

$1,377

2017

$59,689

$7,974 111

$7,863

$469,871 $832,136

$54,236

$1,394

2016

$58,779

$4,419 51

$4,368

$444,240 $784,177

$46,030

$1,264

6 Prudential Financial, Inc. 2018 Annual Report

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