Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2014 earnings teleconference. [Operator Instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mark Finkelstein. Please go ahead.

Thank you, Cynthia. Good morning, and thank you for joining our call. Representing Prudential on today's call are John Strangfeld, CEO; Mark Grier, Vice Chairman; Charlie Lowrey, Head of International Businesses; Steve Pelletier, Head of Domestic Businesses; Rob Falzon, Chief Financial Officer; and Rob Axel, Controller and Principal Accounting Officer. We will start with prepared comments by John, Mark and Rob, and then we will answer your questions. In order help you understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-looking Statements and Non-GAAP Measures of our earnings press release for the third quarter of 2014, which can be found on our website at www.investor.prudential.com. In addition, this presentation may include references to adjusted operating or to earnings per share, or EPS; or return on equity, or ROE, which are determined based on adjusted operating income. Adjusted operating income is a non-GAAP measure of performance of our Financial Services businesses that excludes certain items. Adjusted operating income is not a substitute for income determined in accordance with generally accepted accounting principles, GAAP, and the excluded items are important to an understanding of our overall results of operations. For a reconciliation of adjusted operating income to the comparable GAAP measure, please see our earnings press release on our website. Additional historical information relating to the company's financial performance is also located on our website. John, I'll hand it over to you.

Thank you, Mark. Good morning, everyone, and thank you for joining us. Prudential reported another good quarter, and we are on track to meet or exceed our financial goals for the year. Mark and Rob will walk you through the specifics impacting our drivers, results and capital position. I will focus my comments on overall highlights and themes. The key message is we are pleased with where we are as a company and with our strategic initiatives designed to drive long-term growth and sustain returns above industry averages. Excluding the impact of market-driven and discrete items, our year-to-date adjusted operating income per share is 12% higher than a year ago. Results have benefited from favorable investment results and better-than-expected underwriting margins in our insurance businesses. While these are clear tailwinds, the underlying fundamentals of our businesses are performing well, and I will highlight just a few for the quarter. Our Annuities business continues to show good core margins and returns. Mark will walk through the results of our annual actuarial assumption update, but we remain confident in the products we're selling, the risk profile of the business and the returns we're achieving. In Asset Management, our third-party assets under management have increased 11% over the prior year, with total net flows over the last 4 quarters of $12 billion. While we saw modest net outflows this quarter, this, after 22 consecutive quarters of positive net flows, importantly, our overall investment performance remained strong. Individual Life earnings reflect strong mortality performance in the quarter. And while this will vary, we have shown variable mortality experience relative to expectations in 8 of the last 9 quarters. Our International business reported solid results. Our Life Planner count grew sequentially about 2% and delivered solid year-over-year sales growth in each key market. At Gibraltar,…

Thanks, John. Good morning, good afternoon or good evening. Thanks for joining us on the call today. I'll take you through our results for the quarter. And then I'll turn it over to Rob Falzon, who will cover our capital and liquidity picture. I'll start with an overview of our financial results for the quarter. [Technical Difficulty]

Hello. I'm back. Our system somehow went on mute by itself. I'll start over. I'll take you through the results for the quarter. And then I'll turn it over to Rob Falzon, who will cover our capital and liquidity picture. And I apologize for the interruption. I'll start with an overview of our financial results for the quarter shown on Slide 2. On a reported basis, common stock earnings per share amounted to $2.20 for the third quarter based on after tax adjusted operating income of the Financial Services businesses. This compares to EPS of $2.89 a year ago. After adjusting for market-driven and discrete items in both the current quarter and the year-ago quarter and the benefit of the current quarter results from a favorable catch-up in our effective tax rate, EPS was up 5%, amounting to $2.46 this quarter compared to $2.34 a year ago. Looking across our businesses, here are the main drivers of this comparison. We benefited from higher fees reflecting growth and account values in our Annuities business and the contribution of recent longevity reinsurance transactions and retirement. Our Asset Management business benefited from strong performance-based fees in the current quarter. Our Individual Life and Group Insurance businesses benefited from more favorable claims experience. And in our International Insurance business, higher expenses, including technology costs in the current quarter, coupled with less favorable foreign currency exchange rates, more than offset the benefit of continued business growth in the year-over-year comparison. On a GAAP basis, we reported net income of $465 million for the current quarter. This reflects a non-AOI charge to increase our embedded derivative liability for annuity living benefits, largely driven by our annual actuarial review and reflects the loss from foreign currency remeasurement driven by weakening of the Japanese yen. The foreign currency…

Thanks, Mark. I'm going to give you an update on some key items under the heading of Financial Strength and Flexibility starting with Slide 25. We continue to manage our insurance companies to levels of capital that we believe are consistent with AA standards. At the end of last year, Prudential Insurance reported an RBC ratio of 456%, with total adjusted capital, or TAC, of $13.9 billion. While we don't perform a quarterly bottoms-up RBC calculation, we estimate that our RBC ratio continues to be well above our 400% target after giving effect to results for the first 9 months of the year. In Japan, Prudential of Japan and Gibraltar Life reported strong solvency margins of 835% and 967%, respectively, as of June 30. These reported solvency margins are also well above our targets. Looking at the overall capital position for the Financial Services businesses on Slide 26. We calculate our balance sheet capital capacity by comparing the statutory capital position of Prudential Insurance [Technical Difficulty]

This is Rob Falzon. I'm going to continue on. We apologize for having a modest problem with our system. I think where I left off before it cut off, we were turning to Slide 26 after having covered the solvency margins for our Japan businesses. So looking at the overall capital position for the Financial Services businesses, on Slide 26, we calculate our on-balance sheet capital capacity by comparing the statutory capital position of Prudential Insurance to our 400% RBC ratio target and then add capital capacity held at the parent company and other subsidiaries. At the end of last year, we estimated that our on-balance sheet capital capacity was about $3.5 billion, including about $1.5 billion that we considered readily deployable. During the first 9 months of this year, we returned about $1.5 billion to shareholders. These returns came in the form of 3 quarterly common stock dividends of $0.53 each per share in each quarter, for a total of about $740 million and the repurchase of $750 million of our common stock. This includes $250 million of repurchases during the third quarter under the $1 billion June board authorization, which extends through June 30 of next year. Net of these returns of capital, our available on-balance sheet capital capacity was about $5 billion, before funding of our investment in AFP Habitat in Chile, which we expect to close in the first half of 2015, with the purchase price of $530 million to $620 million. We will consider about $1.5 billion of our capital capacity to be readily deployable. Turning to the cash position at the parent company. Cash and short-term investments, net of outstanding commercial paper, amounted to $4 billion as of the end of the third quarter. This reflects senior debt issuances of $600 million during the quarter. The cash in excess of our targeted $1.3 billion liquidity cushion is available to repay maturing operating debt, to fund operating needs and to redeploy over time for strategic and capital management purposes. Now I'll turn it back over to John.

Thank you, Rob. Thank you, Mark. And we'd like to now open it up for questions.

And you're ready for questions?

Yes, we are.

[Operator Instructions] And we'll first go to the line of Nigel Dally with Morgan Stanley.

With the annuities and the change in lapse assumptions, some other companies are also talking about utilization as being an offset. Interested whether you've recalibrated your utilization assumptions there as well.

Nigel, it's Rob Falzon. We actually looked at all of the assumptions that went into that calculation, so utilization, efficiency, et cetera, were included in that. The primary driver, however, to the assumption update was lapse and the lapse sensitivity to interest rates.

Okay. Then a second question on Asset Management. If we exclude out the other related revenues, seems like the core ROE came down pretty meaningfully this quarter. Seemed like it was on meaningfully higher expenses, so just hoping to get some additional color as to what's happening there.

Nigel, this is Steve. Our growth in fees was commensurate with the growth in assets, but we did have growth in expenses, as you note. Some of that was onetime in nature, but the remainder of it reflected our continued investment in the long-term growth of the business.

Next we'll go to the line of Tom Gallagher with Crédit Suisse. Thomas G. Gallagher - Crédit Suisse AG, Research Division: The first question I had is just on the Group Disability reserve charge of around $100 million. You -- Mark, you had referenced Social Security offsets. Can you give a little more color for what's going on there? Are they getting harder to come by now? Is something changed with the Social Security offsets?

Tom, this is Steve. I'll address your question. This does not reflect a change in the external environment, external to ourselves, regarding this. We have refined our methodology about assessing the probability that a certain segment of our claimants will receive Social Security disability, and the reserve strengthening that we did this quarter reflects that refund. Thomas G. Gallagher - Crédit Suisse AG, Research Division: So -- but you haven't seen any change in behavior, nor amount of Social Security offsets. It's more assessing future probabilities going lower, I assume?

That's correct. It's a refinement in our own methodologies around that. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Okay. And then related to the VA charge, was there a statutory earnings impact? And I believe last year, when you did this, there was a statutory earnings impact, but there wasn't a capital impact. Can you comment on those 2 issues?

Tom, it's Rob Falzon. So yes, recall that from a statutory standpoint, we used a modified GAAP accounting that defines our hedge targets. So yes, there was a statutory impact. Yes, it also had a capital consequence associated with it. However, the numbers that we've quoted you with regard to our total capital capacity and readily deployable, factor that in and so they're after the effects of the capital impact. Thomas G. Gallagher - Crédit Suisse AG, Research Division: And so, Rob, would that have included -- so would that have been resources that were available within PRU global funding? Or how was that funded?

The -- we have resources across the firm, so it was a combination of capacity that we had within the annuities -- legal entity businesses to absorb that, in addition to funding that we've provided from other parts of the organization. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Okay. And just one last one, if I could sneak it in. The Retirement business, I guess, the results had been quite strong in the first part of the year, got a little bit weaker this quarter, and I believe it was underwriting-related. Is 10% to 15% quarterly swings in earnings volatility due to underwriting something we should expect going forward? Or was there something unusual about this quarter?

Tom, it's Steve. I'll address your question. I wouldn't draw long-term expectations around this quarter. Our first and second quarter case experience was very, very strong relative to our assumptions and expectations. Our third quarter experience was also positive relative to our expectations, but not to the same extent as we saw in the first and second quarter, and that's really about the extent of it.

Our next question will come from the line of Erik Bass with Citigroup.

I was hoping you could discuss competition for the jumbo PRT deals and current pricing in the market, in particular, given Motorola's comments about paying no premium. It would just be helpful to get your perspective on if and how the economics have changed and why you're comfortable that these blocks are -- will generate attractive returns.

Erik, it's Steve. I'll address your question. First of all, just to emphasize a point John made in his opening remarks, and that is that we're very pleased with the returns on the business we've written this year. Those returns are thoroughly consistent with our corporate return objectives. Second, the statements that you're referencing about par or above par or at par, those comments are all in relation to a plan sponsor's GAAP valuation of its pension liability. From one plan sponsor to another, those valuations can be impacted by a whole range of factors, including, in particular, whether a given plan sponsor is using old or new mortality tables in its valuation of the liability. Frankly, that's all pretty much irrelevant to us. We use a consistent and very disciplined methodology with multiple layers of oversight in order to arrive at our customized view, from the ground up, of the economic risks that we're taking on in a given transaction. That view is based on information that ranges far beyond the Society of Actuaries mortality tables. It includes industry data, it includes our own extensive experience in managing mortality risk, and it includes the -- especially in the large case market, the extensive census data that a plan sponsor supplies us on their retirees. So we're very, very confident in the approach that we take in that regard. Finally, I'd make some remarks regarding the different role that price plays in different segments of the market, and this reflects certainly our own competitive experience, but also the input that we've consistently received from plan sponsors and their advisors. In the large case market, price certainly matters, and there's a need to be competitive on pricing. In particular, pricing serves as a factor in winnowing down the competitive universe from…

That's very helpful. And how should we think about interest risk related to these transactions? And you're doing retiree blocks, so are you able to pretty tightly match the assets and liabilities?

Yes, that's a real good point, Erik. The -- very often, the point about retirees is, obviously, seen as a mitigator as it relates to longevity risk, but it's also a significant mitigator in relation to interest rate risk. These are people who are already drawing their payments. The payment schedule is set. There's no more optionality or behavioral risk in these cash flows, and we're able to match them very closely.

Got it. And how much risk is there if rates move between when a transaction is announced and when it's closed?

We have contractual provisions to adjust closing pricing for rate movements between announcement and closing.

Our next question comes from the line of John Nadel with Sterne Agee. John M. Nadel - Sterne Agee & Leach Inc., Research Division: I've a question about the assumption review and especially around the Individual Life insurance business, how you change the long-term path for investment yields there in your current view versus your former view. And I guess, specifically, does that have any influence on your view of the return potential for the Hartford Life block?

John, it's Rob Falzon. So we actually only made a relatively modest change to our long-term view of interest rates. So prior to the current quarter, using the 10-year as a benchmark, we had set that at 4.65%. We brought that down to 4.5%, and then a corresponding adjustment to the rest of the yield curve. The only other adjustment that was made is the method through which we migrate to that long-term reversion rate was modified, where we use the forward curve now for a 2-year period and then linearly move out of the long-term assumption for the remaining 8 years. That in and of itself is a relatively modest change and would not otherwise alter the view that we would have with respect to the economics on the Hartford transaction or, in any material way, our other blocks. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Terrific. And then just a question on G&A overall, general and administrative expenses overall for the company. I think you mentioned in a couple of occasion -- a couple of segments that expense levels were a little bit elevated in the current quarter. Is there any reason we should expect that -- in those couple of instances, Life Planner, a few other places, should we trend from this level? Or is some of that IT spending and other spending one-off?

So John, in the -- we have not called out to the -- to you or to anyone, any normalization of the expenses that we had in the current quarter with respect to any of the businesses on an overall basis. So I think that's the best way that I can answer that question. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Okay. And then lastly, just on the Chilean partnership. When you fund that sometime in the first half of 2015, where do you expect that funding will come from? Will it come from the parent? Or will it come from one of the international operating subsidiaries? And should we expect that, that funding -- we should reduce the expectation for buybacks by a like amount, like you did when you did Hartford?

Yes. So the overall level of funding for this, recall that the transaction will be somewhere around $600 million. So it's a relatively modest-sized transaction, and it will be closing during the course of the first half of next year. We have adequate, readily deployable capital, as we've articulated. In order to complete that acquisition, and absent any other events, funding for this would not alter any existing capital redeployment plans that we would have.

Our next question comes from the line of Jimmy Bhullar with JPMorgan. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: So the first question just related to the previous one on, given the Chilean deal, but also more importantly, the number of pension closeout and longevity transactions you've announced recently. Should we assume that you would be less proactive on share buybacks going forward than you have been because you're using a lot of capital in those deals? And then, secondly, you've spoken about this a couple of times in your prepared remarks. But on the pension closeout deal, you won a disproportionate share of the deals that have been done in the large case market. So just wondering, what's allowing you to win these deals other than the price? And how, like what -- maybe if you could just give us a little bit more detail on what type of returns that you're earning on these and like you've said consistent with your long-term objectives, wondering if you could just talk a little bit more specific on the type of returns you're assuming and what you're earning on the deals that you've done over the past couple of years?

Jimmy, it's Rob. I'll handle the first part of your question, and I'm going to turn it over to Steve for the second part of your question. I think it almost repeat what I said just prior to your question. We would -- both in terms of when we got the authorization for our stock buyback program back in June for the $1 billion and then with respect to how we're thinking about Habitat, all of that considered our expectations with regard to our ability to fund our continuing business, including our PRT business. And neither of those events, either our success with PRT or the Habitat acquisition, would cause us to otherwise think about altering the existing capital redeployment plans that we have. And then second part, I'll turn it over to Steve.

Jimmy, this is Steve. I won't characterize our returns on the transactions beyond what I said, which is that, like you said, we like the returns on the business we've written. Those -- they're in line with our corporate return expectations. In regard to capabilities, I'd mention the comments that John made at the outset, which is these are capabilities we've been investing in since 2006 in terms of the dedicated team. Also, we have a proven methodology for taking the resources of that dedicated team and connecting them to our resources across the company that are involved in successful and timely execution of these deals. That would include our asset liability management, our investment management, our actuarial and our legal area as well, in our ability to execute documentation in a ready fashion. That is a path of certainty that we can offer plan sponsors from the very outset of these transactions. We're able to give them a calendar for how they should expect matters to progress along this path, and that is a calendar that we have consistently followed through on in the different transactions we've done, and that creates, like I say, kind of a virtuous cycle about plan sponsor confidence in our ability to execute on these transactions. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: And I can understand you're not disclosing specifics on a certain deal, but I think one thing that might be helpful in the future is given that you've done a number of these now, that at least give us some idea on what actual returns have been because, whether it's right or wrong, given how many of these deals have been announced and what proportion of those you've earned, you've ended up getting -- there's a concern out there that may be Prudential's being aggressive on pricing. But that's for something for you to evaluate in the future.

Jimmy, it's Mark. Let me add 2 elements of color on this. One point is that the deals to date have outperformed our assumptions and expectations on both liabilities and assets. But secondly, I said early on in questions about these deals, particularly after we had just done GM and Verizon, that if these were done in a stand-alone company, you would want to buy that company, and I would stand by that comment. I believe that on a risk return basis, appropriately considering the entire deal and capitalization, these attractive are opportunities for us. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And lastly, just on the Institutional Asset Management business. Your flows have been consistently positive for a number of years. This quarter, it was a negative. So just if you can give us a little bit of color and whether it's more of an aberration or is there something that's changed in terms of your performance or anything else that drove the results this quarter?

No, Jimmy. This is Steve. I'd call it more of an aberration. It was driven by some rebalancing activities by equity clients and also the planned unwinding of an Asian real estate fund. When -- obviously, flows can be lumpy, and it's, of course, it's unfortunate to see a streak ending, but when we look at our investment performance, that continues to give us great confidence in our ability to garner flows in this business going forward.

Our next question will come from the line of Randy Binner with FBR Capital Markets. Randy Binner - FBR Capital Markets & Co., Research Division: I just have a couple of follow-ups. One is just on what Jimmy was asking about return expectations with the various pension closeout activities. Can you remind us of what your corporate return expectations are versus your cost of capital to maybe help triangulate the return question?

Randy, it's Rob Falzon. We have a stated target objective of 13% to 14%, and we think that, that provides a handsome premium over our cost of capital. Randy Binner - FBR Capital Markets & Co., Research Division: Okay. And I think in the past when you've kind of identified businesses that are above or below that target to kind of average to the return, where would pension fall on that continuum, where Japan would be lower and then some of the annuity activities will be higher?

Yes, Randy, we don't...

Japan's higher. Randy Binner - FBR Capital Markets & Co., Research Division: Say again?

Japan's a lot higher.

The actual returns that we post on our Japan business are actually with all -- well the risk would merit a lower hurdle rate. The actual returns against that have actually been well above what you would benchmark as a hurdle rate for that business. Having said that, Randy, we actually don't provide any visibility toward individual hurdle rates for any of our segment businesses. We just articulate that in the context of the overall company objectives because our mix of business and the capital that we deploy in it will change over time. Randy Binner - FBR Capital Markets & Co., Research Division: Okay, understood. And then on the group charge and just kind of following up on the Social Security piece of that. I guess, a couple. One is do you have any sense that Prudential's book would have more Social Security reimbursement exposure than a normal book? And then on that charge, was it mostly due to the Social Security recoverability issue? Or was there another major piece of the charge in the group area?

There's nothing -- Randy, this is Steve. There's nothing about our business that is materially different about the Social Security matter. As I said, this is a refinement of our own methodologies. The second part of your question was in regard to... Randy Binner - FBR Capital Markets & Co., Research Division: Well I'm just trying to reconcile, I think intuitively, you're having good current year development or activity, as you stated. But -- so then I'm trying to reconcile that with this kind of -- these refinements, and so Social Security has come out as a piece of which it makes sense. Is there another big piece, and kind of how big of a piece of the charge was the Social Security item?

We made an across-the-board update of our actuarial assumptions, and there were a variety of impacts, but the Social Security offset matter was the biggest piece.

Our next question will come from the line of Eric Berg with RBC Capital Markets.

I actually have just one question today. You've emphasized that the pension risk transfer business on one hand and the longevity reinsurance business on the other are really quite different from each other in terms of capital requirements, the profits that come out, the funding, one is funded, the other is not. Do you prefer one business over the other? Is one business a better business than the other?

Eric, this is Steve. We view -- well, first of all, we view this as a business, and we see longevity reinsurance and funded pension risk transfer business as different parts of that business. We view these as actually highly, highly complementary to each other. They are complementary to each other in terms of the capabilities that we were speaking about earlier. The insights we garner from one part of the business can help inform our risk management and our pricing in another part of the business. And we also see them as highly complementary from a financial result standpoint. Pension risk transfer business, funded pension risk transfer business, our earnings tend to decay gradually over time as the book runs off. Longevity reinsurance, the earnings profile actually escalates over time as our actuarial certainty about outcomes progresses as time elapses. So I'd say both from a strategic and from a financial standpoint, they're highly complementary.

If I could just ask one quick follow-up. Is there any reason, as an industrial company or another old-line industrial company or another plan sponsor, I realize you have newer companies with defined benefits plans, so lets' just talk about a plan sponsor in general. As a plan sponsor thinks about sort of getting out of the pension business or reducing its exposure to pension, what sort of considerations would prompt it to choose one approach over the other?

Meaning funded versus longevity swap?

Yes, please.

I think, Eric, we find that at least to date, in the U.S. market, the funded business has been the primary of choice. Whereas in the U.K., and also starting to extend into other markets like Canada and the Netherlands, we see the longevity reinsurance market as being, at this stage, much more highly developed and that's the way a lot of companies choose to go. But that could emerge in the U.S. market as well. But right now, we see the differentiation as largely a geographical one.

And that will be from the line of Steven Schwartz with Raymond James. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: I wanted to follow up on the Social Security issue first, and I just want to make sure I understand this. From the initial comments, it sounded to me like it was one part of the business that was affected by the Social Security refinement. Is that accurate?

Yes. It's our Group Insurance Disability business. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: No, no, no. I meant like one cohort or one type of risk or something like that? Or it was just more general?

No. We refined our methodologies in how we assess the likelihood of claimants to receive Social Security disability, especially around our segmentation of claimants. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Well, that's what I meant, the segmentation of claimants. So that's somehow -- but it wasn't necessarily one or the other. That's what I was trying to get to. What that means -- what does that mean, segmentation of claimants?

That means we refined the extent to which -- how we vary our assessment of probability from one segment to the next. A much more granular approach. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. All right, that's what I want to get to, okay. And then if we could stick on the actuarial stuff. With regards to the change in lapse assumptions on the variable annuities, what was it about interest rates? I mean, I would think that lower interest rates, older people, obviously, they've got nowhere to go. They would stick with their policies, but that's not what you're talking about here, is it?

No, Steven, this is Steve again. We changed our approach quite significantly this year to a much more sophisticated approach towards lapsation. Previously, our approach had been fundamentally based on "In-the-Moneyness" of the guarantee, and that's kind of an industry standard approach. Now we're focusing on the ability of a policyholder to replicate the income stream from our guarantee through other sources, other sources that might be available in the marketplace. As such, that makes this approach much more sense -- so that makes our lapse assumptions under this approach much more sensitive to interest rate movements.

And ladies and gentlemen, today's conference call will be available for replay after 2 p.m. today until midnight November 13. You may access the AT&T Teleconference replay system by dialing (800) 475-6701 and entering the access code of 314092. International participants may dial (320) 365-3844. That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.