CHIEF

INVESTMENT
OFFICE

Portfolio Management for Insurance Companies

March 30, 2023
Sara Bonesteel
Chief Investment Officer, International Insurance
Jacqueline Gelman
Investment Analyst, International Insurance

CONFIDENTIAL INFORMATION – NOT FOR FURTHER DISTRIBUTION. FOR INFORMATION PURPOSES ONLY
Prudential Financial
CORPORATE PROFILE
▪ Principal operations through five divisions:
‒ PGIM (Asset Management)
‒ U.S. Businesses: U.S. Individual Life, Group Insurance, Individual Life/Annuities, and Retirement
‒ International Businesses
‒ Closed Block Division
‒ Corporate and Other

▪ Traces its roots to the Prudential Friendly Society, founded in Newark, New Jersey, in 1875

HIGHLIGHTS RANKINGS

▪ $1.377 trillion in assets under management. i ▪ 7th in the “Insurance: Life and Health” category of
FORTUNE® magazine’s 2022 list of World’s Most
▪ Approximately $4 trillion of gross life insurance in force Admired Companies. iii
worldwide. ii
▪ Recognized by the Ethisphere Institute as one of the 2022
▪ Through its subsidiaries, serves 50 million customers in “World’s Most Ethical Companies”. iv
over 40 countries. i
▪ Named to FORTUNE® magazine 2022 list of “Global 500
▪ Approximately 40,000 employees and sales associates World’s Largest Corporations”. v
worldwide. i
▪ 11th-largest investment manager worldwide.vi
▪ Prudential Financial, Inc. Common Stock has traded on
the New York Stock Exchange under the symbol “PRU” • Largest life insurer in the United States (life and health
since 2001. combined) based on total admitted assets. vii

i As of 12/31/22. ii As of 12/31/21, includes Closed Block policies. iii As of February 2023. FORTUNE® and “The World’s Most Admired Companies®” are registered trademarks of Time Inc. “FORTUNE and Time Inc.
are not affiliated with, and do not endorse products or services of Prudential Financial.” iv As of February 2021. v As of May 2022. FORTUNE® and “Global 500 List of the World’s Largest Corporations®” are registered
trademarks of Time Inc. “FORTUNE and Time Inc. are not affiliated with, and do not endorse products or services of Prudential Financial.” vi Ranked by P&I’s Top Money Managers list, based on global assets under
management for PFI, as of December 31, 2021. Source: P&I, May 2022. vii. As of December 31, 2021. Ranking for Prudential Financial, according to A.M. Best.

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Prudential Financial’s Investment Portfolio

Highlights:
▪ Broadly diversified, high quality portfolio with strong Asset Liability Management
▪ Benefits from PGIM’s expertise and direct origination capabilities
▪ Disciplined framework for credit management

(1) General Account excluding the Closed Block Division and assets supporting experience-related contractholder liabilities (ASCL) as of December 31, 2022, on a U.S. GAAP carrying value
basis. Mortgage loans include commercial, agricultural, residential, and other loans. Structured products include commercial and residential mortgage-backed securities, collateralized
loan obligations, and other asset-backed securities. Alts include investments in LPs/LLCs, and real estate held through direct ownership. Other includes policy loans, fixed maturities -
trading, short-term investments, derivatives, and other miscellaneous assets.

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Prudential International Insurance

PII consists of a high-quality Japan life PII is a significant contributor to

insurer and an expanding presence in Prudential’s earnings
Emerging Markets

Japan International
~39%
▪ Best in class, profitable franchise
▪ World class captive agents PGIM 14%
complemented by third-party channels
▪ Differentiated business model, focused
on needs-based selling $6.1
Billion(A)
Emerging Markets
▪ Present in select emerging markets U.S.
with strong growth potential and Businesses
47%
favorable tailwinds
▪ Business mix includes Latin America,
Africa, China and Emerging Asia

Note : Pre-tax Adjusted Operating Income as of 12/31/2022;

Earnings mix excludes Corporate and Other

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International Portfolio Management (IPM) Overview
IPM manages and oversees over $170 billion1 in multicurrency portfolios supporting Prudential International
Insurance (PII).

▪ Japan
‒ Best in class, profitable Japanese franchise consistently maintaining market leadership position
‒ Highly productive distribution: world class captive agents, complemented by third party channels

▪ Emerging Markets
China
‒ Expanding economies and rising affluent and middle class: Latin America, China,
India
‒ Low insurance penetration with growing demand for protection and savings products
‒ Thoughtful ownership approaches and business models tailored to local market dynamics and opportunities

Brazil

1Amount includes some joint venture assets currently held in domestic portfolios and operating entities.

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The Role and Responsibility of the Chief Investment Office

CIO is responsible for asset-liability management and collaborates closely with the
business units and asset managers, as well as risk management, actuarial, and finance

Chief Investment Office

Prudential Businesses:
Sell Products / Generate
Liabilities
Asset / Liability Management Asset Managers
Strategic & Tactical Asset Allocation (PGIM & Alternative Assets
Active Risk Management Group):
Manage Liquidity Needs Select Investments
Portfolio Considerations
Product Pricing Support

Finance, Actuarial, Tax, Treasury, & Risk Management

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What Makes Insurance Investing Different?

Mutual Fund Insurance Company

General Account
• Outperform a benchmark on a • Be able to pay policyholders amounts they are
quarterly/annual/multiyear basis Objective owed, regardless of economic environment

• Portfolio is valued on a mark to market basis; Performance • Hold majority of assets at book value;
results vs predetermined benchmarks are meet/beat portfolio earnings expectations
compared Measurement embedded in product pricing/annual plan

• Actively traded portfolio; capital gains/losses • Buy and manage; capital gains/losses are not
are an element of overall performance Trading included in “AOI” (Adjusted Operating
Income), reducing the incentive to trade

• Assets are not matched to a liability; duration Asset-Liability • Close management of portfolio duration to
targets or ranges, if any, depend on the match liability profile
investment strategy Matching
• Can include virtually any asset type (fixed
income, equities, alternative, commodities,
Portfolio • Highly concentrated in fixed income
etc.) Composition
• Significant ability to invest in illiquid assets,
• Portfolio generally must be highly liquid to
accommodate redemptions on a daily basis Liquidity since liabilities generally cannot be redeemed
on short notice

• Few
Capital • Extensive
Requirements
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 A Day In the Life of a CIO
A representative day for the CIO is as follows:

March 25, 2022

7 AM China Weekly Update
7:30- 9 AM

9 AM Senior ALCO

10 AM Japan Portfolio Review

11 AM Emerging Markets Monthly Update

12 PM

1 PM PGIM Desk Heads Meeting

2 PM Risk Committee

3 – 6 PM
7 PM Japan Quarterly Review Meeting

Other meetings: Team Lead 1x1s, Business Management Meetings, Strategy/M&A, Regulatory,
Finance, Tax, Treasurers, HR

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Senior ALCO: Asset-Liability Management Overview

At the Senior ALCO meetings, we discuss several standing topics as well as relevant
current topics in portfolio management and market updates. Among the topics covered:

▪ Rates, spreads and equity market updates

▪ Portfolio performance relative to plan
▪ Collateral management
▪ Peer credit risk analysis
▪ Portfolio impacts from corporate initiatives
▪ YTD acquisitions and sales across all portfolios
▪ Updates on tactical initiatives

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Asset Liability Management Senior ALCO

• Appropriate interest rate risk management is fundamental for insurance companies to fulfill policyholder obligations
• In Japan, primary challenge is extremely long duration of liabilities
Interest
• In Emerging Markets, monitoring interest rate risk is especially important due to several factors:
Rate Risk
‒ High business growth, which can result in material liability cash flow updates
‒ High interest rate volatility

• Disciplined Asset-Liability management (ALM) practices ensure asset cash flows are sufficient to meet policyholder
liabilities

• Active management of interest rate sensitivities in the investment portfolio supports business objectives

• To determine an investment strategy, we need to understand the liability duration and where the interest rate sensitivity
ALM or duration exposure is positioned on the curve

Risk Limits/ Optimize ALM

Assets Liabilities
Constraints NII Strategy

Key rate durations (KRDs) are measures of price sensitivity to Key Rate
small changes in a single interest rate on the yield curve, which is 2000
Mismatch
important because interest rate curves do not move in a parallel Assets
manner 1500

Duration Dollars
Liabilities
Key Rate • We measure key rate durations of assets and liabilities at different
1000

Duration points on the curve to immunize the portfolio from these shifts in 500
rates
0
1y 2y 3y 5y 7y 10y 20y 30y
• The example illustrates a key rate mismatch which leaves the 10- -500
year overhedged to rates and the 20 year underhedged to rates

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Portfolio Benchmark Framework Senior ALCO

Our ALM strategies for General Account assets, expressed in the form of Portfolio Benchmarks, seek to
ensure outcomes are optimized across Economic, GAAP, Statutory and liquidity lenses while being mindful of
exposures to extreme outcomes
In order to optimize ALM we use the following approach to derive a benchmark:

• “Liability RP”: We seek to ALM match the interest rate risk in our liabilities across the investable space, using
Duration Replicating Portfolios (RPs) to represent liability interest rate exposure. Where RPs are not appropriate, an alternate
Benchmark liability representation is used
Framework
• “Surplus Benchmark”: CIO determines desired risk/return profile for portfolio surplus, which is translated into a
surplus duration benchmark

• “Management Overlay”: Reflects strategic interest rate risk decisions where we choose to accept ALM
mismatches due to product-specific ALM challenges and balancing economic optimization with GAAP, Stat and
liquidity constraints

Liability Cash Flows Key Rate Duration Profile

Cashflows (USD MM)
(USD millions) Optimize (USD millions)
2.75
NII
250.0
Asset
200.0 2.25
Portfolio Benchmark
150.0 Liabilities
1.75 Liabilities
100.0

DV01 (mm)
50.0 1.25
Portfolio 0.0
Benchmark -50.0
0.75

Construction -100.0 0.25

-150.0
0 10 20 30 40 50 -0.25
Short Medium Long Tail Total (ex.
Year Tail)

1 2 3 4

Step 1: Liability Step 2: Translate to Step 3: Set Portfolio Step 4: Manage ALM Profile
RP Liability DV01 Profile Benchmark to Portfolio Benchmark

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Hypothetical Portfolio Optimization and
Senior ALCO
Strategic Asset Allocation
Portfolios can be optimized on a number of factors considering the assets and liabilities,
factored with assumptions and constraints to ultimately produce a strategic asset
allocation plan

Asset
Assumptions

▪ Available
Supply Portfolio Optimizer
• Publics
• Privates
• Mortgages
• Structured Market Capital
• Equity Assumptions Constraints Definitions ▪ Return Metrics
▪ Baseline Mix • Income (gross/net) Portfolio
▪ Investment ▪ Operating ▪ Risk Based • Total Return Strategic
Income Limits Capital ▪ Risk Metrics Asset
• Current, ▪ Constraints (RBC) Allocation
• C1 (RBC, EC)
Portfolio long-term ▪ Duration ▪ Economic
• Volatility (SAA)
• Yields Corridor Capital (EC)
• Spreads ▪ Efficient Frontiers
• Defaults ▪ Portfolio Summaries
Liability
Characteristics ▪Total Return

▪ Duration
▪ Expenses Constrained Optimization
▪ Optionality
▪ Capital
Asset Focused
Multiple Risk/Return Measures

Hypothetical – For Illustration Only

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Strategic Asset Allocation Senior ALCO

▪ The Strategic Asset Allocation (SAA) is an asset mix that would be considered optimal in terms of risk-return trade-off and
other liability-driven characteristics under a hypothetical set of “stationary” long-term market conditions

▪ LT views and current market conditions may not always align so in the short-term, portfolios in the SAA framework are
managed within operating ranges relative to their targets
Higher
For example, BBB & below bond portfolio (C) could be
Same risk,
more return constructed, but by further diversifying the portfolio,
Efficient higher return could be achieved with equal risk or
equal return could be achieved with lower risk.
Frontier B
Portfolio Metrics Portfolio A Portfolio B Portfolio C
Lower RAC Higher Return BBB & Below
Duration 11.5 11.5 11.5
1
Yield (Net) 5.7% 6.0% 5.7%
Return

A C RAC 2 5.8% 8.1% 8.1%

Less risk, Inefficient Asset Allocation Portfolio A Portfolio B Portfolio C

same return Portfolio US Governments 15% 14% 0%
MBS 6% 0% 0%
A Corp 37% 6% 0%
BBB Corp 23% 57% 66%
BB Corp 4% 4% 34%
Alternatives 16% 20% 0%
Total 100% 100% 100%

Higher
Risk
1. Yield is net of default charges and investment expenses and is based on historical long-term rate and spread data
2. RAC is Risk Adjusted Capital
Hypothetical – For Illustration Only - A model-based strategy presents unique risks that may result in the models not performing as expected. These risks include, for example, design flaws in the model; input,
coding, or similar errors; technology disruptions that make model implementation difficult or impossible; and errors in externally supplied data utilized in models. No investment strategy or risk management
technique can guarantee returns or eliminate risk in any market environment.

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Strategic Asset Allocation Reflects Expected Return
Senior ALCO
Contribution and Capital Considerations
▪ Large allocations to Private BBB and Mortgages due to incremental spread and long-term credit
performance, which is better than publics
▪ Public As attractive due to capital efficiency
▪ Public BBBs also attractive, but are constrained by risk limits

Public Bonds
Illustrative Asset Mix of Optimal Portfolio
20% Privates & Mortgages

Structured Assets
15%

Investment Equity & Alternatives

Portfolio 10%

Strategic Asset
Allocation
5%
(SAA)

0%
Pub AA Interm

Agency MBS AAA (30)

Priv BB Interm
Pub AA Long

Pub BBB Interm

Priv A Interm

Priv BBB Interm

Pub A Interm

CMBS AAA (3.5-6)

Alternatives
Mortgage A-/B+

ABS AAA
Pub A Long

Pub BBB Long

Pub BB
Gov't

Hypothetical – For Illustration Only

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Asset Class Risk / Return Relationship Senior ALCO

Assets are evaluated based on factors such as estimated returns and capital requirements.

3.0%

2.5%

2.0% Private BIG

Current Net Spread

1.5%
Private Public EM BBB
BBB
Mortgages
CLO AAA
1.0% Private A
Public BIG
Public
Agency MBS BBB
0.5% CMBS
Public A

ABS AAA Public EM A

0.0%

Investment RAC
-0.5%
-0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 10.5% 11.5% 12.5%

Hypothetical – For Illustration Only

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Derivatives and Asset Liability Management Senior ALCO

Portfolio dynamics and net asset/liability duration drive use of derivatives

Portfolio Dynamic Need for Derivatives

Tail duration risk roll down
(cashflows > 30yrs)
Privates and Mortgages
Lack of asset supply
at specific key rates
Floating rate assets
Market movements
▪ Tail duration risk bleeds into the 30yr key rate over
time increasing the need for hedges in that sector
▪ Difficult to hedge due to lack of hedges beyond 30yr rate
▪ Typically 7-10yr maturities resulting in yield curve duration
mismatches
▪ Portfolios typically end up with excess curation exposure in the
7-10yr key rates
▪ Rebalancing of duration exposure to correct mismatches that
occur due to lack of availability of some maturities (e.g., 20yr
corporates are limited)
▪ Purchased for relative value reasons and typically swapped to
fixed to manage duration needs
▪ Rate, yield curve and credit spread changes necessitate
rebalancing (e.g., steepening of yield curve increases duration
hedging need)

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Japan Portfolio Review

At the Japan Portfolio Review we discuss several standing topics as well as tactical
opportunities in the market. Among the topics covered:

▪ Acquisitions for the month/year

▪ Derivatives positioning (both rates and CDX)
▪ ALM positioning
▪ Cash availability for purchases of new assets or for other purposes such as
dividending
▪ Currency positioning
▪ Tactical trade ideas in development
▪ Any special needs from other areas of the company (e.g., Actuarial, PGIM,
Japan investment professionals)

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Japan Portfolio Management Considerations Japan Portfolio

Currency is the first consideration in managing portfolios to hedge

liabilities from Japan Operations.

▪ Portfolios are heavily concentrated in long dated Japanese government bonds (JGBs) for
duration management purposes. JGBs are readily available in tenors of up to 40 years.

▪ The available supply of Japanese corporate bonds and other Yen-denominated spread
assets is limited.
Yen Denominated ▪ Therefore, we also purchase assets in other currencies (primarily USD) and hedge the FX
Liabilities exposure via derivatives.

▪ We hedge FX risk within the investment portfolio and this risk is monitored by Enterprise
Risk Management (ERM).

▪ We manage portfolios using primarily USD assets.

▪ Japan USD portfolios hold higher concentrations of U.S. Government bonds than U.S.
businesses’ portfolios due to duration needs.
U.S. Dollar
Denominated ▪ Japan USD portfolios purchase privates and mortgages, but addressable supply can be
Liabilities limited by tax and other constraints.

▪ U.S.-reinsured portfolios have asset mixes similar to those of other U.S. portfolios.

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Asset Allocation for Japan Portfolios Japan Portfolio

▪ Asset allocations below correspond to JPY denominated liabilities, USD denominated liabilities, and U.S.-reinsured USD
denominated liabilities, respectively.
▪ Portfolios in both JPY and USD include significant allocations to long dated government bonds to better match the liability
profile.
▪ The U.S. reinsured portfolios have been able to use derivatives to achieve their duration objectives for several years and
depend more on derivatives than the Japan portfolios. Japan portfolios began to execute derivatives in 2019.
▪ Derivatives enable greater allocation to shorter-duration spread assets like investment grade (IG) publics, privates and
mortgages.
Sample USD Portfolio
Sample JPY Portfolio Sample USD Portfolio Reinsured to US
Core RP: 19.1y Core RP: 10.5y Core RP: 15.4y
Total RP: 25.0y Total RP: 14.4y Total RP: 25.3y

Mortgages BIG Public BIG Private

~0% BIG Private
4% ~0% BIG Public
Equity/Alts 1% BIG Private
~1% Equity/Alts
IG Private 6% 3% 4%
5%

Mortgages Gov't/Agency
IG Public Mortgages
19% 8%
10% 24%
Gov't/Agency Struc. Fin.
Struc. Fin.
35% 4%
1%

IG Private
15%
IG Private IG Public
33% 27%
Gov't/Agency
76% IG Public
25% Struc. Fin.
1%

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Japan – Generic USD Acquisition Report Japan Portfolio

ACTUAL GUIDANC
USD Liability Segment Month To Date Year To Date Month To Date
(in USD million @ plan rate ) Amnt Yield Dur Amnt Yield Dur Amnt Yield Dur Am
PURCHASES 300 2.5% 12.9 300 2.5% 12.9 239 3.0% 5.7 23
US Treasuries 100 1.9% 26.6 100 1.9% 26.6 1 1.3% 6.7
IG Public (A and above) 2 1.7% 9.2 2 1.7% 9.2 47 1.8% 9.1 4
IG Public (BBB) 3 1.8% 8.2 3 1.8% 8.2 3 2.4% 8.8
IG Private ( A and above) - - - - - - 10 2.7% 8.3 1
IG Private (BBB) 1 5.4% 5.5 1 5.4% 5.5 24 2.9% 8.2 2
Mortgage 194 2.8% 6.1 194 2.8% 6.1 126 3.1% 4.1 12
Below Investment Grade - - - - - - 28 5.0% 3.9 2
SALES - - - - - - 2 4.0% 5.8
IG Public (A and above) - - - - - - 2 4.0% 5.8

[MTD/YTD]
• CAFI was above the plan due to higher CFIO and larger amounts of prepayments (mainly BIG Public).
• Purchased Strips by $100mil for duration management and Mortgage by $194mil for portfolio yield enhancement.
• Didn’t purchase BIG Privates due to lower than planned disbursement although Guidance assumes $28MM/month purchases.

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Japan – Generic JPY Acquisition Report Japan Portfolio

ACTUAL GUIDAN
JPY Liability Segment Month To Date Year To Date Month To Date
(in USD million @ plan rate ) Amnt Yield Dur Amnt Yield Dur Amnt Yield Dur A
PURCHASES 589 1.0% 23.8 589 1.0% 23.8 279 1.5% 21.4
JGB 405 0.7% 32.7 405 0.7% 32.7 162 0.5% 32.3
IG Public (JPY) 20 0.8% 15.4 20 0.8% 15.4 4 0.6% 10.6
IG Public (USD) -FX Hedged 5 1.9% 8.6 5 1.9% 8.6 37 1.8% 9.0
IG Private (JPY) - - - - - - 2 2.3% 8.3
IG Private (USD) -FX Hedged 12 2.7% 5.9 12 2.7% 5.9 12 2.9% 8.3
Mortgage (JPY) - - - - - - 13 0.8% 3.0
Mortgage (USD) -FX Hedged - - - - - - 7 3.2% 4.1
IG Strucutured (USD) -FX Hedged 2 0.0% 0.0 2 0.0% 0.0 - - -
Below Investment Grade (USD) -FX Hedged 104 2.7% 3.4 104 2.7% 3.4 40 4.5% 4.2
Alternatives/Equities 41 - - 41 - - 2 - -
SALES - - - - - - 34 3.1% 1.3
JGB - - - - - - 2 1.1% 2.2
Below Investment Grade (USD) -FX Hedged - - - - - - 32 3.2% 1.2

[MTD/YTD]
• Purchased JGB 40y BY $291mil and JGB 30y BY $97mil for duration management
• Purchased BIG Public above guidance ($73MM vs $25MM) to make up for larger amounts of prepayments.
• HF&PE funding of $10mil, $30mil and $1mil, respectively.

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 Japan Portfolio
Generic ALM Summary

(Note) * Modified duration represents, total DV01/ total Market Value for assets and Investable DV01 / total Market Value for portfolio
benchmark and its components,
(Note) ** '+' means overage to upper band, '-' means overage to lower band
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Japan – Asset Liability Management Tools Japan Portfolio

The very long duration profile of Japan liabilities means that we are continually
challenged to manage interest rate exposure in our portfolios. In recent years we have
developed additional tools to manage this risk.

Interest Rate ▪ Derivatives can create undesirable volatility in PFI’s GAAP results, and can create
Derivatives collateral needs, so usage needs to be carefully monitored and managed.

▪ Unlike derivatives, repo does not create GAAP volatility, but we must manage the
Repurchase
risk that lenders don’t renew (or “roll”) the funding by ensuring adequate liquidity in
Agreements (Repo) our portfolios.

Funding Agreement ▪ We use FANIP proceeds to purchase long-duration corporate bonds and other
Note Issuance spread assets.
Program (FANIP)

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Emerging Markets Monthly Update

At the Emerging Markets Monthly Update meetings, we discuss several standing topics
related to portfolio management as well notable changes in regional markets. Among
the topics covered:

▪ Provide management updates on regional economy

▪ Monitor gains/losses in our portfolio due to PM Activity and/or market conditions
▪ Further analyze economic outlook to ensure proper asset allocation

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 Emerging Markets
EM Asset Liability Management Nuances

High business growth and the expansion of a Historical spikes in inflation in emerging
Business product portfolio from innovation initiatives markets have prompted development of Inflation
may result in meaningful updates to inflation-linked products and assets in
Growth liability cash flow profiles some countries

Countries with more volatile currencies

Emerging markets tend to see may opt to sell products in hard
Interest elevated interest rate volatility,
making it all the more important to
currencies (e.g., USD), requiring Currency
Rates appropriately hedge interest rate risk
management of a multi-currency
portfolio

Whereas mature businesses tend to have EM markets are generally less developed
Liability only liability outflows, newer EM businesses and insurance companies may be further Market
have net inflows projected in early years regulated, limiting feasibility of income-
Structure and long-dated outflows enhancing asset classes and derivatives Structure

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2023 EM Challenges and Opportunities Emerging Markets

Latin America outlook is favorable in 2023 due to less hawkish FED monetary policy, a weaker dollar,
and an increase in growth driven by China’s reopening. However, investors remain cautious as
idiosyncratic political risks persist.

Mexico
Challenges: Sticky inflation, Tight monetary policy,
Low growth, Politics
Opportunities: Strong FX rate, Nearshoring trend,
Safe haven for equities in region
Key Events to Watch: Energy policy, USMCA
negotiations, Positioning for 2024 Elections

Brazil
Challenges: Fiscal pressures, Political risks, Persistent inflation,
Interest rate volatility
Opportunities: Growth in trade as China reopens, Low equity
valuations, Climate change policy reform
Key Events to Watch: Political policy making and reform
agenda, Central Bank rate decisions
Argentina
Challenges: Hyperinflationary environment, Unsustainable
debt burden, Regulatory restrictions
Opportunities: Path to a sustainable fiscal policy
Key Events to Watch: November Presidential Elections

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Market Update – Latin America Emerging Markets

Emerging markets rates continue to increase ahead of the Fed’s policy tightening this year
Argentina - Off-Shore USD Rates Brazil - Interest Rates Mexico - UDI and USD rates

Dollar-denominated off-shore rates Yield curve has inverted given fiscal concerns, UDI rates have followed other emerging market
increased following the U.S. Treasury curve. inflationary pressures and political volatility. assets higher on inflationary pressures

• Banxico raised its key benchmark rate a

surprisingly 50bps in February in a response
to stubborn inflation.

• With inflation in the US and Mexico

remaining above target many believe that
Mexico will continue to see a rise in interest
rates.

USD-denominated rates (UMS) also increased

following U.S Treasury rates.

The BCS continued to depreciate and the The Central Bank has kept the Selic at
gap between the BCS and the official FX has 13.75% since September with hopes to cool
reached record highs. down sticky inflation.
Source: Reuters EIKON, dotted lines show forecast from 2022 investment plan

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EM Portfolio Update Emerging Markets

Sample EM Portfolio Breakdown Sample EM YTD Allocation

Corp, 5%
Nominal,
7%
ST, 8%
Alts, 1%

Inflation
Linked, 78%

ST ST Corp
15 yr Nominal
30 yr Inflation-Linked
35 yr AltsFunds
Hedge
EM USD MV has increased in January driven by the increase in inflation
and policy rates throughout the region. Plan
Actual

Portfolio Management & Business Initiatives

Portfolio Management
• Asset-Liability Management — Allocate new money consistent with longer-term investment strategy considering current key-rate duration profile and
any structural constraints (e.g., long-duration asset availability, regulations)
• TAA — Actively monitor our portfolios and track current market conditions to assess trades in our region.
• Asset Managers — Work with local teams on oversight of third-party in-country asset managers to ensure effective trade execution
• Liquidity Management — Monitor ST position to ensure an adequate amount of cash remains at hand given seasonality of cash flows.
Strategic Initiatives
• Technology — Develop tools to streamline decision making. Collaborate with Technology & Operations and Quantitative Modeling teams to
automatically generate comprehensive analytics and create informative dashboards
• Business Activity – Local business developments, including new products, can materially impact ALM

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PGIM Desk Heads Meeting: Asset Management Capabilities

At the PGIM Desk Heads Meetings we discuss market updates, trade ideas and
expectations for developments in the markets. Among the topics covered:

▪ Impact of current events on markets

▪ Relative value trade opportunities
▪ Current spread and rate levels
▪ Headwind and tailwind risks
▪ Credit migration and rating actions
▪ Origination volumes
▪ Portfolio snapshot and top holdings
▪ Portfolio performance Metrics

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PGIM Capabilities PGIM

PGIM offers services across a broad range of public and private asset classes and have a strategy to
broaden and globalize products

Businesses Global Footprint

As of December 31, 2022. All assets under management (AuM) are net unless otherwise noted. AuM totals may not sum due to rounding and double counting.
1. Includes $16 billion in assets managed by PGIM Fixed Income for affiliated businesses, $79 billion in PGIM Japan assets, and $127 million of which is sub-advised by PGIM Private Capital.
2. Includes equity $112 billion, fixed income $52 billion, and private credit and other alternatives $218 million.
3. AUM totals include: assets managed by PGIM Quantitative Solutions and PGIM Wadhwani LLP (PGIMW), $57 billion in directly managed mandates, $30 billion of institutional and retail assets managed by various affiliated and third-party managers.
4. AUM total is reflected as gross and includes assets under administration. Net AUM is $134 billion and AUA is $49 billion.
5. PGIM Investments AUM as of 12/31/2022 includes U.S. mutiual funds: $121.0B (excluding money markets and fund of funds), closed-end funds: $1.4B, ETFs: $4.2B, UCITS funds: $6.5B, PGIM Custom Harvest: $2.2B, and Asia Local: $22.3B. Asia Local AUM includes Everbright
PGIM (a joint venture in China in which PGIM has a 45% ownership stake), PGIM SITE and PGIM India
6. PGIM is the investment management business of Prudential Financial, Inc. (PFI). PFI is the 11th largest investment manager (out of 431 firms surveyed) in terms of worldwide institutional assets under management based on Pensions & Investments’ Top Money Managers list
published June 2022. This ranking represents institutional client assets under management by PFI as of December 31, 2021. Participation in the P&I ranking is voluntary and open to managers that have any kind of U.S. institutional tax-exempt AUM. Managers self-report their data via
a survey. P&I sends the survey to previously identified managers and to any new managers asking to participate in the survey/ranking. No compensation is required to participate in the ranking.
7. Based on PGIM client list as of December 31, 2022 compared to P&I/Thinking Ahead Institute’s Top 300 Global Pension Funds ranking, data as of December 31, 2021, published September 2022. US funds data was sourced from the P&I 1000, while figures for other regions were
sourced from annual reports, websites, and direct communications with pension fund organizations.

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Hypothetical Tactical Asset Allocation Heat Map PGIM

High quality Structured Public IG are least attractive due

Privates are attractive on a
Products are highly capital to lower gross spread and lower
spread basis but are not as
efficient but do not offer the capital efficiency relative to other
capital efficient
highest gross spread asset classes

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PGIM 1Q23 Summary of Outlooks & Asset Class Views PGIM

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Risk Committee

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Enterprise Risk Management Risk Committee

CIO works closely with the Enterprise Risk Management group, which is
responsible for developing framework of risk appetite across several
dimensions:
▪ Interest rate risk
▪ Credit risk
▪ Liquidity risk
▪ Actuarial risk
▪ Operational risk
▪ Reputational risk

CIO works within prescribed limits to manage portfolios; running in excess of

limits prompts a discussion/remediation.

We meet regularly with Risk Management to discuss current positioning and

prospects in interest rate and credit risk.

Recent topics for discussion have included liquidity, collateral management,

and impact from expected rate cuts.

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Portfolio Management Current Topics

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Rising Rates Impacts on Portfolios PM Current Topics

▪ Fed rate hikes beginning in March of 2022 have driven rates to levels not seen since the Great
Recession. Notable impacts to our portfolios from rising rates include:

▪ Rising rates caused the duration of both our Assets and Liabilities to decline, however the
Liability
impact to Liabilities was more pronounced, as our Liabilities exhibit a much higher degree
Convexity
of convexity than our Asset portfolios. Liability convexity can result in over-hedging in
rising rate environments.

▪ Rising rates have a negative effect on the Market Value of fixed income positions (i.e.,
Stresses on Corporate Bonds, USTs, etc.). In Statutory accounting, realized losses incurred upon
Statutory Capital selling bonds in a loss position produce a direct negative impact to Statutory Capital, which
makes it punitive for us to raise cash via asset sales in a rising rate environment.

▪ Rising UST (United States Treasury) rates relative to JGB (Japan Government Bond) rates
caused significant Yen depreciation. Yen depreciation was (1) Net positive for our long-
JPY Depreciation
USD-short-Yen FX derivative positions and (2) Net negative to our cash inflows from
vs. USD
insurance operations, as Japanese policyholders elected to surrender/terminate their US
dollar-denominated policies and receive the USD cash value.

▪ 2023 Prospective Portfolio Considerations:

▪ Slowing global growth could lead to negative credit migration and credit portfolio losses.

▪ A “Fed Pivot” could lead to lower rates in an attempt to spur economic growth.

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Competition from Private Equity PM Current Topics

▪ Growing trend of Private Equity firms seeking to increase their Assets Under Management through entering
partnerships with insurers or buying them outright.
• Historically, a lot of time spent on fundraising for capital. Receiving inflows from insurance business
creates a high volume of capital with less energy spent on fundraising.
▪ Opportunities for Insurance Companies
• Opportunity to sell legacy businesses to free up capital and move into more attractive capital-light
businesses or return capital to shareholders.
• Higher grade portfolios will allow traditional insurance companies to better weather risks in economic
downturn scenarios.
• Study the moves of PE firms without taking the initial risk of a new strategy
• Changing landscape in the insurance industry can provide opportunity for larger insurers to acquire
or enter a joint venture with smaller insurance operations
▪ Risks for Insurance Companies
• PE firms tend to have riskier portfolios (more concentrated in asset-baked securities, primarily
CLOs), which generate higher returns. This can allow them to offer cheaper policies making them
more competitive in the insurance space.
• Asset Management arms of existing insurance companies will face greater competition in picking up
asset management fee related earnings

Source: “Why private equity sees life and annuities as an enticing form of permanent capital” By Ramnath Balasubramanian, Alex D’Amico, Rajiv Dattani, and Diego Mattone

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ESG at Prudential
Responsible Investing Strategy
• The CIO expects ESG factors to be
integrated into every investment decision
made on behalf of the GA:
1) Incorporating ESG factors into
fundamental security analysis,
2) Assessing how ESG factors could impact
long-term asset returns, or
3) Understanding the ESG approach of a
fund general partner.
4) CIO restricts new direct investments in
thermal coal and controversial weapons
Net Zero Commitment
Prudential commits to achieve net zero
emissions across its primary home office
operations by 2050 and set an interim goal
to become carbon neutral by 2040
CONFIDENTIAL INFORMATION – NOT FOR FURTHER DISTRIBUTION. FOR INFORMATION PURPOSES ONLY
PM Current Topics
Impact Investments
• Prudential believes the company’s long-
term success depends on the vitality of the
communities in which business is conducted
• Prudential is committed to helping create
such communities through investments
aimed at addressing social challenges not
being adequately served by traditional
capital markets. This includes investments
that promote transformative developments,
financial inclusion, education & skills, and
affordable housing
• The Impact Investment portfolio has $1B in
AUM, making Prudential one of the first
institutional investors to reach this milestone
38
Important Notes
This information has been prepared by the Chief Investment Office (“CIO”) of The Prudential Insurance Company of America a wholly owned subsidiary of
Prudential Financial, Inc. (“PFI”). PFI, a company with corporate headquarters in the US, is not affiliated in any manner with Prudential plc, a company
incorporated in the United Kingdom.

This document contains confidential information and the recipient hereof agrees to maintain the confidentiality of such information. These materials do not
constitute investment advice and should not be used as the basis for any investment decision. These materials represent the views, opinions and
recommendations of the author(s) regarding the economic conditions, asset classes, securities, issuers, or financial instruments referenced herein.
Distribution of this information to any person other than the person to whom it was originally delivered and to such person’s advisers is unauthorized, and
any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of CIO, is prohibited. Certain
information contained herein has been obtained from sources that CIO believes to be reliable as of the date presented; however, CIO cannot guarantee
the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as
of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. CIO has no obligation to update any or all of
such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for
errors.

These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any
investment management services. Nothing contained in these materials may be relied upon as a guarantee, promise, assurance or a representation as to
the future. In considering the performance information contained herein, prospective investors should bear in mind that past or projected performance is
not necessarily indicative of future results, and there can be no assurance that comparable results or any projected returns will be met. No liability
whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use of the information contained in or derived from
this report.

Model‐based strategies present unique risks that may result in the model’s not performing as expected. These risks include, for example, design flaws in
the model; input, coding or similar errors; technology disruptions that make model implementation difficult or impossible; and errors in externally supplied
data utilized in models. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Investing
in non‐U.S. issuers generally involves more risk than investing in those of U.S. issuers. Foreign political, economic and legal systems, especially in
developing and emerging countries, may be less stable and more volatile than those in the U.S. Foreign legal systems generally have fewer regulatory
requirements than does the U.S. legal system. The changing value of foreign currencies could also affect the value of private funds. Foreign countries may
impose restrictions on the ability of their issuers to make payment of principal and interest or dividends to investors located outside the country, due to the
blockage of foreign currency exchanges or other problems. Investments in foreign domiciled private funds may be subject to withholding and other taxes in
various jurisdictions. Emerging market investments are typically subject to greater volatility and price declines than investments in developed markets.

These materials do not purport to provide any legal, tax or accounting advice. These materials are not intended for distribution to or use by any person in
any jurisdiction where such distribution would be contrary to local law or regulation.

© 2022 PFI and its related entities and the Rock design are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

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