Alan Mark Finkelstein - Prudential Financial, Inc. John Robert Strangfeld - Prudential Financial, Inc. Mark B. Grier - Prudential Financial, Inc. Robert Michael Falzon - Prudential Financial, Inc. Stephen P. Pelletier - Prudential Financial, Inc. Charlie F. Lowrey - Prudential Financial, Inc..

Erik Bass - Autonomous Research Suneet Kamath - Citigroup Global Markets, Inc. Ryan Krueger - Keefe, Bruyette & Woods, Inc. Thomas Gallagher - Evercore ISI Humphrey Hung Fai Lee - Dowling & Partners Securities LLC Alex Scott - Goldman Sachs & Co.

LLC Jamminder Singh Bhullar - JPMorgan Securities LLC John Bakewell Barnidge - Sandler O'Neill & Partners LP.

Ladies and gentlemen, thank you for standing by and welcome to the Prudential quarterly earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder this conference is being recorded.

I would now like to turn the conference over to our host, Mark Finkelstein. Please go ahead, sir..

Thank you, Roxanne. 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, Principal Accounting Officer.

We will start with prepared comments by John, Mark, and Rob, and then we will answer your questions. Today's presentation may include forward-looking statements. It is possible that actual results may differ materially from the predictions we make today. In addition, this presentation may include references to non-GAAP measures.

For a reconciliation of such measures to the comparable GAAP measures, and a discussion of factors that could cause actual results to differ materially from those in the forward-looking statements, please see the section titled, Forward-Looking Statements and Non-GAAP Measures of our earnings press release, which can be found on our website at www.investor.prudential.com.

And with that, I will hand it over to John..

Thank you, Mark. Good morning, everyone. And thank you for joining us. I will begin by saying that we're very pleased with the quarter. We reported record adjusted operating earnings per share that were driven by strong fundamental trends and solid momentum across our businesses.

I will provide some higher-level observations on the quarter, and then comment on business fundamentals, capital deployment, and other key topics of interest. And following that, I'll hand it over to Mark and Rob to cover the specifics.

Third quarter adjusted operating income excluding market driven and discrete items of $2.94 per share was well above the prior year of $2.51 per share. The annualized ROE for the quarter was over 14%, exceeding our near to intermediate term objective of 12% to 13%.

In addition, adjusted book value per share increased 6% over the third quarter of 2016, which is after paying $2.95 per share in dividends. At a high level, results in the quarter benefited from strong margins and good growth across a number of our businesses.

We reported record assets under management and account values in our Asset Management, Retirement, and Individual Annuities businesses, and while results in the quarter benefited from items that are inherently variable, the earnings power of our businesses continues to trend higher.

I'll now briefly touch on some fundamental trends in our businesses, starting with our domestic businesses. We reported record adjusted operating earnings in our Asset Management business driven by strong net flows, market appreciation, and stable average fee rates.

Importantly we are seeing the benefits of AUM growth translating directly to strong growth in our core earnings, even while we continue to invest in distribution and product initiatives. Unaffiliated third party net flows were robust at 6 billion in the quarter and we reported record total AUM of 1.1 trillion.

This includes nearly 600 billion of unaffiliated third party AUM. While results for the quarter benefited from some items that will vary we continue to be very pleased with the core growth in AUM, and earnings from Asset Management. Retirement had a solid quarter, reporting good earnings and net flows.

I would highlight that after several quarters of strong outperformance in this segment which included particularly favorable pension risk transfer case experience, the third quarter returned to a more normal level of earnings that was broadly in line with our expectations.

We set a new record for account values in both our Full Service and Institutional Retirement businesses. While we are clearly benefiting from market appreciation, we have also generated strong net flows including 7 billion of positive net flows this quarter.

This reflects a number of good wins in both our defined contribution and pension risk transfer businesses. We also reported record core results in our Individual Annuities business. Return on assets of 128 basis points continues to benefit from enhancements to our risk management strategy and growth in our account values.

As we mentioned last quarter, we do expect our return on assets to moderate from the particularly strong levels currently, but we nonetheless continue to be pleased with the earnings, cash generation, and reduced volatility from Annuities.

In the meantime, we are focused on a number of product and distribution initiatives and while we continue to face near term sales challenges we remain optimistic on the longer term prospects for annuities as the need for Retirement income products is only increasing. Our U.S. protection businesses showed solid results.

Group Insurance continues to produce strong underwriting margins generating a benefit ratio that again was more favorable than our expected range. We are also pleased to see the improved performance in our Individual Life Insurance business, which benefited from favorable mortality experience in the quarter.

Turning to our international businesses, we produced good overall results that were broadly in line with our expectations. Our Life Planner and Gibraltar businesses continue to show stable core growth and good underwriting margins. Not surprisingly, sales were down 11% compared to a year ago quarter.

This is largely due to the re-pricing of yen based products in Japan which we believe accelerated sales to the first half of the year. Despite these pressures we did produce strong growth in our U.S. dollar products in Japan which were up 15% over the prior year.

And for the first time, more than half of our Japan sales in both Life Planner and Gibraltar were from U.S. dollar products. Shifting to capital deployment, we returned approximately $640 million of capital to shareholders in the quarter, about equally split between dividends and buybacks.

This brings our total capital return to our shareholders since 2011 to approximately $14 billion. We continue to have a robust capital position, and a business model that generates considerable free cash flow.

This provides flexibility to return healthy amounts of capital to shareholders, execute strategic M&A and continue to invest in our businesses for the long-term growth. And finally I want to make a couple observations on key topics of interest. I'll start with the recent report issued by the U.S.

Treasury that addresses the administration's core principles for financial regulation in respect of asset managers and insurers. While this report does not produce any explicit change to existing laws or regulations, it contains a number of recommendations that align closely with Prudential's policy positions.

In particular, we're pleased with the recommendations that systemic risk evaluation should be more activities based than entity focused. And there should be greater coordination between the various regulatory bodies.

We continue to believe that we do not meet the criteria of a nonbank systemically important financial institution and are encouraged by the recent direction of Treasury and the Financial Stability Oversight Council.

On potential tax reform, we support effective tax policy that promotes growth and investment by corporations and greater financial flexibility for individuals to enable them to save more for retirement.

While we wouldn't want to speculate on what the final legislation will look like, we are well positioned to observe the near term capital impacts that could arise and we believe more broadly that a lower corporate tax rate should be a net long-term positive.

So to conclude my remarks, we had an excellent quarter and we remain positive on our strategies to produce long-term growth and consistent financial outcomes across our businesses.

We continue to invest in initiatives that leverage our differentiated capital capabilities to capitalize on powerful market themes, such as the need for retirement readiness. This includes enhancing the ways in which we connect and engage with our customers.

And at the same time, we're generating strong returns and substantial cash flow in our businesses, and this enables us to strike the right balance between investing in growth and returning capital to shareholders through dividends and share repurchases. And with that, I'll hand it over to Mark..

lower expenses, including lower costs for employee benefit and compensation plans with obligations that are remeasured each quarter based on equity markets or on our company share price as well as other corporate expenses, which can fluctuate, a greater contribution from investment income net of interest costs including higher income on equity method investments and highly liquid assets as well as lower interest expense, and finally higher income from our pension plan, following our assumption update at year-end last year.

Now I'll turn it over to Rob..

Thank you, Mark. I'm going to provide a brief update on key balance sheet items and financial measures starting on slide 17.

Following the recapture of our living benefit risks and the refinements we made to our risk management strategies in 2016, we view the RBC ratios at Prudential Insurance or PICA and PALAC as well as the composite RBC shown here to be important measures of our financial strength.

Having said that, as we have highlighted previously, we manage our annuity risks using an economic framework that includes holding total assets to a CTE 97 level, with the ability to maintain that level through moderate stresses. As a consequence, over time, we may see some variability in the excess of PALAC's RBC over our target ratio.

At December 31, 2016, the PICA, PALAC and composite ratios were well above our target, and we estimate that they continue to be well above our target at the end of the third quarter. In Japan, Prudential of Japan and Gibraltar Life reported strong solvency margin ratios of 844% and 902% respectively as of June 30.

These solvency margin ratios are comfortably above our targets, and we estimate that they continue to be so at the end of the third quarter.

Looking at the liquidity leverage and capital deployment highlights on slide 18, highly liquid assets at the parent company amounted to $4.4 billion at the end of the quarter, an increase of around $700 million from June 30. This increase is driven by the $750 million hybrid debt issuance in the current quarter.

While we continue to evaluate uses of capital we have higher cost hybrid Securities totaling about $600 million that are callable in 2018, and we took advantage of an opportune time in the market to issue new hybrid securities.

As noted by John during the quarter, we returned about $640 million to shareholders, including $324 million of dividends, and $312 million of share repurchases under the $1.25 billion authorization for the year. And finally, our financial leverage and total leverage ratios were within our targets, as of the end of the third quarter.

Now I'll turn it back over to John..

Thank you, Rob. Thank you, Mark. We'd like to now open it up to questions..

And our first question comes from the line of Erik Bass from Autonomous. Please go ahead..

Hi, thank you. In Annuities, you've commented that you see material upside to your long term ROA targets near term, and we certainly saw that this quarter.

Can you just help us think about how that ROA normalizes over time if markets perform in line with your expectations? Is this something that happens over a few quarters or could the outperformance last longer than that?.

Erik, this is Steve Pelletier. I'll touch up on your question and maybe I'll hand it over to Rob for further comments. Obviously, we're very pleased with the performance of the business. It generated strong earnings, strong ROA, and strong cash flows.

The elevated ROA reflects a number of factors, in particular favorable equity market conditions, the strong performance by the funds on our platform, and in particular continued favorability in the emergence of our risk management framework.

And all of that contributed to a marginal increase to ROA compared to the previous quarter, largely stable with the previous quarter. We believe some of this lift is sustainable, but we aren't expecting to maintain that full increase in ROA going forward.

In particular we're always looking at ways of managing our risk to create the best economic outcomes across scenarios, and optimizing trade-offs between increased ROAs and the ability to further decrease volatility and increase our flexibility with respect to distributable earnings and capital.

Our guidance as to how we think about the ROAs in this business are unchanged from last quarter when we said that we see the long-term sustainable ROA in that 110 to 115 basis points range over the long run still with meaningful upside in the near term.

In terms of some of the particular aspects you queried about in terms of how that ROA normalizes over a period, I'll ask Rob to expand further..

Thanks, Steve. So Erik, I think about it sort of in two buckets. The first is a group of things that on the margin have the ROA elevated that we think will reduce over time, and that would be we've gotten some positive hedge breakage that we don't forecast to be sort of normal over a long period of time.

We are seeing both spread compression and fee compression in the business as a result of on the fee side at least, the book maturing and the diversification strategy that we've had for our products. So on the margin, those things will play out over a longer period of time, in response to your question.

The other driver, the larger driver, is the change in hedge tactics going forward that Steve alluded to. So recall we managed the VA block to a CTE 97, and we have, and as I stated in my remarks, we hold at that level such that we can sustain it through a level of cyclical stress.

We've previously indicated that within that risk management construct we're continually evaluating our hedge tactics and we try to optimize the mix of derivatives and cash instruments that we use. We're looking at balancing cash flow and earnings against liquidity, ensuring flexibility and looking to reduce volatility where we can.

Given the run up in the markets and the benefit we're seeing from our assumption updates, we see this as a good opportunity to revisit those hedge tactics in order to further decrease the interim volatility, increase flexibility particularly with respect to distributable earnings.

We actually began implementing this in the third quarter of 2017, though the costs were not so material that you actually saw it come through and impact the ROA. And we're going to continue to adjust it through the rest of 2017 and 2018.

The remainder as I mentioned before the other drivers are things that will affect ROA over a longer period of time than that.

So I think it's fair to say that we expect the ROA will continue to be above that long-term expectation in the near to intermediate term, but will migrate over to closer to it in the course of 2017 and 2018 and then over a longer period of time more in line with that long-term objective..

Thank you. Thanks helpful. And, Rob, in your comments you mentioned a couple times kind of the balance on cash flow generation. I was just hoping you could comment on your free cash flow target of 60% over time.

I realize it may be something you want to address on the outlook call but just based on your comments about the improved contribution from Annuities, should we think about that 60% range having moved higher?.

So it's a good question, Erik. I think both from our Annuities business and frankly from our other businesses we're seeing across a strong generation of cash flow and capital. And recall that we had actually increased our free cash flow guidance from 50% to 60% back when we gave guidance in 2015.

So since that point in time, both our visibility and our confidence in our cash flow generation have both risen. Having said that, at this point in time, we're not changing our guidance. And it is something that we'll revisit and as appropriate we'll talk about in December when we visit on guidance..

Okay, thank you..

Our next question is from the line of Suneet Kamath, Citi. Please go ahead..

Thanks. Just wanted to go to the Asset Management business. If I just look at your slide and adjust for some of the non-trendable items, it seems like the core fee business is up pretty dramatically especially relative to AUM.

So I'm just trying to get a sense of what's driving that what I'd call operating leverage and do you think it's sustainable going forward?.

Suneet, this is Steve, I'll address that question. I think just kind of work through the sequence. We're seeing very strong flows across a number of asset classes but particularly in fixed income, both public and private fixed income.

We're seeing the ability to sustain our average fee level across the entire platform, and that's a pretty distinctive outcome in the active Asset Management business. We've been able to do that by attracting particularly strong flows into some higher-fee yielding strategies. A lot of those flows come into businesses that are already at scale.

In particular a lot of the flows have come into our fixed income business where the scale economies are particularly attractive. Obviously some degree of market friendliness has helped to some extent, but you put all that together, and what you see is margin expansion and a very attractive bottom-line result in the Asset Management business.

It's good to see this emerge, but it's not necessarily a surprise to us. In the past few years, we've been investing in this business. We've been investing in order to expand our distribution capabilities, and to expand our product set, and further extend our bench strength in our investment platforms. All of that has played out over time.

Last year, we started to see the flows come from these investments. Now those flows are continuing, and the flows are translating into earnings, so I think what we're seeing is the logical consequence of the investments we've made and the achievement of the objectives of those investments..

Got it, okay. And then just switching over to international and noting the strong U.S.

dollar sales growth, we're also hearing that from other companies so are you seeing incremental competition in terms of pricing in international on the foreign currency products?.

Yeah, it's Charlie, I'll take that. So we haven't seen much competition in the LP or LC channels nor in the IA channel, per se, partly because of the nature of what we sell which is death protection. Don't forget that 60% or two-thirds of what we sell is sort of pure death protection.

And partly due to the way in which we sell it, which is needs based selling through the LPs and the LCs. But we have seen some increased competition in the bank channel. Most of the competition we've seen actually has been in the recurring premium yen product where we have raised prices and others have held the line, so we've seen a fall there.

But interestingly we haven't seen as much competition yet for the recurring premium U.S. dollar product. In terms of single premium product, we sell virtually no single premium yen product anymore in any channel. We eliminated those last year. And on the single premium U.S.

dollar annuity product we've seen some additional competition and realistically we'd expect to see more in the future as others enter the market. But to put this into perspective the single premium U.S. dollar product we sold in the third quarter was less than 5% of our total bank sales or about $8 million. So this isn't a particularly big number.

But that's where our differential or differentiated distribution strategy really comes into play, with seconded LPs in the bank channel and a dedicated wholesaler distribution strategy in the IA channel, which will become even more important and a more important distinguishing factor as we go forward.

So short answer, we've seen some increased competition on the U.S. dollar side, but not as much as we might have expected..

Got it. Okay, thank you..

Our next question is from the line of Ryan Krueger, KBW. Please go ahead..

Hi, thanks, good morning.

In regards to your strategy to reduce, further reduce variable annuity volatility I guess once that gets implemented, should we think about that as having any potential impact to your view of capital deployment? In other words, if your confidence increases around downside risk could you potentially deploy more of your existing on-balance-sheet capital?.

Ryan, it's Rob so I wouldn't think of it that way because we're holding capital to a CTE 97 and that is not changing by virtue of what we're talking about with regard to tactics. I would think about it more around confidence levels around distributable cash flow.

So given by mix, differentiating the mix between derivatives and cash instance that we use, what we can do is reduce the volatility in earnings in any given scenario. And by virtue of doing that we enhance the ability to take that earnings, translate it into free cash flow and distribute it out of the business.

So I think it's really more targeted about toward interim volatility and distributable cash flow and really leaves capital unaffected..

Understood, thanks. And then can you give us any sense of the potential quantification of the reduction in the admitted deferred tax asset on the U.S.

statutory basis from potential tax reform?.

So if it's okay Ryan, actually let me try to bring that up a level and talk maybe a little bit more broadly about tax reform as opposed to isolating one particular aspect of it because you really need to think about it sort of across the spectrum of ways in which it could affect our capital position. First two points before I dig into that.

Let me reiterate what John said up front, which is longer term lower corporate tax rates all things being equal are a positive for us and for businesses. And so we look at the opportunity for tax reduction as being something that's going to be beneficial.

And two most of our focus on this, is frankly going to be on implications to product and wanting to ensure that consumers are still have the proper motivations and incentives to continue to save for retirement.

With regard to the capital piece of it, we have run a whole series of analyses on this, and I guess what I would say is just to sort of provide a conclusion on it for you, Ryan, is that under all those analyses, our insurance companies would continue to be capitalized at AA levels.

Our leverage would remain within our targets, our liquidity would remain well above our minimums and we would expect no disruption to our shareholder distribution plans. So DTA in terms of your specific question is entirely factored into that.

One other thing I'd just sort of throw out, while we did that analysis and look at that in the context of existing constructs and metrics around what a AA means, I would note that while there's the possibility that through tax reform, there could be a negative impact to capital ratios in the way that they're calculated, you also have to remember that for insurers, we have a significant margin in our reserves, and that that margin in reserves in our case in any event, is well in excess of the equity that we have, the capital that we have, within the business.

And so the benefit to the margins in reserves on an after tax basis will well exceed any detriment that occurs to our capital by virtue of a higher tax rate.

And therefore, while we did all our analysis assuming that there's not going to be any changes in metrics, you would have to consider that benefit to the strengthening effectively of your after tax reserves is something that would be considered into what would ultimately be deemed sort of the appropriate solvency ratios post-tax reform..

Great. Thanks a lot for the responses..

Our next question is from Tom Gallagher, Evercore. Please go ahead..

So AIG was recently dedesignated, and, John, I heard your comments about the Treasury report on insurers.

I guess just specifically would you expect Prudential to be able to pursue a path to also bring your designation to a vote? Can you talk a little bit about how that process might work?.

Yeah, Tom, it's Mark.

I've been saying I guess over a couple of calls now that we anticipate that at some point, we would no longer be designated as a SIFI and that there are several ways to get there, one which is probably somewhat remote would be Dodd-Frank reform in Congress, but another choice would be pursuing a variety of administrative channels reflecting some of the implications of the thoughts reflected in the Treasury report on insurance.

Keep in mind there's also a report coming out on FSOC that will address the designation process, so there'll be another round of thinking about that, and so that will also be part of how we'll consider the steps that we take going forward.

But I would say the tone of things with respect to the administrative side is at least favorable to the consideration of activities based approaches as opposed to entity designations, and so that's how we're thinking about it as well and we'll be considering those as we possibly move forward.

One thing to add is that we also have legal options, and so if things are not unfolding in a positive direction with respect to administrative processes, we also have the option to go to court. So there are a number of different ways in which this can happen. We're encouraged by the points that are made in Treasury's report.

We're looking forward to what comes out about FSOC and we'll take it from there..

Got you. Thanks, Mark. And then just a follow-up question is on I know in the first half of the year, there were net contributions into the Japanese subs.

Would you expect, did that reverse in 3Q? And will you expect kind of normal cash flows out of Japan during the back half of the year?.

Tom, it's Rob. So Japan goes into the same basket that when I commented on seeing strong cash flow and distributable cash flow coming across our businesses. I spoke to annuities, but Japan would be included in that as well. Year to date we have repatriated out of Japan around $900 million.

Recognize that we typically repatriate from Japan in the second half of the year, so you'll see a concentration of that coming in the latter half. The form in which we repatriate we have a variety of tools for doing that. Obviously given the potential for tax reform, we're being sensitive and sensible about how we go about doing that.

And so you won't necessarily see that coming through a dividend line in the sources and uses. It comes through other mechanisms that we employ, but can and will use dividends as things become more clear on the tax front. And you made a comment about contributions into Japan in the earlier part of the year.

I would sort of just for clarity on that, the contributions into our international business in the early part of the year were largely driven by the joint venture investments and acquisitions that we've been doing. So the vast majority of that has been funding the things we've done for instance in Africa, in Brazil and in Indonesia.

So that wasn't really capital consumption by Japan itself, but rather our growth initiatives internationally..

Got it. And Rob, the $900 million is that a net number or that's just a gross number of the amount that's the repatriation you took out and then there might, that's the $400 million which I hear you on what that was being used for.

Were there other offsetting beyond the $400 million, were there other offsetting payments down? Or is that a net $900 million number out?.

The $900 million is a gross number Tom, but when you net out, when you take the acquisition activity out the amount that would then get netted down from that is a less consequential amount.

You're dealing with something that's probably a couple hundred million dollars, and remember the biggest driver to that would be we have our equity hedge settlements for the, that this year, that's been $140 million/$150 million actually going toward Japan.

Now remember that that's temporal, because that's a reflection of higher earnings that we get on a post-translation basis. But that would be part of the other part that would be sort of netted from the $900 million..

Okay, thanks..

Our next question is from the line of Humphrey Lee, Dowling & Partners. Please go ahead..

Good morning. Thank you for taking my questions. In terms of Asset Management, flows definitely have been very strong, especially on the institutional side. I was just wondering if you're seeing anything different in terms of where your clients are coming from and then also maybe if you can comment a little bit on the pipeline in the coming quarter..

Humphrey, it's Steve, I'll address your question. We have seen a growth in flows from international clients. Again, that's been the objective of a lot of our investments in the business over the past couple of years. A big part of that was building out our institutional relationship management efforts on a global basis.

So we have seen an increasing portion of flows coming from international markets, and we still see a robust picture. The types of strategies that we're offering, and the engagement that we have with clients continues to bode well for the success of the business.

Bear in mind that this is a business that has had 14 consecutive years of positive net flows from institutional clients..

Understood.

And then I believe you recently got the approval for some active ETF strategies, and maybe can you talk about your appetite in terms of entering into some of these active ETFs or quantitative ETFs?.

Right, I would address that, as well. I would say, Humphrey, that first of all, you used absolutely the right term, active ETFs, and I would emphasize that. Broadly speaking, we see the passive ETF space as being thoroughly spoken for.

As it relates to our consideration around active ETFs, I think it's important to emphasize that this is, if we do something here, it would not be venturing into a brand new effort. ETFs are about smart beta capabilities. Active ETFs are about smart beta capabilities, enhanced indexing.

Those are value propositions that we already have today and that we already advance into the market today, primarily through our QMA business. So any decision that we finally take in regard to the active ETF space would simply be a new vehicle by which we're delivering existing strategies and existing capabilities into the marketplace..

Got it. Thank you for the color..

Sure..

Our next question comes from the line of Alex Scott, Goldman Sachs. Please go ahead..

Hi, guys. Thanks for taking the question. Just a quick one on pension risk transfer. I think there were some accounting changes that were going into effect in 4Q related to companies' ability to maybe it was capitalize some of the pension costs.

And was wondering if you were expecting to see a more robust pipeline from that in the space, and if you would potentially look at bigger transactions, or if you sort of have a capped appetite at this point?.

Alex, it's Steve, I'll address your question. Generally speaking, we continue to see a very robust pipeline. I'll kind of elevate the question and just discuss the pipeline overall. You heard Mark speak to our 3Q results in the business.

I'd also point out it's in the public domain that since the end of the third quarter, we've also written an additional funded $1.3 billion case with international paper. We were very, very happy to see that. And what we see in the pipeline is both a strong propensity to transact and strong ability to transact. Rates are going up, or rates have gone up.

That reduces the liability, and increases funding level and increases ability of plan sponsors to transact. At the same time, there's no broad expectation among plan sponsors that rates are due to spike upward further, so they have a strong propensity to transact at today's levels.

PBGC premiums continue to be an issue that many plan sponsors are seeking to address. One dynamic that we continue to see play out in the market is even very large plan sponsors looking to bring maybe slices of their liability to the market.

Those slices being comprised of liabilities that are large in head count, but with small benefits per participant. And again, in doing so, they're looking to eliminate administrative costs, and reduce the per-capita portion of PBGC premiums.

That's a dynamic we've seen as underpinning several of the pieces of business that we've written this year and in the third quarter. So overall, we see the pipeline as being very strong, and we see the receptivity to the strength of our value proposition as being very promising..

Thanks very much..

Our next question is from the line of Jimmy Bhullar, JPMorgan, please go ahead..

Hi, good morning. First I just had a follow-up to Mark's comments on the SIFI designation.

Doesn't seem like you've been constrained in a major way by the designation, but would losing the SIFI label affect your approach to capital? Or just your overall business strategy?.

I would repeat what we've been saying for a long time, which is that we are not hoarding or jettisoning capital in anticipation of SIFI capital rules.

And in fact, we think we do the right things around aligning capital and risk and resources and business strategies, so that's a long way of saying the answer is no, we would not anticipate changes with respect to the way in which we're managing capital as a result of the rescission of our designation.

And we would also not expect any impact on the businesses. Keep in mind that we run with a very high measure of financial discipline including economics, GAAP accounting and statutory accounting and we've often said that we can meet higher standards. That's not a problem for us.

And so we're very much in sync with the appropriate regulatory views on solvency and risk and capital and capital adequacy. So we've been comfortable as a supervised entity. The burden for us has more been in the arena of reporting and preparing for exams, and those sorts of things, as opposed to substantive consequences for the business.

But again not because it isn't on the radar screen but because we think we're in good shape there..

And could you give us a rough number on how much you're spending on SIFI related reporting or SIFI related activities that might obviously go away once, if you are indeed undesignated?.

Jimmy, it's Rob, so we spent about $135 million last year, about $88 million year to date and about $31 million in the third quarter. I would think about that as roughly in three buckets, Jimmy. One is there's about a third of it that if we were to be dedesignated would go away very rapidly.

There's about a third of it which will go away over a period of time as we're finishing out projects that we began. They tend to be technology related and so those things get completed and they will burn off of their own volition in the course of 1 year to 2/2.5 years.

And then the remaining third are costs that we think we actually will continue to incur because recall that while we may not be group supervised by the Fed, we will continue to be group supervised by New Jersey.

And we continue to deal with developments that are occurring on the international front, and so there's a level of spending that we expect, spending and investment that we continue to expect that would be ongoing over a longer time..

Okay, thank you. And if I could ask one more of Charlie on, in Gibraltar your Life Consultant count was down sequentially and wondering if that's because of changes in recruiting or productivity standards and whether that has an impact on expected sales in the business over the next year..

Sure, happy to answer that. So both your comment and your observation are correct. So Life Consultant count decreased by about 5% year over year, and the decrease was due to a couple of things. One is an adherence to more stringent validation requirements as we talked about last time, and also more stringent recruiting processes.

And this really has a double effect, right? Because on the one hand you have more terminations from more stringent validation requirements that are being enforced. And on the other hand you're recruiting slightly less people because you've raised the bar, you have higher recruiting standards. So you have less recruits.

And it's tough to do this because when you elect to do this you enter kind of a J-curve if you will. And so we think we'll hit the bottom of the J-curve sometime next year. The Life Consultant count has been decreasing and will probably decrease for a little while longer. But that's exactly what we did in this business twice before.

We did it when we acquired QOA originally, we did it when we acquired Star and Edison. And it's what we have done in Korea, Taiwan, Italy and Poland over the past 18 months, which is as we've said, sort of go back to the basics of increasing the quality in the field.

So I would kind of label this as periodic business as usual meaning that periodically, we look at our requirements and we're continually raising the bar as we go forward. So that's kind of the situation where we are..

Thank you..

Roxanne, we have time for one more question..

And that question comes from the line of John Barnidge, Sandler O'Neill. Please go ahead..

Thank you. How is PRU approach and implementation of MiFID II? And could that actually lead to cost saves? And will it be implemented globally in your Asset Management business? Thank you very much..

John, this is Steve. We've been planning and preparing for MiFID II requirements for some time. We intend to be in full compliance obviously by the effective date at the beginning of 2018. Just as a point of background, we have two MiFID firms in the EU that will be subject to the regulations.

Our MiFID firms currently do not intend to pass research costs onto clients. We have significant experienced internal research groups and we don't expect any of the, any material impact from the research costs that we would absorb.

As we think about the implications of MiFID II beyond the EU, we do see the potential that the new requirements for MiFID firms relating to research costs may have an impact on how research is distributed and paid for more broadly. And we're simply continuing to monitor the landscape and how the industry is evolving in this area..

Thank you very much..

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect..