Prudential Financial Inc.: 10-K Risk Factor Changes

In addition, other risks may become strategic risks. For example, we have considered and must continue to consider the impact of the interest rate environment on new product development and continued sales of interest sensitive products. Our strategic initiatives may fail to achieve their intended results, due to inadequate execution, incorrect assumptions, global or regional economic conditions, competition, changes in the industries in which we operate or other reasons. Actions by governments could adversely affect the value and long-term growth prospects of our businesses, particularly in emerging markets. For example, pension system reforms being proposed in some jurisdictions (including Chile, Colombia and Peru) may limit the role of private companies, fundamentally changing our business in these markets. Likewise, geopolitical tensions (including those between China and Taiwan) may cause governments to take actions such as the implementation of sanctions or other measures to restrict commercial activity in or among markets where we operate or have other interests. The timing and magnitude of any potential actions is uncertain, as is the effectiveness of any measures we may take to help limit the impact of these actions. Our ability to successfully execute on strategic transactions is subject to risks. We have in the past considered and continue to consider a range of strategic transactions, which could include acquisitions, joint venture, divestitures, spin-offs, reinsurance and other corporate transactions. Our strategy for long-term growth, productivity and profitability depends, in part, on our ability to successfully execute on and realize the expected benefits from these types of transactions. Any of these types of transactions could be material, be difficult to implement, disrupt our business, or change our business profile, focus or strategy significantly. Changes in the regulatory landscape may be unsettling to our business model. New laws and regulations are being considered in the U.S. and our other countries of operation at an increasing pace, as there has been greater scrutiny on financial regulation over the past several years. Proposed or unforeseen changes in law or regulation, or changes in the way existing laws or regulations are enforced, may adversely impact our business. See “Business—Regulation” for a discussion of certain recently enacted and pending proposals by international, federal and state regulatory authorities and their potential impact on our business, including in the following areas: •Financial sector regulatory reform. •U.S. federal, state and local and non-U.S. tax laws, including Base Erosion and Anti-Abuse Tax (“BEAT”), Global Intangible Low-Taxed Income (“GILTI”) and Corporate Alternative Minimum Tax (“CAMT”). •Fiduciary rules and other standards of care. •Our regulation under U.S. state insurance laws and developments regarding group-wide supervision and capital standards, accounting rules, RBC factors for invested assets and reserves for life insurance, variable annuities and other products. •Insurer capital standards in Japan and other non-U.S. jurisdictions. •Privacy, data, artificial intelligence and cybersecurity regulation. Changes in accounting rules applicable to our business may also have an adverse impact on our results of operations or financial condition. For a discussion of accounting pronouncements and their potential impact on our business see Note 2 to the Consolidated Financial Statements. Changes in technology and other external factors may be unsettling to our business model. Rapid technological change puts pressure on existing business models. We believe the following aspects of technological and other changes would significantly impact our business model. There may be other unforeseen changes in technology and the external environment, including the regulatory response to technological change, which may have a significant impact on our business model. •Interaction with customers. Evolving customer preferences and changing privacy regulations may drive a need to redesign products and change the way we interact with customers. Our distribution channels may change to become more automated, at the place and time of the customer’s choosing. Such changes clearly have the potential to disrupt our business model. •Investment Portfolio. Technology may have a significant impact on the companies in which the Company invests. For example, environmental concerns spur scientific inquiry which may reposition the relative attractiveness of wind or sun 33 33 33 Table of Contents Table of Contents power over oil and gas. The transportation industry may favor alternative modes of conveyance of goods which may shift trucking or air transport out of favor. Consumers may change their purchasing behavior to favor online activity which would change the role of malls and retail properties. •Medical Advances. The Company is exposed to the impact of medical advances. The unequal availability of detailed medical information (e.g., genetic testing) to consumers and insurers can create asymmetrical information and create anti-selection risks. Also, technologies that extend lives will challenge our actuarial assumptions particularly related to mortality and longevity risk. Failure to adapt our business model in response to these and other technological developments could have an adverse impact on our results of operations or financial condition.

In addition, other risks may become strategic risks. For example, we have considered and must continue to consider the impact of the interest rate environment on new product development and continued sales of interest sensitive products. Actions by foreign governments could adversely affect the value and long-term growth prospects of our businesses, particularly in emerging markets. For example, pension system reforms being proposed in some jurisdictions (including Chile, Colombia and Peru) may limit the role of private companies, fundamentally changing our business in these markets. Likewise, geopolitical tensions (including those between China and Taiwan) may cause governments to take actions such as the implementation of sanctions or other measures to restrict commercial activity in or among markets where we operate or have other interests. The timing and magnitude of any potential actions is uncertain, as is the effectiveness of any measures we may take to help limit the impact of these actions. Changes in the regulatory landscape may be unsettling to our business model. New laws and regulations are being considered in the U.S. and our other countries of operation at an increasing pace, as there has been greater scrutiny on financial regulation over the past several years. Proposed or unforeseen changes in law or regulation, or changes in the way existing laws or regulations are enforced, may adversely impact our business. See “Business—Regulation” for a discussion of certain recently enacted and pending proposals by international, federal and state regulatory authorities and their potential impact on our business, including in the following areas: •Financial sector regulatory reform. •U.S. federal, state and local and non-U.S. tax laws, including BEAT, GILTI and CAMT. •Fiduciary rules and other standards of care. •Our regulation under U.S. state insurance laws and developments regarding group-wide supervision and capital standards, accounting rules, RBC factors for invested assets and reserves for life insurance, variable annuities and other products. •Insurer capital standards in Japan and other non-U.S. jurisdictions. •Privacy, data, artificial intelligence and cybersecurity regulation. Changes in accounting rules applicable to our business may also have an adverse impact on our results of operations or financial condition. For a discussion of accounting pronouncements and their potential impact on our business see Note 2 to the Consolidated Financial Statements. Changes in technology and other external factors may be unsettling to our business model. We believe the following aspects of technological and other changes would significantly impact our business model. There may be other unforeseen changes in technology and the external environment, including the regulatory response to technological change, which may have a significant impact on our business model. 45 45 45 Table of Contents Table of Contents •Interaction with customers. Technology is moving rapidly and as it does, it puts pressure on existing business models. Some of the changes we can anticipate are increased choices about how customers want to interact with the Company or how they want the Company to interact with them. Evolving customer preferences and changing privacy regulations may drive a need to redesign products and change the way we interact with customers. Our distribution channels may change to become more automated, at the place and time of the customer’s choosing. Such changes clearly have the potential to disrupt our business model. •Investment Portfolio. Technology may have a significant impact on the companies in which the Company invests. For example, environmental concerns spur scientific inquiry which may reposition the relative attractiveness of wind or sun power over oil and gas. The transportation industry may favor alternative modes of conveyance of goods which may shift trucking or air transport out of favor. Consumers may change their purchasing behavior to favor online activity which would change the role of malls and retail properties. •Medical Advances. The Company is exposed to the impact of medical advances. The unequal availability of detailed medical information (e.g., genetic testing) to consumers and insurers can create asymmetrical information and create anti-selection risks. Also, technologies that extend lives will challenge our actuarial assumptions particularly related to mortality and longevity risk.

The types of operational risks that may impact the Company include, among others, the following: •People: Internal fraud, breaches of employment law, unauthorized activities; loss or lack of key personnel, inadequate training; inadequate supervision. •Processes: Processing failure; failure to safeguard or retain documents/records; errors in valuation/pricing models and processes; project management or execution failures; improper sales practices; improper administration of our products; failure to adhere to clients’ investment guidelines. •Technology: Failures during the development and implementation of new systems; systems failures. •External Events: External crime; cyber-attack; outsourcing risk; vendor risk; natural and other disasters; changes in laws/regulations. •Legal and Regulatory: Legal and regulatory compliance failures. See “Business—Regulation” for a discussion of the regulations applicable to the Company.

•People: Internal fraud, breaches of employment law, unauthorized activities; loss or lack of key personnel, inadequate training; inadequate supervision. •Processes: Processing failure; failure to safeguard or retain documents/records; errors in valuation/pricing models and processes; project management or execution failures; improper sales practices; improper administration of our products; failure to adhere to clients’ investment guidelines. •Technology: Failures during the development and implementation of new systems; systems failures. •External Events: External crime; cyber-attack; outsourcing risk; vendor risk; natural and other disasters; changes in laws/regulations. 40 40 40 Table of Contents Table of Contents •Legal and Regulatory: Legal and regulatory compliance failures. See “Business—Regulation” for a discussion of the regulations applicable to the Company.