Good morning, everyone. It's Ryan Krueger from KBW, and really pleased to have Prudential Financial with us at the conference virtually this year. With me is Rob Falzon who is Vice Chairman. Previously to that, Rob was the CFO for several years, and prior to that he was treasurer. Rob, I wanted to kick it to you just to provide some opening remarks, and then we'll get into the Q&A.
Great. Thanks, Ryan, and thank you everyone for participating today. I thought what I would do is, I know, Ryan, you're going to want to cover a number of topics, but I thought I'd just share a couple reflections that I have on the current environment, and three specifically, that I just wanted to sort of share with everyone. The first is that while we're finding ourselves in a challenging macroeconomic environment, the pandemic, the recession that's been caused by the pandemic, the associated impacts on the credit cycle and on interest rates. I'd like to remind people that this is what we were built for. This is actually what we plan for.
We have a whole series of playbooks that we've devised after the Great Recession and that we anticipate a range of things that could happen, both from a pandemic and from a recession standpoint, and range of things that are far worse than what we're experiencing. The intent is to continue to be resilient through that. We have been. We feel really good about how well we're capitalized. We feel really good about the quality of the portfolio, and we feel really good about our operational integrity and how we've been able to continue to have a good experience for our employees and for our customers throughout this period of time.
Having said that, I think to the extent we have a concern, the concern is actually about customers, and what's been exposed during the course of this experience in this relatively short period of time is just how fragile the economic and their own financial resiliency is for many Americans, and even outside of our own country. For that we're particularly concerned. They're unprepared for disruptions and dislocations, they don't have enough savings for those sort of things. They are unprepared for retirement, and in many instances now actually dipping into some of that retirement savings in order to be able to support themselves in current times. Many are woefully underinsured from a life standpoint.
I don't want to call it a silver lining, but from our standpoint and from an industry standpoint, the opportunity that creates is the level of awareness about the benefits of what we do, about what we are, in fact, built to do are all the more present and visible to our customer base. As we look at this, we look at this as the opportunity to execute on what we've talked about before, which is expanding our addressable market by providing more customers with more products and services going across the entire socioeconomic spectrum. Not just being focused on sort of the very high net worth that we and many of the industry have been particularly focused on. That's kind of my first and second observation.
With regard to that second piece, I think we view ourselves as being very well-positioned to execute against the opportunity that's in front of us. We think to do that well, it really requires that you think differently about distribution, you think differently about product, and you think differently about your cost structure. From a distribution standpoint, I'd like to use the phrase of sort of omni distribution. It's not multi-channel distribution, it's actually around omni distribution. It's having a complete continuum that goes from digital to fully advised, and with hybrid type experiences that fall in between that. From a product standpoint, as you go deeper into the market, it requires that you pivot to things that are, frankly, more simple, so less complex.
Products that meet the needs of that expanded marketplace, sort of then segue into the third component of that cost efficiency also needs to be priced appropriately for that marketplace. It means that we need to think about our cost structure in a way that continues to make us competitive in the marketplace and allows us to mitigate some of the impacts that are occurring as a result of the low rates and the headwinds that that creates to our own profitability. I think the third and last thing I'd share about the current environment is that as a result of what we're all going through, we've seen this really sort of quantum acceleration in what we used to label the future of work and the future of the workplace.
For us, that's meant sort of a much more rapid adoption of technology and the digitization of the experience for the customer. It's been helped because in a crisis, regulators removed some of the impediments to our ability to do that. That's been helpful, but we removed some of our own impediments to do that. As we were looking at how do we meet surging demand at our call centers and claims and other types of inquiries coming in, digitizing that experience and creating chats and online resources for people, as opposed to their need to wait on the phone on hold to speak to a human, has been a massive acceleration of that and a good experience for our customers as a result as well. That's gone through the entire food chain.
It's about creating that experience everywhere from underwriting through claims payment. That has, from our own standpoint, not only accelerated our ability to execute on the customer experience and efficiency initiatives that we had already outlined at the beginning of last year, but it's also part of what's allowed us to think more expansively about that as we've institutionalized that capability, thinking about how we can go further in terms of creating those kind of experiences for our customers, and enhancing margins associated with our businesses. three observations, just where we are in the environment. I think that while a challenging environment, we feel as if we're extremely well-capitalized and positioned from a portfolio and operational standpoint.
We have a set of initiatives that we're very much focused on that I think are well-aligned with serving the needs of customers as they've experienced this both pandemic, and economic scenario that we've been under. We also think that the initiatives that we're doing around our efficiencies will position us to be able to execute on that and improve the profitability of the firm for our investors. Thanks for the opportunity to do that, Ryan. I'll turn it over to your questions.
Thanks, Rob. Some of my questions will build off of those opening comments. To start, it's been almost two years now since you became Vice Chairman and Charles Lowrey became CEO, and Prudential's strategy has evolved some during that time. Can you discuss some of the key changes that you've made, as well as the reasons for doing so?
Yeah. That really gets to sort of the pivot we made, I think, in the second quarter from the first quarter around the narrative in the first quarter being very much around resiliency and all those things I talked about. The second quarter really being around how are we going to enhance shareholder value and returns to our shareholders? I think there were three things that we identified as sort of the priorities that we had that were impacted by the economic environment we find ourselves in. You go back to beginning of 2019 when Charlie and I stepped into our positions, interest rates have declined around 200 basis points on the 10-year over that period of time. It's breathtaking in a way.
As we think about how do we deal with a low interest rate environment and what are the opportunities in front of us and how do we execute against that, the first thing that we really were focused on is that we need to improve the quality of our earnings, is how I like to describe it. From a quality standpoint, what that means is that you have a less interest rate and market sensitivity in our businesses, and that those underlying businesses produce a set of financial outcomes that are more consistent and predictable. We think if we're able to do that leads to a reduction in our cost of capital or expansion, our multiple, think about it that way.
We've used the phrase in the second quarter of simplifying and de-risking, and that's sort of what that was meant to capture. The second piece has been around our focus has been, okay, improve quality of earnings now, improve the profitability of our businesses. From a profitability standpoint, that gets very much around the initiatives that we announced in 2019, the $700 million of investments we're making in order to generate half a billion dollars of margin enhancement. As we talked about in the second quarter, and I mentioned earlier, the ability to, we think, expand on that as we've institutionalized that capability in our firm. We see more opportunities. That's our second focus, get quality of earnings up, get margins up, and then growth. I think growth will come about by virtue of what we're doing from the profitability, obviously.
From a longer-term growth standpoint, it's really very much about the expanded addressable markets that we see for each of our businesses. To the extent you'd like, we can talk about those. Both in our investment management business, international business, and in our U.S. businesses, we see an opportunity to accelerate our growth by expanding the number of individuals that we can serve. Probably the other thing that doesn't get noticed enough, I guess, the thing I'd like to say, that we've spent a lot of time on is our leadership team. Since we've taken the reins, the leadership of most of our U.S. businesses have changed over that period of time. We've had succession planning that have put in place the leaders for those businesses. We stood up a transformation office.
We took one of our most successful business leaders and put that person in charge of that capability. That's leading to our ability to have accelerated the execution of the half a billion of benefits and to think about how we can do that more expansively. We hired a new Chief Information and Technology Officer, Stacey Goodman, a little over a year ago, and significantly redesigned our technology organization, pivoting it away from the traditional focus on maintenance and operations and toward business enablement and development applications. Under Stacey, if you look at the 10 next most senior leaders there, half those individuals are new to position from outside the company, and in fact, from outside the industry. Big investment from a technology standpoint.
That's been helpful to what we're already accomplishing on our initiatives, and we think will be additive to that on a go-forward basis as well. We've selectively put a new head of strategy in place and other selective hiring. We spent a fair amount of time on our leadership as well. We think all of that is paying dividends. If you'd just give me one more minute, Ryan, just sort of a couple of things that I want to tick off. If I think about, if I just sort of think about PGIM International and our U.S. businesses from PGIM's standpoint, the company had a record level of AUM in the second quarter, positive flows in that quarter, strong flows from a retail standpoint, number one mutual fund flows to retail in the first half of the year.
Also institutional has been strong as well. It gets masked because we had a single large client in the second quarter that was an index low fee, not very significant from a revenue standpoint, exit out, but otherwise had good institutional flows. Performance continues to be good there. Flows continue to be good, we continue to build and invest in our international capability, our retail capability, and our alternatives capability. Those are the levers for growth within that business, we've done something on relatively recently in all three of those areas that are helping to produce the kind of results that you're seeing within PGIM. From an international standpoint, we've talked about the way in which we want to expand our addressable market there is in Japan, we have a phenomenal franchise that continues to grow faster than the overall market does.
We see an opportunity to capitalize on that franchise by providing more products into that marketplace than the traditional protection, life protection type products that we sold. We can, as that demographic ages, meeting the new needs of that aged demographic through our existing distribution, which is incredibly strong. Outside of Japan, we've wanted to do a major pivot to say, "Okay, if we're going to have a big play in a developed market in the U.S. and in Japan, we want to have more of an exposure to emerging markets outside of that." What you've seen is we've exited out of Italy, we exited out of Poland, we exited out of Korea. We've announced the sale of our business in Taiwan as well. Those more mature markets we've exited out of.
Pretty much below the radar, but not uninteresting, we've expanded what we're doing in Brazil. We had done the group acquisition a little while back, more recently, we did a bancassurance agreement in order to expand on our very, very strong Life Planner platform that we have in Brazil. In our Afore in Chile, we've done acquisitions through that business, most recently in Colombia. We're trying to create sort of a pan LATAM Afore capability out of that business. A small expansion in our Africa presence. Building in exiting out of the things that are slower growth and more developed and selectively looking to build on where we have an existing presence in emerging markets that give a growthier sort of complexion to our international business. Finally, from the U.S. business standpoint, a number of things there.
We continue to execute well on the financial wellness platform in the workplace. We've talked about that. That's a longer-term growth strategy for us, but we think important to our competitiveness in that space on a direct basis, institutional competitiveness, but then also the ability to get to the underlying employee and provide more solutions to them to grow our business. We bought the Assurance business at the end of last year, which has added to that distribution capability that I spoke to. A big presence in digital, and then they do hybrid as well, distribution. We feel as if we've got now a leading-edge capability on the digital side and an ability to provide more products on sort of a pure distribution brokerage standpoint into our customer base. As I mentioned, the success that we've had in accelerating both the costs associated with our initiatives.
Through the middle of this year, we've already incurred $450 million of the $700 million that we said would be needed in order to generate the half billion dollars worth of economies. We disclosed at the end of last year that we expected to be able to accelerate also the realization of those operating margin improvements from what we were talking about as well. Our performance in the second quarter, I think, kind of reaffirms our ability to do that. Then looking, as I said, to see how we might be able to expand on that in the future. Those are the things that are our priorities, and that's the progress I think we're actually making against those priorities.
Thanks. On the cost saved, as you talked about, you have this $500 million plan by 2022. You've also talked about the potential to do more. Can you just discuss where you see additional opportunities? Also when you anticipate that you might quantify the potential there?
First in terms of where we are, I think in the first half of the year, in period, we've realized $75 million of in-period savings. The number we put out there was an expectation of $140 million for the full period. We're sort of ahead of pace on that. Expectation would be that we would get to a run rate by the end of the year of somewhere between $250 million and $300 million. Then the half-billion-dollar number by the end of 2022.
The run rate benefit as of the end of the 2Q, let me not go by memory because I'm not sure what that number is, but it's well on the way to the objective for the full year, we feel good about where we are, both in terms of in-period savings and our run rate. As we look to expand on that, I think the single most important thing I'd point out is when I mentioned, when I talked about leadership, is that we've actually institutionalized this capability. We set up a transformation unit office. We took one of our strongest business leaders out of position to put them in charge of that capability. We're obviously working with consultants and bringing them in as well, but we've staffed that.
Their task has been to not only look at the acceleration and execution of what we had in pipeline, but to look across our businesses at opportunities to go further. I think as we think about that, we think within our existing businesses, using the existing levers we have. So which is the classic set of leverage you have around automation, digitization, use of technology, location strategies, including outsourcing, process redesign, all those sorts of things, organizational redesign, and continue to use those tools and just sort of push them further in areas where we've already focused, which has been primarily around sort of our U.S. business and functions.
While we had included both our investment management and international in some look at that, the reality is, we have a lot more opportunity, both in investment management and in international when vis-a-vis the very robust process we went through with our U.S. businesses and functions. We think there's more opportunity there to take the same set of tools and apply them across our entire business complex. More broadly than we did before. The other thing I'd mention is I think we've just scratched the surface on technology.
With the new team installed, most of which were put into place this year, maybe end of last year, we're only beginning to scratch the surface on what we think are the availabilities there, particularly from an infrastructure standpoint and how we think about the spend that we have there, and can use it not only to produce better outcomes, but produce better outcomes at a lower cost.
Thanks. On the second quarter call, you had also discussed potential in-force de-risking actions for variable annuities and Universal Life with Secondary Guarantees. A couple questions there. I guess one, just what led to that decision? Secondly, when you're considering reinsurance transactions, how do you balance the, I guess, potential outcomes that differ from your view of the economic value of those businesses, but do achieve the desired de-risking impact that you're looking for?
Yeah. I'd say, Ryan, we talked about the products pivoting that we're doing and replacing that we're doing. Think about that as really just the first step in this broader issue of simplifying and de-risking. Stepping back from HDI and from single life GUL and looking at things like FlexGuard annuities as products that have significantly less market sensitivity, and also associated with that, more predictable and consistent financial outcomes, both on an AOI and a GAAP basis, because we're sensitive to both those metrics. As we've thought about that, I think it's sort of related to what I spoke about earlier. We believe that if we can reduce the market sensitivity of our business, and in conjunction with doing that, improve the consistency and predictability of financial results, that that'll have a very direct impact on our multiple, on our valuation.
I think that there are certain product lines that we have, and I think HDI would be maybe a poster child for that, to be completely frank about it, where we think the economics are actually incredibly compelling. It's a very high ROE business, that has good cash flow that's associated with it. It's extremely well capitalized, and it's well hedged. Having said that, the market's perception of that business, the public market valuation of that business is not synced up with what we would think would be our own valuation or a private valuation for that business. We try to be more transparent to try to get that syncing to occur. It's not.
I think there's a reality of, even with all that hedging and good outcomes, the reality is it does have some market sensitivity associated with it, and it does have some accounting volatility that's associated with it, sort of below the line or outside of AOI. Those become, from a valuation standpoint, I think, headwinds from our overall value. The challenge we face is that it seems that it's not just applied to that sleeve of the business, but rather to the totality of our businesses. When you sort of look at the valuation of the company in total, it seems to be overly influenced by the variable annuity component of our business. We recognize that this isn't just a matter of transparency. This is just a matter of valuation differentials that exist in the marketplace, and we need to be responsive to that.
From our standpoint, that was sort of part of the catalyst of recognizing that overall, then using HDI as a very specific example of that, how we can improve valuation by being more thoughtful about how we can continue to serve the needs of consumers around life protection and around retirement protection, but do it in a way which has less market sensitivity and more predictable and consistent financial outcomes associated with it. Those were kind of the catalysts that were associated with it. In terms of how we think about it, obviously, we've already taken actions on the new business side. We have blocks of those businesses which will continue to generate earnings, and when we look at that we have the option of just running them down and harvesting the cash that's coming off those, and that's one viable option.
We are and will continue to look at other alternatives that can range from selling pieces of those businesses or reinsuring pieces of those businesses, to getting rid of entire blocks, either through reinsurance or sale, as a way to sort of accelerate that transformation. We'll be economic about it. We'll look at the trade-offs to value in the market that we can achieve today or at other points in time against what we think the implication of that would be on the valuation of the stock in the marketplace. Hopefully make an execution there that optimizes the outcome for our shareholders.
Thank you. I guess on, I think it was exactly a year ago, it was actually the same day of our conference last year, you announced the acquisition of Assurance IQ, which is an insurtech distribution platform for those unfamiliar. I think it got off to a bit of a slower start than expected, but how are things progressing now, and to what extent are you, I guess, more broadly integrating it into Prudential?
Yeah. If I think about Assurance IQ, first, it is a proven model for digital distribution. That was what was very attractive to us about that. They kind of cracked the code on digital distribution linked with this sort of hybrid advisor capability, and has been quite successful in a relatively short period of time as an insurgent. That capability, we thought would leapfrog others in the marketplace, from the standpoint of us having that capability. We continue to be quite enthusiastic about it strategically from that standpoint. We've talked about the fourth quarter of last year. The fourth quarter of last year was, I think about it as a bottleneck issue for us. The good news for us is that the fundamental indicators of the strength of that platform continue to be quite good.
The shoppers to the site continue to grow at double digits. The demand by insurers to get on to the platform continues to be really strong as well. You think about, we just need to make sure that we have the operational capability to close that gap, and we had a couple hiccups in the fourth quarter that Andy and team have been addressing with the Assurance team to make sure that we're well-positioned for the fourth quarter of this year, when you've got the big driver being the Medicare enrollment period. We feel really good about drivers to the business, and about having that capability in terms of making us more successful at providing a broad range of products, not all of which we want to provide. We'd rather take health solutions and P&C solutions from other providers.
We don't want to get into that business, but they're important solutions for the customers that we're serving. To be able to do that on a third party through a distribution or brokerage arrangement is actually quite attractive to us. With regard to our own products, we put our SimplyTerm product on their platform, which was actually transformational for both them and for us. Transformation meaning significant. They haven't transformed anything yet, but it was a significant milestone, I guess I should say, for both of us. The fact that we were able to do that actually well ahead of schedule speaks to sort of the rate at which we're learning to adapt to the new world and pivot and change.
From their standpoint, having our brand and our product on their platform significantly enhances the pull-through of that Life product to their customer base vis-a-vis the other Life products that they have on their platform already. Good mutual outcome there. We think we're licensed in, I think, 49 states at this point in time. We'll be licensed across all states by end of this year, beginning of next year. So pretty close to that, if we're not there already. We feel good again about having gotten that capability in place. From a financial standpoint, it'll be a fourth quarter story, and we'll be prepared to talk about that when we get into the fourth quarter.
Got it. What's your level of interest in additional M&A at this point? I guess what areas would you view as most compelling?
I think about our M&A, I describe it as being programmatic M&A, meaning that it's really about where we can do it on an incremental basis to lever existing strong capabilities that we have. Think about that in the PGIM context. I talked about retail, international, and alternatives being areas of growth and focus for us. What we've been doing are making small, what I call bolt-on acquisitions that oftentimes just look like team lift-outs. They're acquisitions, but they look more like team lift-outs to add to our multi-manager model. We did that with the Wadhwani acquisition, which was a U.K.-based futures manager a year plus ago or so. Those are the kind of things that we're looking to do, is continue to build those kind of capabilities on an incremental basis. By bringing those small shops on, we can get great economies from that.
It's a way in which for us to continue to grow flows and maintain profitability without the same multiple concerns when you're doing those kind of acquisitions than if you're doing a large asset management acquisition, by way of example. The second area would be in international, and that's leveraging our emerging market presence that we already have. Both the Chilean Afore platform and the Brazilian Life platform being perfect examples of that, where what we've done is taken a strong capability, but frankly, not large enough yet that it's changing the complexion of PFI's. We want to grow it and think about how do we leverage that capability in that market by growing our footprint.
In Brazil, we built over the course of a decade and a half, a really strong proprietary distribution capability, Life Planner model, similar to what we have in Japan. A number 1 sort of non-bank life seller now in Japan. We added to that a group capability and then a bancassurance, and we have other third-party distribution now as well. Building multi-distribution capability in a market in which we have a strong brand and good success. The same thing with the Afore business we have. It's quite successful. We're in the sort of the leading Afore in each of the markets in which we're serving. We want to continue to build on that, and that could involve selective acquisition. Having said all that, I would say, Ryan, there's a high hurdle to any M&A that we would do.
Hence, these sort of things are small, where we can get very good economics by leveraging existing capabilities and platforms. As we think about deployment of capital, given where our particular share price is these days, buybacks create a very compelling alternative to doing M&A, and we're very conscious of that to the extent that we're looking at M&A at any point in time. When and as we get to the point where we're ready to take a look at our capital capacity and feel as if we've got enough visibility on recovery that we want to redeploy that capacity. We would think about how we redeploy that cognizant of the very attractive economics that would be associated with buybacks at this point in time.
Can you delve into that a little bit more? You have a good capital position. The Korea sale has now closed. How are you thinking about the key indicators that would get you comfortable resuming buybacks?
I sort of dial back and look at the same set of indicators that caused us to put it on pause. That's as we were going into the pandemic, we're anticipating what the recession might look like, and what specifically the credit cycle associated with that recession might look like. That said, okay, we should, at this point in time, be conservative, maintain flexibility, and sit on our capital position. As you noted, we have $4.5 billion worth of highly liquid assets, cash. Then at the end of the second quarter, then we received about $1.7 billion, I think, on the sale of Korea relatively recently as well. We do have a very strong capital and liquid position.
We'd be looking at that same dashboard set of metrics that caused us to put it on pause to take our finger off the pause button, where I think the observation would be that the recession specifically, again, the credit cycle has been relatively benign to date. If you looked at the framework that we laid out in the first quarter, and you compared actual experience against that framework, it's been very benign. A relatively modest credit cycle. Now, we're not necessarily convinced that that means that the credit cycle will remain benign during the entire recession. We're keeping our eye on that. While there's a host of metrics that are on our dashboard, probably the one that's largest and in the center of that dashboard is credit. We're looking at things around ratios of upgrades and downgrades and trends in that.
Indicators around the financial health of corporate America as indicators as to when we think we'll either be through the cycle or that, in fact, the cycle is not going to manifest itself as being as severe as we might otherwise think it might be would be indicated by history and the framework that we lay down in the first quarter. As we think about, Ryan, restarting, I've said in the past that we don't want to start and stop. If we begin, we want to begin so that we can do it programmatically and with conviction. That means we're going to be cautious to ensure that we're very comfortable that we've seen the worst of the credit cycle. Then depending on how severe that's been, we'll define how much excess capital we have. If it's this benign, we'll have a fair amount of excess capital.
If it turns out to be more severe, we'll need some of that capital in order to respond to the impairments that'll happen in a more severe credit cycle. What's left after that would be what we would think about redeploying.
Got it. At your 2019 Investor Day, you guided to a 12%-14% intermediate term ROE. Obviously have had a significant change in the environment since then. As you think about that now, do you still think the lower end of that range is achievable in the current interest rate environment, or how are you viewing the return profile of the company?
Yeah. I think the walkthrough that we provide now quarterly, which I think is very helpful to the market. I think probably the best way I could go about answering that, Ryan. In that walkthrough, the baseline, so we do adjustments that take sort of the results in the current quarter and try to give you an idea. If you remove some of the unusual stuff, so we did the second quarter assumption update, and then we had the COVID experience, both from a mortality standpoint, although it was positive in the second quarter. We're removing that experience and the cost associated with that in the customer and efficiency initiatives. You get to a number that was our baseline for the beginning of the third quarter. That was around $2.85 a share.
With respect to that number, actually, I think it was closer to $2.90, but we assumed some level of ongoing initiative spending, and that gets you down to $2.85. If you take that $2.85 and you adjust that there, it doesn't reflect the seasonality in our expenses. We've talked about that number. We've said that in the fourth quarter, we have elevated expenses that generally ranged in $125 and $175 million. You'd have to adjust the number for it doesn't reflect the seasonality of expenses, the biggest one being that in the fourth quarter. You'd have to adjust that for with the guidance we've given around the headwinds associated with interest rates, the $0.03 per quarter compounding against some opportunity for business growth and the savings that are coming about by virtue of the initiatives now.
We've incurred $450 million of the $700 million of initiatives we're going to spend. That number is coming down fairly rapidly as the run rate benefit of those is climbing fairly rapidly. I think in next year, you'll see there's actually a crossover in that where the in-year benefits exceed the in-year expenses as contrasted to what we've experienced last year and this year. I think that if you do that math, I think that depending on your own view of what market growth opportunities are out there, probably gets you to a view of what the near-term ROE potential of the company might be. The longer term will be, you have to look sort of through this recession, through COVID, and then how well we can execute against the broader growth objectives that we have.
Got it. I guess two questions. Do you think that the GAAP accounting changes that are coming, I guess now in 2023, will actually change how you operate the business at all? Somewhat related to that, are there any other regulatory issues that you're paying particularly close attention to at this point?
Targeted Improvements, it's gotten delayed, and there's a discussion around advanced adoption. We haven't decided yet, Ryan, whether we're to advance adopter yet. That's kind of still out there. I'm not anticipating that we have necessarily any changes from what we've already talked about as a result of Targeted Improvements. I think the interest rate and market sensitivity that we're already looking to reduce will be further exacerbated under Targeted Improvements, but that's something we've already talked about doing. Targeted Improvements in and of itself is not a catalyst for, I think, further change in how we're thinking about our business mix. I think there's some real benefits that will come out of Targeted Improvements. We won't have to deal with the DAC unlocking. It'll just be sort of smooth. It'll just be locked in and advertised out.
Having a mark-to-market on both the asset and the liability side, I think there's a benefit to that. Instead of just having the AOCI be one-sided and people sort of guessing about what's happening. We saw that in the crisis with just assets getting marked down. There was no corresponding mark on the liability, that was creating a little bit of a panic. I think having symmetry on that is actually beneficial. Incidentally, from a very parochial standpoint, I think it's really great that everyone's got to do the same accounting on annuities. We've always had this market accounting that we've been sort of alone in that. Everyone will be switching over to that. It'll make the results on that, I think, a little bit more comparable. I think those were good outcomes from it.
It will introduce more volatility in the way that FASB has chose to introduce this. Some of that volatility will be counterintuitive, and that's a frustration. The industry, and people that are on this phone may have been part of that effort, tried to get FASB to think very differently about how they were to do this idea of retrospective versus prospective, in order to match up better with cash flows. They chose not to do that, and I think that's a shortcoming, and I think the industry is continuing a dialogue on how do we at least figure out as an industry to provide supplemental information that may help to at least get through that volatility on a consistent basis between companies. That's something I know our CFO and other CFOs are working on. I think that's the first part of your question.
I've wandered on so much, I'm not sure I remember the second part of your question. What was the second part, Ryan? I apologize.
Just are there any other key regulatory developments?
Oh, key reg-
-that are of particular interest.
Yeah. From a capital standpoint, there's a bunch of stuff that's going on, nothing that's particularly problematic for us. They're looking at the C1 charges, so the credit charges. We don't think they have that quite right, so they're still working on it. There's nothing there that would cause us to invest differently than we're currently investing, although we do think it rewards bad behavior in a marginal way that we'd rather not see be there. The VA accounting that they're rolling out is something we adopted a number of years ago with both New Jersey and Arizona, our regulators. While the details of that are always sort of a little different, by and large, that's a construct that we have in place, and we're well-capitalized under that construct. Their change around the capital construct using discount rates around fixed annuities.
The PRT, pension risk transfer business, will be affected by that. Again, we've already adopted that. That was something we struck with our regulators that we would account for using those current interest rates several years ago. That's not new accounting for us. While there are a number of initiatives going on there, and we're paying attention to all of them and highly engaged, there's nothing that we find that would be disruptive or would change our own way we think about executing against our business. We're also paying a lot of attention to what's happening on a holding company and systemic basis, and we're highly engaged in that, both here in the U.S. and abroad. I think for us, Ryan, probably the things we're paying more attention to are the things that are sort of across the economy.
The two things I'd probably point out would be initiatives around retirement. We had the SECURE Act, and there's work being done on SECURE Act 2.0. We're putting an oar in on that. I think that'll be net beneficial to consumers and to the industry. We're looking at consumer protection stuff. That's everything from the DOL rules and then the SEC rules to privacy issues to make sure that that gets done in a proper way as well, which is mainly around sort of the administration of whatever comes out of those regulations. Those are areas we're paying more attention to than anything that might be specifically happening from an insurance standpoint.
Got it. Well, I think we are unfortunately out of time. I really appreciate you participating again this year. I don't know if you want to make any closing comments, but otherwise, we can kind of wrap it up.
No, I thank everyone for their interest and support. Ryan, thanks for the opportunity to do this. Look forward to our ongoing engagement and talking to everyone when we come up with the third quarter results.
Great. Thank you.
Okay. Bye now.