The operator introduces the conference call and turns it over to Tina Madon, Senior Vice President and Head of Investor Relations. The documents and statements made during the call are available on the company's website and may contain forward-looking statements. These statements involve risks and uncertainties and are detailed in the company's earnings release and SEC filings.

In the second quarter, the company made progress towards its three objectives of building a strong capital foundation, optimizing its operating model, and delivering profitable growth. They successfully closed the sale of their wealth management business, which has helped them exceed their RBC target. This will provide greater capital flexibility in the future. The company also made expense reductions and started to see the benefits of these actions.

In the third quarter, the company received a license for their Bermuda subsidiary, which will help them stay competitive and support their financial goals. They are focused on delivering profitable growth and transforming their organization to have more stable cash flows and higher returns. They plan to continue growing and diversifying their group business, expanding their annuity business, and repositioning their life and retirement businesses for future growth. The company's second quarter performance exceeded expectations, with strong earnings and sales growth in their annuities and group protection businesses.

In the retail solutions segment, the company's annuity strategy is focused on growth and achieving a more balanced mix. This has resulted in strong earnings and a 48% increase in annuity sales compared to the previous year. The company is expanding its distribution partnerships and utilizing its distribution framework to support growth. Fixed sales have more than doubled year-over-year and RILA (retirement income solutions) sales have increased by 15% sequentially. The company also launched a new product in this segment, which has been well received in the market.

The company's VA with guaranteed living benefits sales were up 28% year-over-year and remain an important part of their product solutions. However, they represent less than 20% of total annuity sales. The Life business achieved 15% sequential sales growth due to strategic realignment. The company is focusing on products with stable cash flows and higher returns, and repositioning their distribution team to improve reach and coverage. Workplace solutions, including group protection and retirement plan services, had another strong quarter and are diversifying their business to achieve sustainable margins.

The company is prioritizing margin expansion over top-line growth and saw a 3% increase in premiums due to disciplined pricing and strong relationships with customers. Sales for the second quarter were higher than usual, driven by new business from existing customers and expansion into new markets. The company is investing in talent, technology, and product offerings to accelerate growth in the small market segment. In the retirement plan services segment, the company's strategy is to focus on record keeping and institutional markets and their quarterly results were as expected.

In the second quarter, the company's earnings declined year-over-year but grew sequentially due to higher account balances and expense improvement. Total deposits increased by 13% and the company has a strong pipeline of known wins for the third quarter. They continue to invest in their business and focus on operational efficiency. The company is confident in their strategic repositioning and their ability to drive long-term value for shareholders. The focus for this call will be on second quarter results, capital, and the investment portfolio.

The company reported second quarter adjusted operating income of $319 million or $1.84 per share. There were no significant items, but two normalizing items that impacted the results. Net income for the quarter was $884 million or $5.11 per diluted share, with the difference between net and adjusted operating income mainly due to the closing of the sale of their wealth management business, net positive movement in market risk benefits, and a positive change in the fair value of a GAAP embedded derivative. These were partially offset by GAAP accounting losses resulting from expected turnover of assets.

The group reported a record quarter with operating income of $130 million and a margin of 10%, including a $23 million benefit from an annual experience refund. Excluding this benefit, their operating income was $107 million and a margin of 8.2%. This reflects their strategy of diversifying their book of business and maintaining discipline in pricing. The favorable macro backdrop and low unemployment also contributed to their results. The group life loss ratio was 76%, driven by severity volatility, while the disability loss ratio decreased by 5 percentage points due to the timing of the annual experience refund. The second half of the year is expected to see a moderation in disability results, as they are seasonally favorable in the first half.

The third quarter results for the company include the annual experience refund, which has historically been a benefit. The company's margin expansion strategy has been successful, with results expected to be at the high end of the 50 to 100 basis points margin expansion in 2024. Annuities reported operating income of $297 million, a 5% increase in account balances, and improved net flows due to strong sales in fixed and variable annuities. The company's focus on expanding their spread and spread-like product lines has led to general account products representing over 25% of total account balances. The annuities business is well positioned for strong earnings in the second half of the year.

The retirement plan services division saw a decline in operating income due to higher interest rates causing stable value outflows, but there was a sequential increase due to higher account balances and lower expenses. The base spread for the quarter was 103 basis points and is expected to stabilize at around 100 basis points in the second half of the year. Account balances increased by 13% year-over-year and end-of-period balances were up 12%. The life insurance division reported an operating loss due to the Fortitude Re transaction and below target investment income, but this was partially offset by lower expenses. Mortality in the retail life business was in line with expectations, with slightly elevated mortality in the universal life business being offset by favorable results in the term business.

The company's net G&A expenses for the quarter were down $11 million compared to the previous year, due to targeted expense reductions. While lower alternative investment income affected reported earnings, the underlying result was in line with expectations, thanks to strategic actions to improve the earnings profile. The company expects improvement in the life business in the second half of the year due to mortality seasonality and expense actions. Managing expenses remains a key focus, with a reduction in headcount and efforts to remove unnecessary spending. Sequential expense growth is driven by seasonal factors and the company continues to invest in talent, process efficiencies, and technology. There is also opportunity to further rationalize the expense base while growing the franchise. The company ended the quarter with a strong estimated RBC ratio.

The company's target RBC ratio is 400%, with a 420% level providing a buffer during a recession. The sequential improvement was driven by the sale of their wealth management business and improved leverage ratio. The newly licensed Bermuda-based reinsurance subsidiary, Alpine, will operate as an affiliated life and annuity reinsurance company and support the company's strategy of improving free cash flow. The investment portfolio remains high quality with positive net ratings migrations.

The author provides three updates on the portfolio, including progress on general account optimization, the state of the commercial mortgage loan portfolio, and the performance of alternative investments. The optimization strategy has resulted in a 6.9% yield on new investments, with a shift towards less liquid assets and structured products. The commercial mortgage loan portfolio remains high quality and represents 15% of total invested assets, with a small percentage in the office sector. Alternative investments generated a quarterly return of 1%, lower than expected due to a diverse mix of private equity, real asset, hedge fund, and real estate strategies.

The company's returns have been slightly lower than expected due to decreased merger and acquisition activity and higher interest rates. They expect similar returns in the third quarter and have made progress in building a strong capital foundation. They are focused on maintaining a strong balance sheet, improving free cash flow, and growing the franchise. The call will now move to the question-and-answer portion. The first question is about free cash flow.

Christopher Neczypor is discussing the company's first half of the year free cash flow and how it aligns with their three year outlook. He mentions that there will be ups and downs each quarter, but overall they are making progress towards their goal of a 45% to 55% free cash flow conversion by 2026. The company has used some of their capital for severance and deleveraging, but they are also making progress with the Alpine deal. Neczypor assures that they are on track to reach their target and have confidence in their progress.

The establishment of the Bermuda entity was an important strategic step for the company. They ceded about $7 billion in fixed annuities and a smaller amount in disability reserves, with the goal of creating scale and generating free cash flow. The entity was overcapitalized in order to execute an internal flow deal in the future. The company is currently working on a new business flow reinsurance agreement and sees potential for other products, such as fixed annuities, in Bermuda.

The speaker, Ellen Cooper, discusses the competitive landscape for group protection sales, stating that while there has been an uptick in new entrants, they have not had a significant impact yet. She emphasizes the importance of balancing margin, growth, and operational capabilities for success in this business. The company remains disciplined in pricing and has seen 3% premium growth.

The company is pleased with their increase in annuity sales, which was driven by a combination of factors such as building operational capabilities, leveraging distribution relationships, and utilizing strategic asset allocation. They also saw a sequential increase in RILA sales due to unique product features that allow them to compete on both price and features. They prioritize margin over growth in their pricing strategy.

The company's variable annuity sales make up 16% of their overall annuity strategy and are achieving good target returns. The speaker was asked about expense improvement and stated that they have room for optimization, with G&A expenses increasing by $200 million in the past two years. They suggest looking at each business unit individually for the best way to track progress, as some may require more investment while others have room for optimization. In the Life business, net G&A expenses have decreased from $136 million a year ago to $125 million in the second quarter.

The company is seeing opportunities for expense reduction in its different businesses and has already started making investments to achieve this goal. They plan to highlight critical metrics at a business unit level and expect to see a decrease in G&A expenses and an increase in margins. The analyst asks for more details on this and also inquires about the record-breaking second quarter for the annuities industry and the company's perspective on it. The company attributes the demand for annuities to a combination of demographic trends and the need for retirement planning.

The paragraph discusses the factors driving the customer value proposition in the annuity space, including higher interest rates and operational capabilities. The company acknowledges competition in the market but believes it is rational and focused on achieving target returns. The company also mentions deleveraging as a priority and plans to bring their leverage ratio down to their long-term goal of 25.

In the first half of the year, the company has been able to build equity through macro earnings and the sale of Alpine. They have also proactively bought back debt and plan to manage liabilities in the future. The goal is to lower leverage and the company is balancing capital deployment and leverage reduction. The group business has been strong, and while there may be some moderation in the second half of the year, the company is still on track for a 50 to 100 basis point improvement in 2024. They are currently at the high end of this range.

The speaker reminds listeners of the seasonality in the group business and explains that last year's second half had a lower margin due to the 4% margin in the first half. They also received a benefit this quarter that is normally received in the third quarter. The speaker believes that the prior guidance still holds and may even be at the higher end of the range. In terms of higher mortality, there was a slight increase in the younger age group, but this may just be a volatility in any given quarter.

The speaker explains that there was higher mortality in the younger age cohorts, leading to higher expected earnings and volatility in the severity in the life and group life business. They also discuss their RBC ratio and plans for capital return, mentioning steps they need to take to increase free cash flow and potential uses for capital, including funding Alpine and optimizing infrastructure. They state that their thinking on capital return has not changed and there is opportunity for growth in the future.

The company is focused on using their free cash flow to improve efficiency and make necessary investments for the long-term. There are no more questions at this time and the call is now over. Any follow-up questions can be emailed to the provided address.

This summary was generated with AI and may contain some inaccuracies.