The operator introduces the Prudential Quarterly Earnings Conference Call and turns the call over to Bob McLaughlin, who introduces the speakers. The discussion may include forward-looking statements and references to non-GAAP measures. Charlie Lowrey, CEO, discusses the company's growth and increased capital efficiency in the second quarter.

The company has shown strong investment performance and originations across its Private Alternatives platform, and has maintained a disciplined approach to capital deployment. The focus of the company's growth opportunities is on addressing the increasing global demand for retirement products, solutions, and advice, with a projected $137 trillion opportunity in the US and $26 trillion in Japan by 2050. The company's Retirement Strategies division, which offers pension risk transfer and individual annuities, has seen a 67% increase in sales in the first half of the year. The company's sales have been driven by their FlexGuard Indexed Variable Annuity product suite, which has exceeded $21 billion in sales since its launch in 2020. In Japan, the company has seen a 20% increase in retirement and savings product sales.

PGIM, a global asset management business, is well-equipped to meet the increasing demand for retirement solutions and private credit and alternative investments. They have a strong presence in the retirement plan market, servicing many of the world's largest pension funds. PGIM is also expanding its Private Alternatives business and has seen significant growth in their U.S. and Brazil insurance businesses. Their strategy focuses on investing in capabilities and technology to drive future earnings growth.

During the second quarter, the company demonstrated its disciplined approach to capital deployment by investing in its businesses and returning over $700 million to shareholders. This was supported by the company's strong financial strength, diversified business mix, and risk and capital management framework, reflected in its AA rating. The company is confident in its ability to continue delivering long-term value to shareholders through its business strategy and opportunities to support customers globally. The next speaker, Rob, will provide a closer look at the company's individual business performance. In the second quarter of 2024, the company's pre-tax adjusted operating income was $1.6 billion, up 10% from the previous year. This was driven by higher spread and fee income, lower expenses, and a favorable impact from annual assumptions and refinements. Year-to-date, the company's adjusted operating return on equity has improved by 1.5 percentage points.

The strength of our businesses is reflected in our operating results, which have been supported by our shift to more capital-efficient products and increased operating efficiencies. Our Global Investment Manager, PGIM, saw higher asset management fees and other related revenues, but also higher expenses. Our U.S. businesses experienced earnings growth due to higher spread income and lower expenses. However, our International Businesses saw less favorable results due to policyholder behavior and lower spread income. PGIM has strong capabilities in various asset classes and has achieved strong investment performance.

PGIM's strong long-term performance has been driven by market appreciation, investment performance, and affiliated net flows, with 80% and over 90% of assets under management outperforming their benchmarks over the last five-year and 10-year periods, respectively. In the last year, PGIM's assets under management increased by 5% to $1.3 trillion, with third-party net outflows of $9.5 billion in the quarter. However, on a year-to-date basis, PGIM generated $17.1 billion of inflows, reflecting the net benefit from large institutional pension clients. PGIM's capabilities as the investment engine of Prudential support the success and growth of their U.S. and International Businesses, and their insurance and retirement businesses provide a source of growth for PGIM through affiliated net flows and unique access to insurance liabilities. Their diversified PGIM Private Alternatives platform has also experienced strong private credit origination activity.

Prudential's businesses generate earnings from various sources and benefit from their diverse mix of longevity and mortality businesses. The company is focused on growing its market-leading businesses by improving customer experiences and expanding its addressable market. In the second quarter, Retirement Strategies had strong sales, with Institutional Retirement generating $4 billion in sales and Individual Retirement posting $3.5 billion in sales. Group Insurance sales increased by 13% year-to-date, driven by growth in various areas. Prudential is also executing its strategy of product and client segmentation diversification, while leveraging technology to increase efficiency and enhance customer experience. These efforts have resulted in a favorable benefit ratio and increases in sales for Individual Life, driven by the success of their FlexGuard Life product.

The speaker discusses the company's international businesses, including their focus on providing high-quality service in Japan and expanding into emerging markets. Sales in these areas have increased due to recent product launches and expansion of distribution. The company is focused on investing in growth and delivering industry-leading customer experiences. The next speaker will provide insight into the company's earnings for the third quarter of 2024 compared to the previous quarter.

The company's pre-tax adjusted operating income for the second quarter was $1.6 billion, resulting in earnings per share of $3.39 after taxes. To predict third quarter results, adjustments were made for various factors such as annual assumption updates, variable investment income, and underwriting experience. The company has lowered its expected loss for the year and plans to invest in growth initiatives in the third quarter. The company's capital position remains strong and supports its AA financial strength rating.

The company is being careful with how they use their capital, investing in their businesses for long-term growth and giving money back to shareholders. They are seeing growth in their market-leading businesses and have a strong balance sheet. They are actively working on multiple transactions for Prismic and hope to complete another one before the end of the year. The company does not expect much impact from changes in short-term rates.

The company uses interest rate derivatives to manage duration and has benefited from higher rates in recent years. However, if rates were to decline, it could impact new money rates but the company has a disciplined approach to reduce spread volatility. The annuity market is currently strong, but a decrease in interest rates could potentially lead to lower sales, especially in fixed annuities.

Prudential has seen growth in their fixed annuity sales, but it is just a small part of their overall portfolio. They have a diverse range of products and have had record sales in three distinct products, two of which are less sensitive to interest rates. They believe that the growing population of Americans over 65 and increased demand for protected income will continue to drive growth. They have the ability to adapt pricing quickly and are well positioned to meet customer demand. Prudential's CEO, Rob Falzon, stated that they would be disappointed if they didn't make a deal this year for Prismic, and the first deal they closed was about $10 billion in reserves.

The speaker discusses the performance of PGIM, stating that there were two large pension outflows in the quarter. They also mention the variability of flows, with fluctuations mostly driven by institutional clients. The company is the sixth largest manager of defined benefit assets globally and has large pension clients who are either derisking or exploring PRT due to overfunded portfolios.

The institutional money market is experiencing variability due to institutional money in motion, but overall PGIM is expected to benefit from this environment. Institutional flows are positive year-to-date, while retail flows have improved and are expected to accelerate with declining rates. On the group side, results were strong with no one-off factors, and the benefits ratio is expected to continue trending positively.

The company has seen strong results in their life and group disability business due to favorable mortality and effective claims management. They have also experienced double-digit growth in their supplemental health business and have expanded into new market segments. The benefit ratio for the quarter was 81%, below the target range of 83% to 87%. The unfavorable assumption review for Individual Life was offset by favorable updates in other areas, resulting in a modest benefit to adjusted operating income.

The negative impact to Individual Life was due to lower guaranteed universal life surrender experience post-COVID, as individuals retain their life-insuring policies at higher levels than previously assumed. This was based on updated emerging experience data and industry studies. The ongoing impact is reflected in operating income, but any statutory impacts are not expected to be meaningful. Regarding variable investment income, the company's real estate investment group has a forecast for continued valuation declines in the low-single digits for the remainder of the year, but they believe they are close to an inflection point.

Tom Gallagher from Evercore ISI asks about the actuarial review and the impact on net income, which was mainly due to RILA. Yanela Frias explains that the impact was driven by a methodology update and will only affect GAAP, not statutory. Tom also asks about the weakness in Institutional Retirement, but Caroline Feeney clarifies that there is actually no weakness and that earnings are up compared to the previous year. She also mentions that the demand for pension derisking will continue to drive growth in this area.

The company saw some unfavorable underwriting and lower sales on the institutional side this quarter. On the individual side, the strong sales of expanded products, such as RILA and Fix Products, drove profitability but were offset by higher distribution costs. The decision to no longer sell traditional variable annuities with living benefit guarantees also impacted earnings, but the company sees this as a transition and is focused on selling higher quality products. In the group channel, growth is primarily driven by the company's diversification strategy and focus on under 5,000 lives market, disability, and supplemental health products.

The company is experiencing strong growth due to employment and wage growth, as well as executing on their strategy. They have also made progress in diversifying their market. They plan to focus on select emerging markets and are open to M&A opportunities to accelerate growth. However, organic growth is their main priority.

Jimmy Bhullar from JPMorgan asked a question about capital deployment and buybacks. Yanela Frias responded by saying that they are well capitalized and have been investing in the growth of their businesses. They also continue to pay dividends and remain thoughtful in their capital deployment. Bhullar also asked about the sales outlook for the Japanese business, and Andy Sullivan responded by saying that they were pleased with the sales results and experienced strong growth in various channels. Sales in Japan were up 10% year-over-year.

The company has seen a 10% year-over-year increase in sales due to recent product introductions and expanding offerings. They expect the strengthening yen to benefit their U.S. dollar products and competition in the market is considered rational. They will remain disciplined and focused on delivering for customers and shareholders. The next question is about the individualized charge.

In response to a question about the impact of the GUL deal, Yanela Frias states that they do not have a sense of what the impact would have been if they had not done the deal. She also mentions that they are always looking for opportunities for further derisking transactions. Another question is asked about the disclosure for PGIM and Andy Sullivan explains that the quant fund was not a significant part of their business and they are exploring options for it. He also mentions that their investment performance has been strong. Charlie Lowrey concludes the Q&A session.

The speaker notes that we are currently in turbulent times and that clients need us the most during these times. They have observed that in the past, the company has been a net beneficiary during volatile times. They have the necessary capabilities to help clients with investing, insurance, and retirement security. The speaker assures that they will be laser-focused on helping clients during this volatility and will continue to deliver value to stakeholders. The teleconference has now concluded.

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