The paragraph introduces a conference call for Prudential's Quarterly Earnings, featuring speakers Bob McLaughlin, VP of Investor Relations, Andy Sullivan, CEO, and Yanela Frias, CFO. After the operator's introduction, Bob McLaughlin outlines the agenda, including prepared remarks from Andy Sullivan and Yanela Frias, followed by a Q&A session. The discussion may include forward-looking statements and non-GAAP measures, with corresponding materials available on the company's website. Andy Sullivan expresses his enthusiasm for leading Prudential Forward during this significant time in the company's 150-year history, emphasizing their commitment to customer promises and his recent visits to global offices to assess the business's state.

The CEO emphasizes the need to focus on growth and value creation for stakeholders, acknowledging both opportunities and challenges. The company has reduced exposure to volatile products and diversified its offerings, increasing sales and flows in the U.S. and Japan. Despite strong first-quarter sales and investment performance, earnings still did not meet expectations, and improvements are anticipated.

The new CEO of Prudential outlines a commitment to enhancing financial performance by leveraging the company's strong capabilities, brand, and product quality. Despite anticipating near-term challenges due to lower earnings in the U.S. and Japan businesses, the CEO remains confident in achieving 5% to 8% core adjusted operating EPS growth through 2027. The strategy involves adapting to market opportunities, addressing temporary earnings headwinds, and focusing on sales and capital allocation for long-term growth, without providing quarterly updates to financial targets.

The paragraph outlines the company's strategic priorities for achieving profitable growth, including directing capital towards high-opportunity areas, ensuring consistent execution, and fostering a high-performance culture. It emphasizes the importance of optimizing the product and business mix, improving capital deployment returns, and enhancing operational efficiency. The company's strategy also involves aligning incentives with earnings growth and leveraging its diverse financial solutions for 50 million customers. The company is confident in its ability to navigate economic cycles, supported by a strong balance sheet, liquidity, and diversified business mix, positioning it to capitalize on emerging opportunities.

In this paragraph, the company discusses its financial results and business performance for the first quarter of 2025. It highlights a pre-tax adjusted operating income of $1.5 billion, or $3.29 per share, marking an 8% increase from the previous year. This growth is attributed to improved underwriting results and cost reductions in U.S. businesses, despite lower-than-expected alternative investment income. The PGIM segment experienced reduced seed, co-investment income, and incentive fees, while asset management fees increased. In the U.S., lower fee income from legacy products and alternative investments impacted results, but lower expenses offered some relief. Internationally, spread income and joint venture earnings declined due to unfavorable performance and currency exchange rates.

The paragraph highlights PGIM's strong and diversified investment performance, with a notable percentage of its assets under management outperforming benchmarks over the past 5 and 10 years. Assets under management increased to $1.4 trillion due to market appreciation, net flows, and strong investment performance. Net inflows reached $4.3 billion, driven primarily by institutional third-party inflows, while retail outflows were minimal. The PGIM private alternatives platform saw significant capital deployment, although activity slowed due to market uncertainty. The U.S. business units benefited from diversified earnings sources, with strong performance in retirement strategies, structured settlements, and individual retirement sales, highlighted by significant international longevity reinsurance transactions.

The company is seeing successful outcomes from its strategic innovations in registered index-linked annuities and fixed annuity product sales while reducing the market sensitivity of legacy variable annuities. Group insurance and individualized sales have grown, primarily due to strong group-life products and accumulation-focused variable products, respectively. The firm is also leveraging technology to diversify products and market segments, enhancing efficiency and customer experience. Internationally, the firm’s Japanese and emerging market businesses have experienced sales growth, with significant traction seen in new retirement and savings products in Japan and record sales in Brazil.

The paragraph discusses the company's robust capital position and liquidity, highlighting $4.9 billion in cash and liquid assets, exceeding their $3 billion minimum target. Despite current economic volatility and earnings pressures, they feel confident in their intermediate-term goals and are prepared to lead globally in investing, insurance, and retirement security. During the Q&A, Ryan Krueger from KBW inquired about potential changes in capital deployment plans amidst competitive and economic shifts. CEO Andy Sullivan emphasized their ongoing evaluation of capital allocation, aiming to optimize the balance sheet and effectively deploy capital both organically and inorganically.

The speaker discusses their evolving approach to capital deployment, emphasizing the need for continuous discipline in response to changing markets and business conditions. Ryan Krueger inquires about PGIM's target margin of 25% to 30% over three years, and Andy Sullivan acknowledges the challenges faced due to first-quarter volatility and long-term incentive compensation expenses. He remains confident in reaching the 30% target over the long term, citing ongoing investments and recoveries in the real estate and fixed-income markets as positive factors.

The paragraph discusses the company's commitment to expense discipline and improving productivity and efficiency to expand its margin, aiming for a target of 30%. Tom Gallagher from Evercore ISI asks Andy Sullivan about the possibility of further reducing exposure to certain financial products to free up capital and lessen earnings drag. Andy Sullivan acknowledges the progress made in de-risking through stopping sales of specific products and engaging in successful transactions. He highlights that de-risking is an ongoing process, emphasizing the continuous optimization of the company's balance sheet, capital, and cash flows rather than viewing it as a single event.

In the paragraph, Tom Gallagher asks Yanela Frias about the capital levels in Japan ahead of the ESR implementation set for the next year. Yanela responds that they expect to maintain capital levels above the thresholds necessary for AA financial strength ratings following the implementation. She notes that dividend capacity is not expected to change due to ESR, as the statutory framework will stay the same. Yanela mentions they have strategies to handle uneconomic volatility using tools like reinsurance and have been preparing for this transition for years. Their product and reinsurance strategies have been adjusted accordingly, with a significant portion of U.S. dollar liabilities in Japan reinsured outside the country. Tom acknowledges the information as helpful.

The paragraph is a discussion between Bob Huang and Yanela Frias about the approach to reinsurance, particularly in the context of the Japanese market. Yanela explains that their strategy involves using various tools, including wholly-owned entities like Prismic and external reinsurance, to optimize capital and align regulatory reserves with the economics of their products. The choice of reinsurance method is determined by strategic considerations and an evaluation of capital, statutory gaps, economic, and liquidity impacts. Bob seeks clarification on the ESR ratio disclosure timeline, which Yanela confirms is planned for release in the summer, a year ahead of the required date. They also touch on the topic of variable investment income, noting market volatility and its implications for modeling in the future quarters.

The paragraph discusses the impact of lower than expected private equity and real estate returns on alternative investment income in the first quarter. It mentions challenges in predicting near-term performance given current market volatility and uncertainty. A scenario is presented where a 10% equity market decline followed by a 1.25% quarterly recovery would still result in positive returns, but could lead to a 200 to 250 basis point decline in intermediate-term expectations of 7% to 9% over four quarters. The company remains confident in its alternatives portfolio and long-term target returns, which have exceeded expectations over the past decade. Additionally, Suneet Kamath from Jeffries asks about the strategic value of the life insurance business, noting it represents about 5% of the company's earnings and referencing another company's exit from individual life insurance earlier in the year.

The paragraph discusses Prudential's approach to its life insurance business. Andy Sullivan explains that the company differentiates between its legacy Guaranteed Universal Life business, which is being phased out, and its future-oriented product offerings. Prudential is committed to reducing exposure to the less desirable legacy products while focusing on new, less interest rate-sensitive, and more capital-efficient products that align with the company's long-term goals. Sullivan highlights the importance of maintaining a balanced business mix, leveraging strengths in underwriting, and upholding the company's reputation as a trusted brand. Overall, the company sees good profitability and value in continuing its life insurance business.

The paragraph discusses the impact of surrender activities in Japan on the company's business. Suneet Kamath inquires about this issue, and Yanela Frias responds by acknowledging that while surrender activity has been a challenge, it is starting to stabilize. Improvements are expected to continue through 2024 and 2025 due to current exchange rates, though predicting when the issue will fully resolve is difficult. The 2024 surrender activities are projected to negatively impact 2025 earnings by approximately $100 million. Most contracts are beyond the surrender charge period, meaning there are no compensating fees. Andy Sullivan adds that the company is actively taking steps in Japan to minimize these effects by expanding and diversifying their product offerings.

The paragraph discusses recent sales and earnings trends in a company's retirement business, highlighting that new product launches have contributed to 20% of sales in the past 24 months, with a significant portion being yen-based. It mentions proactive measures to support customers in need of protection alternatives. The conversation then shifts to the retirement sector's earnings, noting strong individual retirement growth, but a contraction in institutional retirement earnings, despite robust PRT (pension risk transfer) activity in 2024. Yanela Frias explains that earnings from these sales emerge over several quarters and should be compared year over year. She notes an increase in spread earnings due to strong PRT sales, resulting in a $25 million benefit, despite a $24 million decline in core institutional retirement earnings.

In the paragraph, the speaker discusses factors impacting a company's business, primarily the change in internal expense allocation, lower spread income due to reduced short-term rates, and an accounting methodology refinement for derivatives. These factors are offsetting earnings growth, although the company remains optimistic about spread growth. Joel Hurwitz inquires about the PRT market and Andy Sullivan responds that the market is performing as expected and hasn't been affected by legal issues. However, he anticipates that market size may normalize in 2025 due to current environmental volatility, which tends to slow decision-making.

The paragraph involves a discussion between Andy Sullivan and John Barnidge, where John asks about the company's focus on growth, specifically the role of inorganic growth. Andy emphasizes that while organic growth is the top priority, inorganic growth is also crucial for maintaining and expanding market leadership. He cites the example of complementing organic success in direct lending with the acquisition of Deer Path Capital, which helped bolster market position. Andy also highlights that the company will continue to be disciplined and have high standards for inorganic investments, focusing on higher growth and capital-efficient areas, consistent with past strategies.

The paragraph features a discussion between John Barnidge, Andy Sullivan, and Elyse Greenspan during a conference call. Barnidge inquires about the opportunity for interval funds at PGIM, and Sullivan responds that they have been integrating public and private investment capabilities and are in the early stages of introducing interval funds. He mentions a focus on high-growth, high-fee areas and notes that building these capabilities takes time for results to manifest. Greenspan then shifts the focus to the company's EPS growth guidance, specifically questioning how much of the projected 3% to 4% drag will be recaptured in subsequent years. Yanela Frias addresses this, explaining that the 5% to 8% growth target over three years will not be linear and acknowledges current headwinds despite strong sales and earnings.

The paragraph discusses the financial challenges and expectations faced by a company due to the weakening yen in Japan and the runoff of variable annuities. The quarterly runoff of these annuities is estimated between $3 billion to $4 billion, impacting annual earnings by $100 million to $150 million. However, these headwinds are expected to diminish over time, aligning with intermediate-term growth targets of 5% to 8%. The conversation shifts to capital return strategies, highlighting a 65% net income free cash flow target, which is not directly linked to capital return but provides available capital for distribution. This target is viewed as an overtime measure, not a quarterly one, due to fluctuating cash flows.

The paragraph discusses a company's financial performance and future expectations. Despite not disclosing specific figures, Yanela Frias mentioned that the company plans to share preliminary views on their ESR (Economic Solvency Ratio) during the summer and aims to maintain capital levels consistent with AA targets. Jimmy Bhullar from JPMorgan inquired about the appropriate ESR threshold, but Frias declined to specify, indicating information will be shared later. Additionally, Andy Sullivan addressed the strong cash flows in their PGIM and annuity businesses, questioning how these might withstand market volatility. Sullivan affirmed satisfaction with first-quarter PGIM flows and plans to discuss annuities separately.

The paragraph discusses the state of institutional and retail client flows in the financial markets, highlighting that the start of 2025 was positive due to broad-based inflows across multiple asset classes. However, increased market volatility since March has led to retail clients becoming more cautious, and there is a possibility that this trend might extend to institutional clients if volatility persists. The paragraph also points out that affiliated flows remained flat this quarter, but there are growth opportunities in retirement and insurance sectors. The annuity market is strong, driven by factors like an aging population and a need for yield, despite potential fluctuations from interest rate changes. Prudential's sales in this market are consistent and expected to grow. Finally, Jimmy Bhullar asks about potential shifts in strategy or focus for Prudential.

In the paragraph, Andy Sullivan discusses the company's approach to evolving capital plans and evaluating growth opportunities, emphasizing the importance of a continuous, disciplined process in adjusting to market and business changes. Jimmy Bhullar and Jack Matten ask questions regarding specific financial performance and projections, particularly in the areas of individual retirement sales amidst market volatility and the strong premium growth in the group business. Andy Sullivan responds by noting the long-term focus on business trends and declines to provide specific details about recent monthly sales data.

In the paragraph, Yanela Frias, responding to Jack, discusses the strong performance in the company's group life and disability sector, emphasizing their growth strategy and price discipline. They are investing in customer experience and claims management, leading to a strong benefit ratio. Their segment diversification strategy, especially in the under 5,000 lives market, resulted in over 50% sales growth compared to the previous year. This positive trend gives them confidence in the business outlook. Wes Carmichael from Autonomous Research then shifts the conversation to focus on core EPS growth, seeking clarification on the baseline figure for measurement, with Yanela confirming it should be $13.67, reflecting adjusted seasonality changes.

The paragraph features a discussion between Yanela Frias and Alex Scott, focusing on strategic decisions and risk management involving Prismic and external reinsurance. Frias explains that their strategy remains unchanged, with ongoing efforts to optimize the balance sheet and explore third-party block transactions, though these are complex and time-consuming. Recently, they completed a $7 billion transaction in Japan. Alex Scott then inquires about their yen hedging program due to recent currency market volatility and its potential impact on the ESR ratio. Frias clarifies that they do not hedge yen earnings as these are not significant compared to their U.S. earnings.

The paragraph discusses a company's financial strategy, highlighting its hedging program involving currency exchange between the dollar and yen. This program is part of the company's capital management framework and considers Exchange Rate Sensitivity (ESR) in maintaining capital levels equivalent to AA ratings. The conversation then shifts to the Life Insurance segment, where Alex Scott notes some near-term challenges but recognizes strong core earnings, the best since 2021. Yanela Frias responds, indicating that the growth in core earnings reflects the profitable and capital-efficient new business. Despite some negative impact from the remaining Guaranteed Option Liability (GOL), the core earnings growth is sustainable and not a one-time event. Mike Ward from UBS is the next to ask a question.

In the paragraph, Mike inquires about updated sensitivities to equity market and interest rate shocks, noting prior efforts to reduce market sensitivities. Yanela Frias responds, indicating that earnings sensitivities have been reduced by about 20% following variable annuity derisking transactions. She explains that a 10% equity market decline would reduce AOI by about $0.30 per share annually, and a 50 basis point interest rate drop would result in a 20% decline in EPS annually. Mike then asks about capital priorities concerning dividends and buybacks. Yanela states that their capital deployment strategy remains unchanged, focusing on financial strength, business investments, and shareholder distributions through dividends and share repurchases.

The paragraph is a conclusion to a teleconference where Andy Sullivan expresses gratitude to employees and confidence in the company's future. He highlights the company's strong financial position and the opportunity for growth despite the macroeconomic environment. Sullivan emphasizes the leadership team's alignment on strategic priorities and commitment to improving execution and fostering a high-performance culture. The session ends with an operator thanking participants and indicating the end of the call.

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