Q2 2024 Prudential Financial Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Prudential's Quarterly earnings Conference call. At this time, all participants have been placed in a listen only mode. Later, we'll conduct a question and answer session and instructions will be given at that time.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Prudential's Quarterly Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at that time. If you should require any assistance during the call, please press star zero, and an operator will assist you offline. As a reminder, today's call is being recorded. I will now turn the call over to Mr. Bob McLaughlin. Please go ahead.

Speaker Change: If you should require any assistance during the call. Please press star zero and an operator will assist you offline as a reminder, today's call is being recorded I will now turn the call over to Mr. Bob Mclaughlin. Please go ahead.

Robert McLaughlin: Good morning, and thank you for joining our call. Representing Prudential on today's call are Charlie Lowrey, Chairman and CEO, Rob Falzon, Vice Chairman, Andy Sullivan, Head of the International Businesses, and PGIM, our Global Investment Manager, Caroline Feeney, Head of U.S. Businesses, Yanela Frias, Chief Financial Officer, and Rob Axel, Controller and Principal Accounting Officer.

Speaker Change: Morning, and thank you for joining our call representing Prudential on today's call are Charlie Lowrey, Chairman and CEO, Rob Falzon, Vice Chairman, Andy Sullivan head of international businesses and teach them our global investment manager.

Speaker Change: Oh, I see any head of U S businesses, and all our friends Chief Financial Officer, and Rob Axel Controller, and principal accounting officer, we will start with prepared comments by Charlie Robinson now and then we will take your questions.

Robert McLaughlin: We will start with prepared comments by Charlie, Rob, and Yanela, and then we will take your questions. Today's discussion may include forward-looking statements. It is possible that actual results may differ materially from the predictions we make today. In addition, our presentation includes references to non-GAAP measures. For a reconciliation of such measures to the comparable GAAP measures and a discussion of factors that could cause actual results to differ materially from those in the forward-looking statements, please see the slides titled Forward-Looking Statements and Non-GAAP Measures in the appendix to today's presentation and the quarterly financial supplement, both of which can be found on our website at investor.prudential.com.

Speaker Change: Today's discussion May include forward looking statements. It is possible that actual results may differ materially from the predictions. We make today. In addition, our presentation includes references to non-GAAP measures for a reconciliation of such measures to the comparable GAAP measures and a discussion of factors that could cause actual results to differ materially from those in the forward looking.

Speaker Change: Statements. Please see the slide titled forward looking statements and non-GAAP measures in the appendix to today's presentation and our quarterly financial supplement both of which can be found on our website at investor Prudential Dot Com and now I'll turn it over to Charlie.

Robert McLaughlin: And now, I'll turn it over to Charlie.

Charlie: Thank you Bob and thanks to all of you for joining us today during the second quarter, we continued to grow our market, leading businesses and become more capital efficient to deliver greater long term value for our stakeholders. Our momentum was driven by robust sales in our U S and international businesses as well as strong investment performance and origination.

Charles Lowrey: Thank you, Bob. And thanks to all of you for joining us today.

Charles Lowrey: During the second quarter, we continued to grow our market-leading businesses and become more capital efficient to deliver greater long-term value for our stakeholders. Our momentum was driven by robust sales in our U.S. and international businesses, as well as strong investment performance and originations across PGM's private alternatives platform. We maintained our disciplined approach to capital deployment by investing in the growth of our businesses and returning excess capital to shareholders. This progress was supported by our strong financial position. Turning to slide three.

Speaker Change: Across Pgm's private alternatives platform.

We maintained our disciplined approach to capital deployment by investing in the growth of our businesses and returning excess capital to shareholders.

Speaker Change: Progress was supported by our strong financial position.

Speaker Change: Turning to slide three I will.

Charles Lowrey: I will focus my remarks this morning on the strategic actions we are taking to expand access to investing, insurance, and retirement security and how they position us to address the evolving financial challenges of our customers around the world. One of our most compelling growth opportunities is addressing the increasing global demand for retirement products, solutions, and advice. This year, historic levels of Americans will turn 65.

Speaker Change: I'll focus my remarks. This morning on the strategic actions, we were taking to expand access to investing insurance and retirement security and how they position us to address the evolving financial challenges of our customers around the world.

Speaker Change: One of our most compelling growth opportunities is addressing the increasing global demand for retirement product solutions and advice. This year historic levels of Americans will turn 65.

Charles Lowrey: At the same time, 55-year-olds will enter the crucial decade before retirement in preparation for life after work. These aging demographics will result in an estimated $137 trillion retirement opportunity in the US and $26 trillion in Japan by 2050. As a leader in pension risk transfer and individual annuities, Retirement Strategies is delivering products and solutions that protect the life's work of our customers and ensure a more financially secure retirement for people around the world.

Speaker Change: At the same time 55 year olds will enter the crucial decade before retirement and preparation for life after work.

Speaker Change: These aging demographics will result in an estimated 137 trillion dollar retirement opportunity in the U S and 26 trillion dollars in Japan by 2050.

Speaker Change: As a leader in pension risk transfer and individual annuities retirement strategies is delivering products and solutions that protect our life's work of our customers.

Speaker Change: And to ensure a more financially secure retirement for people around the world.

Charles Lowrey: Our market leadership is demonstrated by nearly $22 billion in retirement strategies sales in the first half of this year, representing a 67% increase from the prior year. This includes robust sales in pension risk and longevity risk transfer, as well as nearly doubling our individual annuity sales. Since the launch of our FlexCard indexed variable annuity product suite in 2020, our sales have exceeded $21 billion. Meanwhile, in Japan, our customers are benefiting from an expanded product suite demonstrated by a 20% increase in retirement and savings product sales year over year.

Speaker Change: Our market leadership is demonstrated by nearly $22 billion in retirement strategies sales in the first half of this year, representing a 67% increase from the prior year.

Speaker Change: This includes robust sales and pension risk and longevity risk transfer as well as nearly doubling our individual annuity sales.

Speaker Change: Since the launch of our Flex guard indexed variable annuity product suite in 2020.

Speaker Change: Our sales have exceeded $21 billion.

Speaker Change: Meanwhile, in Japan, our customers are benefiting from an expanded product suite demonstrated by a 20% increase in retirement and savings product sales year over year.

Charles Lowrey: PGIM, our global asset management business, is well positioned to address the increasing demand for retirement solutions around the world while capitalizing on growing institutional demand for private credit and alternative investment. PGIM provides investment solutions that help retirement plan sponsors deliver benefits to millions of beneficiaries. With nearly half a trillion dollars of assets under management supporting defined benefit and defined contribution plans, BGEM is a market leader, servicing more than half of the world's 300 largest pension funds, including over two thirds of the largest 100 US pension plans, and is the largest pension fund manager in Japan. PGM also continues to grow its private alternatives business with capital deployment of nearly $11 billion in the second quarter, a 35% increase compared to a year ago

Speaker Change: P. J M. Our global asset management business is well positioned to address the increasing demand for retirement solutions around the world, while capitalizing on growing institutional demand for private credit and alternative investments PGM provides investment solutions that help retirement plan sponsors deliver benefits to millions of beneficiaries.

Speaker Change: With nearly half a trillion dollars of assets under management supporting defined benefit and defined contribution plans PGM is a market leader servicing more than half of the world's 300 largest pension funds, including over two thirds of the largest 100 U S pension plans and is the largest pension fund manager in Japan.

Speaker Change: Pizza I'm also continues to grow its private alternatives business with capital appointment of nearly $11 billion in the second quarter, a 35% increase compared to a year ago quarter.

Charles Lowrey: This includes the benefit of our recent acquisition of Deer Path Capital. Moving now to our market-leading insurance business. We have expanded our product suite and distribution channels to meet the growing demand for products and solutions that can help bridge the global life insurance gap. In our US insurance businesses, strong sales continue to benefit from expanded distribution and product diversification. This has resulted in a shift to a more capital efficient product maker; year to date, group insurance sales are up 13% and individual life sales are up 7% compared to the first half of 2023. In Brazil, we continue to expand our third-party distribution and benefit from the high quality of our life planners.

Speaker Change: This includes the benefit of our recent acquisition of Deer path capital move.

Speaker Change: Moving now to our market, leading insurance businesses, we have expanded our product suite and distribution channels to meet the growing demand for products and solutions that can help bridge the global life insurance gap.

Speaker Change: In our U S insurance businesses strong sales continue to benefit from expanded distribution and product diversification. This has resulted in a shift to a more capital efficient product mix.

Speaker Change: Year to date group insurance sales were up 13% and individual life sales are up 7% compared to the first half of 2023.

Speaker Change: In Brazil, we continue to expand our third party distribution and benefit from the high quality of our life planners. This has resulted in a 27% increase in year to date sales.

Charles Lowrey: This has resulted in a 27% increase in year-to-date sales. Across each of our businesses, our strategy is underpinned by the continued investment in capabilities and initiatives that translate into future earnings growth. This includes expanding our products and distribution and using artificial intelligence, machine learning, and other technology to deliver an exceptional sales, service, and claims experience. Turning to slide four.

Speaker Change: Across each of our businesses our strategy is underpinned by the continued investment in capabilities and initiatives that translate into future earnings growth. This includes expanding our products and distribution and using artificial intelligence machine learning and other technology to deliver exceptional sales service and claims experiences.

Speaker Change: Turning to slide four.

Speaker Change: Our disciplined approach to capital deployment supported investments in our businesses, while returning over $700 million to shareholders during the quarter.

Charles Lowrey: Our disciplined approach to capital deployment supported investments in our businesses while returning over $700 million to shareholders during the quarter. Turning to slide five, our financial strength, diversified business mix, and risk and capital management framework support our growth strategy. Our AA rating reflects our healthy capital position, including more than $4 billion in highly liquid assets at the end of the second quarter, a high-quality, well-diversified investment portfolio, and a disciplined approach to asset liability management.

Speaker Change: Turning to slide five our financial strength diversified business mix and risk and capital management framework supports our growth strategy.

Speaker Change: Our double a rating reflects our healthy capital position, including more than $4 billion in highly liquid assets at the end of the second quarter.

Speaker Change: High quality, well diversified investment portfolio and a disciplined approach to asset liability management.

Speaker Change: We are confident that our financial strength, our business strategy and the evolving opportunities to support our customers around the world put us in a strong position to deliver long term value to our shareholders.

Charles Lowrey: We are confident that our financial strength, our business strategy, and the evolving opportunities to support our customers around the world put us in a strong position to deliver long-term value to our shareholders. With that, I will turn it over to Rob for a closer look at our individual business performance.

Speaker Change: With that I will turn it over to Rob for a closer look at our individual business performance.

Rob: Thank you Charlie I'll provide an overview of our financial results and business performance for our P. Jim U S and international businesses I'll begin on slide six with our financial results for the second quarter of 'twenty 'twenty four our pre tax adjusted operating income was $1 6 billion or $3 39 per share on an after.

Robert Falzon: Thank you, Charlie. I'll provide an overview of our financial results and business performance for our PGEM, U.S., and international businesses. I'll begin on slide 6 with our financial results for the second quarter of 2024. Our pre-tax adjusted operating income was $1.6 billion, or $3.39 per share on an after-tax basis, up 10% from the year-ago quarter and 12.5% on a year-to-date basis. These results reflect the execution of our strategy to grow our market-leading business. Higher spread in fee income was the result of continued strong sales and the benefit of higher interest rates in equity markets. Additionally, expenses were lower and included a reduction in legal reserves.

Speaker Change: The tax basis up 10% from the year ago quarter, and 12, 5% on a year to date basis. These results reflect the execution of our strategy to grow our market leading businesses higher.

Speaker Change: Higher spread and fee income was the result of continued strong sales and the benefit of higher interest rates and equity markets. Additionally expenses were lower and include a reduction in legal reserves.

Robert Falzon: Results for the current quarter also include a modest net favorable impact from our annual assumptions update and other refinements reflecting the benefit of our diversified business mix. Year to date, Adjusted Operating Return on Equity was 13.5% and has improved nearly one and a half percentage points from the prior year. This reflects the strength of our businesses, the benefits from the deliberate actions we've taken to pivot to more capital efficient products, and operating efficiencies we've achieved that support growth.

Speaker Change: Results for the current quarter also include a modest net favorable impact from our annual assumption update and other refinements, reflecting the benefit of our diversified business mix.

Speaker Change: Year to date adjusted operating return on equity was 13, 5% and has improved nearly one five percentage points from the prior year. This reflects the strength of our businesses the benefits from the deliberate actions, we've taken to pivot to more capital efficient products and operating efficiencies, we've achieved that support growth.

Robert Falzon: Turning to the operating results from our businesses compared to the year-ago quarter, PGIM, our global investment manager, had higher asset management fees driven by favorable investment performance, contributions from the Deer Path capital acquisition, and equity market appreciation. Additionally, higher incentive and transaction fees resulted in an increase in other related revenues.

Speaker Change: Turning to the operating results from our businesses compared to the year ago quarter.

Speaker Change: Teach them, our global investment manager had higher asset management fees, driven by favorable investment performance contributions from the gear past capital acquisition and equity market appreciation. Additionally, higher incentive and transaction fees resulted in an increase in other related revenues. This was partially offset by higher expenses to support business.

Robert Falzon: This was partially offset by higher expenses to support business growth. Earnings growth in our U.S. businesses reflected higher spread income driven by business growth and the benefit of higher interest rates, more favorable underwriting results, and lower expenses. In addition, a more favorable relative impact from our annual assumptions update and other refinements was driven by a more favorable retirement strategies update, partially offset by a less favorable update in individual life. This was partially offset by lower legacy traditional variable annuity fee income as we intentionally pivot to less market-sensitive products. Results of our international businesses included an unfavorable relative impact from our annual assumptions update and other refinements; less favorable underwriting results, primarily reflecting policyholder behavior; and lower spread income due to less favorable variable investment income.

Speaker Change: Gross.

Speaker Change: Earnings growth in our U S businesses reflected higher spread income driven by business growth and the benefit of higher interest rates more favorable underwriting results and lower expenses.

Speaker Change: Edition, a more favorable relative impact from our annual assumption update in other refinements was driven by a more favorable retirement strategies update partially offset by a less favorable update in individual life.

Speaker Change: This was partially offset by lower legacy traditional variable annuity fee income as we intentionally pivot to less market sensitive products.

Speaker Change: Results of our international businesses included an unfavorable relative impact from our annual assumption update and other refinements.

Speaker Change: Less favorable underwriting results, primarily reflecting policyholder behavior and lower spread income due to less favorable less favorable variable investment income.

Robert Falzon: Results in the quarter also included higher joint venture earnings. Turning to slide 7, PGEM, our global investment manager, has diversified capabilities in both public and private asset classes across fixed income, equities, and alternatives. PGEM's strong investment performance continues to improve, with 83% of assets under management exceeding their benchmarks over the past year. This has contributed favorably to strong long-term performance, with 80% and over 90% of assets under management outperforming their benchmarks over the last 5 and 10-year periods, respectively. Fiji's assets under management increased by 5% to $1.3 trillion from the year-ago quarter, driven by market appreciation, investment performance, and affiliated net flows.

Speaker Change: Results in the quarter also included higher joint venture earnings.

Speaker Change: Turning to slide seven P M. Our global investment manager has diversified capabilities in both public and private asset classes across fixed income equities and alternatives Peach and strong investment performance continues to improve with 83% of assets under management exceeding their benchmarks over the past year. This has contributed favorably to strong long term performance.

Speaker Change: Formats, with 80% and over 90% of assets under management outperforming their benchmarks over the last five and 10 year periods respectively.

TJ: T J 's assets under management increased by 5% to $1 three trillion dollars from the year ago quarter, driven by market appreciation investment performance and affiliated net flows.

Robert Falzon: Third-party net outflows in the quarter totaled $9.5 billion. Institutional outflows of $8.9 billion were primarily in fixed income, driven by two large clients. Retail outflows of $600 million were driven by sub-advised equity strategies and mutual funds, and were partially offset by positive momentum in public fixing. Pigeon third-party flows are episodic due to large single-client transactions.

Speaker Change: Third party net outflows in the quarter totaled nine and a half billion dollars institutional outflows of $8 9 billion were primarily in fixed income driven by two large clients retail outflows of 600 million were driven by sub advised equity strategies and mutual funds were partially offset by positive momentum in public fixed income.

TJ: Teach them third party flows are episodic due to large single client transactions on a year to date basis, we generated $17 $1 billion of inflows, reflecting the net benefit from large institutional pension clients.

Robert Falzon: On a year-to-date basis, we generated $17.1 billion of inflows, reflecting the net benefit from large institutional pension clients. As the investment engine of Prudential, PGEM's capabilities support the success and growth of our U.S. and international businesses in retirement, asset management, and insurance. PGM's asset origination capabilities, investment management expertise, and access to institutional and other sources of private capital, including through the recently launched reinsurer Prismic, are a competitive advantage, helping our businesses bring enhanced solutions and create more value for our customers.

Speaker Change: As the investment engine of Prudential Pgm's capability support the success and growth of our U S and international businesses and retirement asset management and insurance piece.

Speaker Change: <unk> asset origination capabilities investment management expertise and access to institutional and other sources of private capital, including through the recently launched <unk> reinsurer present are a competitive advantage, helping our businesses bring enhanced solutions and create more value for our customers our insurance and retirement businesses in turn provide a source of growth for peach them through.

Robert Falzon: Our insurance and retirement businesses, in turn, provide a source of growth for PGEM through affiliated net flows, as well as unique access to insurance liability. In addition, our diversified PGM private alternatives platform, which has assets under management of approximately $240 billion, experienced strong private credit origination activity driven by our direct lending businesses, including from our recent acquisition of DeerPath Capital.

Speaker Change: Affiliated net flows as well as unique access to insurance liabilities.

Speaker Change: In addition, our diversified teach them private alternatives platform, which has assets under management of approximately $240 billion experienced strong private credit origination activity driven by our direct lending businesses, including from our recent acquisition of <unk> capital.

Robert Falzon: Turning to slide eight, our U.S. businesses produce diversified earnings from fees, net investment spread, and underwriting income and benefit from our complementary mix of longevity and mortality businesses. We continue to focus on growing our market-leading businesses by transforming our capabilities to improve customer experiences and expanding our addressable market with new financial solutions leveraging the capabilities across Prudential. Retirement Strategies generated strong sales of $7.5 billion in the second quarter across its institutional and individual lines of business.

Speaker Change: Turning to slide eight our U S businesses produced diversified earnings from fees net investment spread and underwriting income and benefit from a complementary mix of longevity and mortality businesses. We continue to focus on growing our market leading businesses by transforming our capabilities to improve customer experiences and expanding our addressable market with new finance.

Speaker Change: Solutions, leveraging the capabilities across credential.

Speaker Change: Retirement strategies generated strong sales of $7 $5 billion in the second quarter across institutional and individual lines of business institutional retirement sales of $4 billion included U S funded pension risk transfer transactions of $1 4 billion and longevity risk transfer sales of $1 2 billion.

Robert Falzon: Institutional retirement sales of $4 billion included U.S.-funded pension risk transfer transactions of $1.4 billion and longevity risk transfer sales of $1.2 billion. Year-to-date, institutional retirement has generated sales of $15 billion. Individual retirement posted $3.5 billion in sales, its best quarter of sales in over a decade.

Speaker Change: Year to date institutional retirement has generated sales of $15 billion.

Speaker Change: Individual retirement posted $3 5 billion in sales its best quarter of sales in over a decade.

Robert Falzon: Our product pivots have resulted in continued strong sales of FlexGuard and FlexGuard Income, and fixed annuity sales have doubled from the prior year. Additionally, we continue to reduce market sensitivity by running off our legacy variable annuities. Group insurance sales primarily occur in the first quarter of the year based on annual enrollments.

Speaker Change: Our product pivots have resulted in continued strong sales of flex guard and flex card income and fixed annuity sales have doubled from the prior year. Additionally, we continue to reduce market sensitivity by running off our legacy variable annuities.

Speaker Change: Group insurance sales primarily occur in the first quarter of the year based on annual enrollments on a year to date basis sales increased 13% compared to the prior year driven by growth in life's disability and supplemental health, we're executing our strategy of both product and client segmentation diversification, while leveraging technology to increase operating efficiency and enhance.

Robert Falzon: On a year-to-date basis, sales increased 13% compared to the prior year, driven by growth in life, disability, and supplemental health. We are executing our strategy of both product and client segmentation diversification while leveraging technology to increase operating efficiency and enhance the customer experience. These actions to improve profitability and performance resulted in a favorable benefit ratio of 81.1%. In individual life, sales increased 3% from the year-ago quarter and 7% year-to-date.

Speaker Change: Customer experience.

Speaker Change: These actions to improve profitability and performance resulted in a favorable benefit ratio of 81, 1%.

Speaker Change: Individual life sales increased 3% from the year ago quarter, and 7% year to date. These increases include the benefit from our Flex guard life product, which reached its highest sales quarter since its launch in 2022 and from our pivot towards more capital efficient products.

Robert Falzon: These increases include the benefit from our FlexGuard Life product, which reached its highest sales quarter since its launch in 2022, and from our pivot towards more capital-efficient products. Turning to slide 9, our international businesses include our Japanese life insurance companies, where we have a differentiated multi-channel distribution model as well as other businesses aimed at expanding our presence in targeted high-growth emerging markets. In Japan, we are focused on providing high-quality service and expanding our distribution and product offerings.

Speaker Change: Turning to slide nine our international businesses include our Japanese life insurance companies, where we have a differentiated multichannel distribution model as well as other businesses aimed at expanding our presence in targeted high growth emerging markets and Japan, we are focused on providing high quality service and expanding our distribution and product offerings our needs based approach.

Robert Falzon: Our needs-based approach and protection and retirement product focus continue to provide important value to our customers as we expand our product offerings to meet their evolving needs. In emerging markets, we are focused on creating a selective portfolio of businesses and regions where customers' needs are growing, where there are compelling opportunities to build market-leading businesses, and where the prudential enterprise can add value. Sales in our international businesses were up 11% compared to the year-ago quarter.

Speaker Change: Protection and retirement product focus continue to provide important value to our customers as we expand our product offerings to meet their evolving needs.

Speaker Change: In emerging markets, we are focused on creating a selective portfolio of businesses and regions, where customers' needs are growing where there are compelling opportunities to build market, leading businesses and where the Prudential enterprise can add value sales in our international businesses were up 11% compared to the year ago quarter higher sales in Japan are benefiting from recent product launches.

Robert Falzon: Higher sales in Japan are benefiting from recent product launches as we expand our retirement and savings offerings. These new products are gaining traction with customers and represented 20% of the current quarter sales. In addition, emerging market sales were higher, driven by growth in Brazil, as we continue to expand third-party distribution and benefit from the strong performance of our world-class life planner. As we look ahead, we are well positioned across our businesses to be a global leader in expanding access to investing, insurance, and retirement security.

Speaker Change: As we expand our retirement and savings offerings. These new products are gaining traction with customers and represented 20% of the current quarter sales. In addition to emerging market sales were higher driven by growth in Brazil. As we continue to extend third party distribution and benefit from the strong performance of our World class life planners as we look ahead, we are well positioned.

Jeff: <unk> across our businesses to be a global leader in expanding access to investing insurance and retirement security. We continue to focus on investing in growth businesses and markets delivering industry, leading customer experiences and creating the next generation of financial solutions to serve the diverse needs of a broad range of customers and with that I'll now hand, it over to Jeff.

Robert Falzon: We continue to focus on investing in growth businesses and markets, delivering industry-leading customer experiences, and creating the next generation of financial solutions to serve the diverse needs of a broad range of customers.

Jeff: Thank you Rob I will begin on slide 10, which provides insight into earnings for the third quarter of 2024 relative to our second quarter results.

Yanela Frias: I will begin with slide 10, which provides insight into earnings for the third quarter of 2024 relative to our second quarter results. Pre-tax adjusted operating income for their second quarter was $1.6 billion and resulted in earnings per share of $3.39 on an after-tax basis. To get a sense of how our third-quarter results might develop, we suggest adjustments for the following items. First, our annual assumption update and other refinements resulted in a net benefit of $6 million in the second quarter.

Yanela Frias: Second, variable investment income was below expectations by $90 million in the second quarter, driven by lower real estate returns. Next, underwriting experience was below expectations by $10 million in the second quarter, and we expect $30 million of favorable seasonality in the third quarter. And last, we include an adjustment of $95 million for expenses and other items. Expenses in the second quarter were lower than expected, reflecting a reduction in legal reserves and the timing of expenses. As a result, we have lowered the full year 2024 expected loss in corporate and other to $1.8 billion.

Jeff: Pretax adjusted operating income for the second quarter was $1 $6 billion and resulted in earnings per share of $3.39 on an after tax basis.

Speaker Change: To get a sense of how our third quarter results might develop we suggest adjustments for the following items first.

Speaker Change: First our annual assumption update and other refinements resulted in a net benefit of $6 million in the second quarter.

Speaker Change: Second variable investment income was below expectations by $90 million in the second quarter, driven by lower real estate returns.

Speaker Change: That's the underwriting experience was below expectations by $10 million in the second quarter, and we expect $30 million of favorable seasonality in the third quarter.

Speaker Change: And last we include an adjustment of $95 million for expenses and other items expenses in the second quarter were lower than expected, reflecting a reduction in legal reserves and the timing of expenses.

Speaker Change: As a result, we have lowered the full year 2020 for expected loss incorporated another two $1.8 billion.

Yanela Frias: In the third quarter, we expect higher investments in our initiatives to support growth as originally planned. These adjustments combined get us to a baseline of $3.48 per share for the third quarter. I will note that if you exclude items specific to the third quarter, earnings per share would be $3.56. The key takeaway is that our underlying earnings power increased and reflects our continued investment in the growth of our market-leading businesses and our pivot away from more capital-intensive and lower-growth businesses.

Speaker Change: In the third quarter, we expect higher investments in our initiatives to support growth as originally planned.

Speaker Change: These adjustments combined get us to a baseline of $3.48 per share for third quarter. I will note that if you exclude items specific to the third quarter earnings per share would be $3.56. The key takeaway is that our underlying earnings power increase and reflects our continued investments in there.

Speaker Change: Growth of our market, leading businesses and our pivot away from more capital intensive and lower growth businesses.

Yanela Frias: While we have provided these items for you to consider, please note that there may be other factors that affect earnings per share in the third quarter. Turning to slide 11, our capital position continues to support our AA Financial Strength Rating. Our regulatory capital ratios are in excess of our AA objectives. Our cash and liquid assets were $4.4 billion, within our liquidity target range of $3 to $5 billion, and we have substantial off-balance sheet resources.

Speaker Change: Well, we have provided these items to consider please note that there may be other factors that affect earnings per share in the third quarter.

Speaker Change: Turning to slide 11, our capital position continues to support our double a financial strength rating.

Speaker Change: Our regulatory capital ratios are in excess of our double objective, our cash and liquid assets were $4 $4 billion within our liquidity target range of $3 billion to $5 billion.

Speaker Change: And we have substantial off balance sheet resources.

Yanela Frias: We remain thoughtful in our capital deployment, preserving financial strength and flexibility, investing in our businesses for long-term growth, and returning capital to shareholders. Turning to slide 12, and in summary, we are growing our market-leading businesses, we are maintaining a disciplined approach to capital deployment, and our growth is supported by the strength of our balance. And with that, we will be happy to take your questions.

Speaker Change: We remain thoughtful in our capital deployment preserving financial strength and flexibility investing in our businesses for long term growth and returning capital to shareholders.

Speaker Change: Turning to slide 12, and in summary, we are growing our market leading businesses, we are maintaining a disciplined approach to capital deployment.

Speaker Change: Our growth is supported by the strength of our balance sheet.

Speaker Change: And with that we will be happy to take your questions.

Speaker Change: Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.

Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. In the interest of time, we ask that you please ask one question, one follow-up, then return to the queue. Our first question is coming from Ryan Krueger from KBW. Your line is now live.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one and.

Speaker Change: Interest of time, we ask you. Please ask one question one follow up then return to the queue. Our first question is coming from Ryan Krueger from K B W. Your line is now live.

Ryan Krueger: Hey, thanks. Good morning.

Ryan Krueger: Hey, Thanks. Good morning. My first question was on pre clinic can you give an update on your progress towards additional transaction.

Ryan Krueger: Would you anticipate getting another one done before the end of the year.

Speaker Change: Good morning, Ryan, It's Rob Yeah, we end, our prisma investors share aspirations to grow well beyond the initial $10 billion transaction that we completed.

Ryan Krueger: My first question was about Prismic. Can you give an update on your progress toward additional transactions? And would you anticipate getting another one done before the end of the year?

Speaker Change: Relatively recently, we continue to work on a very active pipeline of multiple insurance transactions that pipeline includes ongoing balance sheet optimization.

Speaker Change: Hello, or new sales solutions across our businesses as well as third party blocks, where we have a particular focus on Japan I would be we would be disappointed if we have not entered into an additional transaction before year end.

Speaker Change: Yeah.

Speaker Change: Thank you and the second one was on just hoping you could revisit your earnings sensitivity as short term rates and I think in addition to the total sensitivity can you give some perspective on the different moving parts between the businesses.

Speaker Change: Hi, Ryan its Chanel, yes, with regards to rates short term rates, we do not expect much of an impact due to changes in short term rates are we have cash at the holding company and collateral and individual retirement strategies that earn short term yields and this is generally offset by it.

Rob: Good morning, Ryan. It's Rob.

Speaker Change: Interest rate derivatives, where we pay short term rates and receive fixed and we use these to manage duration across our businesses. So generally. These these are these are all setting. Let me also address long term rates since we've seen some recent movement with respect to long term rates, we have benefited from the rise in rates over the past few years.

Speaker Change: Which had been at levels that are significantly higher than over the past decade, and this has increased our portfolio yields in both domestic and international so hiring is there for us and it has been a tailwind.

Speaker Change: If rates were to decline would reduce our new money rates, but we do have a healthy spread between new money rates and portfolio yields and lastly, I would point out that we have a very disciplined a L M approach, which significantly reduces future spread volatility empty enforced.

Speaker Change: Yeah.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Thank you. Your next question is from me coming from sleep come off from Jefferies. Your line is now live.

Speaker Change: Good morning. Thank you I guess last quarter, you guys are pretty optimistic about the industry annuity sales I think you said over 400 billion and year to date that's tracking.

Speaker Change: Pretty closely so that's good I guess my question is given the move in rates that we've seen you know what the 10 year now somewhere in the three eight neighborhood do you think that'll dampen demand for annuity growth and how are you thinking about pricing in this if this becomes the new kind of rate environment. Thanks.

Speaker Change: So Nate it's Caroline and I will take your question.

Speaker Change: So right now the annuity market continues to be extremely strong and she reference with the market on pace to deliver a third straight record year outpacing last year's run rate by over 20% and it's certainly possible that in a decreasing interest rate environment, we could see some pullback from the record sales levels are.

Lilly: Ticket Lilly and fixed annuities.

Speaker Change: From a prudential perspective, while we've been very pleased with the growth in our fixed annuity yourself and for US. It's really just a piece of the overall portfolio. We have the broadest product portfolio, we've ever had with no over concentration in any single product.

Speaker Change: In fact, this past quarter, we had record sales in three distinct products and two if there was around a wry laugh suite installations, which are actually less sensitive to interest rates and to me. That's really reflects our very deliberate strategy.

Speaker Change: Which enables us to serve the broadest set of customers.

Speaker Change: Crops, all market conditions, and frankly, where we're also very excited about the broader retirement opportunity, we do see strengthening tailwind from.

Speaker Change: From rapid growth in that in the population of Americans over age 65, and as well as increased amount for installations that protect retirement savings and provide lifetime income so.

Speaker Change: We believe customer demand for protected income will continue to be the driving force behind growth here for the long term and we're well positioned to meet that demand with our diverse portfolio of solutions and the strength of our brand and distribution and finally Sunil you asked a question about pricing and we are also very well positioned to continue with her.

Speaker Change: Our pricing discipline, which we.

Speaker Change: Have the ability to adapt pricing and entered the market with a revised pricing in very short order, which enables us to be very nimble with changing markets.

Rob: Okay that makes sense. Thanks for that and then I guess for Rob on pros make again, you'd said that you'd be disappointed if you didn't do something this year or should we think about the sort of first deal that you do should that be on the smaller side is sort of a proof of concept deal or is that not the way that you're thinking about it. Thanks.

Rob: Yeah, we and our Prismic investors share aspirations to grow well beyond the initial $10 billion transaction that we completed relatively recently. We continue to work on a very active pipeline of multiple insurance transactions. That pipeline includes ongoing balance sheet optimization, flow or new sales solutions across our businesses, as well as third-party blocks where we have a particular focus on Japan. I would be, we would be disappointed if we had not entered into an additional transaction before year end.

Speaker Change: Yeah.

Ryan Krueger: And the second one was on just hoping you could revisit your main sensitivity to short-term rates. And I think, in addition to the total sensitivity, could you give some perspective on the different moving parts between some of the businesses?

Yanela Frias: Hi Ryan, it's

Sidney: So Sidney.

Rob: So it would actually be the second deal. So the first transaction we closed was.

Speaker Change: About $10 billion in reserves.

Speaker Change: And so you know relatively significant in size.

Speaker Change: For the next transaction I would I would what I would say is that the you know the nature of underlying liabilities is what impacts the sizing of the AR of the transaction and that's going to be dependent upon sort of market sensitivity hedging and collateral need so we're not constraining it.

Speaker Change: It's simply because of the appetite or access to capital or other capabilities, we really just be a function of making sure that as we're constructing the prisoner portfolio. It all fits together well.

Speaker Change: Are you leaning one way or the other in terms of the different uses like you've talked about flow you've talked about your own enforce you've talked about third party is there is there one way that you're leaning in particular on that well.

Speaker Change: I would say where we can.

Speaker Change: <unk> balance sheet optimization is probably our highest priority sneak and incidentally most controllable of the things that we're working on but both flow and third party are high priorities for us and they are being actively worked as well.

Rob: Okay. Thanks, Rob.

Rob: Yeah.

Speaker Change: Thank you next question is coming from Elyse Greenspan from Wells Fargo. Your line is my life.

Elyse Greenspan: Hi, Thanks. Good morning. My first question is on PJM I know you guys had called out two large pension outflows in the quarter, but I was hoping to just get more color on trends in flows both on the institutional and retail side and how you think about the outlook for the balance of the year.

Speaker Change: Sure. Good morning, Elyse, it's Andy I'll take that so our flows and teach them have become more variable. This is mostly driven on the institutional side of the business. So let me start there you know we're the sixth largest manager of defined benefit assets globally, and we have very large strategic pension clients. If you look at many of these defined benefit portfolios are.

Speaker Change: As we sit here today are overfunded and those clients are either derisking or they're exploring PRT. So as a result, we're seeing more than normal institutional money and motion leading to a variability in our institutional flows.

Speaker Change: Overall, we expect that in PJM will be a beneficiary of that environment, given our world class fixed income solutions, and our leading PRT business.

Speaker Change: If you take a step back, though and look across the year last quarter, you saw a benefit with noteworthy P. R T wins and a large pension mandate inflow. This quarter, we saw fixed income outflows as a few of our clients Derisked and moved but the important part is when you look across the year. Our institutional flows are positive year to date are at 17.

Speaker Change: On the retail side of the business, we've experienced large improvement versus last year year to date. Our flows are flat and that is a market improvement. We're starting to see flows back into our fixed income retail products with $1 1 billion in positive inflow. This this quarter. We believe this is poised to accelerate once clients.

Speaker Change: To move the six trillion, that's sitting in money market assets over into longer term active products and we expect that declining rates are going to be the trigger to that action.

Speaker Change: So the punchline overall from a flows perspective is we expect that we will remain a net winner over the long term, but you should expect near term variability. It will continue in this environment.

Speaker Change: Thanks, and then my second question was on the group side, you know results there were pretty strong just anything you're calling one off there and then how should we think about the benefits ratio trending in that business over the balance of the year.

Caroline: Sure Elyse, that's Caroline and I will take your question, there's really none nothing that's one off at least it was really very much core strength in the business, which was driven by a few different factors are first of all we continue to see strong life and group disability results driven by favorable mortality and by our focus on effective claims.

Speaker Change: Management, which is an area we continue to invest in and we also continue to see strong double digit growth in our supplemental health business.

Speaker Change: Which is a core component of our diversification strategy and we've also seen growth in our under 5000 lives and our association market segments, helping us further broaden our portfolio. So overall the business is growing and it's doing so at attractive margins and in terms of your question on the benefit.

Speaker Change: Yeah, we.

Speaker Change: We delivered a very strong result, coming in at 81% in line with a year ago quarter and below our target range of 83% to 87% given that we have been below our target range for the first half of the year you can expect for the year, we would be towards the lower end of that target range.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you next question is coming from Wesley Carmichael from Autonomous Research. Your line is now live.

Wesley Carmichael: Hey, good morning, Thank you.

Wesley Carmichael: Individual life I was hoping you could touch on the assumption review impact what drove that unfavorable in the quarter and you think theres, an ongoing impacted either earnings or cash flow.

Speaker Change: Hi will assist in L. A so let me take your question I mean to take it a step up the annual assumption update this quarter had a modest benefit to adjusted operating income as you saw and this is a result of our multiline business makes that generally creates risk diversification intends to moderate the annulus.

Yanela Frias: Hi Ryan, it's Yanela. Yes, with regard to rates, short-term rates. We do not expect much of an impact due to changes in short-term rates. We have cash at the holding company and collateral in individual retirement strategies that earn short-term yields. And this is generally offset by interest rate derivatives where we pay short-term rates and receive fixed, and we use these to manage duration across our businesses. So, generally, these are offsetting

Yanela Frias: Let me also address long-term rates since we've seen some recent movement. With respect to long-term rates, we have benefited from the rise in rates over the past few years, which have been at levels that are significantly higher than over the past decade, and this has increased our portfolio yields, both domestically and internationally. So higher rates are good for us, and it has been a tailwind. If rates were to decline, it would reduce our new money rates, but we do have a healthy spread between our new money rates and portfolio yields. And lastly, I would point out that we have a very disciplined ALM approach, which significantly reduces future spread volatility of the enforced.

Speaker Change: Update impact so that the net modest benefit was due to favorable mortality updates for the institutional retirement strategies.

Wesley Carmichael: Partially offset by unfavorable policyholder behavior updates for both individual life and Japan and to your question about what drove the large impart to individualize the negative impact of individual life was primarily due to lower guaranteed universal life surround their experience post COVID-19 as individuals retain there.

Speaker Change: Life insurance policies at higher levels than previously assumed and this was based on our examination of updated emerging experience data of our business and information available from a number of industry studies. So that is what drove hmm, there's something out there and we do have a small ongoing impact from the <unk>.

Wesley Carmichael: Note that as well.

Speaker Change: Got it that's helpful. Generally is that ongoing impact of that on an operating earnings impact or is that a is there any statutory impact from that.

Speaker Change: So there's a there's an ongoing a operating income perspective from a statutory perspective are you know the assumption update there we have a process from a process standpoint that was done at the end of the year.

Speaker Change: So that will be reflected in our statutory results at the end of the year, having said that any impacts are not expected to be meaningful to our assessment of capital availability cash flows or our capital deployment plans.

Speaker Change: No. That's great. Thank you and then maybe my follow up on on variable investment income I think some of your competitors. This quarter have talked about an expectation for real estate equity returns to improve in the back half of the year. So just curious if you guys have the same outlook or not.

Wesley Carmichael: It's Rob I'll take that question I would say that if we look at the industry from an overall basis.

Rob: Our real estate investment group has a forecast that there will be actually continued valuation declines through.

Rob: Through the remainder of the year across the industry those valuation declines, though will be in the low single digits. So while we think we're close to an inflection point where that could begin to turn around.

Wesley Carmichael: Quite sure we're at the trough of that yet.

Rob: That's helpful. Thanks, Rob.

Wesley Carmichael: Yeah.

Speaker Change: Thank you next question is coming from Tom Gallagher from Evercore ISI. Your line is now live.

Ryan Krueger: Thank you. The next question is coming from Suneet Kamath from Jeopardy. Your line is now live.

Tom Gallagher: Good morning, just a follow up on the actuarial review I think most of the $800 million of show net income relief from their review came from Leila.

Suneet Kamath: Good morning. Thank you.

Tom Gallagher: Do you mind, just sort of a.

Speaker Change: Is that correct and b.

Tom Gallagher: Can you talk about what drove the change was that if utilization assumption changes.

Speaker Change: Will that be a GAAP only impact or will there be a statutory impact as well.

Suneet Kamath: I guess last quarter, you guys were pretty optimistic about the industry's annuity sales. I think you said over $400 billion, and year-to-date, that's tracking pretty closely, so that's good. I guess my question is, given the moving rates that we've seen, you know, with the 10-year now, somewhere in the 3.8 neighborhood, do you think that'll dampen demand for annuity growth? And how are you thinking about pricing in this if this becomes a new kind of rate environment? Thanks.

Wesley Carmichael: Yes, Tom it's Chanel, so yes, the Oh Nani Oi impact was was mainly due to a river and it was really driven by methodology update too.

Speaker Change: The the annuity valuation and this is really to be consistent with industry standards and also more consistent with how we actually manage the product. So its valuation methodology change it as GAAP only so we will not see a comparable statutory impact and that is just following the normal variable annuity reserving and capital standards.

Speaker Change: Gotcha, Okay. Thanks, and then my follow up is.

Speaker Change: Can you just comment on what caused some of the weakness in institutional retirement. This quarter was it spreads underwriting expenses and how do you feel about earnings visibility going forward in that business.

Caroline Feeney: Yes, Suneet, it's Caroline, and I'll take your question. So right now, the annuity market continues to be extremely strong, as you referenced, with the market on pace to deliver a third straight record year, outpacing last year's run rate by over 20%. It's certainly possible that in a decreasing interest rate environment, we could see some pullback from the record sales levels, particularly in fixed annuities. From a prudential perspective, while we've been very pleased with the growth in our fixed annuity sales, for us, it's really just a piece of the overall portfolio.

Tom Gallagher: Yeah. So Tom it's it's Caroline I, So we actually don't see much weakness any earnings, especially given that's reported and core earnings are up this quarter compared to the prior year quarter.

Caroline Feeney: We have the broadest product portfolio we've ever had, with no overconcentration in any single product. In fact, this past quarter, we had record sales in three distinct products, and two of those are in our RILA suite of solutions, which are actually less sensitive to interest rates. And Suneet, this really reflects our very deliberate strategy, which enables us to serve the broadest set of customers across all market conditions. Frankly, we're also very excited about the broader retirement opportunity.

Caroline Feeney: We do see strengthening tailwinds from rapid growth in the population of Americans over age 65, as well as increased demand for solutions that protect retirement savings and provide lifetime income. Therefore, we believe customer demand for protected income will continue to be the driving force behind growth over the long term, and we're well positioned to meet that demand with our diverse portfolio of solutions and the strength of our brand and distribution. And finally, Suneet, you asked a question about pricing.

Caroline Feeney: We are also very well positioned to continue with our pricing discipline; we have the ability to adapt pricing and enter the market with revised pricing in very short order, which enables us to be very nimble in changing markets.

Speaker Change: If I just take the institutional side of the business from them and it does take time to see the impact from a risk transfer transactions materialize in our earnings. So in essence, Tom sales leads and then obviously earnings will fall out we had 4 billion in sales this past quarter and we believe that rapidly grow.

Suneet Kamath: Okay, that makes sense. Thanks for that.

Suneet Kamath: And then, I guess, for Rob on Prismic again, you said that you'd be disappointed if you didn't do something this year. Should we think about the sort of first deal that you do? Should that be on the smaller side as sort of a proof of concept deal? Or is that not the way that you're thinking about it?

Speaker Change: Demand for pension de risking in the U S and our international markets will continue to fuel profitable growth. We did see some less favorable underwriting this quarter as well as lower VII on the institutional side.

Suneet Kamath: Thanks.

Speaker Change: And then on the individual side Tom There are two key drivers of our core earnings first I would point to the strong sales were driving through our expanded product portfolio, which includes our island our fixed products in this past quarter as you heard was especially strong our best quarter in over a decade the hires.

Rob: So Suneet, it would actually be the second deal. So the first transaction we closed was about $10 billion in reserves, and so relatively significant in size. For the next transaction, what I would say is that the nature of the underlying liabilities is what impacts the sizing of the transaction, and that's going to be dependent upon market sensitivity, hedging, and collateral needs. So we're not constraining it simply because of appetite or access to capital or other capabilities. It would really just be a function of making sure that as we're constructing the Prismic portfolio, it all fits together well.

Rob: And are you leaning one way or the other in terms of the different uses, like you've talked about flow. You've talked about your own in force. You've talked about third parties. Is there one way that you're leaning in particular on that? Well, I would say we are.

Rob: Well, I would say we, you know, we can, continued balance sheet optimization is probably our highest priority, Suneet, and incidentally, the most controllable of the things that we're working on. But both flow and third party are high priorities for us, and they are being actively worked on as well.

Speaker Change: Sales volumes across these products will also drive future profitability, but over the near term. There is profits are tempered by the higher upfront distribution costs associated with the higher sales levels and then second there's the impact from our decision to no longer sell traditional variable annuities with living benefit guarantees.

Elyse Greenspan: Thank you. The next question is coming from Elyse Greenspan from Wells Fargo. Your line is now live.

Speaker Change: This business continues to generate strong fee income it will run off at roughly three to 4 billion per quarter offsetting some of the earnings growth from our new business, but we see this largely as a transition ultimately we like the business, we're putting on it and there was strong sales are contributing higher quality earnings, but you're still going to see an impact from the intention.

Speaker Change: Run off of our traditional variable annuity block.

Speaker Change: Got you. Thanks, Thanks Caroline.

Tom Gallagher: Thanks, Tom.

Speaker Change: Thank you. Your next question is coming from John Barnidge from Piper Sandler Your line is now live.

Good morning, I appreciate the opportunity.

John Barnidge: Can you talk about growth in that channel and how much of that is coming from at this point employee growth versus wage and then adding more coverage. Thanks.

Caroline: Sure John It's Caroline I'll take your question and say the growth in our book continues to be primarily driven by the execution of our diversification strategy.

Elyse Greenspan: Hi, thanks. Good morning. My first question is on PGIM. I know you guys called out two large pension outflows in the quarter, but I was hoping to just get more color on trends and flows, both on the institutional and retail side, and how you think about the outlook for the balance of the year.

Caroline: Which is focused on growing in the under 5000 lives market as well as our focus on further diversifying and disability and supplemental health products.

Caroline: We're certainly benefiting from strong employment, John which is driving overall employee wage growth and will continue to grow organically and then the block. However, when you look at what is primarily driving our growth is more driven by the strong underlying fundamentals and executing on our strategy.

Caroline: So I hopefully I bet that that helps you I would also say one more thing in terms of our strategy. We've also made a lot of progress on diversification in our under 5000 market.

Caroline: Which spreads our premiums out more across the year. So we're continuing to sort of like what we see in our diversification.

Speaker Change: Thank you and my follow up question.

Speaker Change: Thank you.

So John it's Andy I'll take the question, Yeah, and as you said our strategy is on emerging markets or in international in general is to accelerate our growth through a select set of emerging markets by extending our leadership position in Latin America by strengthening our footprint in emerging Asia.

Andy: Sure. Good morning, Elyse. It's Andy.

Andy: I'll take that. So our flows in PGEM have become more variable. This is mostly driven on the institutional side of the business, so let me start there. You know, we're the sixth largest manager of defined benefit assets globally, and we have very large strategic pension clients. If you look at many of these defined benefit portfolios, as we sit here today, are overfunded, and those clients are either de-risking, or they're exploring PRT

Andy: So as a result, we're seeing more than normal institutional money in motion, leading to variability in our institutional flows. Overall, we expect that Impegion will be a beneficiary of that environment, given our world-class fixed income solutions and our leading PRT business. If you take a step back, though, and look across the year, last quarter, you saw us benefit from noteworthy PRT wins and a large pension mandate inflow. This quarter, we saw fixed income outflows as a few of our clients derisked and moved.

Speaker Change: And in particular in India and Indonesia.

Speaker Change: And by investing in market leaders in Africa, I mean, I think the important thing here is you know you're already seeing very very strong good growth in Brazil that is leading to healthy earnings growth in that block of business. Many of these other markets offer us very good opportunity, but they will take time to develop.

Speaker Change: So this is about the medium and long term as well.

Speaker Change: As far as far as M&A, we are absolutely open to opportunistic programmatic M&A to help us accelerate our growth in those markets, but as always organic growth is going to be job. One for us we're confident that over time emerging markets will become a bigger part of the Prudential pie.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Thank you next question is coming from Jimmy <unk> from JP Morgan. Your line is now live.

Andy: But the important part is when you look across the year, our institutional flows are positive year to date at $17 billion. On the retail side of the business, we have experienced a large improvement versus last year. Year to date, our flows are flat, and that is a market improvement. We're starting to see flows back into our fixed income retail products with $1.1 billion in positive inflows this quarter. We believe this is poised to accelerate once clients start to move the $6 trillion that's sitting in money market assets into longer-term active products.

Jimmy: Yeah, I had a question for Jim Deller or maybe for Rob just on capital deployment.

Janella: Hey, Jimmy it's janella so.

Andy: And we expect that declining rates are going to be the trigger for that action. So the punchline overall from a flows perspective is that we expect to remain a net winner over the long term, but you should expect near-term variability. It will continue in this environment.

Jim Deller: We remain well capitalized you saw pockets RBC ratio in excess of our double a objective of 375, we are positioned to continue to invest in the growth of our businesses and you've seen that year to date, where we've closed three large PRT transactions mm exceeding $10 billion in liabilities and we funded.

Elyse Greenspan: And then my second question was on the group side. You know, results there were pretty strong, just anything you're calling one off there. And then how should we think about the benefits ratio trending in that business over the balance of the year?

Jim Deller: Strong growth across all of our businesses and even without we continue to pay dividends out of our insurance subsidiaries and a highly liquid assets increased a bit as you mentioned, but.

Elyse Greenspan: Sure, Elyse, it's fine.

Jim Deller: But we will remain thoughtful in our capital deployment, we will remain focused on preserving financial strength and flexibility.

Jim Deller: Investing in our businesses for long term growth, where we see a lot of opportunities and then returning capital to shareholders.

Speaker Change: Okay. Thanks.

Speaker Change: If I could just ask about your views on the sales outlook for the Japanese business, just given the high volatility in the yen.

Speaker Change: That's depressing demand for some forex products there.

Speaker Change: But how are you thinking about your trends in your business in Japan, and just the sales outlook in that market.

Andy: Yeah, Jamie it's Andy I'll take the question, maybe let me just start by saying, we're very very pleased with the sales results that we saw we experienced strong year over year growth in our life planner independent agent and bank channels and sales and up in Japan were up 10% year over year, you know that is really flowing from our work to.

Caroline Feeney: Sure. Elyse, it's Caroline, and I'll take your question. There's really nothing that's a one-off, Elyse.

Caroline Feeney: It was really a core strength in the business, which was driven by a few different factors. First of all, we continue to see strong life and group disability results driven by favorable mortality and by our focus on effective claims management, which is an area we continue to invest in. We also continue to see strong double-digit growth in our supplemental health business, which is a core component of our diversification strategy. And we've also seen growth in our under-5,000 lives and our association market segments, helping us further broaden our portfolio.

Caroline Feeney: So overall, Elyse, the business is growing, and it's doing so at attractive margins. In terms of your question on the benefit ratio, we delivered a very strong result, coming in at 81% in line with the year-ago quarter and below our target range of 83 to 87%. Given that we have been below our target range for the first half of the year, you can expect that for the year we will be towards the lower end of that target range.

Wesley Carmichael: Thank you. The next question is coming from Wesley Carmichael from Autonomous Research. Your line is now live.

Andy: Continuing to broaden and innovate our product portfolio and enhance the customer experience it and in our business. The fact is in that 10% year over year up 20% of our sales this quarter flowed for more recent product introductions, including both life and annuity products and we've been expanding our offerings. In addition to our U S.

Speaker Change: We see effects from the yen strengthening in and and weakening.

Speaker Change: Lately here with the strength, we've seen we think that will be a benefit to our U S. Dollar products is it'll make them more affordable for the consumer of Japanese consumers are still absolutely interested in taking advantage of the U S interest rates. So you know we're pleased with the yen movement. This week.

Speaker Change: We're pleased with the work that we've done and the results we've shown and we expect to continue the good sales trend.

Speaker Change: And there's competition in that market I'm fairly irrational because we've heard from some of your peers that its so much more competitive market than it used to be a few years ago.

Speaker Change: Jimmy I I'd start by saying all of the businesses. We compete in are competitive, but I would say, yes. The market place is rational.

Speaker Change: At times, you may see a competitor get aggressive, but overall, we see it as a rational market with a good ability for us to to derive and drive our profitability and we're competitively advantaged with broad product portfolio differentiated distribution and a good brand. So you know the last thing I always reinforces we'll be disciplined no matter what the competition.

Speaker Change: And make sure that we deliver for the customer and the shareholder.

Speaker Change: Thank you.

Speaker Change: The next question is coming from Michael Ward from Citi. Your line is now live.

Michael Ward: Thanks, guys. Good morning, I was wondering the I was wondering if you have any sense of on the individual life.

Wesley Carmichael: Good morning, thank you. On individual life, I was hoping you could touch on the assumption review impact. What drove that unfavorable in the quarter? And do you think there's an ongoing impact on either earnings or cash?

Michael Ward: I was wondering if you have any sense of like how how that would have looked had you not done the G O L deal.

Michael Ward: Sure.

Speaker Change: Actions or assumption updates does that keep you in the market for further risk transfer opportunities.

Yanela Frias: Hi Wes, this is Yanela. So, let me take your question.

Yanela Frias: I mean, to take it a step further, the annual Assumption Update this quarter had a modest benefit to adjusted operating income, as you saw, and this is a result of our multi-line business mix that generally creates risk diversification and tends to moderate the annual Assumption Update impact. So the net modest benefit was due to favorable mortality updates for institutional retirement strategies, partially offset by unfavorable policyholder behavior updates for both individual life and Japan.

Yanela Frias: And to your question about what drove the large impact on individual life, the negative impact on individual life was primarily due to lower guaranteed universal life surrender experience post-COVID as individuals retain their life insurance policies at higher levels than previously assumed. This was based on our examination of updated emerging experience data for our business and information available from a number of industry studies. So that is what drove the Assumption Update, and we do have a small ongoing impact from the Assumption Update as well.

Yanela Frias: Yeah, that's helpful, Joe. And is that an ongoing impact? Is that an operating earnings impact? Or is there any statutory impact on that?

Yanela Frias: So there's an ongoing operating income perspective. From a statutory perspective, you know, the Assumption Update there, we have a process. From a process standpoint, that is done at the end of the year. So that will be reflected in our statutory results at the end of the year. Having said that, any impacts are not expected to be meaningful to our assessment of capital availability, cash flows, or our capital deployment plan.

Speaker Change: So that said you know in terms of further derisking transactions, we always are looking at options and opportunities to the extent they are available.

Wesley Carmichael: No, that's great. Thank you.

Speaker Change: And then I noticed the disclosure of for PJM I think part of part of the outflow are the reduction in.

Speaker Change: Once you move to Qualcomm's two run off I was wondering if you could expand on that and if that contributed to the investment performance in the quarter.

Speaker Change: Russia.

Speaker Change: So it's it's Andy I'll take the question I'll take that in two parts first the quant manager, where you're referring to is not a material part of our business. It had less than a $1 billion in assets under management are and it's a sub component on the quantitative equity side that we're exploring strategically what we what.

Wesley Carmichael: And then maybe my follow-up on variable investment income. I think some of your competitors this quarter have talked about an expectation for real estate equity returns to improve in the back half of the year. So just curious if you guys have the same outlook or not.

Rob: It's Rob.

Rob: It's Rob. I'll take that question. I would say that if we look at the industry from an overall basis, our real estate investment group has a forecast that there will be continued valuation declines through the remainder of the year across the industry. Those valuation declines, though, will be in the low single digits. So while we think we're close to an inflection point where things could begin to turn around, we're not quite sure we're at the trough of that yet.

Tom Gallagher: Thank you. The next question is coming from Tom Gallagher from Evercore ISI. Your line is now live.

Speaker Change: We want to do with the capability.

Speaker Change: But as far as you referenced investment performance, we were actually quite pleased with our investment performance in the business. Obviously that is job one that's the most critical ingredient and if you look at our short short term and long term results are they have been very very strong and we remain confident in our ability to continue that track but.

Speaker Change: As far as they that are that that block of business, it's it's small and not material.

Speaker Change: Or did the overall business.

Speaker Change: Okay. Thanks, so much.

Tom Gallagher: Good morning. Just to follow up on that actuarial review, I think most of the $800 million or so net income release from the review came from RILA. A, is that correct? And B, can you talk about what drove the change? Was that a utilization assumption change? And will that be a gap only impact, or will there be a statutory impact as well?

Yanela Frias: Yes, Tom. It's Yanela.

Yanela Frias: So, yes, the non-AOI impact was mainly due to RILA, and it was really driven by a methodology update to the annuity evaluation, and this is really to be consistent with industry standards and also more consistent with how we actually manage the product. So, it's an evaluation methodology change. It is a gap only, so we will not see a comparable statutory impact, and that is just following the normal variable annuity re

Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.

Tom Gallagher: Gotcha. Okay, thanks.

John Barnidge: Thank you. The next question is coming from John Barnidge from Pepper Samuel. Your line is now live.

Tom Gallagher: And then my follow-up question is, can you just comment on what caused some of the weakness in institutional retirement this quarter? Was it spreads, underwriting expenses? And how do you feel about earnings visibility going forward in that business?

Caroline Feeney: Yeah, so Tom, it's Caroline. So we actually don't see much weakness in the earnings, especially given both reported and core earnings are up this quarter compared to the prior year quarter. If I just take the institutional side of the business for a moment, it does take time to see the impact of our risk transfer transactions materialize in our earnings. So, in essence, Tom, sales lead, and then, obviously, earnings will follow. We had $4 billion in sales this past quarter, and we believe that rapidly growing demand for pension de-risking in the U.S. and our international markets will continue to fuel profitable growth. We did see some less favorable underwriting this quarter as well as lower VII on the institutional side.

Caroline Feeney: The higher sales volumes across these products will also drive future profitability, but in the near term, those profits are tempered by the higher upfront distribution costs associated with those higher sales levels. And then, there's the impact from our decision to no longer sell traditional variable annuities with living benefit guarantees. While this business continues to generate strong fee income, it will run off at roughly $3 to $4 billion per quarter, offsetting some of the earnings growth from our new business.

Caroline Feeney: But we see this largely as a transition. Ultimately, we like the business we're putting on, and those strong sales are contributing higher quality earnings. But you're still going to see an impact from the intentional runoff of our traditional variable annuity block.

Tom Gallagher: Gotcha. Thanks, Caroline.

Charlie: Sure This is Charlie.

John Barnidge: Good morning, appreciate the opportunity. Can you talk about growth in the group channel and how much of that's coming from at this point, employee growth versus wage, and then adding more coverage? Thanks.

Caroline Feeney: Sure, John, it's Caroline. I'll take your question. So the growth in our book continues to be primarily driven by the execution of our diversification strategy, which is focused on growing in the under 5,000 lives market, as well as our focus on further diversifying in disability and supplemental health products. We're certainly benefiting from strong employment, John, which is driving overall employee and wage growth and will continue to grow organically in the block. However, when you look at what is primarily driving our growth, it is more driven by strong underlying fundamentals and executing on our strategy. So hopefully that helps you.

Caroline Feeney: I would also say one more thing in terms of our strategy. We've also made a lot of progress on diversification in our under 5,000 market, which spreads our premiums out more across the year. So we're continuing to like what we see in our diversification.

Charlie: Let me make an observation if I may before the closing comments and that we are experiencing very turbulent times right. Now obviously and this is exactly when clients need us the most and we've seen that in the past when clients turn to us during these kind of volatile times, such as the great financial.

John Barnidge: My follow-up question is on the comment about building a select portfolio in international markets. I know you're focused on where you want to be. What does the opportunity set look like internationally, and is there an opportunity to accelerate that through M&A? Thank you.

Andy: So, John, it's Andy. I'll take the question. Yeah. And as you said, our strategy in emerging markets, or international in general, is to accelerate our growth through a select set of emerging markets by extending our leadership position in Latin America, by strengthening our footprint in emerging Asia, and in particular in India and Indonesia, and by investing in market leaders in Africa. I mean, I think the important thing here is that you're already seeing very, very strong, good growth in Brazil that is leading to healthy earnings growth in that block of businesses.

Andy: Many of these other markets offer us very good opportunities, but they will take time to develop. So this is about, you know, the medium and long term as well. You know, as far as far as M&A is concerned, we are absolutely open to opportunistic programmatic M&A to help us accelerate our growth in those markets. But, as always, organic growth is going to be job one for us. We're confident that, over time, emerging markets will become a bigger part of the Prudential pie.

Jimmy Bueller: Thank you. The next question is coming from Jimmy Bueller from JP Morgan. Your line is now live.

Jimmy Bueller: I had a question for Yanela or maybe for Rob just on capital deployment. Your cash flows and capital levels are obviously pretty strong, yet buybacks have been fairly modest relative to most of your peers, even in stock trades that are relatively low multiple. So I'm just wondering if you could talk about your appetite for buybacks versus other uses of capital.

Yanela Frias: Hey Jimmy, it's Yanela.

Charlie: Crisis, and others that we've all been through.

And what we've observed is that we've been in net beneficiary in these turbulent times there is a real flight to quality, which we define as having the financial strength the strength of brand and the strength of distributions. So that clients can meet us when where and how they want it now.

Charlie: Obviously past isn't prologue, but I'll make the following observation and that is that we have exactly the capabilities. The clients need in terms of investing insurance and retirement security and that we will be laser focus during these times and helping them as they as they map through this.

Jimmy Bueller: So, look, we remain well capitalized. You saw PICA's RBC ratio is in excess of our AA objective of $375. We are positioned to continue to invest in the growth of our businesses, and you've seen that year to date, where we've closed three large PRT transactions exceeding $10 billion in liabilities, and we funded strong growth across all of our businesses. And even with that, we continue to pay dividends out of our insurance subsidiaries, and our highly liquid assets have increased a bit, as you mentioned, but we will remain thoughtful in our capital deployment. We will remain focused on preserving financial strength and flexibility, investing in our businesses for long-term growth, where we see a lot of opportunities, and then returning capital to shareholders.

Jimmy Bueller: Okay, thanks. And if I could just ask you about your views on the sales outlook for Japanese businesses, just given the high volatility in the yen, I think that's depressing demand for some Forex products there. But how are you thinking about your trends in your business in Japan and just the sales outlook in that market?

Andy: Yeah, Jimmy. It's Andy. I'll take the question. Maybe let me just start by saying we're very, very pleased with the sales results that we saw. We experienced strong year-over-year growth in our life planner, independent agent, and bank channels. And sales in Japan were up 10% year-over-year. You know, that is really flowing from our work to continue to broaden and innovate our product portfolio and to enhance the customer experience in our business. The fact is, in that 10% year-over-year increase, 20% of our sales this quarter flowed from more recent product introductions, including both life and annuity products.

Andy: And we've been expanding our yen offerings in addition to our U.S. dollar offerings. You know, obviously, we see effects from the yen strengthening and weakening. Lately here with the strength we've seen, we think that will be a benefit to our U.S. dollar products as it'll make them more affordable for the consumer. Japanese consumers are still absolutely interested in taking advantage of the U.S. interest rates. So, you know, we're pleased with the yen movement this week. We're pleased with the work that we've done and the results that we've shown, and we expect to continue the good sales trend.

Jimmy Bueller: And is competition in that market fairly rational? Because we've heard from some of your peers that it's a much more competitive market than it used to be a few years ago. Yeah, Jimmy, I...

Operator: Now, obviously, the past isn't prologue, but I'll make the following observation. And that is that we have exactly the capabilities that clients need in terms of investing, insurance, and retirement security, and that we will be laser-focused during these times in helping them as they navigate this volatility. We'll continue to focus on our clients, and we'll continue to deliver sustainable value to all our stakeholders as we go forward. So, thanks, and have an enjoyable weekend.

Andy: Yeah, Jimmy, I start by saying all the businesses we compete in are competitive. But I would say, yes, the marketplace is rational. At times, you may see a competitor get aggressive, but overall, we see it as a rational market with a good ability for us to derive and drive profitability. And we're competitively advantaged with a broad product portfolio, differentiated distribution, and a good brand. So, you know, the last thing I always reinforce is that we'll be disciplined no matter what the competition does, and make sure that we deliver for the customer and the shareholder.

Michael Ward: Thank you. The next question is coming from Michael Ward from Citi. Your line is now live.

Michael Ward: Thanks, guys. Good morning. Um, I was wondering if you have any sense of how the individual life charge would have looked had you not done the GUL deal. And I guess I'm curious, like if these types of reserve actions or, you know, assumption updates, do that keep you in the market for further risk transfer opportunities?

Yanela Frias: So my question, Yanela, let me take your question. Obviously, we executed on the transaction earlier this year. We don't have a sense of what the impact would have been. So that said, you know, in terms of further de-risking transactions, we always are looking at options and opportunities to the extent they are available.

Michael Ward: Okay. And then I noticed the disclosure for PGN. I think part of the outflow or, you know, the reduction in AUM was that you moved quant funds to run off. I was wondering if you could expand on that and if that, you know, contributed to the investment performance in the quarter.

Charlie: <unk>. So we'll continue to focus on our clients and we'll continue to deliver sustainable value to all our stakeholders as we go forward.

Andy: So it's Andy. I'll take the question. I'll take that in two parts. First, the quant manager you're referring to is not a material part of our business. It had less than a billion dollars in assets under management. And it's a subcomponent on the quantitative equity side that we're exploring strategically what we want to do with the capability. But as far as you referenced investment performance, we're actually quite pleased with our investment performance in the business.

Andy: Obviously, that is job one, it's the most critical ingredient. And if you look at our short, short term, and long term results, they have been very, very strong. And we remain confident in our ability to continue that track. But as far as that, that block of business, it's small, not material to the overall business.

Michael Ward: Okay, thanks so much.

Charles Lowrey: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to you for any further closing comments.

Operator: Sure, this is Charlie. Let me make an observation, if I may, before the closing comments, and that we are obviously experiencing very turbulent times right now. And this is exactly when clients need us the most, and we've seen that in the past when clients turn to us during these kinds of volatile times, such as the great financial crisis and others that we've all been through. And what we've observed is that we've been a net beneficiary in these turbulent times, as there is a real flight to quality, which we define as having the financial strength, the strength of the brand, and the strength of distribution so that clients can meet us when, where, and how they want.

So thanks and have an enjoyable weekend.

Charlie: Yeah.

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.

Charlie: Okay.