Prudential Financial, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Prudential Quarterly Earnings Conference Call. At this point, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions. Instructions will be given at that time. If you should require any assistance during the call, please press star then zero. An operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the call now over to Mr. Darren Arita. Please go ahead, sir.

Good morning, and thank you for joining our call. Representing Prudential on today's call are Charlie Lowry, Chairman and CEO, Rob Thousand, Vice Chairman, Andy Sullivan, Head of U.S. Businesses, Scott Fleister, Head of International Businesses, Ken Tangy, Chief Financial Officer, and Rob Axel, Controller and Principal Accounting Officer. We will start with prepared comments by Charlie, Rob, and Ken, and then we will take your questions. Today's presentation may include forward-looking statements. It is possible that actual results may differ materially from the predictions we make today. In addition, this presentation may include references to non-GAAP measures. For a reconciliation of such measures to the comparable GAAP measures and the discussion of factors that could cause actual results to differ materially from those in the forward-looking statements, please see the slide titled, Forward-looking Statements and Non-GAAP Measures. in the appendix to today's presentation, which can be found on our website at investor.credential.com. With that, I'll hand it over to Charlie.

Thank you, Darren. Good morning, everyone, and thank you for joining us today. I'll start by saying we hope that you, your families, and colleagues remain safe and healthy during these extraordinary times. The events of the past several months have created unforeseen new difficulties for people around the world, while further exposing the deep-seated problem of inequity in our society. It's in times like these that we believe our company's purpose of solving the financial challenges of our changing world and standing by our employees, customers, and communities is most important. After transitioning over 95 percent of our U.S. employees and most of our international employees to remote work in March, we continue to seamlessly serve customers, while the vast majority of our employees around the world continue to work in that fashion. This allows us to exercise utmost caution as we evaluate how and when to return to the workplace. In the meantime, I am so proud of our people and how they've continued to focus on meeting the evolving needs of our customers, many of whom face new challenges related to the COVID-19 pandemic and its economic impact. We'll continue to innovate the ways we serve our customers during and after the pandemic. During the second quarter, we maintained a clear focus on executing against our 2020 initiative. despite the challenging macroeconomic backdrop by delivering on progress on our cost savings targets, aggressively repricing and pivoting products to mitigate the impact of low rates on our performance, and rotating our international earnings mix. We're also focused on identifying opportunities for further action, particularly as we look to continue to reduce our sensitivity to markets. And we're exploring the potential to generate additional cost savings on top of our existing 2020 targets. Throughout this period, we've benefited from the strength of our rock-solid balance sheet, which gives us the confidence and the flexibility to navigate changes to the economic environment. I'll touch on each of these points in greater detail before turning it over to Rob and Ken for a look at our second quarter results. Turning now to our 2020 priorities on slide three, we remain on track to achieve our $140 million cost savings target for the full year and have achieved $75 million in savings year-to-date with $45 million in the second quarter. We also continue to make progress in shifting our international earnings mix to higher growth markets. We remain on track closed on the sale of Prudential of Korea in the second half of 2020 and are advancing our review of strategic options for Prudential of Taiwan, which may include a sale. As I mentioned earlier, we are aggressively modifying our product mix while exercising a highly disciplined approach to pricing in this low interest rate environment. Turning to slide four, While we are encouraged by the progress we're making to position our businesses and operations for the future, we continue to look at ways to work smarter and more efficiently in order to achieve cost savings on top of our target of $500 million by 2022. This includes using technology and automation and leveraging the learnings from operating in a remote work environment to optimize how and where we work. In addition, we're looking at other ways to build upon our repricing and product shift to further mitigate the impact of market sensitivity. On slide five, we note how we're embarking on these initiatives with the foundational strength provided by our balance sheet and robust capital position, including highly liquid assets of $4.5 billion at the end of the second quarter. Prudential Financial and its subsidiaries continue to exceed a AA financial strength rating. Our second quarter assumption update had a modest effect on our financial results, even as we reduced our U.S. long-term interest rate by 50 basis points to 3.25 percent. Lastly, we anticipate receiving the 1.7 billion U.S. dollars of proceeds from the sale of Korea, our Korea business, by the end of the year. In terms of our capital deployment plans, we'll continue to monitor developments in the credit markets and the economy to determine our strategy. Slide six shows our second quarter financial results. This quarter exemplified the benefits of our thoughtful approach to risk management and our complementary business mix. We aim to balance mortality and longevity risk, so we don't have a one-sided exposure. in the quarter, we had net favorable underwriting experience. Our adjusted operating income was $931 million in the quarter, while we recorded a net gap loss driven primarily by the non-cash effect of non-economic market impacts, which have no effect on our regulatory capital position. Our U.S. businesses reported adjusted operating income of $455 million, due to more favorable underwriting offset by the unfavorable impact of the assumption update and lower fee and spread income. PGM reported record adjusted operating income of $324 million, as well as record assets under management of $1.4 trillion, a 9 percent increase from the year earlier period. This growth reflected strong flows into fixed income as well as market appreciation. Our international businesses reported adjusted operating income of $693 million, as more favorable underwriting, higher earnings from joint ventures, and business growth were offset by the unfavorable impact of the assumption update and lower spread income and higher expenses. Before turning it over to Rob, I'd like to address the recent disturbing incidents of racial injustice and how we as an organization are responding to the deep-seated and persistent problem of racism and inequity in society. Last month, we announced commitments to advance racial equity as highlighted on slide seven. These commitments were born out of the courageous candor of our employees who have shared their experiences and their expectations and the listening that has taken place all across Prudential. Taking a bottom-up approach, we developed concrete and measurable actions spanning our talent practices to how we design and deliver products, to the investments we make, and how we foster social and racial equity in the communities where we work and do business. We already had a substantive set of programs underway and a body of work that reflects our longstanding commitment to racial equity, including investing over a billion dollars in our hometown of Newark. We recognize that this moment involves for us to amplify what Credential has already been doing to drive change within our company and within society. It is immoral, and it is a business imperative that aligns directly with our company's purpose to solve the financial challenges of our changing world. as well as our multi-stakeholder commitment to employees, customers, shareholders, and society. We stand by the promises we make, and we are prepared to be judged for our actions to support our colleagues, customers, and communities today and over the long term. And with that, I'll turn it over to Rob.