Prudential Financial, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Prudential's quarterly earnings conference call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Tina Madden. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us. Representing Prudential on today's call are Andy Sullivan, Chairman and Chief Executive Officer, and Janella Frias, Chief Financial Officer. We'll start with prepared remarks by Andy and Janella, and then we'll address your questions. Before we begin, I want to remind you that today's discussion may include forward-looking statements. It is possible that our actual results may differ materially from those statements. In addition, remarks made on today's call and in our quarterly earnings press release, earnings presentation, and quarterly financial supplement, which can be found on our website at investor.prudential.com, include references to non-GAAP measures. For a reconciliation of such measures to the most comparable GAAP measures and a discussion of the factors that could cause actual results to differ materially from those in these forward-looking statements, Please see the slides titled Forward-Looking Statements and Non-GAAP Measures in the appendices to our earnings presentation and quarterly financial supplement. With that, I'll now turn the call over to Andy.

Good morning, everyone, and thank you for joining our call. Before turning to our first quarter results, I want to take a moment to step back. This is my fifth earnings call as CEO and the first of my second year in the role. an important point to take stock of where we are as a company and where we are headed. Over the past 12 months, we've made meaningful progress against the priorities I established at the onset, and we're seeing tangible evidence of stronger execution across the business. The issue we encountered in Japan was unexpected, but we are navigating through it, and it does not change our assessment of the path forward. Results across the organization reinforce my confidence in our direction and in the operating discipline we are building. Last year, I laid out three priorities, evolving and delivering on our strategy, improving on our execution, and fostering a high-performance culture aimed at delivering stronger performance, more consistent results, and sustained long-term value creation. Since then, we have sharpened our focus, raised the bar on accountability, and made foundational changes to our leadership and operating structure to support that agenda. Credential is at a defining moment. We have a strong foundation, distinctive businesses, and significant capabilities. We compete in large, attractive, but highly competitive markets, and that puts a premium on accountability and strong operating discipline. Since that first call last year, I've been clear. Delivering the level of performance our shareholders expect requires a simpler company, clearer priorities, and a relentless focus on execution. The status quo is not an option. Our business is anchored in real strengths. We have a trusted brand, deep distribution, and long-standing customer relationships in markets where demand is durable and growing. Nowhere is that more evident than in retirement and asset management, where powerful secular trends are creating significant opportunity. Institutions with the scale and capabilities to manage long-duration liabilities, deliver reliable income solutions, and generate strong investment outcomes will win. A defining strength of Prudential is the integration between our retirement capabilities and our asset management platform. That connectivity enables us to source and manage assets in ways that support our retirement and protection liabilities, while positioning PGM as a sustainable, capital-efficient growth engine for the enterprise. These differentiated competitive advantages matter, but positioning alone is not enough. Success requires clear choices. It means concentrating on the businesses and capabilities where our advantages are real and sustainable and stepping back where they are not. You've seen us act on this conviction with our recent portfolio actions, specifically the sales of our PGM operations in Taiwan and India, as well as our insurance businesses in Kenya and Indonesia. The decision to exit markets where we do not see a scale opportunity or a path to market leadership, reinforces our commitment to redeploy capital toward areas where we could generate high cash flows and attractive returns over the long term. It also means building an operating model supported by a culture that is grounded in accountability, candor, and consistently delivering at the highest level for customers, shareholders, and our employees. Our work towards these goals is well underway. While there's more to do, the direction is clear and our momentum is building. We will share more details on Prudential's long-term vision and strategy on our second quarter call in August. With that, let me turn to the quarter. Pre-tax adjusted operating income was $1.6 billion, or $3.61 per share. up 10% from the year-ago quarter, with an adjusted operating return on equity of approximately 15%. These results reflect solid underlying performance, improved consistency and discipline in how we operate, and early benefits from the actions we have taken to sharpen focus and strengthen execution across the company. Let me now briefly highlight progress across the businesses, starting with PGEM. PGM delivered strong investment performance and continued to advance the simplification and integration of its organizational platform. This momentum translated into strong year-over-year earnings growth, and the business is on track to deliver the run rate savings and margin expansion we previously committed to, both in magnitude and timeline. PGM's earnings profile is steadily improving. even as the rate environment and market uncertainty have weighed on certain asset classes and challenged flows, particularly fixed income and real estate, which comprise over 70% of PGEB's assets under management. That said, we are pleased with the momentum in our expanding private assets business, both in capital deployment and fundraising, which have continued to increase since 2023. Our efforts, specifically in direct lending and asset-backed finance, are yielding strong results, driving approximately $5 billion of the $13 billion we deployed in private assets this quarter. These businesses are higher fee, higher margin, and vital to the competitiveness of our retirement business. We're also seeing good momentum in our active ETF retail offering, another important growth area for us. This platform reached nearly $30 billion in assets under management at quarter end, almost doubling over the last year. Additionally, PGIP's total flow picture improved meaningfully on a sequential basis. Third-party net inflows from institutional and retail sources totaled nearly $2 billion in the quarter, despite ongoing pressure from active equity outflows consistent with industry trends. Affiliated net outflows were $1.9 billion, primarily driven by annuity runoff. Across our U.S. businesses, results reflect the actions we've taken to strengthen our competitive positioning. We have been very intentional and methodical in broadening our distribution and diversifying our product offerings. This is enabling us to capture demand and improve the underlying fundamentals of our retirement and insurance businesses. In retirement, momentum remains strong. Retail annuities delivered more than $3 billion in sales in the quarter, supported by continued strength in RILA and fixed products. Our new FlexGuard 2.0 product delivered the highest quarterly RILA sales in over a year. Additionally, we completed $1.4 billion in PRT transactions across multiple middle market cases. These results underscore the depth and breadth of our franchise across both the retail and institutional markets. On the retail side, our broad product set is a key competitive strength, enabling us to meet customer preferences across various market environments. On the institutional side, our leadership spans from executing large, complex transactions to growing opportunities in the core middle market as our scale, asset capabilities, and customer-centric expertise differentiate us. In group insurance, we continue to strengthen the foundational capabilities of this business and position it for improved outcomes. Our focus on product diversification, including supplemental health, and a pivot toward broader market representation through our premier middle market segment are driving momentum in this business. Results this quarter reflected increased macroeconomic uncertainty, which impacted disability underwriting as experience continued to normalize from unusually favorable prior year levels. This was partially offset by improved life underwriting due to favorable mortality experience, resulting in a total benefits ratio that increased year over year, but was within our targeted range. Janella will provide more details on these dynamics in her remarks, but it's important to keep in mind that our diversified portfolio of group life, group disability, and supplemental health products, supported by our disciplined pricing approach, positions us to navigate effectively as conditions evolve. We remain confident in the long-term fundamentals of our group business and our ability to perform through the cycle. In individual life, Our focus on portfolio diversification, disciplined pricing, and expanded distribution has resulted in a more resilient earnings profile and enhanced capital efficiency. With the resegmentation of guaranteed universal life, both the strength and quality of our ongoing individual life business is more visible, with this segment generating $139 million in AOI this quarter. Now turning to international. Sales and earnings this quarter reflected the financial impact of the sales suspension in Prudential of Japan. As we discussed on our April 21st call, voluntarily extending the POJ sales suspension through November 5th reflects our current judgment of the time required to make the operational, governance, organization, and related changes necessary for POJ to resume sales. We are confident in the underlying fundamentals of the franchise and in our ability to return POJ to the market as a stronger, more resilient business. Importantly, when looking more broadly across our Japan businesses, we have a sustainable and increasingly diversified platform. On the product side, our work to diversify into more yen offerings and build on our retirement offerings is paying off. This quarter, over 35% of our sales came from products launched in the last 36 months. On the distribution side, we are continuing to broaden and specifically strengthen our third party distribution through banks and independent agents. Our independent agency sales were up 7% year over year, and third party are approximately one third of our total sales, demonstrating reduced reliance on our captive channels. Together, these factors reinforced the underlying strength and durability of our franchise in Japan. Outside of Japan, emerging markets delivered a very strong first quarter, led by a record earnings quarter in Brazil, where broader distribution, including agency and third-party expansion, and high productivity continue to support profitable new business growth. I'd also like to note that we have now exceeded 1.2 million policies through our Mercado Libre relationship, demonstrating our ability to grow through digital platforms. With that, let me close with some final thoughts. What you are beginning to see across Prudential is a higher standard for how we are managing the business and positioning it for future success. We are simplifying the organization, allocating capital with greater discipline, raising the bar on execution, and increasingly leveraging technology and AI to become more productive and efficient. As I said at the beginning of my remarks, we operate in attractive but competitive markets, and we have a clear understanding of the opportunities and challenges ahead. We are building a stronger Prudential, one that is positioned to meet those challenges and deliver durable value to all stakeholders across cycles. This work is well underway. While changing the performance trajectory of a company of this size is a multi-year endeavor, our direction of travel is clear and our momentum is real. I have firm conviction in our path forward. With that, let me turn it over to Janella.