Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prudential Financial Inc (PRU, Financial) reported a 67% increase in retirement strategies sales in the first half of the year, driven by robust risk and longevity risk transfer and nearly doubling individual annuity sales.
- The company maintained a strong financial position with more than $4 billion in highly liquid assets at the end of the second quarter.
- PGIM, the global asset management business, saw a 35% increase in capital deployment in the second quarter compared to the previous year, benefiting from the acquisition of Deer Path Capital.
- Group insurance sales were up 13% and individual life sales increased by 7% year-to-date, reflecting expanded distribution and product diversification.
- Adjusted operating return on equity improved to 13.5%, nearly 1.5 percentage points higher than the prior year, indicating strong business performance and operational efficiencies.
Negative Points
- Variable investment income was below expectations by $90 million in the second quarter, driven by lower real estate returns.
- Underwriting experience was below expectations by $10 million in the second quarter.
- Institutional outflows of $8.9 billion in PGIM were primarily in fixed income, driven by two large clients.
- Expenses in the second quarter were lower than expected, reflecting a reduction in legal reserves and the timing of expenses, which may not be sustainable.
- The company continues to face challenges in its legacy traditional variable annuity fee income as it pivots to less market-sensitive products.
Q & A Highlights
Q: Can you provide more details on the strong sales performance in the Retirement Strategies segment?
A: (Charles Lowrey, Chairman and CEO) Our Retirement Strategies segment saw nearly $22 billion in sales in the first half of the year, a 67% increase from the prior year. This includes robust pension risk transfer and longevity risk transfer sales, as well as nearly doubling our individual annuity sales. Our FlexGuard indexed variable annuity product suite, launched in 2020, has exceeded $21 billion in sales.
Q: What factors contributed to the higher management fees in PGM?
A: (Robert Falzon, Executive Vice Chairman) Higher management fees in PGM were driven by favorable investment performance, contributions from the Deerpath Capital acquisition, and equity market appreciation. Additionally, higher incentives and transaction fees contributed to the increase in other related revenues.
Q: How did the U.S. businesses perform in the second quarter?
A: (Robert Falzon, Executive Vice Chairman) Our U.S. businesses saw higher spread income driven by business growth and the benefit of higher interest rates, more favorable underwriting results, and lower expenses. Additionally, there was a favorable impact from our annual assumptions update and other refinements.
Q: Can you elaborate on the performance of the international businesses?
A: (Robert Falzon, Executive Vice Chairman) Our international businesses saw higher sales in Japan, benefiting from recent product launches and an expanded Retirement & Savings product offering. Emerging market sales were also higher, driven by growth in Brazil and the expansion of third-party distribution.
Q: What is the outlook for the third quarter of 2024?
A: (Yanela Frias, Chief Financial Officer) For the third quarter, we suggest adjustments for several items, including a net benefit from our annual assumption update, lower variable investment income, and favorable seasonality in underwriting experience. These adjustments combined get us to a baseline of $3.48 per share for the third quarter.
Q: How is Prudential maintaining its financial strength and capital position?
A: (Yanela Frias, Chief Financial Officer) Our regulatory capital ratios are in excess of our double A objective, and we have $4 billion in cash and liquid assets within our liquidity target range. We are maintaining a disciplined approach to capital deployment, preserving financial strength and flexibility, and investing in our businesses for long-term growth.
Q: What are the key drivers behind the improved profitability in Group Insurance?
A: (Robert Falzon, Executive Vice Chairman) Improved profitability in Group Insurance was driven by growth in life, disability, and supplemental health sales, as well as a favorable benefit ratio of 81.1%. We are executing our strategy of product and client segmentation diversification while leveraging technology to increase operating efficiency and enhance customer experience.
Q: How is Prudential leveraging technology to support its growth strategy?
A: (Charles Lowrey, Chairman and CEO) We are investing in capabilities such as artificial intelligence and machine learning to deliver exceptional sales, service, and claims experiences. This includes expanding our products and distribution channels to meet the growing demand for financial solutions.
Q: What is the impact of the Deerpath Capital acquisition on PGM's performance?
A: (Robert Falzon, Executive Vice Chairman) The Deerpath Capital acquisition has contributed to higher management fees and increased capital deployment in PGM's private alternatives business. This acquisition supports our strategy to capitalize on growing institutional demand for private credit and alternative investments.
Q: How is Prudential addressing the global demand for retirement products and solutions?
A: (Charles Lowrey, Chairman and CEO) We are addressing the increasing global demand for retirement products by delivering solutions that protect the life's work of our customers and ensure a more financially secure retirement. This includes leveraging our market leadership in pension risk transfer and individual annuities, as well as expanding our product offerings in Japan and other international markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
