Prudential Financial, Inc. (NYSE:PRU) Q1 2026 Earnings Call Transcript

Prudential Financial, Inc. (NYSE:PRU) Q1 2026 Earnings Call Transcript May 6, 2026

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Prudential Financial, Inc.’s Quarterly Earnings Conference Call. At this time, participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Tina Madon. Please go ahead.

Tina Madon: Thank you. Good morning, everyone, and thank you for joining us. Representing Prudential Financial, Inc. on today’s call are Andrew Sullivan, Chairman and Chief Executive Officer, and Yanela del Frias, Chief Financial Officer. We will start with prepared remarks by Andrew Sullivan and Yanela del Frias, and then we will 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 investors.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 will now turn the call over to Andrew Sullivan.

Andrew Sullivan: Good morning, everyone, and thank you for joining our call. 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 twelve months, we have made meaningful progress against the priorities I established at the onset, and we are 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. Prudential Financial, Inc. 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 have 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 liabilities, deliver reliable income solutions, and generate strong investment outcomes will win. A defining strength of Prudential Financial, Inc. 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 PGIM 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 have seen us act on this conviction with our recent portfolio actions, specifically, the sales of our PGIM 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 can 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 is more to do, the direction is clear and our momentum is building. We will share more details on Prudential Financial, Inc.’s long-term vision and strategy on our second quarter call in August. With that, let me turn to the quarter. Pretax 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 PGIM.

PGIM 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. PGIM’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 PGIM’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 are also seeing good momentum in our active ETF retail, 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, PGIM’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 have 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 remained 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.

However, results this quarter reflect 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. Yanela will provide more details on these dynamics in her remarks, but it is 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 21 call, voluntarily extending the POJ sales suspension through November 5 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 thirty-six 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 reinforce 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 would also like to note that we have now exceeded 1.2 million policies through our MercadoLibre 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 Financial, Inc. 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. We have a clear understanding of the opportunities and challenges ahead. We are building a stronger Prudential Financial, Inc., 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 multiyear endeavor, our direction of travel is clear and our momentum is real. I affirm conviction in our path forward. With that, let me turn it over to Yanela.

Yanela del Frias: Thank you, Andy, and good morning, everyone. Our first quarter results reflected continued momentum entering the year. We reported after-tax adjusted operating income of approximately $1.3 billion, or $3.61 per common share, reflecting a 10% increase from the prior-year quarter. This performance was primarily driven by higher spread income in our U.S. and International insurance businesses as well as more favorable life underwriting results. These increases were partially offset by higher operating expenses, including costs related to the sales suspension at Prudential of Japan. As I have highlighted previously, optimizing our expense base is a key area of focus. Excluding the impact of one-time items, our operating expenses were flat year over year.

We are taking targeted actions to reduce costs across the enterprise to support investments in critical areas, including enhancing our service and distribution, and elevating our customer and advisor experience. We anticipate that the benefits of these actions will be evident in 2027. Let me now review the key performance highlights for each of our businesses. PGIM reported pretax adjusted operating income of $190 million, up 22% from the prior-year quarter. These results reflected higher asset management fees, driven by market appreciation, and higher other related revenues from agency earnings. These increases were partially offset by increased expenses related to growth initiatives, including the expansion of our direct lending and private asset-backed finance platform.

PGIM is on track to deliver approximately $100 million of gross annual run-rate savings and more than 200 basis points of margin expansion in 2026, accelerating progress towards its 25% to 30% margin target. In the first quarter, PGIM delivered a 19.1% margin, reflecting a 260 basis point increase year over year, which demonstrates meaningful progress toward that goal. Recall that first quarter margins are seasonally the lowest of the four quarters due to the timing of annual long-term incentive awards. Assets under management totaled $1.4 trillion, increasing 3% from the prior-year quarter, driven primarily by market appreciation and strong broad-based investment performance across public and private fixed income. Total flows across third-party and affiliated sources were essentially flat, representing a substantial sequential improvement in all channels.

Importantly, third-party net inflows totaled $1.8 billion, as strong fixed income inflows more than offset equity outflows, which, as Andy noted, remain pressured consistent with broader industry trends. Away from active equities, net outflows in PGIM’s affiliated channel totaled $1.9 billion, primarily driven by runoff in traditional variable annuities. Our U.S. Businesses generated pretax adjusted operating income of approximately $1.0 billion, a 3% increase compared to the prior-year quarter. Higher spread income in Retirement and Individual Life was partially offset by higher expenses across all the businesses related to the investments I mentioned earlier. Lower fee income associated with the runoff of our traditional variable annuity block, now reported in the U.S. Legacy Products segment, was also an offset.

As disclosed in April, we established a new U.S. Legacy Products reporting segment in the first quarter. This segment includes certain traditional variable annuity and guaranteed universal life products that we no longer sell. The resegmentation improves transparency and better aligns our financial reporting with how we manage the business, while providing improved visibility into the underlying growth and earnings profiles of Retirement and Individual Life. We also believe that the combination of institutional and individual retirement will provide a clearer view of the growth trends in the predominantly spread-based earnings of this business. Now turning to the details of our Retirement segment. Retirement delivered pretax adjusted operating income of over $570 million in the first quarter, 9% higher year over year.

These results primarily reflected higher spread related to new business growth as well as approximately $25 million of prepayment income, which is episodic. These increases were partially offset by higher distribution expenses associated with business growth along with the investments I mentioned earlier. Less favorable underwriting results were also an offset. Total sales in the quarter were $7.4 billion, including $3.3 billion of retail annuity sales, reflecting strong momentum following the December 2025 launch of FlexGuard 2.0, our newest RILA product. Pension risk transfer sales totaled $1.4 billion and were across four middle-market transactions. Net account values were $356 billion, up 8% year over year, reflecting market appreciation and broad-based growth across our diversified retirement product set.

Of note, retail annuities grew to $58 billion in account values, representing a 34% increase from the prior year, driven by over $13 billion in sales over the last year. Now turning to Group Insurance. Group reported pretax adjusted operating income of $38 million compared to $89 million in the prior-year quarter. Excluding the impact of a favorable reserve refinement of approximately $30 million last year, the decline primarily reflected less favorable disability underwriting driven by higher incidence and severity amid increased macroeconomic uncertainty. This impact was partially offset by improved Life underwriting results driven by favorable mortality experience in the working-age population. This result also reflected higher expenses primarily related to investments supporting business growth and operational efficiency in both our claims and service organizations.

The total benefits ratio increased to 83.7% in the quarter, as less favorable disability experience was partially offset by more favorable life experience. The benefits ratio remains within our target range of 83% to 87%. As a reminder, our total Group benefits ratio reached a first quarter record low of 81.3% last year, driven by the favorable reserve refinement I mentioned earlier and very favorable disability experience. Sales totaled $526 million in the quarter, up 32% year over year, driven by continued momentum in our Premier segment across our diversified product sets as we continue to execute on our market segment and product diversification strategy. This outcome also reflects strong supplemental health sales, which nearly doubled year over year.

Individual Life generated pretax adjusted operating income of $139 million in the quarter, more than doubling year over year. This increase primarily reflected improved underwriting results due to more favorable mortality experience from lower severity of claims. Higher spread income also contributed to this result. Sales of $251 million marked a record first quarter, driven by strong momentum in variable accumulation products where we continue to lead given our robust distribution and service capabilities. Our new U.S. Legacy Products segment generated pretax adjusted operating income of $207 million in the first quarter, a 22% decrease compared to the prior-year quarter. This decrease primarily reflects lower net fee income driven by the continued runoff of the traditional variable annuity block, partially offset by market appreciation.

Also contributing to the decline were less favorable underwriting results related to the GUL block. Our International businesses generated pretax adjusted operating income of $810 million in the first quarter, down 4% year over year. This result was driven by higher spread income along with more favorable underwriting results, primarily due to new business growth in Brazil, which had a record earnings quarter. These increases were more than offset by expenses related to the Prudential of Japan sales suspension. The financial impact of the suspension totaled $130 million in the quarter, in line with our expectations. Approximately $50 million of this amount related to customer reimbursements, $50 million related to Life Planner compensation.

The remainder was attributable to lost sales and higher surrenders. As a reminder, and consistent with our comments on April 21, we continue to expect the aggregate impact to our 2026 pretax adjusted operating income will be approximately $525 million to $575 million. Sales in our International businesses of $424 million were down 27% on a constant currency basis compared to the prior-year quarter, primarily driven by the sales suspension at Prudential of Japan. Now turning to capital, ESR, and cash flows. Our capital position and strong regulatory capital ratios reinforce our AA financial strength and provide the flexibility to grow our core businesses. Our cash and liquid assets were $3.7 billion at the end of the quarter, which is well above our minimum liquidity target of $3.0 billion, and we have substantial off-balance sheet resources.

Our Japan entities remain well capitalized and are managed to levels aligned with our AA objective. We estimate that our ESR results as of March 31 were in the range of 170% to 190%, well above our 150% operating target. As I mentioned on our April 21 call, we do not anticipate any material impact to our capital, ESR, or cash flows over 2026 and 2027 as a result of the voluntary sales suspension at Prudential of Japan. Before closing, I want to take a moment to update you on a revision to our tax rate guidance. We are lowering the range for full year 2026 from 23%–24% to 21%–22%. There were several factors which drove this, including lower expected earnings in our Japan business, and asset allocation changes we made in our Japan portfolio during the first quarter to optimize the after-tax investment return.

To close, let me again reiterate that we are a large, diversified company with multiple sources of earnings and cash flow, and we remain confident in our broader trajectory. We look forward to discussing our strategic direction in more detail on our second quarter call in August. And with that, we are happy to take your questions.

Q&A Session

Operator: We will now open the call for questions. To ask a question, please press star one. Please ask one question and one follow-up. Our first question is coming from Tom Gallagher from Evercore ISI. Your line is now live.

Tom Gallagher: A couple of questions about Japan. If I could start with Gibraltar, can you shed a little light on what is happening with that part of the business? I think there is the secondment issue that Pru has, but several other Japanese insurers are also dealing with that. And also, Andy, I think in the update call you did recently, you made the comment that you felt good that Gibraltar did not have the same systemic problems that occurred at POJ. So just want to understand maybe a little further elaboration on that and also how you feel about sales and persistency outlook at Gibraltar?

Andrew Sullivan: Yes. Good morning, Tom, and thanks for giving me the opportunity to build on what we shared on the 21st. Remember, our Gibraltar segment consists of really two components: our 7,000 person strong captive Life Consultants, and our independent agent business. On top of that, we have a very strong bank channel business, and you mentioned the secondments. Secondments are what happens in the bank channel. The changes that are going on there, we are navigating just fine. So there is nothing really to report around that. But we have these multiple components that provide a great deal of diversification well beyond just Prudential of Japan and our Life Planner business, and that can help you understand the resilience that we are seeing in the overall platform.

As far as sales go in Gibraltar, for our Life Consultants, we saw lower sales year over year that were unrelated to our compliance issues in POJ. That was counteracted by stronger independent agent sales. We have been very methodically adding independent agencies and deepening the number of agents in those agencies, and we are seeing that strengthen our overall independent agent sales. And as I referenced in my remarks, we are really seeing a strengthening third-party overall, which is beginning to balance our captive channels. As far as surrenders go in Gibraltar, the only effects that we believe we have seen relate to the weaker yen and the FX rate, and at the quarter end, surrenders were at normal levels in our Gibraltar platform.

Tom Gallagher: Appreciate that. The follow-up is just on POJ. I know you gave the guidance of in-force earnings being down 10% year one, 15% in year two. Can you shed a little light on what kind of sales and lapse expectations are embedded in those numbers? Maybe just if we focus on the sales number, are you assuming a very gradual recovery, like sales levels are going to be half of the normal levels one year out and then gradually recovering? Any kind of directional help on how we think about the sales recovery and how that builds back over time?

Yanela del Frias: Yes. Hi, Tom. Let me give you some details there. In terms of sales, the assumption is that there are no sales through November 5 during the suspension period, and then there is a gradual ramp up through 2027. The 2027 average LP production assumption is 50%. So through 2027, we are ramping up and we get to an average of 50% LP productivity. On surrenders, we are assuming that they remain at elevated levels above baseline and FX-related activity throughout the suspension period.

Tom Gallagher: Great. Thanks for the detail, Yanela.

Operator: Your next question is coming from Ryan Krueger from KBW. Your line is now live.

Ryan Krueger: Thanks. Good morning. First question is just on the earnings power of the International business at this point. If I look at the earnings excluding variances, they were up 6% year over year, despite about a 4% drag from the POJ sales suspension and lapses. Can you give us some more color on just what factors led to this in the current quarter, and to what extent some of these things you would not expect to recur, or if we should view this as a pretty good run rate from here?

Yanela del Frias: Hi, Ryan. I think there are a few things that you need to consider here, so let me walk through them. First is the timing of the cost and the impact of the POJ misconduct. As you heard in the prepared remarks, in the first quarter we had $50 million of customer reimbursements—that is nonrecurring—$50 million of LP comp, and then about $30 million of impact of sales and surrenders, half each. A few things to keep in mind: there were only two months of impact in the first quarter, as the suspension began in February. Second is that the impact is not linear. The impact of lost sales and surrenders builds as the year progresses. Similarly, the LP compensation grows through the year as well, because the payments are based on new business production, and the longer they are not selling, the higher that our payments will be.

That is what impacts the timing. So it is not linear, and we expect the impact to grow throughout the year. Second, what you are seeing is the resilience of the Japan business coming through, as 90% of the earnings in POJ are driven by the in-force. So that is definitely contributing. And of course, you have strong earnings from Brazil. Brazil has been steadily growing. Typically, it has been contributing up in the high single digits in terms of earnings in International—a bit higher this quarter as Japan earnings were lower. Again, Brazil has grown steadily. You see the resilience in Japan earnings and the strength in Brazil. And then third, we did have prepays that impacted results. In total, we had about $50 million in prepays in the quarter.

These are episodic and generally impacted several businesses, but mainly Retirement and International.

Ryan Krueger: Thank you. Sorry, actually just one quick follow-up. The $50 million of prepays, that was total for the company or is that all in Japan?

Yanela del Frias: That was total for the company, across several businesses, mainly impacting Retirement and International.

Ryan Krueger: Got it. And then I know you updated the tax rate. Any change to your corporate guidance that you had given last quarter, given the favorable expenses this quarter?

Yanela del Frias: No. We are not updating the corporate guidance. We did have some one-timers and also some expense timing. If you look at our normalization, there is about $70 million of one-timers—half of that is timing, half of that is real one-timers. At this time, we do not expect to update. The first half will be lighter, but the second half heavier, getting us to the $1.65 billion.

Operator: Thank you. Next question today is coming from Suneet Kamath from Jefferies. Your line is now live.

Suneet Kamath: Great, thanks. Starting with Andy, I appreciate the business exits that you mentioned in your prepared remarks, but it strikes me that they are not particularly needle moving. You can correct me if I am wrong there, but they did not seem to be that big. So I guess the question is, are you open to something bigger in terms of shifting the business mix? And in terms of setting the stage for this August call, should we think about that as the conclusion of a strategic review, or is this just updating guidance based on everything that has happened since the last time you gave it to us? Thanks.

Andrew Sullivan: Yes, Suneet, thank you for the question. I appreciate the broader question. I have been very candid that the performance of the organization has not been good enough. We believe that a key contributor to that underperformance is a lack of focus. Both capital and investment dollars are spread too thinly. We have too many businesses in too many markets where we are either subscale or we are not competitive, and that is not a great use of the company’s capital. Our team has done work over the last year or so—and it has been a continual process. Strategy is always ongoing; it is not a start-and-stop type thing—but we have done a broader review as we did the step back and looked in the mirror. Our team is very committed to leaving the next generation of PRU leadership with a stronger performing company, a much more valuable company that is materially better focused and clearly winning in the spots that we compete.

That means that we are a top player in a more focused set of businesses. We will focus our capital and investment dollars more than you have seen, and we are going to focus those on big markets with tailwinds where we clearly have the product and distribution capabilities and brand to win, and where we know that we could deliver a differentiated value proposition to drive strong shareholder returns. You mentioned you have already seen, I would call it early evidence, of where we are getting out of—obviously we mentioned those in the prepared remarks—and you have already seen areas we are leaning into, like retirement and asset management. But I would frame it that it is early in our business mix shift. Yanela and I are looking forward to providing you greater detail on the August call about that shift and about our change in focus as an organization.

This is an iconic company with incredible capabilities, and we want to make sure that we do everything that we need to to put the company on a strong growth trajectory.

Suneet Kamath: Okay. And then I just wanted to drill into the group disability business. I know it is not a huge business for you, but if I think about the loss ratio—let us call it in the high 70s—I think some of the other players that we cover are probably in the mid-60s. There is a pretty sizable gap there. Is there a structural reason why your loss ratio is so much higher? And at the end of the day, is this business producing adequate returns relative to the mid-teens ROE target that the company has overall? Thanks.

Andrew Sullivan: Yes, Suneet, thanks for the question. I would say it is very important, when you look at group businesses across the industry, to look closely at both the size segment that they are in, as well as the product mix that they are in between Life, Disability, and voluntary products/supplemental health. All of those have different benefit ratio and admin ratio characteristics. The fact is a lot of competitors across the space have business mixes that are more down market than ours. I think, as you are well aware, our strongest asset in our business is National Accounts and the higher end of the middle market. Industry-wide, that segment has higher benefit ratios but lower admin ratios. So you have to be very careful comparing benefit ratios and admin ratios across companies.

As we look at the performance of our business, to your question, this is a business that has cycles. We are coming off a year in 2025 of very low disability benefit and very low benefit ratios in general. This quarter, we saw underwriting pressure in the disability block, almost entirely related to LTD incidence and severity. That was offset by good performance in the Life block from working-age populations. This is a business that is producing returns in excess of our cost of capital. We are happy with the deployment of capital to this business, and it is a focused area of growth for us as we look forward. We fully expect to see performance to be in the guidance range of 83% to 87%.

Operator: Thank you. Next question today is coming from Wesley Carmichael from Wells Fargo. Your line is now live.

Wesley Carmichael: Hey, thank you. Good morning. Just wanted to talk about the Retirement segment for a second. It was good earnings in the quarter. I am trying to get an idea for run rate. I think, Yanela, you mentioned $25 million of prepay income. There is also some unfavorable and positive underwriting. If we net all that together, I get somewhere in the neighborhood of, call it, $600 million on a run-rate basis. Is that the kind of math you are doing?

Yanela del Frias: Yes, Wes, I think that is right. I mentioned total prepays of $50 million, mainly in International and Retirement, in my prepared remarks. I did mention $25 million in Retirement. What you are seeing in Retirement—and it is probably easier to look year over year because you have the full impact of sales for the past year—is strong growth. That is due to the sales that we are seeing in retail annuities and in our institutional markets. If you adjust for the prepays and some other noise, you are seeing the growth in the business coming through. We also did have some higher operating expenses. As I mentioned, we are investing in service and technology and driving enhanced customer experience. We are funding that at a total company level with efficiencies throughout the company. Net-net, year over year at the total enterprise, expenses are flat.

Wesley Carmichael: Got it. That is helpful. And just a different subject: when going through the resegmentation, you can kind of pull out the income statement for Guaranteed Universal Life. I think that business generated something like a $200 million loss in 2025 and I think $500 million in 2024 on a reported basis. Given that business seems to be generating a loss, how do you think about reserves there? You have already taken some charges, but do you need to do more to increase the reserves in that business?

Yanela del Frias: The way to think about that is that the GUL losses are mainly driven by the reserve accruals. We have reinsured a portion of the block, but the retained portion still includes exposure to the underlying economics and is still in that stage where GAAP reserves are building up. GAAP dictates that reserves be accrued at a higher pace than the best estimate liability would require as you are building the reserve, and this is what leads to the GAAP losses that we are seeing earlier in the life of the block. These losses will reverse over the long term as the expected benefits are paid and the reserves are released. You are seeing that dynamic because we are still building the reserve, and over the long term that will reverse.

Andrew Sullivan: Wes, I would just add a real positive of the resegmentation: you are seeing the strength and the quality of the go-forward Individual Life business. It is much more evident. We have been very methodical about executing the strategy to diversify the portfolio, to reduce expenses, and to write new business at attractive margins. This was a record sales quarter for us in Individual Life, and those sales are coming in well in excess of the cost of capital. We are pleased that you are now able to see the quality and growth of that Individual Life business now that we have resegmented out GUL.

Wesley Carmichael: Got it. That is helpful. Thank you.

Operator: Thank you. Our next question today is coming from Joel Hurwitz from Dowling & Partners. Your line is now live.

Joel Hurwitz: Hey, good morning. Just on expenses, you mentioned in the prepared remarks that you expect some of the actions you are taking to be evident in 2027. Any more color on the expected benefits that you expect to emerge next year, and where would we see that show up in the financials?

Yanela del Frias: Yes, Joel. In terms of expenses, taking it up a level, you have heard me speak a lot about our focus on continuous improvement and gaining efficiencies to be able to reinvest in the business. That is what is really funding these investments. We do expect these to have benefits in 2027. We are not necessarily quantifying that, but it will come through in our results. These are investments in things like modernizing and driving efficiencies in onboarding and claims management in Group, and investments in service delivery throughout all our U.S. businesses. These do lead to efficiencies. One thing I would highlight and remind you of is that last quarter, we took a $135 million restructuring charge that will result in run-rate savings of $150 million in 2027. Those are separate from the benefits of these investments.

Joel Hurwitz: Got it. And then, Andy, going back to Gibraltar sales, I heard you say no issues on any of the POJ issues carrying over to Life Consultants. Any color on why Life Consultant sales have been a little subdued the past two quarters?

Andrew Sullivan: Yes, Joel. We actually changed some of the incentive programs and rewards programs in our Life Consultant channel. It is part of our ongoing work around making sure that the business is as efficient as it needs to be, and that had an influence on the level of sales. We do not expect that to inhibit us in any way over the longer term in our ability to grow that Life Consultant channel. That is a channel that we consider pretty unique, in that it has specialized access to teachers and the Self-Defense Forces across Japan, and is literally in every geography across Japan with 7,000 agents.

Joel Hurwitz: Got it. Thank you.

Operator: You are welcome. Thank you. Next question is coming from Michael Ward from UBS. Your line is now live.

Michael Ward: Hi, thank you. I just wanted to dig in on the group disability real quick. I get that it is a small business, but conceptually for the industry, you specifically mentioned macro-driven uncertainty driving claim incidence and severity. I was curious what specifically you meant by that?

Andrew Sullivan: Yes. Mike, let me take the question overall and then hit your specific about the macroeconomic environment. It gets down to specifics that you have to look at across the books of business and the mix of products, etc. We experienced a weakening in our disability benefit ratio as you saw this quarter versus last year, but it did improve materially sequentially over 4Q, so we are seeing that recover. There were three main drivers, all LTD-related—not STD or paid leave, and we sometimes get that question. On LTD, we saw an increase in new claims incidence. The comment about the macro environment is when there is greater uncertainty around job loss, and you have seen tens of thousands of jobs being eliminated from a variety of big names.

Remember that we tend to have a book of business that is up market, and we cover and service a lot of larger employers. That leads to higher incidence and higher severity. You also have to look at the segmentation of industry mix. We have many white-collar type cases, and you sometimes see greater impacts in those than blue-collar. So, increase in claims incidence and severity, and the other thing is we had somewhat lower resolutions in the quarter. That is going to vary quarter to quarter. We are comfortable with our capabilities and the way we are managing that, and we know that will be where it needs to be over the long term. Taking a step back, we have been in the Group business over a hundred years. We have seen cycle after cycle. We are very comfortable with our capabilities, and this is an important area of focus for us.

Michael Ward: Thank you, Andy. And then on Japan, I think you have said no anticipated free cash flow impact over 2026–2027. But longer term, should we expect some free cash flow and ESR impact?

Yanela del Frias: Hi, Mike. We did talk about, when you think about the earnings of POJ, that 90% come from the in-force, and the impact of the sales and surrenders will result in a 10% earnings power reduction in 2026 and another 5% in 2027, so getting to 15%. That is a small portion of the earnings in POJ. Obviously, the earnings will decline and then we will be ramping up. I also talked on the April 21 call about the fact that cash flows from Japan are driven by Japanese statutory versus GAAP, and that is a big piece of the difference in terms of why we have about a $1 billion impact on GAAP earnings, but that does not come through in statutory. That is also dampening the impact on cash flows. Over the long term, as we begin sales again, we will have earnings, and we also will not have the subsidy that we are paying the Life Planner, so that is an offset to the capital that we are putting in for the new sales.

Net-net, we do not expect a longer-term significant impact assuming what we are seeing today.

Michael Ward: Thanks, Yanela.

Operator: Thank you. Next question is coming from Pablo Sengzon from JPMorgan. Your line is now live.

Pablo Sengzon: Hi, good morning. First question: can you talk about what was new with the RILA product that you launched in December? And maybe use that as a stepping stone to discuss the broader competitive environment for RILAs. Are you still able to innovate on features or distribution, or are you having to give up economics to remain competitive?

Andrew Sullivan: Thanks. Let me start with the competitive piece and then I will talk about the innovation in FlexGuard. The RILA market is competitive. You do not go from five competitors to 25 without it having a competitive effect. We have seen some well-established players enter the space, and we have seen some level of aggressive pricing. We always take a very consistent, disciplined approach to ensure that we generate profitable sales. It is not about revenue; it is about profit. Pricing is only one element of winning in this market. There are clear ways that we are differentiated other than pricing—our product features, our distribution, which continues to deepen and expand, our world-class service, and our brand. All of that matters.

We are strong on all those facets, and that produces success. On the innovation in FlexGuard, recall when we launched FlexGuard 1.0, it was one of the fastest growing buffered annuity launches in the history of the industry. We are expecting very strong success from 2.0. In essence, we have tweaked the design so it offers more opportunity for growth with also more downside protection, in the way that the product is designed, all linked to market performance. We are now reporting total sales in our individual annuities market because these are all spread-based products, and given market conditions and competitive conditions, you need to lean in and lean out of different spots. It is a pretty dynamic market week to week. We know we have an all-weather portfolio, we are disciplined in our pricing, we have a lot of differentiation, and we will grow this overall in total from that set of capabilities.

Pablo Sengzon: Thanks, Andy. And then for my follow-up about POJ, I was wondering if you would be willing to give a more current update on the Life Planner count or most recent trends and the persistency. I think if you look at the reported 1Q 2026 there was some slight deterioration, and I was wondering how the trend has developed through May. Thanks.

Andrew Sullivan: Yes, Pablo. To reiterate what we shared on the April 21 call, what we saw in the first quarter is the Life Planner headcount was down less than 1%. Since the start of the year, the rate of LP resignations has been at a similar level compared to what we saw last year, and everything we have seen since announcing the 180-day extension of the suspension has been consistent with the expectations and financials that we put out to the street. We think the reason we are seeing such success is really due to a couple reasons. First, we are providing material financial support. It goes beyond the money that we are providing to the Life Planners. What they see is us stepping forward and being very committed to this business, being very committed to them, and they are very appreciative of that.

We have also done a lot of work on improved and delivered training, and we are clearly painting a picture of where this business is going for those Life Planners. That is all being done so that Life Planners can see a sustainable career path, and we believe that is why we are seeing such good results—still early in this suspension period—from a Life Planner retention perspective.

Operator: Our next question today is coming from Jack Magnus from BMO Capital Markets. Your line is now live.

Jack Magnus: Hey, good morning. Just a question on risk transfer. Wondering how you view the outlook both for you and for the industry regarding volumes this year. Specifically, do you think we could see more jumbo cases come to market?

Andrew Sullivan: Thanks, Jack. As you know well, PRT is a transaction-oriented business. It is not a flow business. It will be episodic, especially in the jumbo space. We have seen reduced activity in the market given the economic uncertainty and the geopolitics that are being experienced. Volatility and uncertainty make business leaders slower in decision-making. We have absolutely seen that in the marketplace. We expect that 2026 will mirror 2025 and that demand should get stronger in the second half. That is generally what happens, in particular in the jumbo space. It is hard to say exactly how much that will strengthen, but we believe that will be the pattern. Importantly, what you have now seen two quarters in a row is we are writing more middle-market deals.

While we are clearly a leader in jumbo, we have a very good and growing presence in the middle market, and that will help balance out our success in the jumbo space. We are very well positioned. We are one of the best at this business, and now that we are participating more broadly across segments, we believe we will be even more successful going forward.

Jack Magnus: Thank you. And then maybe on PGIM, can you talk about the outlook for the private markets business and some of the investments that you referenced earlier? Where do you feel that business is differentiated versus its competitors? And any impacts you are seeing related to some of the recent headlines around private credit?

Andrew Sullivan: Sure. We are very proud of our privates business, and the biggest part of our privates business is credit. We are one of the largest and most successful credit managers in the industry. We have about $1 trillion of credit assets under management, about $750 billion or so of that public and $250 billion private. That is in addition to our roughly $150 billion in real estate. This is a focused business for us. In particular, in the private credit space, we have had a fast-growing direct lending and asset-backed finance capability. Our strength comes from the fact that, since we have the public side and the private side, we can serve customers with a range of risk and collateral types, and across the liquidity spectrum.

That is a differentiator. On the private side, we have a vast origination network where we have direct access to companies around the globe. That enables us to source a significant share of non-sponsored deals. As for the space around private credit and the stress, most of what is in the headlines is around the retail side of the business. On the institutional side, we have seen strength. While institutions are slowing down a bit in their decision-making, they are still leaning into private credit and into the highest quality managers that have track records over decades of underwriting. That is what we are seeing, and that is why we are producing very good levels of private capital deployment as well as fundraising.

Operator: Next question is coming from Tracy Benguigui from Wolfe Research. Your line is now live.

Tracy Benguigui: Thank you. Just a quick follow-up on the GUL retained. I appreciate the GAAP commentary, but how do you think of the adequacy of those reserves on a statutory basis?

Yanela del Frias: Yes. Tracy, first on a GAAP basis, I spoke about the reserving and the trend. I would also note that another data point in terms of adequacy on a GAAP basis is that we have to undertake loss recognition testing every quarter, which is required to ensure that the GAAP reserves are sufficient. As of 3/31, the GUL reserves held on our balance sheet exceed what is required under loss recognition. Under statutory accounting, the chief actuary signs off on those statutory reserves every year, affirming that they are sufficient as well. We go through all the processes, track assumption updates, and book them, and we have the actuarial sign-off on the statutory reserves.

Tracy Benguigui: Okay. Switching gears a little bit, I am wondering, could VM-22, the principle-based reserving, reduce incentives to cede FA risk to your Bermudian affiliates? And how does VM-22 stack up against the BMA rules, which are also principle-based?

Andrew Sullivan: The current proposed version of VM-22 is a helpful step towards a more economic principle-based standard. The relative benefits of Bermuda would be lower based on the current proposal, but our current view is that Bermuda continues to be an attractive option for us. We will continue to assess that over time as the VM-22 rules are finalized.

Operator: Our final question today is coming from Wilma Jackson Burdis from Raymond James. Your line is now live.

Analyst: Hi, this is Chris on for Wilma. There is a lot of growth opportunity in Japan reinsurance right now. Pru is one of the largest there. Could you discuss that market opportunity?

Yanela del Frias: Hi, Chris. We do not participate in the reinsurance business as a business line, but we can participate in that opportunity through Prismic, our sponsored entity. An update on Prismic: we continue to work on an active pipeline for Prismic, including ongoing balance sheet optimization, financing new business growth, and working on third-party blocks. Prismic has made really good progress. In February, we entered into our first flow reinsurance transaction with Prismic, reinsuring MYGAs out of our Retirement business. In the first quarter, we executed a second flow reinsurance transaction with Prismic covering U.S. dollar-denominated Japan liabilities. Also in the first quarter, more relevant to your question, Prismic reached an agreement with Daiichi to reinsure a yen-denominated in-force block of whole life and annuity policies, and that is Prismic’s first third-party transaction.

Andrew Sullivan: Chris, maybe just one add. We are very pleased with how Prismic has continued to move forward. As a reminder, as Prismic succeeds in third-party reinsurance, PGIM is able to manage a lion’s share of the assets that go into that relationship. That is a good growth engine for PGIM as well.

Analyst: Great. Thank you. And then could we expect the POJ pause to have any effect on the pace of capital return to shareholders through the remainder of the year or through 2027?

Yanela del Frias: No, Chris. As we said on the April 21 call, we do not expect the impact of the POJ sales misconduct to materially impact our cash flows or our capital position. We do not expect any changes to our capital deployment or shareholder distribution.

Operator: Thank you. We have reached the end of our question and answer session. Ladies and gentlemen, that does conclude today’s teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.