Prudential Financial Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

Key Takeaways

  • Prudential completed $10B traditional variable annuity reinsurance (proceeds of $650M) and announced a $12.5B guaranteed universal life deal (expected $450M in Q4), reducing market sensitivity and boosting capital flexibility.
  • The firm reported its 4th consecutive quarter of underlying earnings growth and achieved record operating earnings for Group Insurance, highlighting continued operational momentum.
  • US Individual Retirement annuity sales rose 20% YoY to $1.9B in Q2—the strongest since Q4 2020—with FlexGuard cumulative sales at $15B and fixed annuities accounting for over one-third of quarterly new business.
  • PGIM experienced net outflows of $5.2B in Q2—primarily from public equity strategies amid client portfolio rebalancing—and expects near-term pressure on flows until real estate and equity market activity rebounds.
  • Prudential’s balance sheet remains robust with an AA rating, ~$50B in unrealized insurance gains, $4.5B of highly liquid assets, and $700M returned to shareholders in Q2.
AI Generated. May Contain Errors.
Earnings Conference Call
Prudential Financial Q2 2023
00:00 / 00:00

There are 14 speakers on the call.

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 will conduct a question and answer session. Instructions will be given at that time. As a reminder, today's call is being recorded.

Operator

I will now turn the call over to Mr. Bob McLaughlin.

Speaker 1

Please go ahead. Good morning and thank

Speaker 2

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 PGIM, our Global Investment Manager Caroline Feeney, Head of U. S. Businesses Ken Tange, Chief Financial Officer and Rob Axel, Controller and Principal Accounting Officer. We will start with prepared comments Today's presentation may include forward looking statements.

Speaker 2

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 measure 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. And now I'll turn it over to Charlie.

Speaker 1

Thank you, Bob, and thanks to everyone for joining us today. Our second quarter results reflect continued momentum across our businesses, including the 4th consecutive quarter of underlying earnings growth and record operating earnings for Group Insurance. We continue to execute on our strategy by reducing market sensitivity and increasing our capital flexibility, enhancing our capabilities and optimizing operating efficiency to support long term growth. Our strategic progress and financial strength Position us well to navigate the current macroeconomic environment and maintain our disciplined approach to capital deployment. Turning to Slide 3.

Speaker 1

I'll start this morning by noting 2 significant milestones demonstrating how we are reducing market sensitivity and increasing our capital flexibility. During the Q2, we completed a reinsurance transaction For a $10,000,000,000 block of traditional variable annuities and received proceeds of $650,000,000 With this transaction, I'm pleased that we have achieved our objective of lowering the proportion of traditional variable annuities, while continuing our progress in pivoting to less market sensitive and higher growth products. Additionally, Last week, we announced another transaction to reinsure a $12,500,000,000 block of guaranteed universal life policies, which will be accretive to earnings. We expect to receive approximately $450,000,000 of proceeds when the transaction closes, which is expected to be in the Q4 of this year. We also continue to deliver on our vision to increase access to investing insurance and retirement security by enhancing our capabilities and customer experiences and by expanding our distribution channels and products to more people around the world.

Speaker 1

In Latin America, we continue to expand our distribution through the MercadoLibre platform and added 150,000 Also, Prudential of Brazil achieved a record sales quarter, driven by strong performance by Life Planners and continued expansion of the 3rd party distribution channel. Prudential of Brazil is now the 3rd largest life insurance company in the country, growing at twice the market average and reaching more than 3,500,000 customers. In addition, we see continued opportunity and feel we are well positioned in the international longevity risk transfer market as we completed more than 3.5 $1,000,000,000 of transactions in the second quarter. In the U. S, our individual retirement strategies business achieved annuity sales of $1,900,000,000 in the 2nd quarter, a 20% increase year over year and the highest since the Q4 Of 2020.

Speaker 1

Our FlexGuard suite has reached $15,000,000,000 of sales over the past 3 years And our fixed annuity sales in the quarter represented over 1 third of new business as we innovate our portfolio of annuity solutions to meet customer needs. As we look ahead, we are well positioned as a global leader at the intersection of asset management and insurance. We are confident that our strategy and mutually reinforcing business mix, which leverages the combined strength of our brand, Global asset and liability origination capabilities and multichannel distribution will enable us to drive future growth and continue to expand One recent example is Model My Retirement, A new digital tool designed to help institutional pension customers gain a better understanding of their retirement benefits and adjust their financial planning accordingly. Customers can now quickly and seamlessly get an estimate of their available annuity benefits through our self-service website. We also announced a strategic partnership with Naya, a leading benefits experience platform.

Speaker 1

The new partnership will allow group insurance clients to harness AI and data science capabilities to make more informed workplace benefit decisions. And we are also using chatbot technology and robotic process automation to reduce Transaction processing time across our U. S. Businesses. As part of our continuous improvement framework, we are focusing on creating a leaner, Faster and more agile company so that we can better meet the needs of our customers while driving growth and efficiency.

Speaker 1

We've made good progress in this area, having exceeded the target we established 2 years ago, but we think there's more work we can do. We are evaluating additional opportunities, including further evolving our operating model, simplifying our organizational structure And streamlining decision making. Turning now to Slide 4. Prudential's rock solid balance sheet and robust Risk and capital management frameworks have allowed us to confidently navigate the current macro environment. Our AA financial strength is supported by Our strong capital position, including approximately $50,000,000,000 of unrealized insurance margins, 4 point $5,000,000,000 in highly liquid assets at the end of the second quarter, which does not include the $650,000,000 of proceeds from the traditional variable annuities reinsurance transaction that was completed this quarter and a high quality, well diversified investment portfolio and disciplined approach to Asset Liability Management.

Speaker 1

Moving to Slide 5, our disciplined approach to capital deployment, Coupled with the added capital flexibility achieved through our de risking transactions, enables us to effectively balance investing In the long term growth of our businesses with returning capital to shareholders. In the second quarter, we returned approximately $700,000,000 in capital to shareholders. And with that, Rob will now provide an overview of our 2nd quarter financial results and an update on our business performance.

Speaker 3

Thank you, Charlie. I'll provide an overview of our financial results and business performance for our PGIM, U. S. And International businesses. I'll begin on Slide 6 with our financial results for the Q2 of 2023.

Speaker 3

Our pre tax adjusted operating income was $1,400,000,000 or 2.9 Our GAAP net income was $576,000,000 lower than our after tax adjusted operating income, primarily driven by mark to market losses on currency and interest rate derivatives and losses on fixed maturity sales driven by higher rates. Turning to the operating results from our businesses compared to the year ago quarter. PGIM, our Global Investment Manager, had lower asset management fees driven by rising Rates and net outflows and higher expenses to support growth initiatives, while other related revenues increased primarily from higher seed and co investment earnings. Results of our U. S.

Speaker 3

Businesses primarily reflected a more favorable comparable impact from our annual assumption update, higher spread income and more favorable underwriting, partially offset by the absence of a one time gain from the sale of Palak in the prior year quarter and lower fee income. The increase in earnings in our international businesses primarily reflected higher emerging markets earnings and a favorable impact from our annual assumption update and other refinements. Turning to Slide 7. PGIM, our global active investment manager, has delivered diversified capabilities in both public and private asset classes across fixed income, equities and alternatives. PGIM's long term investment performance remains attractive with 80% or more of assets Under management outperforming their benchmarks over the last 5 10 year periods.

Speaker 3

In addition, our short term performance has improved since the last quarter with 80% of assets exceeding their benchmarks over a 1 year period. PGIM experienced 3rd party net outflows of $5,200,000,000 in the quarter, primarily from public equity strategies. Institutional outflows were primarily driven by client redemptions for liquidity needs and retail outflows were driven by sub advised equity mandates. As the investment engine of Prudential, the success and growth of PGIM and of our U. S.

Speaker 3

And International Insurance and Retirement businesses are mutually reinforcing. PGIM's asset origination capabilities, investment management expertise and access to institutional and other sources of private capital Our 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 Canically and through acquisitions, our Private Alternatives and Credit business, which has assets of approximately $234,000,000,000 across Private Corporate and Infrastructure Credit, Real Estate Equity and Debt and Secondary Private Equity. Capital deployment across PGIM's private assets platform increased from the prior quarter to $8,000,000,000 benefiting from strong private placement and direct lending originations. Turning to Slide 8.

Speaker 3

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 drive towards a higher value, higher growth and less market sensitive mix of earnings as evidenced by the derisking transactions that Charlie mentioned Invest in our businesses to deliver best in class customer experiences and expand our addressable market with new financial solutions, leveraging the capabilities Across Prudential. Retirement Strategies generated strong sales of $7,600,000,000 in the 2nd quarter across its institutional and individual lines of business.

Speaker 3

Our institutional retirement business has leading market capabilities, which helped to produce 2nd quarter sales of $5,700,000,000 including $3,600,000,000 of international reinsurance transactions as well as strong stable value sales. Retirement account values were a record high at the end of the In individual retirement, our product pivots have resulted in continued strong sales of more simplified solutions like FlexGuard and FlexGuard Income, representing approximately 65% of sales and increased fixed annuity sales that accounted for approximately 1 third of sales this quarter. Our individual life sales increased 27% from the year ago quarter, reflecting our earlier product pivot strategy with variable life products Approximately 74% of sales in the quarter. And group insurance sales were up 33% compared to the year ago quarter, driven by growth in disability and supplemental health. We've been very pleased with the momentum we are seeing in our Group Insurance business as we Our strategy of product and segment diversification, while leveraging technology to increase operating efficiency and enhance the customer experience.

Speaker 3

Our record results this quarter include favorable group life and disability underwriting experience, which resulted in a benefits ratio of 81%. 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 in expanding our distribution and product offerings. Our needs based approach and protection product focus continue to provide important value to our customers as we expand our product offerings to meet their evolving needs.

Speaker 3

In emerging markets, we are focused on creating a selective portfolio of businesses in regions where customer needs are growing, where there are compelling opportunities to build market leading businesses and where the financial enterprise can add value. Our international business sales were up 9% compared to the year ago quarter. Life Planner sales were up 12%, driven by record sales in Brazil as well as higher single premium U. S. Dollar sales in Japan.

Speaker 3

Gibraltar sales were up 6%, primarily driven by growth in the bank channel. 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. We continue to focus on investing in growth businesses and markets, delivering industry leading customer experiences in 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 Ken.

Speaker 4

Thanks, Rob. I'll begin on Slide 10, which provides insight into earnings for the Q3 of 2023 relative to our Q2 results. As noted, pre tax adjusted operating income in the 2nd quarter was $1,400,000,000 and resulted in earnings per share of $2.94 On an after tax basis. To get a sense of how our 3rd 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 $16,000,000 in the 2nd quarter.

Speaker 4

Next, variable investment income was below expectations in the 2nd quarter by $50,000,000 While we have not included an adjustment for the 3rd The potential exists for continued revaluation of real estate investments and lower prepayment activity due to the current market and economic conditions. Variable investment income will vary from period to period. However, over time, it has exceeded our expectations. 3rd, underwriting experience was below expectations by $5,000,000 in the second quarter and we expect $20,000,000 of favorable seasonality in the 3rd quarter. And last, we include an adjustment of $90,000,000 for other items, primarily due to elevated expenses In the Q2, these adjustments combined get us to a baseline of $3.26 per share for the 3rd quarter.

Speaker 4

I'll note, if you exclude items specific to the Q3, earnings per share would be $3.35 The key takeaway is that our underlying earnings power continued to improve due to business growth, including the benefit of higher interest rates, partially offset by higher investments in our capabilities and growth initiatives. I would also note that due to continued opportunities to build capabilities, pursue Growth initiatives and gain efficiency, we expect an increased level of investments in these areas that will be reflected in corporate and other. While we have provided these items to consider, please note that there may be other factors that affect earnings per share in the Q3. Turning to Slide 11. Our capital position continues to support our AA Financial Strength Rating.

Speaker 4

Our cash and liquid assets were $4,500,000,000 at the high end of our Our regulatory capital ratios were well above our targets and we have substantial off balance sheet resources including $9,000,000,000 Capital and Liquidity Facilities. We remain thoughtful in our capital deployment, balancing preservation of financial strength and flexibility, Investment in our businesses and shareholder distributions. Turning to slide 12 and in summary, we are transforming our business for sustainable growth. We continue to navigate the current macro environment with the financial strength of our rock solid balance sheet and we maintain a balanced and disciplined approach to capital deployment. Now, I'll turn it to the operator for your questions.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Tom Gallagher from Evercore ISI. Your line is now live.

Speaker 5

Good morning. First question is, can you talk a little bit about the dividend flows, The dividends that were paid up in the quarter from the subs, it seemed like a pretty strong capital generation quarter. So a little bit behind what drove that. And relatedly, the capital that you're going to be that you received For the VA transaction or the freed up capital and the SGUL deals later this year, would you expect to be able to dividend those up and use The proceeds, and then finally, the IMR rule change, can you comment on whether that affected Your RBC this quarter, do you expect that to affect it later in the year? Thanks.

Speaker 4

Yes. Hey, Tom, it's Ken. We executed planned distributions from our businesses in the second quarter. That cash flow reflected dividends from Pika and Japan and other affiliated cash flows from subsidiaries as well. Again, It was all part of our plans for the year.

Speaker 4

Our capital position as a result is very healthy. Capital ratios are above our AA objectives. That would include the benefit of the recent VA reinsurance transaction, but Does not yet reflect the GU Wealth transaction, which will be subject to close later. And again, our Holdco assets We're $4,500,000,000 relatively flat from the prior quarter and high end of our target range. So again, we'll benefit from the GUL transaction when it closes and the NAIC IMR proposal when that is adopted, so that's not yet in our RBC ratios.

Speaker 4

And these will all be key considerations for dividends from Pika to PFI in the second half of the year, again with the close of GUL and NAIC's Decision on negative IMR. So overall, we feel very good about our capital position and the outlook for our flexibility looking ahead.

Speaker 5

Okay. Thanks. Thanks, Ken. And then just a follow-up. On the potential IMR changes, I think the limitation is now looking like 10% of Surplus, can you give a little bit of color for I think you had had something like 1,800,000,000 Negative impact from that in 2022.

Speaker 5

Would you expect to be able to reverse most of that, some of that? And would we still be looking at potential limitations or future losses if rates keep going up here, I guess is the other follow-up on that. Thanks.

Speaker 4

Yes. So you're right, Tom. The proposal is Subject to a limitation of 10% of statutory surplus with adjusted for some exclusions. And for us, that's about 1,300,000,000 or you can think of that as about 26 RBC points. So that's What it would represent for us, where we sit and where interest rate sits right now.

Operator

Thank you. Our next question is coming from Jimmy Bhullar from JPMorgan. Your line is now live.

Speaker 6

So first, just a question on your Japan business and how are you thinking about potential changes in your New sales mix given changes in the capital regime and also just fluctuations recently we've seen in terms of interest rates and currencies In Japan.

Speaker 3

Hey, Jimmy, it's Andy. I'll take your question. Our Japan operation, as you know, is competitively advantaged with outstanding distribution, Great product and a strong brand. And we've been quite pleased with the sales results this quarter as we experienced year over year growth in our LP, our LC and our bank channels. That growth was aided by higher U.

Speaker 3

S. Dollar product sales, but we've also been investing Into the business. Clearly, our work on innovating our product designs and enhancing our customer experience is paying off. As we look at the interest rate changes, As we always say, overall higher interest rates are good for Prudential and are good for our Japanese businesses. We do believe that those Higher interest rates will obviously give us greater flexibility in our product design and in delivering value back to our customers.

Speaker 3

So While we may see a shift of the mix between U. S. Dollar and yen denominated, we think we'll still see strong demand. And as we look Forward, we're optimistic about our ability to continue to grow the Japan business and deliver shareholder value.

Speaker 6

Does the change in capital Does that affect your sort of the economics of your products between U. S. Dollar and yen denominated?

Speaker 7

Hey, Jimmy, it's Rob. So a couple of thoughts. You're referring to the eventual adoption of ESR. First point, ESR is still A work in process and is not scheduled for adoption until like 2025. And so, we continue to work with the JFSA and with the industry to fine tune the ESR regime, which is to date largely mirrored the regime that's been established on the international side.

Speaker 7

As currently constructed, it would cause us to look creatively at how we manage our book of business and our sales. So I don't think it would necessarily Change our distribution and our sales, but where we hold the assets against those sales could be in Japan or it We'd be reinsured into other jurisdictions in order to be able to make sure that we're matching the economics of the products that we're selling into the economics of the statutory So, we're comfortable that either through a combination of advocacy and getting sort of the right economic outcomes And or the other levers that we have available to us that we'll be able to sort of continue the balance of sales that we have and sort of manage the way in which we capitalize Reserve those sales.

Speaker 6

Okay. And then just shifting on to PGIM, the negative flows this quarter, how much of that is something that's Maybe Prudential related that might continue into the second half versus maybe just overall industry wide issues that a lot of Your peers have had in asset management recently as well.

Speaker 3

Sure, Jimmy, it's Andy. I'll take your question and I'll just hit it broadly to talk about flows for the quarter. As we've talked about, flows are an outcome of having great distribution, broadly diversified products and strong investment results. And we've been a net flow winner over a multiyear period in PGIM, We're quite confident in the strength of our capabilities. And as always, we're going to continue to manage this for the long term.

Speaker 3

That said, this quarter, we did see a material reduction in our outflows versus the previous quarters. On the retail end, outflows were 2,200,000,000 We're predominantly an equity story. We've seen retail clients rebalancing their portfolios based on the heels of Strong equity market appreciation. On the institutional side, the outflows were $3,000,000,000 for the quarter. Again, that's a material improvement over the previous quarters.

Speaker 3

These outflows included both equity and fixed income. The equity story for institutional is the same as that for retail. It's client rebalancing. For fixed income, we saw some of our clients make asset allocation changes and others shift to passive. As far as an outlook, near term, we Expect that this current investor behavior is going to continue.

Speaker 3

And to your question, our trend is consistent with what we're seeing across the rest of the industry. Over the longer term, we have a lot of confidence in our PGIM platform, and we know that we're going to return to strong positive flows and gain market share.

Speaker 8

Thank you.

Operator

Thank you. Next question is coming from John Barnidge from Piper Sandler. Your line is now live.

Speaker 9

Good morning. Thanks for the opportunity. Question on PGIM, another investment manager on some of these risk transferred assets. How long does that agree those agreements last? And can you talk about how the wind down of those assets would work?

Speaker 9

Thank you.

Speaker 3

So, John, it's Andy. I'll take it. Maybe I'll bring it up a level and just talk about in general as we do de risking transactions and in particular the recent de risking transactions we did in Individual Retirement Strategies and Individual Life. It is true we will lose some assets under management from the general account, but we as you have noted, we worked hard and got an IMA. That is deal specific, how long they those IMAs go depending deal to deal.

Speaker 3

But it does give us the ability to continue to manage a majority of the assets. And at the end of the day, if you look across the risk transactions that we've done recently, it's not really going to have a material impact on PGIM earnings.

Speaker 7

Hey, John, it's Rob. Maybe just a little further elaboration. In the reinsurance of the PDI transaction, recall that those are individual sort of client separate accounts. And so those the separate account business there is something that PGIM will continue to manage. With Regarding the GUL business, the agreement that we have there is actually a 7 year initial IMA.

Speaker 7

And obviously, with Good performance. We would expect to continue to be able to manage that even over a longer period of time.

Speaker 9

Thank you for that. And then my follow-up question, sticking with Asset Management Business. Do industry wide headwinds lead to inorganic opportunities and other products

Speaker 3

John, it's Andy again. I'll take that. So and I'll start where I always start When we talk about this, we've demonstrated a strong ability over a couple of decades to grow PGIM organically. So we Certainly, as we look at the programmatic M and A, we don't need it to grow. That being said, we do remain interested in augmenting the organic growth plans with programmatic If you look at what we've done recently, Montana Capital Partners, PGIM Custom Harvest and now DeerPath, those are really good examples of the areas that we said we are Lean into higher fee, higher growth.

Speaker 3

As we look forward, we're going to continue to work to globalize the business and lean into areas like private alternatives and real assets. Clearly, any disruptive environment

Operator

Thank you. Next question today is coming from Ryan Krueger from KBW. Your line is now live.

Speaker 8

Hi, thanks. Good morning. I was hoping you could discuss the new open architecture platform that was referenced in the June press release and give some more specifics on Really what you're looking to do there?

Speaker 7

Ryan, it's Rob. I'll take that. As we've talked about in the past, We see really interesting opportunities that exist in the intersection of asset management and insurance you see evolving in the industry. We're quite excited about what that implies for our ability to create avenues of growth both in our insurance and our asset management businesses. So, we're being thoughtful about how we against that opportunity and that includes organizing ourselves in a way so as to institutionalize our Both balance sheet optimization capability.

Speaker 7

So think about that on the liability side as we're looking at reinsurance solutions To balance the use of captives, affiliates and third party reinsurance, to continue to actively evaluate additional blocks, existing blocks of business for reinsurance And then also looking at Flow, our new sales solutions. On the asset side, it's about expanding our lens on the available assets Investments that can generate greater alpha for us, while also expanding our capabilities to source those investments, Either directly or in partnership with others, including things like acquiring capabilities as we did with DeerPath. This is an important component of our broader strategy, which is

Speaker 8

Thanks. And just one follow-up there. I mean, should we think of this as also including a potential to bring in more third party capital In a sidecar like structure to back some of your new business in the future?

Speaker 7

I think we're looking at the full range of opportunities That would exist there. And so going from captive to 3rd party and hybrid solutions that would exist in between that.

Speaker 8

Got it. Thank you. Thank

Operator

you. Our next question is coming from Wes Carmichael from Wells Fargo. Your line is now

Speaker 9

live. Hey, good morning. I just had a follow-up on Tom's question on the HoldCo liquidity. So I I think in the Q1 that was roughly around $4,500,000,000 ended this quarter at $4,500,000,000 But if I kind of add up all the uses of capital in the quarter From buybacks, dividends, I think there was $1,500,000,000 callable debt. I think there were around $2,500,000,000 of uses in the period.

Speaker 9

So I'm just curious like Were dividends accelerated? I know you said that they were planned, but was there any other affiliated borrowings? I'm just trying to square that because it's a pretty sizable use of capital. I'm just trying

Speaker 4

Yes. Hey, Wes, it's Ken. No, it was all planned. So the distributions we received We're all planned and we didn't issue any debt in the quarter either. In fact, as you Recognize we called some debt, which again was all planned.

Speaker 4

So and we didn't pull forward anything. So it was all Part of what our plans were for the year. So I hope that helps.

Speaker 9

Okay. And just maybe Any thoughts around your kind of PRT pipeline? And just maybe how you think about that versus balancing that with like the longevity business and deploying capital to Those 2 in the Institutional Retirement Business?

Speaker 10

Yes. Hi, Wes, it's Caroline, and I'll take your question. So first of all, I'd So overall, we're very pleased with the strong results we saw across our entire Retirement Strategies business, with just over $7,500,000,000 in total sales and record institutional account values of $259,000,000,000 This included $5,700,000,000 in our institutional retirement strategies highlighted by a strong quarter in international reinsurance transactions. In terms of the pipeline overall, Les, We continue to see strong opportunity in both the U. S.

Speaker 10

And Global Risk Transfer Markets with strong funding positions, both above 100% and also high intent to transact. And I would be remiss not to mention what was just announced yesterday, They were selected to secure the pension benefits for about 2,000 of PSV and G's retirees and their beneficiaries. And so far, we've seen a record first half of the year in PRT. And while we expect to see a strong second half, We don't expect to surpass last year's record pipeline. We also see an extremely strong pipeline in the UK, with funded positions over 110%.

Speaker 10

And Wes, finally, I'd say that given our expertise and our ability to manage large complex Transactions along with our financial strength, we are well positioned to remain a leader in both markets.

Speaker 1

Thank you.

Operator

Thank you. Our next question today is coming from Suneet Kamath from Jefferies. Your line is now live.

Speaker 11

Hi, thanks. I wanted to go back to the risk transfer deals just for a second. I think, Charlie, in your comments, you talked about achieving your goal on VA side and obviously you've done an SGUL transaction of late. Should we think about this as still ongoing activity for you? Or are you sort of Declaring victory here and kind of moving on to some of the more growth oriented areas of your strategy.

Speaker 1

So I would say yes So, both of those. So, let me go through and yes, and, Suneet. So, first, I'll go through each one, sort of GUL And then the VA business. But first, we are very pleased with the valuation we received for re insuring the $12,500,000,000 block of guaranteed universal life policies We announced last week and as we said, we expect to receive approximately $450,000,000 of proceeds when the transaction closes. The transaction will be accretive to earnings and will also reduce our market sensitivity and increase our capital flexibility.

Speaker 1

But would we consider derisking opportunity for Life Sub Block? Absolutely. As long as it met the strategic financial objectives and made sense to all our stakeholders. However, we're going to be disciplined in our approach as the Individual Life business continues to be core to our purpose. There's Still significant potential for growth in the industry with a $12,000,000,000,000 life insurance gap.

Speaker 1

And I think our strong individual life sales in the second quarter Flex our product pivot to less market sensitive products. And from an enterprise perspective, our Life business helps balance our longevity with our mortality, so it remains important to us. On the VA side, it's a little bit of a different story, but there are some similarities. So we've made Considerable progress in reducing the market sensitivity and increasing our capital flexibility through the two transactions we've done. And we're pleased with the valuations again that we received for Reinsuring the $10,000,000,000 block of traditional variable annuities in the 2nd quarter as well as evaluation for the $30,000,000,000 block we sold last year.

Speaker 1

But as a result of these transactions, as we've said, and the natural runoff of this business, we have achieved the original objective that we established 2 years ago, we're blowing the proportion of traditional variable annuities. So we're not in a position of having to do another transaction. Having said that, I want to be very clear that we'll continue to explore additional opportunities. But again, to state the obvious, but I'll state it, We'll only do something if it's in the best interest of all our stakeholders. But these transactions aren't only about Derisking, as you said, they're also about growth.

Speaker 1

So while we've been quite successful in our derisking efforts as part of our strategy, We've also been equally focused on growing with less market sensitive products in our businesses, which you've seen over the past few quarters. Let me turn it over to Caroline Fermin, because Caroline, would you want to talk about some of the progress we've made with that part of our strategy?

Speaker 10

Yes, sure, Charlie. I'd be happy to talk about how we're growing both these businesses. So first of all, in the Life business, As you said, we have a $12,000,000,000,000 insurance gap. So we have a strong growth path forward, particularly when you think about The 15,000,000 Americans who are currently underinsured. And as you mentioned, Charlie, we've been very successful in pivoting our businesses to products That have a more favorable risk profile.

Speaker 10

Our new solutions have less embedded guarantees, they're less capital intensive, and we're writing new business at Tractive returns and as part of that, we saw strong sales in the quarter, up more than 25% over the prior year. And then on the individual retirement strategy side, we also continue to deliver strong sales and earnings. And in fact, we had our strongest sales quarter since the Q4 of 2020 and roughly a 20% increase over the prior year. And that's anchored by our FlexGuard suite of indexed variable annuities, where we now have over $15,000,000,000 in cumulative sales, reinforcing Our leadership position is a top 5 player. And we also saw strong growth in our fixed annuity solutions, which were roughly 1 third of our sales in the quarter and a significant increase over the prior year.

Speaker 10

So I'd say that our de risking transactions, along with our Actions along with our product pivots have put us in a position to be more nimble with less market sensitivity and we see a meaningful opportunity for strong growth in both businesses going forward.

Speaker 11

Got it. That makes sense. And then I just want to follow-up. I think, Ken, in your prepared remarks Towards the end of your commentary, you talked about an increased level of investment, I think in the corporate segment. I I was just wondering if you could maybe size that and then some thoughts around for how long should we expect this incremental investment to be impacting that line.

Speaker 11

Thanks.

Speaker 4

Sure. The What I mentioned there was we have found new opportunities to invest in our capabilities and including growth And to gain efficiency, it's building on the programs that we've executed in the past, and we have increased Our investment level there, we've put a placeholder in there in terms of our run rate of about increase of About $25,000,000 a quarter. And so that's given our plans now, we think that's appropriate planned increase in the pace of that. I just want to mention that the way we look at these opportunities is they're often company wide And that's why you see the expenses occurring in corporate, but the benefits then are reflected in our business segments. And then overall, from an expense level standpoint, we've maintained basically a flat level of expenses.

Speaker 4

While we've increased the level of capacity to invest in growth and capabilities and efficiencies, The efficiencies that we've gained there have given us that capacity. And so overall, we've seen a flat level of expenses, Improve level of capabilities, gained efficiencies and improved margins.

Speaker 11

Got it. So you're not signaling that we need to reflect this $25,000,000 in our corporate forecast going forward. It's more you You can have this, but it's going to be offset by efficiencies and other

Speaker 4

things? Well, yes. But if you think about corporate, you should Think about that as being a ongoing level of spend in corporate.

Speaker 2

Got it. Just offset of the segments?

Speaker 4

Yes.

Speaker 9

Thanks.

Operator

Thank you. Next question is coming from Erik Bass from Autonomous Research. Your line is now live.

Speaker 3

Hi. Thank you. Can you provide an update

Speaker 5

on Sterero Emerging Markets businesses and what they're currently contributing to earnings and how they're growing from a bottom line perspective?

Speaker 3

So Eric, it's Andy. I'll take the question. Let me just start by Kind of reminding everyone of the strategy, our focus on emerging markets is part of shifting our overall business mix to be higher growth. And we're quite pleased with the performance of our EM portfolio, which is obviously and as you could see steadily growing I would highlight a couple areas. We're very pleased with our results in Brazil and quite optimistic about our prospects.

Speaker 3

Brazil posted strong double digit year over year sales growth with success across basically every channel, life planner, 3rd party and group, and we had another record quarter. 2nd, I would highlight our Habitat. Our Habitat joint venture has contributed steady growth since the acquisition in 2016. As of the end of the second quarter, total Habitat assets under management is $67,000,000,000 That makes us number 1 in Chile and number 2 overall in Latin America. 3rd, we're continuing to invest in emerging Asia and Africa.

Speaker 3

And then finally, and Charlie mentioned this sort of at the top of the call This really exciting partnership we have with MercadoPago, which is a financial subsidiary of MercadoLibre. MercadoLibre is the largest e commerce system in Latin America and has given us access to the mass market In Latin America, and we're seeing really nice growth there. So we don't necessarily break out the specific growth rates, but this is a portfolio that's becoming quite meaningful, with our particular emphasis being on how Brazil and Latin America are growing. And as we look forward, we really do believe we're in the right spots at the right time, and that growth will continue. Thank you.

Speaker 3

And then on PGIM, I was

Speaker 5

just hoping you could talk about the drivers of the other related revenues and your outlook for the second half of the year. And I think the baseline outlook assumes that these normalize. So is that an expectation or just a modeling assumption?

Speaker 3

So thanks, Eric. It's Andy again. I'll talk about the quarter and then I'll talk about the outlook. In the second quarter, ORR came in $31,000,000 which was about $20,000,000 below our average expectation. The bottom line there is the slowdown in the real estate market is playing through as we predicted, And we've seen lower agency earnings, lower real estate transactions, fees and lower incentive fees.

Speaker 3

As far as looking forward, we would expect near term to see pressure remain on the ORR line, really until the market experiences a rebound in the real estate transaction volumes. Thank you.

Operator

Thank you. Our next question is coming from Tracy Banghigian from Barclays. Your line is now live.

Speaker 12

Thank you. Let's talk about RBC improvements. I appreciate that you quantify the IMR relief. How many RBC points are you expecting from your VA deal and ULSG deal?

Speaker 4

Yes. Hey, Tracy, it's Ken. The VA deal, it's The $650,000,000 is about 13 RBC points and the $450,000,000 from the GUL deal is about 9 RBC points. So that's the quantum expressed in RBC.

Speaker 12

Okay, awesome. When I'm thinking about these transactions and the counterparty credit risk, do you look at the size of capital by reinsurer? Let's just put the ratings Aside like the Somerset RE capital base feels a little bit light, you did say there was over collateralization, but I don't think there's a comfort trust. What mechanisms do you put in place to reduce recapture risk? And if you could also share any assumptions that Somerset liked with that deal?

Speaker 4

Sure, Tracy. It's Ken. A number of things there. So let me cover them. If I miss them, make sure I come back to them.

Speaker 4

But Overall, we utilize reinsurance and our counterparties very carefully. We Spread our reinsurance across a select group of high quality third party reinsurers. And as you would expect, we have standards For that reinsurance that we certainly applied to these transactions. While they're entering into the business, They do have experience. The management team of these reinsurers have a lot of industry experience and are committed to the business in the long term.

Speaker 4

But beyond that, we have contractual provisions, some of which you alluded to, but also want to highlight That we'll be doing the administration of the business. So we have complete control over that. And the reserves for the business In one instance, we'll be in a comfort trust and the other, to the structure to segregated account, but they provide similar Assurances and protections and again will be over collateralized with the procedures for timely settlement. We also want to highlight that I have investment guidelines for the investment portfolios, for the investments that are held in these trust or accounts. So overall, when we put that all together, we think The counterparty risk is well positioned for us.

Speaker 13

I think

Speaker 4

I covered your questions there, but hopefully that helps.

Speaker 12

It definitely does. If I could just slip in if there was any assumptions like mortality or lapse rates that Somerset would have liked looking at the deal?

Speaker 4

Yes. Obviously, those are their assumptions. Again, they have a lot of the people there on the other side with Somerset, They have a lot of experience, but they make their own assumptions. But also, they obviously are going to be subject to their own regulatory Standards in the jurisdictions of which they operate. So this got a lot of regulatory attention on both their side and our And we think that's also in good standing.

Speaker 12

Got it. Thank you.

Operator

Thank you. Next question is coming from Mike Ward from Citi. Your line is now live.

Speaker 13

Thanks, guys. Really appreciate all the commentary around the Derisking and simplification, I'm just curious, should we think about this as you guys are sort of saying you're open for considering more block deals or internal reinsurance restructuring whatnot? Or should we think about it as potentially more significant, like a more material splitter divestiture within the organization to unlock value.

Speaker 1

Hi, Mike. This is Charlie. I think it's really the former. In other words, if you think about What we're trying to do, if we take a step back and think about strategy of becoming a higher growth, less market sensitive and more nimble company, This clearly falls, as Caroline and I talked about, in the first and second buckets. So we are de risking, and have de risked and would consider Further de risking transactions, if they made sense to stakeholders, but at the same time, using that as a way to

Speaker 13

Thank you. That's very helpful. Maybe on Group Insurance, It hasn't gotten much airtime. Results were pretty favorable as they have been for peers. Just curious if there's any sort of updated kind of annual go forward earnings power for GroupNow?

Speaker 10

Yes. So, Mike, it's Caroline, and I'll take your question. So, certainly, I'll start by Saying it was indeed a great quarter for Group Insurance. And as Charlie mentioned upfront, we saw record earnings and an overall benefit ratio of 81%. That reflects the execution of our strategy of product and segment diversification and our continued focus on profitability.

Speaker 10

Total disability new business premiums grew 24% year to date compared to the same period last year and our supplemental health business, A core component of our product diversification strategy also saw a strong double digit growth. And our segment diversification strategy It's focused on growing in the under 5,000 lives market. We've got great momentum with that segment now comprising about a quarter of our block. We're also pleased to be achieving that diversification and growth without sacrificing profitability and pricing discipline. Primarily from lower incidents and the impact from positive rate actions on renewals.

Speaker 10

And also disability continued to see strong results as well. That was driven by lower incidents, strong employment numbers, and our continued focus on effective claim management. The disability benefits ratio we saw was our 2nd best reported ever, trailing only last quarter. So, Moving forward, Mike, we are confident in our group business. We believe we're in a great position to continue executing on our strategy, While continuing to grow in a disciplined and profitable manner, because of this, you'll note that we've already increased our expectations for core earnings going forward.

Speaker 1

Hey, Mike. One other thing, it's Charlie. We talk a lot about the investments we're making in technology, processes, infrastructure and other And this is what's pleasing about this is that this is a tangible you can see a tangible outcome of some of the investments We're making, specifically in group this time, but there are tangible outcomes we're beginning to see.

Speaker 13

Thank you, guys. Appreciate it.

Operator

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

Speaker 1

All right. Thank you again for joining us today. We are making progress transforming Prudential to deliver sustainable long term growth and to meet the evolving needs of our customers. We are confident that our strategy and mutually reinforcing business mix will enable Prudential to become a leader

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