NEWARK, N.J.–(BUSINESS WIRE)–Prudential Financial, Inc. (NYSE: PRU) today reported second quarter results. Net income attributable to Prudential Financial, Inc. was $511 million ($1.38 per Common share) for the second quarter of 2023, compared to a net loss of $1.010 billion ($2.71 per Common share) for the second quarter of 2022. After-tax adjusted operating income was $1.087 billion ($2.94 per Common share) for the second quarter of 2023, compared to $895 million ($2.34 per Common share) for the second quarter of 2022.

Consolidated adjusted operating income and adjusted book value are non-GAAP measures. A discussion of these measures, including definitions thereof, how they are useful to investors, and certain limitations thereof, is included later in this press release under “Non-GAAP Measures” and reconciliations to the most comparable GAAP measures are provided in the tables that accompany this release.

RESULTS OF ONGOING OPERATIONS

The Company’s ongoing operations include PGIM, U.S. Businesses, International Businesses, and Corporate & Other. In the following business-level discussion, adjusted operating income refers to pre-tax results.

PGIM

PGIM, the Company’s global investment management business, reported adjusted operating income of $179 million for the second quarter of 2023, compared to $206 million in the year-ago quarter. This decrease primarily reflects lower asset management fees, driven by net outflows and rising rates, and higher expenses, partially offset by higher other related revenues, driven by higher seed and co-investment income.

PGIM assets under management of $1.266 trillion were up 1% from the year-ago quarter, primarily resulting from equity market appreciation, partially offset by higher interest rates and net outflows. Third-party net outflows of $5.2 billion in the current quarter were driven primarily by redemptions from public equity strategies and reflect institutional outflows of $3.0 billion and retail outflows of $2.2 billion.

U.S. Businesses

U.S. Businesses reported adjusted operating income of $956 million for the second quarter of 2023, compared to $573 million in the year-ago quarter. This increase includes a favorable comparative impact from our annual assumption update and other refinements of $1.606 billion, partially offset by the absence of a one-time gain on the sale of a block of legacy variable annuities of $1.448 billion. Excluding these items, current quarter results primarily reflect higher net investment spread results and more favorable underwriting results, partially offset by lower net fee income.

Retirement Strategies, consisting of Institutional Retirement Strategies and Individual Retirement Strategies, reported adjusted operating income of $876 million for the second quarter of 2023, compared to $2.181 billion in the year-ago quarter.

Institutional Retirement Strategies:

• Reported adjusted operating income of $428 million in the current quarter, compared to $432 million in the year-ago quarter. This decrease includes a less favorable comparative impact from our annual assumption update and other refinements of $8 million. Excluding this item, current quarter results primarily reflect higher fee income from business growth. In addition, net investment spread results reflect business growth, offset by lower variable investment income.

• Account values of $259 billion, a record high, increased 10% from the year-ago quarter and reflect business growth driven by significant pension risk transfer transactions. Sales in the current quarter of $5.7 billion included $3.6 billion of international reinsurance transactions.

Individual Retirement Strategies:

• Reported adjusted operating income of $448 million in the current quarter, compared to $1.749 billion in the year-ago quarter. This decrease includes a less favorable comparative impact from our annual assumption update and other refinements of $7 million and the absence of a one-time gain on the sale of a block of legacy variable annuities of $1.448 billion. Excluding these items, current quarter results primarily reflect higher net investment spread results, partially offset by lower fee income, net of distribution expenses and other associated costs.

• Account values of $115 billion were down 6% from the year-ago quarter, reflecting the reinsurance of a block of legacy variable annuities and net outflows, partially offset by market appreciation. Sales of $1.9 billion in the current quarter increased 19% from the year-ago quarter, reflecting continued momentum from our FlexGuard products and increased sales of fixed annuity products.

Group Insurance:

• Reported adjusted operating income of $139 million in the current quarter, a record high, compared to $54 million in the year-ago quarter. This increase includes a favorable comparative impact from our annual assumption update and other refinements of $39 million. Excluding this item, current quarter results primarily reflect more favorable underwriting results in both group life and disability, partially offset by higher expenses driven by business growth.

• Reported earned premiums, policy charges, and fees of $1.4 billion increased 7% from the year-ago quarter, reflecting growth in disability.

Individual Life:

• Reported a loss, on an adjusted operating income basis, of $59 million in the current quarter, compared to a loss of $1.662 billion in the year-ago quarter. This lower loss includes a favorable comparative impact from our annual assumption update and other refinements of $1.582 billion. Excluding this item, current quarter results primarily reflect higher net investment spread results.

• Sales of $197 million in the current quarter increased 27% from the year-ago quarter, driven by Variable Life, reflecting our pivot to less market sensitive products.

International Businesses

International Businesses, consisting of Life Planner and Gibraltar Life & Other, reported adjusted operating income of $784 million for the second quarter of 2023, compared to $692 million in the year-ago quarter. This increase includes a favorable comparative impact from our annual assumption update and other refinements of $32 million. Excluding this item, current quarter results primarily reflect higher emerging market earnings.

Life Planner:

• Reported adjusted operating income of $487 million in the current quarter, compared to $443 million in the year-ago quarter. This increase reflects higher net investment spread results and business growth.

• Constant dollar basis sales⁽⁴⁾ of $250 million in the current quarter increased 12% from the year-ago quarter, primarily driven by record high sales in Brazil, as well as higher sales in Japan.

Gibraltar Life & Other:

• Reported adjusted operating income of $297 million in the current quarter, compared to $249 million in the year-ago quarter. This increase includes a favorable comparative impact from our annual assumption update and other refinements of $32 million. Excluding this item, current quarter results primarily reflect higher emerging market earnings, partially offset by lower net investment spread results.

• Constant dollar basis sales⁽⁴⁾ of $251 million in the current quarter increased 6% from the year-ago quarter, primarily driven by the Bank channel.

Corporate & Other

Corporate & Other reported a loss, on an adjusted operating income basis, of $527 million for the second quarter of 2023, compared to a loss of $321 million in the year-ago quarter. This higher loss primarily reflects higher expenses, unfavorable foreign exchange rate impacts, lower net investment income, and lower income from pension and other employee benefit plans.

NET INCOME

Net Income in the current quarter included $765 million of pre-tax net realized investment losses and related charges and adjustments, including $51 million of pre-tax net impairment and credit-related losses, $3 million of pre-tax losses related to market experience updates, $16 million of pre-tax earnings from divested and run-off businesses, and $16 million of pre-tax gains related to net change in value of market risk benefits.

Net loss for the year-ago quarter included $2.438 billion of pre-tax net realized investment losses and related charges and adjustments, largely reflecting the impacts of rising interest rates, and also $104 million of pre-tax net impairment and credit-related losses, $710 million of pre-tax losses related to net change in value of market risk benefits, $515 million of pre-tax earnings from divested and run-off businesses, and $371 million of pre-tax gains related to market experience updates.

EARNINGS CONFERENCE CALL

Members of Prudential’s senior management will host a conference call on Wednesday, August 2, 2023, at 11:00 a.m. ET to discuss with the investment community the Company’s second quarter results. The conference call will be broadcast live over the Company’s Investor Relations website at investor.prudential.com. Please log on 15 minutes early in the event necessary software needs to be downloaded. Institutional investors, analysts, and other interested parties are invited to listen to the call by dialing one of the following numbers: (877) 407-8293 (domestic) or (201) 689-8349 (international). A replay will be available on the Investor Relations website through August 16. To access a replay via phone starting at 3:00 p.m. ET on August 2 through August 16, dial (877) 660-6853 (domestic) or (201) 612-7415 (international) and use replay code 13733991.

FORWARD-LOOKING STATEMENTS

Certain of the statements included in this release, including those regarding our prospects for long-term growth, the planned reinsurance transactions, our capital flexibility, and other business strategies, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. Prudential Financial, Inc.’s actual results may differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. Certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements can be found in the “Risk Factors” and “Forward-Looking Statements” sections included in Prudential Financial, Inc.’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. The forward-looking statements herein are subject to the risk, among others, that we will be unable to execute our strategy because of market or competitive conditions or other factors. Prudential Financial, Inc. does not undertake to update any particular forward-looking statement included in this document.

NON-GAAP MEASURES

Consolidated adjusted operating income and adjusted book value are non-GAAP measures. Reconciliations to the most directly comparable GAAP measures are included in this release.

We believe that our use of these non-GAAP measures helps investors understand and evaluate the Company’s performance and financial position. The presentation of adjusted operating income as we measure it for management purposes enhances the understanding of the results of operations by highlighting the results from ongoing operations and the underlying profitability of our businesses. Trends in the underlying profitability of our businesses can be more clearly identified without the fluctuating effects of the items described below. Adjusted book value augments the understanding of our financial position by providing a measure of net worth that is primarily attributable to our business operations separate from the portion that is affected by capital and currency market conditions, and by isolating the accounting impact associated with insurance liabilities that are generally not marked to market and the supporting investments that are marked to market through accumulated other comprehensive income under GAAP. However, these non-GAAP measures are not substitutes for income and equity determined in accordance with GAAP, and the adjustments made to derive these measures are important to an understanding of our overall results of operations and financial position. The schedules accompanying this release provide reconciliations of non-GAAP measures with the corresponding measures calculated using GAAP. Additional historic information relating to our financial performance is located on our website at investor.prudential.com.

Adjusted operating income is a non-GAAP measure used by the Company to evaluate segment performance and to allocate resources. Adjusted operating income excludes “Realized investment gains (losses), net, and related charges and adjustments”. A significant element of realized investment gains and losses are impairments and credit-related and interest rate-related gains and losses. Impairments and losses from sales of credit-impaired securities, the timing of which depends largely on market credit cycles, can vary considerably across periods. The timing of other sales that would result in gains or losses, such as interest rate-related gains or losses, is largely subject to our discretion and influenced by market opportunities as well as our tax and capital profile.

Realized investment gains (losses) within certain businesses for which such gains (losses) are a principal source of earnings, and those associated with terminating hedges of foreign currency earnings and current period yield adjustments, are included in adjusted operating income. Adjusted operating income generally excludes realized investment gains and losses from products that contain embedded derivatives, and from associated derivative portfolios that are part of an asset-liability management program related to the risk of those products. Adjusted operating income also excludes gains and losses from changes in value of certain assets and liabilities relating to foreign currency exchange movements that have been economically hedged or considered part of our capital funding strategies for our international subsidiaries, as well as gains and losses on certain investments that are designated as trading. Adjusted operating income also excludes investment gains and losses on assets supporting experience-rated contractholder liabilities and changes in experience-rated contractholder liabilities due to asset value changes, because these recorded changes in asset and liability values are expected to ultimately accrue to contractholders. Additionally, adjusted operating income excludes the changes in fair value of equity securities that are recorded in net income.

Adjusted operating income excludes “Change in value of market risk benefits, net of related hedging gains (losses)”, which reflects the impact from changes in current market conditions, and market experience updates, reflecting the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which we believe enhances the understanding of underlying performance trends. Adjusted operating income also excludes the results of Divested and Run-off Businesses, which are not relevant to our ongoing operations, and discontinued operations and earnings attributable to noncontrolling interests, each of which is presented as a separate component of net income under GAAP. Additionally, adjusted operating income excludes other items, such as certain components of the consideration for acquisitions, which are recognized as compensation expense over the requisite service periods, and goodwill impairments. Earnings attributable to noncontrolling interests is presented as a separate component of net income under GAAP and excluded from adjusted operating income. The tax effect associated with pre-tax adjusted operating income is based on applicable IRS and foreign tax regulations inclusive of pertinent adjustments.

Adjusted operating income does not equate to “Net income” as determined in accordance with U.S. GAAP. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and our definition of adjusted operating income may differ from that used by other companies. The items above are important to an understanding of our overall results of operations. However, we believe that the presentation of adjusted operating income as we measure it for management purposes enhances the understanding of our results of operations by highlighting the results from ongoing operations and the underlying profitability of our businesses. Trends in the underlying profitability of our businesses can be more clearly identified without the fluctuating effects of the items described above.

Adjusted book value is calculated as total equity (GAAP book value) excluding accumulated other comprehensive income (loss) and the cumulative effect of foreign currency exchange rate remeasurements and currency translation adjustments corresponding to realized investment gains and losses. These items are excluded in order to highlight the book value attributable to our core business operations separate from the portion attributable to external and potentially volatile capital and currency market conditions.

FOOTNOTES

Prudential Financial, Inc. (NYSE: PRU), a global financial services leader and premier active global investment manager with approximately $1.4 trillion in assets under management as of June 30, 2023, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees help make lives better and create financial opportunity for more people by expanding access to investing, insurance, and retirement security. Prudential’s iconic Rock symbol has stood for strength, stability, expertise, and innovation for nearly 150 years. For more information, please visit news.prudential.com.