Prudential Financial, Inc. (PRU) Earnings

Management highlights

### Refreshed Strategic Priorities - **Narrow geographic footprint**: Reduce the number of countries with retirement/insurance operations by roughly half, exiting most emerging markets to concentrate capital, talent, and management focus on the U.S., Japan, and select European markets. This process is expected to free up well over $3 billion in capital to redeploy to core priority businesses. - **Scale chosen category-leading businesses**: Focus growth on global retirement, asset management (PGM), and select U.S. protection (group insurance and individual life) businesses, pursuing both organic and inorganic expansion. - **Optimize capital deployment**: Increase the earnings contribution of capital-light businesses, targeting for PGM to grow its contribution to ~25% of enterprise AOI (more than double its current 12% share). - **Leverage scale for improved efficiency**: Simplify organizational structures, expand lower-cost global talent hubs, and increase technology-enabled productivity, targeting $750 million in pre-tax run-rate efficiency benefits by the end of 2028, up from an original target of $150 million by 2027. ### Q2 2025 Operational Highlights - Overall after-tax adjusted operating income was $1.4 billion ($4.08 per share), up 14% YoY, with year-to-date operating ROE up 110 bps to 15.5%. - **PGM**: Deployed ~$21 billion in private capital in the quarter, led by $7 billion in asset-backed finance origination. Active ETF AUM grew 21% quarter-over-quarter to nearly $35 billion, with PGM ranking top 10 in industry ETF net flows year-to-date. Third-party institutional and retail net inflows totaled $4.6 billion. - **U.S. Retirement**: Retail annuity sales hit $3.6 billion, up 14% YoY, driven by strong demand for the FlexGuard 2.0 product. No large jumbo pension risk transfer (PRT) transactions closed in the quarter. - **U.S. Group Insurance**: Delivered record earnings, with growth driven by the premier middle market segment and demand for supplemental health solutions; the total benefits ratio improved to 80.4%, below the 83-87% target range. - **Japan**: POJ is on track to complete governance and agency redesign for a phased sales resumption starting in fall 2025, with full sales resumption planned for November 5, 2025. Third-party channel sales remained resilient, with retirement and savings products making up over 75% of quarterly sales.

Guidance

- **Efficiency targets**: Confirmed the previously communicated $150 million pre-tax run-rate efficiency target by 2027, and increased the long-term target to $750 million in pre-tax run-rate benefits by end of 2028, with full benefit reflected in 2029 operating results. Expects an additional 150 bps improvement in the adjusted operating expense ratio (excluding PGM) over the next three years, after achieving a 100 bps year-over-year improvement in 2025. - **PGM growth target**: Confirmed PGM's current margin target range of 25-30%, and expects to expand margins above 30% over time as the business grows into higher-fee asset classes. - **POJ sales suspension impact**: Reaffirms full-year 2026 pre-tax adjusted operating income impact of $525–575 million from the POJ sales suspension, despite a lower-than-expected Q2 impact. - **Corporate loss guidance**: Lowered 2026 expected corporate loss from $1.65 billion to $1.55 billion, driven by one-time benefit items. - **Strategic growth ambition**: Management frames the strategy's target of top quartile earnings growth (excluding legacy variable annuities) as high single-digit growth, but did not set a new formal fixed earnings target given the multi-year execution timeline and pending POJ sales resumption. Maintains existing financial targets through 2027 for ROE, operating expense ratio, and free cash flow conversion.

Segment performance

1. **PGM (Prudential Global Asset Management)**: Pre-tax adjusted operating income (AOI) of $294 million, up 28% year-over-year (YoY). Delivered an adjusted operating margin of 28.2%, up 470 basis points (bps) YoY, and currently contributes ~12% of annual enterprise AOI. 2. **U.S. Businesses**: Aggregate pre-tax AOI of ~$1 billion, flat YoY. - Retirement: Pre-tax AOI of $392 million, flat YoY. Net account values totaled $363 billion, up 4% YoY, with retail annuity account values up 30% to $66 billion. - Group Insurance: Pre-tax AOI of $155 million, up 24% YoY (record quarter), with year-to-date sales up 26% to $599 million. - Individual Life: Pre-tax AOI of $176 million, more than doubling YoY, with Q2 sales hitting a record $237 million. - U.S. Legacy: Pre-tax AOI of $234 million, down 33% YoY, driven by variable annuity runoff. 3. **International Businesses**: Pre-tax AOI of $855 million, up 12% YoY. The Prudential of Japan (POJ) sales suspension impacted Q2 pre-tax results by $105 million, below expectations. The full-year 2026 impact is still projected at $525–575 million.

Risks & headwinds

- Execution of the multi-year geographic exit and capital rotation strategy will take up to five years, with no guarantee of timely or value-maximizing sales of exiting emerging market businesses. - POJ sales resumption is dependent on completing required governance, agency, and compensation structure changes by the November 2025 target date, with delays potentially leading to larger than expected ongoing sales and earnings impacts. - PRT transaction activity is inherently episodic, and 2026 full-year U.S. industry volumes are expected to remain below recent record levels, creating near-term pressure on institutional retirement earnings. - Inorganic growth acquisitions carry execution risk, and any large acquisition requiring equity dilution would need to clear a high bar for long-term value creation to be approved. - Market volatility, changes in interest rates, and equity market performance can impact asset management fees, account values, and statutory capital levels, creating uncertainty around quarterly results.

Analyst Q&A

• Q: The strategy calls for exiting ~6-7 emerging markets to free up over $3 billion in capital. What is the exit timeline and method, and how will this capital be deployed? /

  A: Management will prioritize maximizing exit value for shareholders, customers, and employees, with most exits structured as sales of valuable existing platforms rather than shutdowns. No specific timing or market-by-market details will be shared publicly. The freed capital will be deployed primarily to expand PGM's private alternatives capabilities, accelerate U.S. group insurance diversification, and selectively build European retirement capabilities. The full capital rotation will be executed over a 5-year timeline.

• Q: Will the $750 million in 2028 efficiency savings fall to the bottom line, or will they be reinvested in growth? What is the target range for your top quartile ex-VA earnings growth ambition? /

  A: The efficiency program is designed to both cut structural costs and free up capacity to reinvest in core growth initiatives, so there is no fixed split between bottom-line savings and reinvestment. Progress is best measured by the targeted 150 bps improvement in the operating expense ratio over three years. Management defines top quartile industry earnings growth as high single-digit, but declined to set a new formal target today, as benefits will build progressively over the multi-year strategy and depend on POJ sales resumption.

• Q: How does this new strategy differ from prior Prudential strategies, and what gives management confidence it will succeed this time? /

  A: The core difference is a laser focus on focus and execution: prior strategies pursued broad geographic expansion across many markets, while the new strategy makes the deliberate choice to narrow the footprint and concentrate capital and attention on core markets where Prudential can win as a category leader. Execution has also improved, with higher accountability for performance, tighter top-down capital deployment oversight, and more consistent quarterly results (beating expectations in 5 of the last 6 quarters to date).

• Q: What specific asset classes and capabilities is PGM targeting for growth via acquisition? /

  A: PGM already has a leading, scaled position in credit, real estate debt, and real assets, so the priority is to expand into adjacent high-demand classes including asset-backed finance, direct lending, infrastructure equity, and primary private equity. PGM also aims to globalize its client base (currently only 25% of third-party AUM is international) and expand its organic retail ETF platform, which is already growing rapidly. Acquisitions will primarily be bolt-ons that add specific targeted capabilities.