Thomas Gallagher

Thomas Gallagher asked about the outlook for Specialty Benefits, specifically the dental underwriting loss ratio for the first half of 2026, considering strong Q4 2025 results and rate increases. He also questioned how Principal Financial Group achieves such a strong free cash flow conversion rate (92% in 2025) despite pivoting towards more general account business in RIS, which is typically more capital-intensive.

Answer

Amy Friedrich, President of Benefits and Protection, explained that dental pricing changes and network optimization efforts will drive further improvement in the loss ratio, with more impact expected in 2026 than in 2025, targeting the high 60s long-term. Deanna Strable, CEO, and Joel Pitz, CFO, attributed the strong free cash flow to a strategic refocus on capital-efficient businesses and disciplined capital deployment. Joel clarified that while 92% was reported, the run-rate free capital flow conversion was closer to 85% due to technicalities, and the company remains confident in its 75%-85% target.

Thomas Gallagher asked for the outlook on Principal's specialty benefits dental loss ratio for the first half of 2026, considering strong Q4 2025 results, seasonality, and the impact of pricing and network optimization. He also inquired about how Principal achieves such strong free cash flow conversion (92% in 2025) compared to peers, especially given its pivot in RIS towards more general account business.

Answer

Amy Friedrich, President of Benefits and Protection, explained that dental pricing changes and network optimization efforts will drive the loss ratio down, expecting more improvement in 2026 than in 2025, with a longer-term target in the very high 60s. Deanna Strable, CEO of Principal Financial Group, attributed strong free cash flow to refocusing on capital-efficient businesses post-strategic review and optimizing EPS growth, free cash flow, and ROE. Joel Pitz, CFO of Principal Financial Group, added that a good mix of capital-light businesses and disciplined organic capital deployment contribute, clarifying that the run rate was closer to 85% due to non-cash activities.

Thomas Gallagher from Evercore ISI inquired about the company's focus on expense levels and whether further actions are planned for the second half of the year. He also asked for color on the decline in RIS spread-based account values and the outlook for those balances.

Answer

EVP & CFO Joel Pitz, supported by President & CEO Deanna Strable, confirmed a continued focus on aligning expenses with revenue, highlighting recent margin expansion as evidence. President of Retirement & Income Solutions, Christopher Littlefield, attributed the RIS spread balance decline to lower investment-only (IO) issuance and a more moderate quarter for Pension Risk Transfer (PRT) deals due to a disciplined focus on returns.

Thomas Gallagher of Evercore ISI requested a breakdown of the 401(k) business dynamics by plan size and an explanation for the fee rate compression. He also asked about the slowdown in supplemental health premiums.

Answer

CEO Deanna Strable and Executive Christopher Littlefield explained that the SMB 401(k) segment is a consistent growth engine, while the large case market is lumpier. Littlefield attributed the fee rate decline to market outperformance and lapses in the traditional VA block. For supplemental health, Executive Amy Friedrich clarified the slowdown was due to a tough year-over-year comparison caused by a one-time premium reclassification in Q1 2024, and that underlying growth remains strong.

Thomas Gallagher of Evercore ISI asked if the $2.05 adjusted EPS should be further normalized by adding back a $0.03 severance charge for a run-rate baseline. He also inquired about the commercial real estate market, asking if management agrees with sentiment that the market has bottomed.

Answer

President and COO Deanna Strable-Soethout advised that $2.05 is a good run-rate to use, as other items offset the severance. On real estate, CEO Dan Houston and Executive Kamal Bhatia agreed with the improving sentiment, noting they saw the first positive portfolio return in their core fund. However, Bhatia cautioned that broad transaction activity remains slow, and a recovery in transaction fees will likely be part of a longer cycle.

Thomas Gallagher asked about RGA's morbidity exposure, specifically commenting on the Manulife long-term care (LTC) risk transfer deal and the broader performance of RGA's LTC business in 2025, including its ROE. He followed up by asking for a broad-range ROE for the LTC business.

Answer

Jonathan Porter, EVP and Global Chief Risk Officer, stated that RGA does not discuss experience at a block-by-block level but expressed satisfaction with the LTC business's performance over time. He noted RGA's focus on a subset of LTC business aligned with its risk appetite and return expectations, and its continued management of overall exposure. He declined to break down the performance or ROE of the LTC business externally.

Thomas Gallagher asked about RGA's morbidity experience, specifically the performance of its long-term care (LTC) business in 2025, including the Manulife risk transfer deal, and whether it was in line with ROE expectations. He also sought clarification on the components of RGA's 2026 earnings outlook, particularly regarding the $24.75 run rate EPS baseline and the inclusion of inforce management actions.

Answer

EVP and Global Chief Risk Officer Jonathan Porter stated RGA is satisfied with its LTC business performance over time, aligning with its risk appetite, but does not disclose block-by-block experience or ROE. EVP and CFO Axel André outlined 2026 assumptions, including improved U.S. Group experience, smaller Inforce management actions, and a 7% variable investment income return, reiterating $24.75 as a reasonable 2025 run rate EPS starting point. He clarified that the $24.75 baseline *removed* all 2025 Inforce actions, implying potential upside from 2026 actions.

Thomas Gallagher of Evercore ISI asked about the practical limit on how much value of in-force capital benefit RGA could achieve. He also questioned if a structural change, like a retrocession deal, is needed to reduce earnings volatility, which the market appears to be penalizing.

Answer

EVP & CFO Axel André noted there is a rating agency limit but RGA still has upside, and that they also focus on optimizing regulatory capital. President & CEO Tony Cheng acknowledged the volatility from capped cohorts under LDTI and stated that while they could retrocede blocks, they must balance that against using resources for new business creation, reiterating a focus on long-term economics.

Thomas Gallagher asked for RGA's share of a recent large industry claim, a breakdown of underlying experience in the U.S. traditional segment, and how the Equitable deal might impact earnings volatility given its accounting treatment.

Answer

Chief Risk Officer Jonathan Porter declined to specify the claim share but confirmed its full impact was recognized in Q1, noting the primary driver of U.S. results was large claims favorability. CEO Tony Cheng added that LTC experience was normal. Regarding the Equitable deal, CFO Axel Andre stated that RGA priced the transaction fully aware of its earnings signature and that RGA's large, diversified balance sheet can accommodate the potential volatility. Jonathan Porter also noted the diversification benefit to the overall mortality book.

Thomas Gallagher inquired about RGA's share of an industry syndicated contract and the underlying experience in U.S. Trad, and the Equitable transaction's earnings volatility.

Answer

EVP Jonathan Porter stated the full impact was recognized in Q1, with large claims driving U.S. results. CFO Axel André noted repricing and balance sheet size mitigate volatility.

Thomas Gallagher sought clarification on the capital deployment assumption underlying the updated run rate guidance, asking for the specific amount assumed for 2025. He also asked about the significant reduction in the U.S. Financial Solutions run rate and whether growth could accelerate beyond the guided 4-7% after the reset.

Answer

Chief Financial Officer Axel Philippe Andre stated that achieving the guided growth rates assumes capital deployment in the range of $1.5 billion to $2.0 billion. He confirmed the U.S. Financial Solutions reset was due to the runoff of older annuity business and the slower earnings emergence from new PRT deals, but expressed confidence in hitting the new growth targets from this revised base.

Thomas Gallagher questioned whether the re-evaluation of the excess capital model would enable RGA to organically finance its growth without raising common equity. He also asked about the statutory and cash flow implications of favorable biometric experience in uncapped LDTI cohorts.

Answer

President and CEO Tony Cheng and CFO Axel Andre emphasized a "really strong hurdle" against raising public equity, highlighting the value of in-force as a monetizable asset and third-party capital. Regarding biometric experience, Axel Andre noted that while it flows through immediately on a statutory basis, he does not believe the disconnect with GAAP deferrals is material enough to change the company's guidance of a ~60% free cash flow conversion ratio.

Thomas Gallagher from Evercore ISI asked about the $200 million GAAP earnings benefit from the real estate accounting change, clarifying if it's GAAP-only and the rationale behind it. He also inquired about the potential impact on MetLife Investment Management (MIM) if the investment management agreement with Brighthouse changes due to its acquisition by Aquarian, and if this is factored into the 2026 guidance.

Answer

John McCallion, EVP and CFO at MetLife Services and Solutions, stated that the real estate accounting change was made to better reflect annual cash flows and returns, aligning with the overall economics of the asset class, and is primarily a GAAP adjustment. Regarding MIM, he expressed excitement about the PineBridge acquisition and the diversified client base, noting that while MetLife values its Brighthouse relationship, a worst-case scenario impact on EPS would be very modest and not significantly baked into the 2026 guide.

Thomas Gallagher inquired about the potential impact of the Brighthouse acquisition by Aquarian on MetLife Investment Management's (MIM) investment management agreement with Brighthouse, and if any changes are factored into the 2026 guidance.

Answer

John McCallion, EVP and CFO, MetLife Services and Solutions, expressed excitement about the PineBridge acquisition and MIM's expanded solutions. He acknowledged the strong relationship with Brighthouse and stated that while MetLife expects to maintain and grow the relationship, a worst-case scenario impact on overall firm EPS would be very modest, and it's not explicitly baked into the 2026 guide.

Thomas Gallagher followed up on non-medical health pressures, asking if the high net worth disability claims could be structural, and inquired about the CECL reserves taken for commercial mortgage loans.

Answer

Ramy Tadros, Regional President - U.S. Business, clarified the disability pressure was isolated to two long-standing specialty clients and related to high-value injury claims, not a structural or macro issue. John McCallion, EVP & CFO, explained that the uptick in CECL reserves for commercial mortgages was anticipated as part of an orderly resolution of loans, which he views as a sign of market stabilization, with the impact already largely reflected in capital.

Thomas Gallagher of Evercore followed up on non-medical health, asking if the disability pressure from high net worth clients could be structural. He also questioned the nature of the Q2 CECL reserve increase for commercial mortgage loans and its potential impact on statutory capital.

Answer

Ramy Tadros, Regional President - U.S. Business, clarified that the disability pressure was isolated to two specialty clients with high-value injury claims, not a macro or structural issue. CFO John McCallion explained that the uptick in commercial mortgage reserves was anticipated as part of an orderly resolution of loans, which is a sign of market stabilization, and would not impact capital management plans.

Thomas Gallagher questioned the economics of the recent risk transfer deal, asking about the valuation approach, the net impact on income and cash flow, and the rationale for the transaction given the tail risk being shed. He also asked about underwriting experience in MetLife Holdings.

Answer

Executive Ramy Tadros and CFO John McCallion positioned the deal as a key execution of the 'lower-risk' pillar of the New Frontier strategy. Tadros confirmed the price was in line with their internal economic valuation and, when considering the elimination of hedge costs, created shareholder value. McCallion added that the deal opportunistically locks in an exit value in a stable environment. Tadros also noted that underwriting experience for both life insurance and long-term care in MetLife Holdings was in line with expectations for the quarter.

Thomas Gallagher of Evercore ISI asked if MetLife experienced elevated voluntary benefit loss ratios similar to peers and questioned the outlook for the non-medical health loss ratio in 2025. He also asked for the rationale behind raising the alternative investment return assumptions.

Answer

Executive Ramy Tadros responded that MetLife is not seeing material deviations in its Accident & Health loss ratios and suggested using the midpoint of the existing guidance range for 2025. CEO Michel Khalaf explained that the higher alternative return assumption is driven by public equity tailwinds, signs of increased private equity exit activity, and an expected recovery in real estate values, noting the improvement would be gradual through 2025.

Thomas Gallagher sought more detail on the elevated nonmedical health benefit ratio in Group Benefits, asking which specific products were affected and about the recovery timeline for dental. He also asked for MetLife's view on the long-term care risk transfer market.

Answer

Ramy Tadros, Head of U.S. Business, clarified that the nonmedical health ratio was impacted by about one point of one-time items and that disability continues to perform well. He expressed confidence that dental margins would return to target in 2025 due to repricing. Regarding LTC risk transfer, Tadros noted increased market activity and narrowing bid-ask spreads, but emphasized any deal must create shareholder value.

Thomas Gallagher asked about the specific levels of group versus non-group sales in Aflac U.S. and why total sales remain relatively low despite reported significant increases in group sales. He also questioned why Aflac Japan's strong sales outlook for 2026 isn't translating into better earned premium growth, and if an inflection point is expected in 2027.

Answer

Virgil Miller (President, Aflac Incorporated and Aflac U.S.) explained that flat to negative traditional voluntary benefits anchor overall sales, while isolated group policies grew 14%, with Network Dental up 48.8%, Life & Disability up 11.3%, and Aflac Group Chassis up 11.7%. Daniel Amos (Chairman and CEO, Aflac Incorporated) added that the traditional channel's slowdown was due to producer attrition during COVID, now being addressed by recruiting higher-quality producers. Max Brodén (CFO, Aflac Incorporated) attributed Japan's modest earned premium growth to its large in-force block and high persistency, noting that new sales are relatively small and that while the gap between sales and lapses is closing, lapses are still expected to exceed sales in 2026, with net earned premium growth anticipated in the 'reasonable future'.

Thomas Gallagher from Evercore ISI asked Virgil Miller about the specific growth levels of Aflac U.S. group sales versus non-group sales, seeking to understand why overall sales remain low despite significant group growth. He also questioned why Aflac Japan's positive sales outlook for 2026 isn't translating into better core earned premium growth, asking if an inflection is expected in 2027.

Answer

Virgil Miller, President of Aflac Incorporated and Aflac U.S., clarified that while traditional voluntary benefits have been flat to negative, isolated group policies grew 14%, with Network Dental up 48.8%, life and disability up 11.3%, and Aflac Group Chassis up 11.7%. Daniel Amos, Chairman and CEO, Aflac Incorporated, noted that the traditional channel's slowdown was due to COVID-related producer attrition. Max Brodén, CFO of Aflac Incorporated, explained that Aflac Japan's large in-force block and high persistency mean new sales take time to offset lapses, projecting lapses to still exceed sales in 2026, with net earned premium growth expected in the 'reasonable future'.

Thomas Gallagher of Evercore ISI asked if the strong Japan sales represent a sustainable new level that could alter the premium revenue growth outlook. He also sought clarification on whether Aflac's ESR management range of 170-230% already includes internal modeling benefits.

Answer

An Aflac Japan executive expressed confidence in reaching pre-COVID sales levels, driven by new products and sales initiatives. However, CFO Max Brodén reiterated the current earned premium guidance of -1% to -2%, while CEO Daniel Amos noted a significant improvement in marketing effectiveness. Brodén also confirmed that the 170-230% ESR management range does include the undertaking-specific parameter (USP) adjustment.

Thomas Gallagher noted that Japan's annualized sales are approaching pre-pandemic levels and asked if this was a sustainable trend that could change the premium revenue growth outlook. He also asked for clarification on whether the ESR management range includes internal modeling benefits.

Answer

An Aflac Japan executive, Yoshizumi, stated they aim to recover to pre-COVID sales levels, driven by the new cancer product, strong associate channel performance, and a new marketing structure. CFO Max Brodén cautioned that the forward guidance for earned premium remains -1% to -2%, though results are trending toward the better end of that range. Chairman & CEO Daniel Amos added that he sees a real shift in marketing effectiveness. On ESR, an executive confirmed the 170-230% range includes the USP adjustment.

Thomas Gallagher inquired about the significant decline in Aflac's Economic Solvency Ratio (ESR) in Q1, questioning the interplay between rising Japan rates and the strengthening yen, and asked about the company's forward capital planning and hedging strategy in light of recent macro volatility.

Answer

Max Broden, Senior Executive Vice President and CFO, explained that the ESR decline was driven by the strengthening yen and significant dividend payments from Aflac Japan to the holding company, which offset the benefit from higher interest rates. He affirmed that Aflac's long-term capital management and hedging strategies remain unchanged, as they are designed to withstand stress scenarios, with put options providing tail-risk protection.

Thomas Gallagher asked for a breakdown of the drivers for Japan's lower margin guidance and questioned if an extraordinary dividend could be expected from Japan given its large excess capital position.

Answer

CFO Max Broden and Global CIO Brad Dyslin attributed the lower margin guidance primarily to NII headwinds from anticipated lower short-term interest rates. On capital, Max Broden explained that while the position is strong, the company will not consider special dividends until after the new ESR capital regime is formally implemented in early 2026.

Thomas Gallagher asked about Aflac's broader capital allocation strategy, including potential for special dividends or M&A, given accumulating excess capital. He also asked for the sales split of the new first sector product between new and existing customers.

Answer

Max Broden, EVP and CFO, stated that all capital deployment options, including M&A and special dividends, are on the table and are evaluated based on long-term return potential. Regarding the sales split, Koichiro Yoshizumi and Chairman and CEO Daniel Amos confirmed that sales to existing customers are currently larger but the mix of new customers is growing from 20% toward 25%, in line with or slightly better than expectations.

Thomas Gallagher asked about the go-forward earnings boost from the long-term assumption changes made in Q3 and whether any long-term assumption change benefits are embedded in the 2026 guidance. He also sought quantification of how much more favorable current remeasurement gains are running compared to long-term assumptions, beyond the 'under 1% of reserves' adjustment.

Answer

CFO Tom Kalmbach referred to normalized underwriting margins as a good indicator of the go-forward impact, noting an improvement from under 40% in 2024 to around 41% in 2025. He stated that the top end of the 2026 guidance range could reflect an assumption update. Co-CEO Frank Svoboda explained that positive remeasurement gains will continue as long as experience is better than long-term assumptions, but eventually, they anticipate a reversion to those long-term assumptions. Kalmbach emphasized focusing on normalized policy obligations as the underlying metric for actual experience. Co-CEO Matthew Darden clarified that the 'under 1%' comment highlighted that small assumption tweaks can have a decent dollar impact due to the cumulative catch-up from the transition date.

Thomas Gallagher first asked about the go-forward earnings boost resulting from the long-term actuarial assumption changes made in Q3. He then sought clarification on whether any long-term assumption change benefits are embedded in the 2026 guidance, or only current period remeasurement gains. Finally, he asked for a quantification of how much more favorable current experience is running compared to the long-term assumption, beyond the stated under 1% of reserves.

Answer

Tom Kalmbach, EVP and CFO, directed to normalized underwriting margins (e.g., 41.5% for Q3) and the provided ranges for life and health underwriting margins as indicators of prospective earnings. Frank Svoboda, Co-CEO, noted the uptick from under 40% to around 41% in normalized margins due to lower policy obligations from assumption changes. Kalmbach clarified that the top end of the 2026 guidance range could reflect an assumption update. Regarding quantification, Kalmbach stated it's difficult to answer directly, emphasizing normalized policy obligations as the underlying metric. Matthew Darden, Co-CEO, added that the <1% comment highlighted that small assumption tweaks can have a decent dollar impact due to cumulative catch-up. Kalmbach concluded that the reserve reduction indicates a more favorable outlook for future profits.

Thomas Gallagher of Evercore ISI asked for the expected timeline to reach the full $200 million annual free cash flow run-rate from the Bermuda entity. He also inquired about the primary mechanical drivers of this improvement, such as acquisition costs or reserving differences.

Answer

Co-Chairman & Co-CEO J. Matthew Darden estimated a potential three-to-five-year timeframe to reach the full run-rate but stressed that plans must be finalized before providing more clarity. Executive VP & CFO Thomas Kalmbach and Co-Chairman & Co-CEO Frank Svoboda explained the improvement is driven by the fundamental differences between GAAP and statutory accounting, primarily in the treatment of deferred acquisition costs and reserves.

Thomas Gallagher of Evercore ISI asked for the expected timeline to reach the full $200 million annual free cash flow run rate from the Bermuda entity and inquired about the primary mechanical drivers of this financial improvement.

Answer

Co-Chairman & Co-CEO J. Matthew Darden estimated a potential 3-to-5-year ramp-up period to reach the full run rate, cautioning that plans are still being finalized. Co-Chairman & Co-CEO Frank Svoboda and Executive VP & CFO Thomas Kalmbach explained that the main driver is the difference in earnings emergence between U.S. statutory accounting and the GAAP-like framework in Bermuda, primarily related to deferred acquisition costs and reserving.

Thomas Gallagher of Evercore ISI asked for a timeline on reaching the full $200 million annual free cash flow run-rate from the Bermuda entity after benefits begin in 2027. He also inquired about the primary mechanical drivers of this improvement, questioning if it was mainly from acquisition cost treatment or other factors like discount rates.

Answer

Executive VP & CFO Thomas Kalmbach stated it was too early to provide a specific timeline but would offer updates on future calls. Co-Chairman & Co-CEO J. Matthew Darden estimated a potential three-to-five-year ramp-up. Kalmbach and Co-Chairman & Co-CEO Frank Svoboda confirmed the primary driver is the difference in how earnings emerge between statutory and GAAP accounting, with deferred acquisition costs and reserving differences being the two main components.

Thomas Gallagher inquired about the claims frequency assumptions embedded in the 2025 health margin guidance and asked about the implications for 2025 statutory earnings, particularly if the life reserve release is GAAP-only.

Answer

CFO Thomas Kalmbach said the guidance assumes elevated claims trends continue at Q1 levels through Q2 before moderating slightly in the second half. He confirmed the large life remeasurement gain is a GAAP-only item. Co-CEO Frank Svoboda added that while favorable mortality helps statutory earnings, 2025 will see a reduced benefit from the reserve revaluation adjustment compared to 2024, creating a headwind.

Thomas Gallagher of Evercore questioned if the Bermuda initiative is viewed as a sustainable cash flow benefit or a one-time event and how it would be funded. He also asked about the timing of repricing in the health business and the margin outlook.

Answer

CFO Thomas Kalmbach confirmed the Bermuda plan is viewed as a long-term, sustainable capital management strategy, not a one-time release, and that the company does not plan to use third-party capital. He also explained that health insurance rate filings are an annual process, and the recent uptick in utilization will be factored into 2025 filings for rates effective in 2026. Co-CEO Frank Svoboda added that the hope is to catch up on margins by 2026.

Thomas Gallagher of Evercore inquired about the potential size of the capital release from the Bermuda strategy, whether current assumptions still include excess mortality, the sustainable level of free cash flow, and the planned Q4 term loan paydown.

Answer

CFO Thomas Kalmbach stated they are still evaluating the potential capital benefit from Bermuda and cannot yet provide a range. He noted that while mortality is not back to pre-pandemic levels, they don't use an explicit excess mortality assumption. He also suggested the valuation manual changes have a tail benefit, so sustainable free cash flow is likely higher than the baseline. Co-CEO Frank Svoboda clarified the Q4 plan is to reduce commercial paper balances by $50-$100 million, not pay down the term loan.

Thomas Gallagher of Evercore ISI asked about the growth strategy for the U.S. Dental business, specifically whether Sun Life would shrink its Medicaid exposure while growing commercial, and requested quantification of one-time items affecting dental earnings in the quarter.

Answer

President - U.S. Dan Fishbein confirmed the company will continue to grow in the important Medicaid space while also expanding its commercial dental presence, a strategy reinforced by President & CEO Kevin Strain. Fishbein explained that the earnings variance between Q1 and Q2 was fully attributable to a few non-recurring items, including a retroactive premium payment in Q1 and a claim reprocessing event in Q2.

Thomas Gallagher of Evercore ISI asked whether Sun Life plans to shrink its Medicaid Dental business while growing commercial, and requested quantification of one-time items affecting the Dental segment's quarterly earnings.

Answer

President - U.S. Dan Fishbein confirmed the sales pipeline for Medicaid remains robust and the business is expected to grow, not shrink. CEO Kevin Strain emphasized the strategic importance of growing the commercial dental business to create a more balanced mix. Dan Fishbein explained that the entire earnings difference between Q1 and Q2 could be attributed to three items: a retroactive premium payment in Q1, favorable investment income in Q1, and a claim reprocessing event in Q2.

Thomas Gallagher asked for details on the stabilization of the U.S. stop-loss business, specifically whether it's based on claims emergence or macro assumptions, and also inquired about where price competition is most intense in the employee benefits segment.

Answer

Daniel Fishbein, President of Sun Life U.S., clarified that the stabilization is based on actual claims emergence for pre-2025 cohorts, which performed slightly favorably. For the new 2025 cohort, it is based on a reserve pick that accounts for an expected 2% pricing shortfall. He also identified the disability lines as experiencing the most price competition due to several years of favorable industry-wide experience.

Thomas Gallagher focused on the U.S. business, asking if the $100 million earnings guidance for the dental business in 2025 is primarily driven by the new cost-saving plan or by loss-ratio improvements. He also asked about the strategy for the medical stop-loss business, given the firming pricing environment.

Answer

Daniel Fishbein, President of Sun Life U.S., clarified that the path to $100 million in dental earnings is an 'all of the above' strategy. It includes benefits from the expense reduction program, robust dental cost management actions, and significant repricing efforts, with about half the business already repriced. For stop-loss, he noted that while Sun Life has been careful on pricing, they are optimistic about a more favorable market in 2025 as competitors raise rates.

Thomas Gallagher of Evercore ISI inquired about the timing and potential risks of the upcoming actuarial review, particularly on the statutory side. He also sought details on the hedging strategy separation for the VA and Shield blocks, its completion timeline, and its expected impact on future capital generation.

Answer

Executive VP & CFO Edward Spehar confirmed the GAAP review is for Q3 and the stat review for annuities is in Q4, declining to comment on the outcome. He explained the hedging separation will be complete by September, aiming for simplification, transparency, and less volatility, but noted it's too early to quantify the go-forward impact. Spehar framed the strategic initiatives as a way to generate near-term capital, similar to past interest rate protection strategies, potentially with some trade-off in long-term cash flows.

Thomas Gallagher questioned if capital generation and hedge performance were in line with plans, why the hedging strategy was being reevaluated, and sought perspective on recent industry M&A transactions.

Answer

CFO Ed Spehar confirmed that Q1 statutory results, including hedge performance, were in line with expectations and that the hedging strategy revision is an evolution, not a complete overhaul. CEO Eric Steigerwalt commented on industry deals, noting that while they analyze all transactions like the Lincoln/Bain partnership and MetLife VA deal, the specifics of those transactions are not directly comparable or indicative of actions for Brighthouse's larger, different block of business.

Thomas Gallagher asked if the 'stable RBC' outlook implies positive statutory earnings offset by increasing required capital, whether share repurchases would continue, for details on the size of recent reinsurance deals, and about the value of the BRCD subsidiary.

Answer

CFO Edward Spehar confirmed the plan assumes positive earnings and that the Q3 annuity reinsurance deal was approximately $8 billion in reserves, while the Q4 life deal contributed 10-15 RBC points. He reiterated that BRCD is not viewed as an ongoing source of capital. CEO Eric Steigerwalt declined to comment on future share repurchases but pointed to the company's consistent history of buybacks, totaling over $2.5 billion.

Thomas Gallagher from Evercore ISI asked for confirmation that the upcoming triennial review includes U.S. long-term care (LTC) and questioned if recent U.S. mortality volatility could lead to higher reinsurance costs.

Answer

Chief Actuary Stephanie Fadhu confirmed the Q3 triennial review will cover LTC and noted recent experience has been largely in line with expectations. Marc Costantini, Global Head of Strategy and Inforce Management, characterized the mortality experience as normal volatility for the large case market, not a trend, and stated he does not expect it to impact future reinsurance pricing.

Thomas Gallagher asked about potential strategic shifts, including legacy VA risk transfers or altering the hedging strategy to lower the cost of capital. He also questioned if the current RILA products include living benefits and income guarantees, and inquired about the competitive landscape for that product.

Answer

CEO Laura Prieskorn stated that Jackson is open to strategic risk transfer if it creates shareholder value. CFO Don Cummings mentioned exploring captives for spread products. Brian Walters, Head of Asset Liability Management, detailed that the hedge program relies on exchange-traded futures for stability. President Chris Raub confirmed their RILA offering is competitive, includes an income option, and is seeing strong momentum, now accounting for over 30% of sales.

Thomas Gallagher of Evercore asked about potential strategic shifts to lower the company's cost of capital, such as legacy VA risk transfers or altering the hedging strategy. He also inquired about the features of Jackson's RILA products, specifically regarding income guarantees, and the competitive dynamics in that market.

Answer

CEO Laura Prieskorn stated that Jackson is open to strategic risk transfer partnerships if they create shareholder value. CFO Don Cummings noted any transaction must be accretive. Head of Asset Liability Management, Brian Walter, explained the hedging program has shifted to lower-risk exchange-traded futures, supplemented with options. President of Jackson National Life Insurance Company, Chris Robb, addressed the RILA question, highlighting strong sequential sales growth, a competitive product suite with an income option, and the success of the new MarketLink Pro 3 product.

Thomas Gallagher of Evercore asked a strategic question about potential business remixing, including legacy VA risk transfers or changes to the hedging strategy to lower the cost of capital. He also inquired about the features of the RILA product, specifically regarding income guarantees, and the competitive landscape.

Answer

CEO Laura Prieskorn stated they are open to strategic partnerships that create shareholder value. CFO Don Cummings added that any transaction must be accretive to capital generation. Brian Walters, Head of Asset Liability Management, detailed the hedging program's shift to exchange-traded futures to reduce risk. President Chris Raub addressed the RILA question, highlighting strong sales growth, a competitive product with an income option, and the launch of a new product with a 100% protection buffer.

Thomas Gallagher asked for the magnitude of the capital impact on the Brooke Re reinsurance subsidiary in April and the size of the tax benefit on statutory capital generation during the quarter.

Answer

CFO Don Cummings described the April capital impact on Brooke Re as "fairly modest," emphasizing that the subsidiary remains well-capitalized above its internal risk framework targets and has not required any capital contributions since its formation. Regarding the tax benefit, Cummings explained it was driven by increased admissibility of the deferred tax asset (DTA) and the utilization of net operating losses (NOLs), but did not provide a specific quantification.

Thomas Gallagher sought clarification on the Q4 assumption review, asking if the charge was due to higher-than-modeled utilization of GMWB features. He also asked for the company's ultimate lapse rate assumption and about the statutory guardrails for the Brooke Re permitted practice.

Answer

CFO Don Cummings clarified the assumption adjustment was not related to utilization rates but to more precisely modeling the *frequency* of withdrawals. He stated the typical "at the money" lapse rate assumption is in the 8-9% range. For Brooke Re, he explained that its operations are largely not subject to changes like the new scenario generator and that the primary guardrail is a minimum operating capital level agreed upon with the Michigan regulator, which Jackson is currently well above.

Thomas Gallagher of Evercore ISI asked about the drivers behind the quarterly hedging losses, the potential for capital calls at Brooke Re, and the strategic rationale for significantly increasing sales of lower-return fixed and FIA products in a highly competitive market.

Answer

CFO Don Cummings stated that it would take a very significant market event, like the 2008 financial crisis, to cause a capital issue at Brooke Re and that there is no specific 'bright line' dollar amount for a capital call. CEO Laura Prieskorn and President of Distributors Scott Romine addressed the sales strategy, citing strong consumer demand and the benefit of attracting new advisors to Jackson's full product suite. Cummings added that while fixed annuities have lower returns than VAs, the company is comfortable with their profitability.

Thomas Gallagher of Evercore ISI requested a deeper analysis of the medical stop-loss business, questioning the macro developments informing the 87% loss ratio pick for 2025 and seeking an early assessment of how the re-underwriting and risk selection initiatives have performed.

Answer

EVP & CFO Michael Katz stated that the healthcare environment remains uncertain and Voya expects first-dollar medical inflation to rise in 2026, justifying their cautious 87% loss ratio for the 2025 block. He emphasized it is too early for a full assessment, with a clearer view expected in Q4. CEO & Director Heather Lavallee reinforced this, stating Voya is making progress but remains disciplined and is assuming higher medical trends for 2026 pricing.

Thomas Gallagher of Evercore ISI inquired about the methodology behind the 87% estimated loss ratio for the 2025 Stop Loss cohort and Voya's ability to track underlying claims before they reach the attachment point.

Answer

CFO Michael Katz detailed that the estimate is derived from the improved 2024 cohort's performance, combined with a 21% rate increase and enhanced risk selection for 2025. CEO Heather Lavallee stressed that while it's early, the team remains disciplined. She also confirmed Voya uses several early warning systems, including 50% deductible notice reports and first-dollar trend data from its Benefitfocus business, to monitor emerging claims.

Thomas Gallagher questioned if the $50 million strategic spend on leave management would recur in 2026 and asked for the rationale behind the wide 80-90% loss ratio guidance for Stop Loss, seeking confidence in the underwriting improvements.

Answer

CFO Michael Katz clarified the leave management spend is primarily a 2025 event, expecting it to reach breakeven in 2026 with new revenue. Regarding Stop Loss, he detailed a 21% average rate increase and stricter risk selection focused on known claims and data verification, enforcing a 'margin over premium' strategy. He expressed high confidence in reserves, supported by January data. CEO Heather Lavallee added that the non-January block of business is also under close scrutiny and performing as expected.

Thomas Gallagher questioned whether the competitive environment would permit Voya to implement significant rate increases in Stop Loss with only modest premium declines. He also asked about the expected cadence of margin improvement and how quickly the business could return to its target loss ratio.

Answer

Executive Rob Grubka expressed confidence, noting that clear data on poor-performing cases justifies the rate actions. CEO Heather Lavallee affirmed the belief that Voya can execute the pricing increases effectively. Executive Michael Katz added that if the 2024 loss ratio lands around 86%, the targeted rate increases give them high confidence in returning to the target range in 2025.

Thomas Gallagher of Evercore ISI questioned the capital management strategy following the RGA deal, focusing on the deployment cadence for excess capital and the allocation between buybacks and debt repayment.

Answer

CFO Robin Raju detailed plans to deploy the capital from the RGA transaction. He confirmed a commitment to $500M in incremental share repurchases in H2 2025 and a potential debt paydown of up to $500M to manage leverage. The remaining capital will be opportunistically used for bolt-on M&A, sidecars, or further buybacks, with no additional extraordinary dividends planned for the year.

Thomas Gallagher of Evercore ISI sought clarification on the term "robust" for April RILA sales and asked about the product's earnings sensitivity to equity market weakness.

Answer

Nicholas Lane, President of Equitable Financial, clarified that April sales were robust compared to Q1. CFO Robin Raju explained that RILA is primarily a spread-based earnings product, with NIM in Individual Retirement up 9% YoY. He noted that while RILA earnings are not directly equity-sensitive, the overall segment's earnings are, as 50% remain fee-based.

Thomas Gallagher of Evercore ISI inquired about the full range of strategic options for the Protection business and the competitive outlook for the RILA market.

Answer

CFO Robin Raju detailed a multi-faceted strategy for the Protection segment, including expense management, internal reinsurance via Bermuda, and third-party transactions, with an update due in H1 2025. On RILAs, President Nicholas Lane and CEO Mark Pearson expressed confidence in their ability to compete through disciplined pricing and the unique advantages of their integrated distribution and asset management model.

Thomas Gallagher inquired about the outlook for market value adjustment (MVA) gains in Individual Retirement, asking if the recent $15 million decline was temporary. He also asked about the impact of new RILA competition from firms like Corebridge and Apollo on Equitable's market share and pricing in 2025.

Answer

CFO Robin Raju explained that while quarterly noise in NIM is expected, the historical average of $15 million for MVA gains is a reasonable forward-looking assumption. CEO Mark Pearson and President of Equitable Financial Nicholas Lane stated that while market share may naturally decline from its peak, they expect continued strong sales growth at their target 15% IRR, citing their durable competitive advantages in distribution and their integrated business model.

Thomas Gallagher from Evercore asked if the competitive environment could lead to a shrinking advisor count and inquired about the drivers of strong results in the Retirement & Protection Solutions (RPS) segment, including any updates on potential risk transfer deals.

Answer

James Cracchiolo, Chairman & CEO, stated that the net advisor count is actually growing and the firm remains focused on productivity over sheer numbers. Regarding RPS, Walter Berman, EVP & CFO, noted that favorable life claims contributed to strong performance. Both executives affirmed that while the RPS business is highly profitable, the 'bid-ask' spread for risk transfer deals has not become attractive enough to pursue.

Thomas Gallagher asked if the competitive environment could lead to a shrinking advisor count, inquired about the drivers of strong Retirement & Protection Solutions (RPS) results, and sought an update on potential risk transfer deals.

Answer

Chairman & CEO James Cracchiolo stated that their net advisor count is growing and their focus remains on long-term value. EVP & CFO Walter Berman noted that favorable life claims contributed to the strong RPS results. Both executives stressed that the RPS business is highly profitable and they have not seen a bid-ask spread on risk transfer deals that would be attractive for shareholders.

Thomas Gallagher pressed for more detail on the removal of the AWM adviser retention disclosure, asking if it was due to a slippage in headcount. He also inquired about the visibility for any further large, lumpy outflows in the Asset Management segment for the remainder of 2025.

Answer

Chairman and CEO Jim Cracchiolo asserted that there was no slippage in retention, stating that retention is 'quite good' and that headcount was actually up. He reiterated the disclosure was removed to align with industry practice. Regarding asset management, he noted a remaining portion of the disclosed Lionstone exit would occur but flagged no other large, unexpected institutional outflows, attributing recent retail outflows to higher redemptions amid market volatility.

Thomas Gallagher followed up on the long-term care (LTC) decision, asking if management would have considered taking a modest loss to remove the 'management distraction.' He also asked about the reason for the significant increase in excess capital during the quarter.

Answer

CEO Jim Cracchiolo and CFO Walter Berman firmly rejected the premise of taking a loss, stating the LTC block is profitable, well-managed, and additive to shareholder value. They argued the value difference in a potential deal was 'too large' to justify. Regarding capital, they explained the increase was a result of strong earnings generation exceeding the 80% capital return payout.

Thomas Gallagher of Evercore ISI requested an explanation of the Life Insurance GAAP P&L components, particularly the remeasurement gains, and asked about the earnings impact from the large plan termination in Retirement Plan Services (RPS).

Answer

Chief Financial Officer Christopher Neczypor explained that favorable mortality benefits both GAAP and statutory results, and the positive policyholder remeasurement gain in the Life segment is an accounting offset from releasing reserves due to lower-than-expected claims. He clarified that the large net outflow in RPS was from a previously disclosed plan termination, while a separate, smaller plan termination caused a one-time $2 million operational loss in the quarter.

Thomas Gallagher asked about the mechanics of portfolio repositioning, specifically Corebridge's level of involvement versus its outsourced managers and what assets were being purchased. He also inquired about the approach to risk transfer, balancing pricing versus tail risk reduction for VA and life blocks.

Answer

CEO Kevin Hogan and CFO Elias Habayeb emphasized that Corebridge controls its own investment strategy and risk appetite, providing clear direction to its asset management partners. The recent repositioning involved selling lower-yielding bonds and reinvesting in a combination of public and private credit. On risk transfer, they stated any deal must be accretive on a risk-adjusted basis, considering both price and structure, to optimize shareholder value and the company's post-transaction risk profile.

Thomas Gallagher from Evercore ISI asked about the drivers of elevated DAC amortization and commission expenses in Individual Retirement and requested the AUM amount of annuity blocks exiting surrender charge periods in 2025.

Answer

CFO Elias Habayeb explained that higher commissions are a positive sign of business growth, while accelerated DAC amortization was tied to volume and higher long-term rates. CEO Kevin Hogan noted the company manages in-force economics by balancing crediting rates against new business. Management declined to provide a specific AUM figure for policies exiting surrender but reiterated expectations for strong net flows in 2025.

Thomas Gallagher of Evercore ISI asked about the capital return run-rate for Q4 after the Q3 buyback and questioned the strategy behind the large floating-rate asset portfolio given the changing rate environment.

Answer

CFO Elias Habayeb stated that a meaningful portion of the U.K. sale proceeds were deployed in Q3 and guided for the Q4 capital return to be in line with the 60-65% target payout ratio from organic generation. CEO Kevin Hogan explained the floating-rate portfolio is managed dynamically for both ALM duration management and to provide liquidity for annuities outside their surrender period, not just as a defensive hedge.

Thomas Gallagher of Evercore ISI inquired about the cause of the spike in fixed annuity sales, asking if it was driven by a new product launch or an acceleration of an existing one. He also sought assurance on the profitability of these sales.

Answer

President and CEO Kevin Hogan confirmed that margins on the fixed annuity sales remain attractive due to disciplined pricing and that no new product was launched. He attributed the growth to strong customer and advisor demand in a favorable rate environment, which Corebridge was able to capture effectively due to its strong distribution partnerships, multi-product platform, and ability to focus capital on the most attractive opportunities.

Thomas Gallagher questioned if a more dramatic reduction of the remaining variable annuity and guaranteed universal life blocks was being considered and asked about capital levels in Japan ahead of the ESR implementation.

Answer

CEO Andy Sullivan characterized derisking as a continuous optimization of the balance sheet rather than a one-time event, stating nothing significant was in the pipeline. CFO Yanela Frias addressed the Japan question, stating she expects capital levels to remain strong post-ESR implementation, with no anticipated impact on dividend capacity, and noted that about 70% of U.S. dollar liabilities in Japan are already reinsured.

Thomas Gallagher questioned the need to allocate 30-40% of capital for growth given sub-5% growth in many businesses. He also sought confirmation on the shareholder return payout ratio and the rationale for switching from operating income to net income for the free cash flow conversion metric.

Answer

CFO Yanela Frias explained that strong sales in high-growth areas like Retirement Strategies (+39%) and Individual Life (+23%) create near-term capital strain, justifying the allocation. She confirmed the shareholder return math and stated that net income is now used as it's a closer near-term proxy for free cash flow, as it includes items like realized gains/losses that impact statutory capital.

Thomas Gallagher inquired about the sales mix between yen-denominated and foreign currency products in Japan, and asked for Prudential's view on a recent report suggesting persistent excess mortality in the U.S. and Japan.

Answer

Andy Sullivan, Head of International Businesses, noted that yen-based sales were 30% of the total in Japan for the quarter, a figure that has nearly doubled in three years due to intentional product diversification. Yanela Frias, Chief Financial Officer, stated that the report's findings on excess mortality are consistent with Prudential's internal view, which assumes elevated mortality through 2028, and that the company is well-hedged through its diversified business mix.

Thomas Gallagher followed up on the actuarial review, asking if the large non-AOI net income benefit was related to variable annuities and what drove the change. He also questioned the perceived weakness in institutional retirement earnings and the outlook for that business's profitability.

Answer

Chief Financial Officer Yanela Frias confirmed the non-AOI benefit was mainly from a GAAP-only valuation methodology update for variable annuities to align with industry standards. Caroline Feeney, Head of U.S. Businesses, addressed the retirement question, stating that earnings were actually up year-over-year. She explained that earnings from large risk-transfer sales take time to materialize and that near-term profitability is also affected by upfront costs on strong individual sales and the intentional runoff of the legacy variable annuity block.

Thomas Gallagher asked if Unum is seeing any early warning signs of rising submitted disability incidents and inquired about the size of the reserve release in the supplemental and voluntary segment.

Answer

CEO Richard McKenney clarified they are not seeing early warning signs and view the Q1 claims experience as volatility. CFO Steven Zabel specified there was no reserve release, but rather a one-time gain of approximately $14 million from a reinsurance recapture. EVP Chris Pyne noted the segment's strength was also driven by double-digit sales growth in the individual disability business.

Thomas Gallagher asked about the sustainability of favorable group disability margins and the potential for price competition to erode them. He also inquired about Unum's view on the long-term care (LTC) risk transfer market following a recent peer transaction.

Answer

CFO Steve Zabel attributed the durable disability margins, expected in the low 60s, to a decade-long improvement in claim recoveries rather than incidence. Chris Pyne, Head of Group Benefits, added that Unum's value-added services like leave management make price less central in a competitive market. Regarding LTC, CEO Rick McKenney called recent market deals a positive sign but stressed that any potential transaction for Unum's block would be complex, pursued without a specific timeline, and must be strategically and financially sound for shareholders.

Thomas Gallagher asked about the sustainability of favorable group disability margins and the prospects for a long-term care (LTC) risk transfer transaction.

Answer

CFO Steven Zabel explained that the strong group disability margins, expected to remain in the low 60s, are driven by a sustainable, decade-long improvement in claim recoveries rather than incidence rates. Chris Pyne, head of Group Benefits, added that while the market is competitive, Unum's value-added services make price less central to customer decisions. Regarding LTC, CEO Rick McKenney noted that recent peer transactions are a positive market signal, but these deals are complex, and while Unum is actively exploring options, he would not commit to a specific timeframe.

Thomas Gallagher of Evercore ISI questioned the competitive landscape and pricing for group business renewals. He also sought color on the decision to dissolve the PCAPs trust and increase buybacks, asking if it signals a change in confidence regarding LTC or risk transfer.

Answer

Chris Pyne, head of Group Benefits, described the market as competitive but noted that Unum's disciplined, case-by-case approach and focus on long-term stability resonates with customers. CEO Rick McKenney and CFO Steven Zabel explained the PCAPs dissolution as a balance sheet optimization move, reflecting overall capital strength and not a change in stance on LTC risk transfer, which remains a strategic goal.

Thomas Gallagher of Evercore ISI asked for the magnitude of the Q1 drag from FIA derivative accounting and whether the Medicare Advantage GAAP revenue issue also impacted cash flows.

Answer

CFO Paul McDonough quantified the FIA-related statutory capital drag at approximately $25 million for Q1, noting it was a timing issue that reverses prior gains. He confirmed the Medicare Advantage issue was 'pure accounting' and that underlying cash flows were stronger than the GAAP results suggested, as the accounting requires estimating lifetime cash flows which were constrained for newer carriers.