Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (December 2007)
106 slides from Prudential Financial's investor day presentation, Dec 4, 2007
Slide 1: Prudential Financial, Inc. Investor Day
Prudential Financial, Inc. Investor Day December 4, 2007 Prudential Financial, Inc. Investor Day December 4, 2007 Exhibit 99.1
Slide 2: Investor Day
Investor Day December 4, 2007 Investor Day December 4, 2007 Eric Durant Senior Vice President Investor Relations Eric Durant Senior Vice President Investor Relations
Slide 3: Forward-Looking Statements
Forward-Looking Statements Certain of the statements included in this presentation constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. It is possible that actual results may differ materially from any expectations or predictions expr
Slide 4: Non-GAAP Measure
Non–GAAP Measure Adjusted operating income is a non-GAAP measure of performance of our Financial Services Businesses. Adjusted operating income excludes "Realized investment gains (losses), net," as adjusted, and related charges and adjustments. A significant element of realized investment gains and
Slide 5: Reconciliation between adjusted operating income and the comparable GAAP measure
Reconciliation between adjusted operating income and the comparable GAAP measure Reconciliation between adjusted operating income and the comparable GAAP measure Prudential Financial, Inc. (in millions, except per share data) Financial Services Businesses: Pre-tax adjusted operating income by divisi
Slide 6: Reconciliation between adjusted operating income and the comparable GAAP measure (continued)
Reconciliation between adjusted operating income and the comparable GAAP measure (continued) Reconciliation between adjusted operating income and the comparable GAAP measure (continued) Prudential Financial, Inc. (in millions, except per share data) Sept 30, 2006 Sept 30, 2007 Financial Services Bus
Slide 7: Reconciliation between adjusted operating income and the comparable GAAP measure (continued)
Reconciliation between adjusted operating income and the comparable GAAP measure (continued) Reconciliation between adjusted operating income and the comparable GAAP measure (continued) Prudential Financial, Inc. COMBINED STATEMENTS OF OPERATIONS - FINANCIAL SERVICES BUSINESSES (in millions) Sept 30
Slide 8: Prudential Financial, Inc. - Art Ryan
Prudential Financial, Inc. Prudential Financial, Inc. Art Ryan CEO and Chairman Art Ryan CEO and Chairman
Slide 9: Where We Are Today
Where We Are Today • Balanced portfolio of businesses and risks • High ROE combined with strong capital position and cash flow generation • Growth engines in international insurance and domestic retirement and savings • Asset management capabilities complement product manufacturing and generate stro
Slide 10: ROE Progress
ROE Progress 16.5% 7.5% 14.3% 12.3% 10.1% 6.1% 0.0% 5.0% 10.0% 15.0% 20.0% YTDSept07 For the Financial Services Businesses (FSB); based on after-tax adjusted operating income and on attributed equity excluding accumulated other comprehensive income related to unrealized gains and losses on investmen
Slide 11: Earnings Per Share Growth
$2.51 $3.59 $4.81 $6.06 $2.00 Earnings Per Share Growth Based on after-tax adjusted operating income of the FSB
Slide 12: 83% of Equity is Attributed to Operating Businesses
Total attributed equity of $22.2 billion 83% 83% of Equity is Attributed to Operating Businesses As of September 30, 2007 for the FSB; excludes accumulated other comprehensive income related to unrealized gains and losses on investments and pension/postretirement benefits Total attributed equity of
Slide 13: Attributed Equity of Operating Businesses
$6.4 $3.6 Attributed equity $18.6 billion $3.7 $4.9 Attributed Equity of Operating Businesses INTERNATIONAL INSURANCE RETIREMENT & SAVINGS DOMESTIC INSURANCE Attributed equity $18.6 billion • Life Planner model • Gibraltar Life • Retirement • Individual Annuities • Individual Life • Group Insurance
Slide 14: Complementary and Diversified Businesses
32% 25% 19% 24% Adjusted operating income $3.747 billion (1 ) Complementary and Diversified Businesses DOMESTIC INSURANCE Individual Life Group Insurance Adjusted operating income $3.747 billion (1 ) ) Before-tax; for the FSB; for the nine months ended September 30, 2007 RETIREMENT & SAVINGS Retirem
Slide 15: International Division
International Division International Division Mark Grier Vice Chairman Prudential Financial, Inc. Mark Grier Vice Chairman Prudential Financial, Inc.
Slide 16: International Developments
International Developments • • Market Needs • Distribution • Regulation
Slide 17: International Division Organizational Structure
Japanese Life Planner Operations International Division Organizational Structure International Division Finance Investment Management Operations and Technology Human Resources Gibraltar Life Insurance Operations Outside Japan International Investments Businesses
Slide 18: International Division Today
International Division Today India Mexico Poland Germany Brazil Argentina China Taiwan Korea Italy Life Planning Insurance Japan International Investments Traditional Insurance
Slide 19: Key Elements of Our International Strategy
Key Elements of Our International Strategy • Concentrate on a limited number of attractive countries • Emphasize proprietary distribution: recruiting, selection, needs-based selling • Target the affluent and mass affluent consumer • Focus on both life insurance and asset management • Grow both organ
Slide 20: Our Division Goals
Our Division Goals • Sustainable low to mid-teen AOI growth • Sustainable 20% ROE’s • Strong free cash flow • Complementary group of International businesses with short-term and long-term growth potential
Slide 21: Where We Are Today
Where We Are Today • Leadership positions in life planning • Gibraltar generates high ROE’s and cash flows • Developing asset management platforms • Profitability dominated by Japan and Korea • Acquisitions potentially additive • Expect to achieve our financial goals
Slide 22: Japan: Room for Growth in a Leading Market
Japan Room for Growth in a Leading Market • Japan is world’s second largest life insurance market with a 16.4% world share • 88% of households have life insurance • Industry’s insurance in-force has been declining • Prudential’s market share is 4.1% and has been increasing World Insurance in 2006, S
Slide 23: Competitive Advantage
Competitive Advantage Life Planning Insurance • Variable compensation structure • Rewards productivity and persistency • Identify protection needs before discussing products • Protection life insurance purchased as a solution to identified need • Life Planner profile similar to customer profile • Li
Slide 24: Life Planner Business: Emphasis on Protection Products
17% 16% 51% 16% Yen-based protection products Yen-based savings and retirement income products U.S. Dollar-based products Prudential of Japan In Force Annualized Premium as of September 30, Includes single premium business at 10% Primarily whole life and term Primarily endowment Whole life and retir
Slide 25: Life Planners Count
1,603 1,908 2,332 2,813 3,416 4,026 4,432 4,910 5,316 Korea Taiwan Japan All other countries At end of period 5,627 5,828 Life Planners 3Q2007 6,038
Slide 26: Growth in the Life Planner Business
Growth in the Life Planner Business Before-tax, GAAP exchange rate basis Units Life Planners Policies in force (000) Adjusted operating income 1,000 2,000 3,000 4,000 5,000 6,000 7,000 $- $200 $400 $600 $800 $1,000
Slide 27: Gibraltar Life: Prudentialized
Gibraltar Life: “Prudentialized” Traditional Model Japanese Life Insurance Company • Variable agent compensation • Life Planner training principles adapted to traditional field force • Emphasize protection products • Introduce products targeted to customer base • Maintain and cultivate strong affini
Slide 28: Gibraltar Life: Retirement Market Products
60% 8% 31% 8% 76% Gibraltar Life: Retirement Market Products Complement Core Protection Portfolio 1% 1% 15% Yen-based protection products In-force Annualized Premium as of September 30, 2007 New Business Annualized Premium nine months ended September 30, 2007 Yen-based savings and retirement income
Slide 29: Gibraltar Life: Growing Distribution, Maintaining High Persistency
1,000 2,000 3,000 4,000 5,000 6,000 7,000 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Gibraltar Life – Growing Distribution, Maintaining High Persistency 90% 94% 13 Month Persistency Ratio Number of Life Advisors
Slide 30: Market Developments
Market Developments Drive Growth Opportunities • Lifetime relationships with clients support sales through life cycle • Gibraltar’s association relationships: strong market access • U.S. dollar retirement income and fixed annuity products offer attractive value proposition, favorable returns for Pru
Slide 31: International Division - John Hanrahan
International Division International Division John Hanrahan Chief Financial Officer International Insurance and Investments John Hanrahan Chief Financial Officer International Insurance and Investments
Slide 32: Prudential International Insurance: Sustainable Financial Performance
Prudential International Insurance Sustainable Financial Performance • High ROE products generate substantial excess capital • Capital management opportunities enhance overall returns • Duration lengthening supported by long-term nature of liabilities contributes to returns • U.S. dollar investing:
Slide 33: Number of Life Planners
Number of Life Planners 93% 93% 93% 93% 93% 93% 93% - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 3Q2007 0% 20% 40% 60% 80% 100% # of Life Planners 13 Month Persistency Disciplined Life Planner Growth Continued Strong Persistency Number of Life Planners 13 Month Persistency Ratio
Slide 34: Life Planner Business
Life Planner Business Established Sales Force and Excellent Persistency Drive Baseline Growth Illustration assuming current policy persistency and Life Planner productivity, and No Life Planner count increase 5% annual Life Planner count increase 10% annual Life Planner count increase (Not a forecas
Slide 35: Capital Management Opportunities
Prudential International Insurance Capital Management Opportunities • Inter-company reinsurance arrangements • Inter-company loans • Dividends • Gibraltar subordinated debt repayment • Acquisition and expansion funding • Purchase of parent company debt
Slide 36: Prudential International Insurance Capital Redeployment
$0 $1,000 $2,000 $3,000 $4,000 $5,000 Prudential International Insurance Capital Redeployment $- $500 $1,000 $1,500 $millions Cumulative 2002 – 9/30/07 1,016 4,478 2,760 After-Tax Adjusted Operating Income Capital Redeployment
Slide 37: International Division Financial Performance
International Division Financial Performance Based on annualized after-tax adjusted operating income $ 736 $ 930 $ 808 Life Planner businesses $ 1,410 $1,566 $1,416 International Division International Investments 1,191 Nine months ended September 30, 2007 $1,423 ($millions) $1,310 International Ins
Slide 38: Prudential's U.S. Businesses
Prudential’s U. S. Businesses Growing and Protecting Wealth in the Domestic Market Prudential’s U. S. Businesses Growing and Protecting Wealth in the Domestic Market John Strangfeld Vice Chairman Prudential Financial, Inc. John Strangfeld Vice Chairman Prudential Financial, Inc.
Slide 39: 2002–2006 U.S. Business Mix
2002 AOI $783 million Insurance and Investment Divisions of Financial Services Businesses Before income taxes 2002 – 2006 U.S. Business Mix 2006 AOI $2,488 million Individual Annuities –5% Financial Advisory –11% Individual Life 55% Group Insurance 20% Retirement 18% Individual Life 22% Retirement 2
Slide 40: AOI Contribution: Domestic Business Portfolio
AOI Contribution Domestic Business Portfolio Growing Wealth AOI $1,715 million Protecting Wealth AOI $773 million 68% 32% AOI Contribution Favorable Growth Prospects Earnings/Cash Flow Contributors Insurance and Investment Divisions of Financial Services Businesses Before income taxes
Slide 41: Financial Advisory
Financial Advisory • Combination of Private Client Group with Wachovia July 1, 2003 • 62% Wachovia, 38% Prudential • Combined business created one of the top 5 brokerage firms in the U.S. • Segment operating results represent 19.4% ROE • Wachovia acquires A.G. Edwards in 2007; Prudential exercised “
Slide 42: Wachovia JV Look-Back Option
Wachovia JV Look-Back Option Significant Upside Opportunities, Strong Downside Protection • Prudential’s ownership is diluted during two-year look-back period while business integration proceeds • After two years, Prudential can: – Restore ownership up to 38% level, at today’s price; or – Retain dil
Slide 43: Domestic Protection Businesses
Domestic Protection Businesses • Maintain market position: #2 in Group Life • Focus on returns: case selection; appropriate pricing • Generate strong cash flows • Optional life purchases contribute to growth prospects Group Insurance • Focus on returns through capital management, cost- effective dis
Slide 44: Individual Life ROE
Individual Life ROE In millions Average attributed equity for the period; in billions Based on annualized after-tax adjusted operating income giving effect to the direct equity adjustment For the three years ended December 31, 2006 22.1 % Return on equity $ 2.3 Equity $ 489 Pre-tax adjusted operatin
Slide 45: Individual Life Sales
Individual Life Sales Scheduled premiums from new sales on an annualized basis and first year excess premiums and deposits on a cash-received basis, excluding COLI Sales by distribution channel $320 $341 $391 $419 $430 $287 $372 Nine Months ended 9/30/06 Nine Months ended 9/30/07 $0 $100 $200 $300 $
Slide 46: Group Insurance
Group Insurance • Primarily group life business • Controlled growth – focus on margins • High persistency of quality business • Voluntary life opportunity • Return on equity of 16.6% Based on annualized after-tax adjusted operating income for the nine months ended September 30, 2007
Slide 47: U.S. Retirement Market
Personal Savings $13.5T U.S. Retirement Market Prudential’s Key Domestic Growth Opportunity $23 Trillion Market Employer Controlled (DB) $6.4T Employer Sponsored (DC) $3.3T Prudential Investment Management • $430 billion AUM • Top 10 DB Asset manager Prudential Retirement • $157 billion account valu
Slide 48: Retirement Market Trends Drive Prudential's Growth Opportunities
Retirement Market Trends Drive Prudential’s Growth Opportunities • Platforms, scale, business integration skills support attractive acquisitions • Industry consolidation continues • Asset management, risk management, and product skills support development of innovative solutions • Legislation and ac
Slide 49: Retirement and Annuities: A Leading Provider in a Growing Market
Retirement and Annuities A Leading Provider in a Growing Market $0 $50 $100 $150 $200 $250 $300 Retirement Annuities 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 Includes acquired businesses from dates of acquisitions $226 $191 $183 $120 $82 9/30/2007 $242
Slide 50: Prudential Retirement
Prudential Retirement Emphasis on Full Service Retirement Includes business acquired from CIGNA from April 1, 2004 acquisition date $157 $143 $148 $136 $132 $72 $0 $25 $50 $75 $100 $125 $150 $175 12/31/03 12/31/04 12/31/05 12/31/06 09/30/06 09/30/07 Institutional Investment Products Full Service
Slide 51: Full Service Retirement Asset Flows
Full Service Retirement Asset Flows -$2,000 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 Deposits and Sales Net Flows For the nine months ended September 30, 2007 97% plan persistency Nine months ended 9/30/06 Nine months ended 9/30/07
Slide 52: Emphasis on Mid/Large Case and Tax Exempt Markets
Emphasis on Mid/Large Case and Tax Exempt Markets 938,000 1,589,000 Participants $ 35,300 $ 67,100 Account Values (1) (2) Specialized consultants - Fee based consultants - Commission based advisors - Third party administrators - Direct Distribution Channels Primary Products Tax Exempt Market Corpora
Slide 53: A Leader in Total Retirement Services
DC Plan Non- qualified Plan DB Plan A Leader In Total Retirement Services • Recordkeeping • Participant communications • Actuarial services • Compliance • Investment products and services DC Plan Non- qualified Plan Integrated Solution for Plan Sponsors As of September 30, 2007 TRS Account Values: $
Slide 54: Retirement Solutions: Lifetime Relationship Opportunities
Retirement Solutions Lifetime Relationship Opportunities • Variable annuities feature professional asset allocation • Guaranteed minimum accumulation and death benefits • DC plan investment options; Lifecycle funds; “Goal Maker” asset allocation • Stable value products offer principal guarantee Age
Slide 55: Assets Under Management: Significant Scale and Breadth
5% (1) 43% 21% 11% 20% 27% 27% 21% 11% 14% AUM by Asset Type AUM by Client Type Equity Real Estate Institutional Customers General account Retail customers CB Total AUM $637 billion As of September 30, 2007 International Fixed Income Non- proprietary insurance, annuity & other Non- proprietary insur
Slide 56: Domestic Businesses: Financial Performance
1,000 1,500 2,000 2,500 3,000 Nine Months ended 9/30/06 Nine Months ended 9/30/07 Domestic Businesses: Financial Performance Insurance and Investment Divisions of Financial Services Businesses Based on after-tax adjusted operating income giving effect to the direct equity adjustment; annualized for
Slide 57: Asset Management
Asset Management Asset Management Bernard Winograd President Prudential Investment Management Bernard Winograd President Prudential Investment Management
Slide 58: Asset Management: Commercial Business and Competitive Advantage
Asset Management Commercial Business and Competitive Advantage Robust institutional business enhances capabilities, attracts talented managers Market leading capabilities: private placement fixed income, commercial mortgages and real estate Prominent manager in pension market Low capital requirement
Slide 59: Prudential Investment Management Competitive Advantages
Scale Brand and Reputation Experience and Track Record Breadth and Depth of Capabilities Access to Capital and Co-investing Prudential Investment Management Competitive Advantages Institutional Clients • $135 billion third party institutional AUM • 16% AUM CAGR (2002 – Manager Continuity • 163 portf
Slide 60: Prudential Investment Management Business Overview
Prudential Investment Management Business Overview $ 59 Quantitative Equity Quantitative Management Associates $ 85 Fundamental Equity Jennison Associates $ 29 Real Estate Equity Prudential Real Estate Investors $ 29 $ 42 $ 186 AUM Real Estate Debt Prudential Mortgage Capital Company Private Fixed I
Slide 61: Broad Asset Class Capabilities
7% Real Estate Real Estate 38% Public Equity 30% Public Fixed Income 47% 9% Private Fixed Income 7% Commercial Mortgages Assets Under Management $430 Billion Public Equity 19% Public Fixed Income 20% Private Fixed Income 8% Commercial Mortgages 15% Asset Management Revenue $1.6 Billion As of Septemb
Slide 62: Public Fixed Income
Retail 11% General Account 57% Public Fixed Income $186 Billion AUM As of September 30, 2007; excludes public fixed income securities managed by Jennison Associates • Comprehensive product line offers traditional and alternative strategies • Corporates, Governments, Structured Products, Mortgages, E
Slide 63: Private Fixed Income
Private Fixed Income $42 Billion AUM As of September 30, 2007 Private Placement Debt Market • Often well-suited to fund insurance liability cash flows • Terms and covenants offer investors protection from “event risks” • Attractive long-term capital source for middle market companies • Higher credit
Slide 64: Market Leader in Private Placement Debt Originations
In billions Source: SourceMedia – Private Placement Letter (September 24, 2007) Market Leader in Private Placement Debt Originations Portfolio – 12/31/06 (1) (2) 1. Prudential $ 38.9 2. MetLife 30.8 3. NY Life 23.1 4. Principal Global 17.6 5. Sun Life 17.1 $5.3 $6.6 $6.9 $7.3 YTD 3Q2007 General Acco
Slide 65: Commercial Mortgages
Non-Affiliates General Account $8.0 $9.4 $11.0 Originations Commercial Mortgages $29 Billion AUM As of September 30, 2007 In billions $10.8 YTD 3Q2007
Slide 66: Prudential Real Estate Investors
Global real estate investment manager, 18 offices worldwide ; serving institutional investors since 1970 Approximately 190 investment professionals and 430 institutional clients Prudential Real Estate Investors $29 Billion AUM As of September 30, 2007 Intermediary between pension funds and developer
Slide 67: Public Equity: Two Distinct Approaches
Public Equity Two Distinct Approaches • Approximately 150 Institutional clients • Approximately 150 Institutional clients • Decades of experience • Established 1969; acquired 1984 • Quantitative equity management • Fundamental equity management • $59 billion AUM • $85 billion AUM (1) (2) As of Septe
Slide 68: Percentage of Third Party AUM At or Exceeding Benchmark
74% 54% 88% 93% 88% 95% 1 Year 3 Year 5 Year AUM = $170 Billion September 2006 September As of September 30, 2007 Percentage of Third Party AUM At or Exceeding Benchmark
Slide 69: Third Party Institutional Flows are the Best Indicator of Competitiveness
$6.8 $11.6 $0.9 $3.9 $5.4 $4.3 $1.4 $11.1 $2.3 $1.8 $6.7 $10.8 $1.8 ($0.6) $3.1 ($0.7) Equity Fixed Income Real Estate Total YTD3Q2007 Third Party Institutional Flows are the Best Indicator of Competitiveness Percent of Beginning of Period Assets 13% 10% 4% 13% 9% 10% 7% 10% 13% 12% 9% 8% -1% 4% -3%
Slide 70: Proprietary Assets Under Management
Prudential Investment Management $288 $304 $338 $367 $403 $430 Proprietary Assets Under Management 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 9/30/07 $ in Billions
Slide 71: Asset Management Revenues
$0 $500 $1,000 $1,500 $2,000 $2,500 9 mos 2006 9 mos 2007 $ in Millions Asset Management Fees Asset Management Revenues Service, Distribution and Other Revenue Incentive, Transaction, Principal Investing and Capital Markets Revenue $1,360 $1,464 $1,696 $2,050 $1,692 $1,414
Slide 72: Adjusted Operating Income by Business
42% 5% 24% Public Fixed Income Prudential Real Estate Investors 45% 4% 17% Prudential Real Estate Investors Public Fixed Income 7% 17% 5% Year Ended 12/31/06 $593 Million Equity Prudential Capital Group Prudential Mortgage Capital Company Nine Months Ended 9/30/07 $493 Million Prudential Investments
Slide 73: Asset Management Financial Performance
36% 33% 27% Return on equity 1.3 1.3 1.2 Attributed equity (1) (4) $ 430.2 Nine months ended September 30, 2007 $ 403.4 Pre-tax adjusted operating income $ 367.4 Assets under management (1) (2) In billions At end of period In millions Average attributed equity for period Based on after-tax adjusted
Slide 74: Individual Annuities
Individual Annuities Individual Annuities David Odenath President Prudential Annuities David Odenath President Prudential Annuities
Slide 75: Variable Annuity Market Trends
Variable Annuity Market Trends • Retirement income solutions drive sales • Continued customer interest in downside protection • Increased customer focus on locking in gains • Industry consolidation likely to increase as manufacturers require greater scale to compete
Slide 76: Prudential Annuities: Competitive Advantages in a Retirement-Focused Market
Prudential Annuities: Competitive Advantages in a Retirement-Focused Market • Proven product innovation capabilities • Sophisticated risk management and hedging • Scale • Strong branding • Broad, multi-channel distribution capabilities • Acquisition integration expertise
Slide 77: Top 10 Variable Annuity Company Account Values
Source: VARDS 2Q07; Advisor-sold market excludes group/retirement plan contracts Prudential Annuities is ranked #4 in advisor-sold VA account values ($ billions) #4 #4 111.9 95.9 85.1 76.2 72.0 52.0 51.5 50.8 48.5 46.0 Top 10 Variable Annuity Company Account Values Hartford Met Life AXA Equitable Pr
Slide 78: Prudential Annuities Innovation Team
Prudential Annuities Innovation Team • Innovation: a proven strength • Informal weekly meetings, an 11-year tradition • Spirited discussion: leave your title at the door; have an open mind; be a subject matter expert • Listen to the marketplace • Lifetime Five • Spousal Lifetime Five • HD Lifetime F
Slide 79: Awarded Best Living Benefits
2006 2007 2005 Awarded “Best Living Benefits” by Boomer Market Advisor Magazine for Third Consecutive Year • “HD Lifetime Five…the living benefit that best addresses the income and longevity issues clients face.” Market-Leading Retirement Solutions
Slide 80: Active Management of Product Risks
Active Management of Product Risks • • Innovative product design minimizes product/benefit risk while meeting customers’ needs • Strategic risk retention – Retain risks we are best suited to carry – Actively hedge risks where appropriate • Strong governance structure provides constant monitoring and
Slide 81: Lower Risk Profile in Newest Benefits
Benefit to Prudential Benefit to Policyholder Feature Attractive Value Proposition • Minimizes Risk to Prudential Living Benefit Product Design Lower Risk Profile in Newest Benefits Reduces equity risk in severe market conditions Effectively self hedges much of the equity risk Systematically takes m
Slide 82: Risk Profile of HD-5 Compared to Lifetime Five
Excludes GMIB as election rate is de-minimus Risk Profile of HD-5 Compared to Lifetime Five • HD-5 has lower overall risk profile due to reduced tail exposure • Less hedge rebalancing required during volatile markets • Interest rate exposure more efficient to hedge – lower basis risk, better liquidi
Slide 83: Living Benefit Risk Management
$5 $10 $15 $20 $25 $30 $35 $40 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 HD5 - 26% election rate $2.6 Equity Risk Self Hedged $16.0 Fully Hedged LT5, GMWB, and GMAB - 40% election rate $10.1 Equity and Int Rate Risk Self Hedged “GRO” - 15% election rate $7.3 Retain Risk GMIB Account Values ($ billions
Slide 84: Broad Multi-Channel Distribution Capabilities
Broad Multi-Channel Distribution Capabilities $1,673 3Q:07 Sales $1,407 3Q:06 Sales • Increase distribution through Allstate and Prudential bank relationships • Pursue new relationships on opportunistic basis 7% Banks • Expand distribution through Allstate and current relationships 13% Wirehouses •
Slide 85: Products and Distribution Drive Sales Growth
Products and Distribution Drive Sales Growth Year ended December 31 Nine months ended September 30 Includes American Skandia from May 1, 2003 acquisition date and Allstate variable annuity business from June 1, 2006 acquisition date All annuity products (variable and fixed) Allstate Distribution $4.
Slide 86: Sustained Account Value Growth
Sustained Account Value Growth As of end of period; all annuity products (variable and fixed) $- $10 $20 $30 $40 $50 $60 $70 $80 $90 Sep-07 Allstate $47.5 $51.3 $54.8 $78.3 $84.7
Slide 87: Allstate Variable Annuity Business Integration on Track
Transition Service Agreement Period with Allstate Allstate Variable Annuity Business Integration on Track Major Project Milestones September February Closed Allstate transaction June 1 August Transition Service Agreement Period with Allstate July Launched Prudential products in Allstate proprietary
Slide 88: Individual Annuities Financial Performance
3,546 3,748 3,991 Fixed annuities 18.2% 18.2% 17.9% Return on equity $ 2.8 $2.3 $1.9 Attributed equity 84,719 $ 81,173 Nine months ended September 30, 2007 78,303 $ 74,555 Pre-tax adjusted operating income 54,769 Total $ 50,778 Account Values Variable annuities Includes results of Allstate variable
Slide 89: Financial Position and Outlook
Financial Position and Outlook Financial Position and Outlook Rich Carbone Chief Financial Officer Rich Carbone Chief Financial Officer
Slide 90: Financial Review and Outlook
Financial Review and Outlook • Strong capital position; significant financial flexibility • Disciplined investment portfolio risk selection and management • Financial outlook for 2008
Slide 91: Available Capital Capacity
$22 bn Equity (2) $23 bn “Available Capital” Capacity $7 - $8 Billion Over $2.5 bn $7 – $8 bn As of September 30, 2007 Attributed equity of Financial Services Businesses, excluding accumulated other comprehensive income related to unrealized gains and losses on investments and pension/postretirement
Slide 92: Insurance Operations are Overcapitalized
Insurance Operations are Overcapitalized “AA” Ratings Target “AA” Ratings Target 700 - Risk-Based Capital Solvency Margins Prudential Insurance Gibraltar Life Prudential of Japan Based on U.S. statutory accounting Based on Japanese statutory accounting
Slide 93: Potentially available for attractive transactions
Potentially available for attractive transactions “Available Capital” Capacity Financial Flexibility Assuming a capital structure of 70% common equity, 30% capital debt and hybrids International Insurance excess capital Hybrid security and debt issuance capacity Corporate & other excess capital Avai
Slide 94: Strong and Sustainable Ongoing Capital Generation
Strong and Sustainable Ongoing Capital Generation • Focus on high ROE businesses with favorable growth prospects • Mature businesses: favorable returns, modest capital needs, strong cash flows
Slide 95: Diverse Sources of Cash Flow
Domestic Insurance Companies Asset Management Operations Wachovia Joint Venture International Operations Diverse Sources of Cash Flow Domestic Insurance Companies Asset Management Operations Wachovia Joint Venture 2006 Dividends & Returns of Capital $3.2 billion International Operations
Slide 96: Capital Returned to Shareholders
Capital Returned to Shareholders $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 9 Mos ended 9/30/06 9 Mos ended 9/30/07 Dividends Share Repurchases $1,026 $1,270 $1,831 $2,483 $2,953 $ millions $1,873 $2,250 $3.5 billion annual share repurchase authorization, effective 2008
Slide 97: Book Value per Share of Common Stock
01/01/02 01/01/03 01/01/04 01/01/05 01/01/06 01/01/07 Book Value per Share of Common Stock 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 9/30/07 $32.80 $34.10 $37.10 $40.37 $44.38 Excluding accumulated other comprehensive income related to unrealized gains and losses on investments for all periods an
Slide 98: Disciplined Investment Portfolio Management
Disciplined Investment Portfolio Management Leverages Proven Investment Expertise • Asset Management is a key Prudential business • Asset selection reflects liability characteristics • Broad capabilities support risk diversification: – Asset class – Sector – Issuer • Well-managed exposure to “risk”
Slide 99: Asset Selection: Focus on Liability Characteristics
Asset Selection Focus on Liability Characteristics Public fixed maturities Long-term Japanese government bonds; equities support “tail” Private placement bonds, commercial mortgages Representative Asset Types Long duration, variable crediting rates; floor guarantees Domestic Universal Life Extremely
Slide 100: Asset Selection: Skill Sets Support Risk Diversification
9% 12% 13% 58% Asset Selection Skill Sets Support Risk Diversification As of September 30, 2007 at balance sheet carrying amount; excludes invested assets of securities brokerage, securities trading, banking and asset management operations, and real estate and relocation services Trading account ass
Slide 101: Asset Selection: Focus on Quality
6.2 6.2 5.9 6.2 7.4 7.5 Asset Selection Focus on Quality In billions; at fair value. Excludes invested assets of securities brokerage, securities trading, banking and asset management operations, and real estate and relocation services FSB Fixed Maturity Portfolio $81.9 $87.4 $104.7 $107.9 $114.6 $1
Slide 102: Fixed Maturities Impairments and Credit-Related Losses
$855 $48 $288 $129 $100 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 Other than temporary impairments and credit-related losses on sales of securities included in realized investment gains and losses of the Financial Services Businesses Fixed Maturities Impairments and Credit-Related Losses
Slide 103: Sub-Prime Mortgage Exposure
AAA AA A BBB Sub-Prime Mortgage Exposure Risk-Based Selection Financial Services Businesses, as of September 30, 2007. At amortized cost. The short-term portfolio is used primarily to invest proceeds of securities lending and repurchase activities, and cash generated from certain trading and operati
Slide 104: Financial Strength and Flexibility
Financial Strength and Flexibility • Strong “available capital” position provides significant financial flexibility; migrating to optimal capital structure • Insurance operations capitalized in excess of “AA” ratings objectives • Diverse cash flow sources contribute to flexibility • Sustained growth
Slide 105: Considerations for 2008
Considerations for 2008 • 2007 baseline earnings • Business growth • Capital management: share repurchases, increased leverage • 8% equity market appreciation from year end • Less favorable commercial real estate environment • US dollar @ 106 yen • 28.4% effective tax rate • Wachovia Securities one-
Slide 106: FSB Full Year 2008 Earnings Guidance
Baseline Earnings Level $7.15 - $ 7.30 7.30 Capital management: share repurchases, increased leverage 2008 Guidance Baseline Earnings Growth FSB Full Year 2008 Earnings Guidance 2007 Guidance $7.45 - $7.60 Non-Recurring/ Unsustainable 2007 Items Baseline Earnings Level $7.15 - $7.30 Based on after-t