Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (June 2017)
118 slides from Prudential Financial's investor day presentation, Jun 6, 2017
Slide 1: Prudential Financial, Inc. 2017 Investor Day
Prudential Financial, Inc. 2017 Investor Day June 6, 2017 Exhibit 99.1
Slide 2: Mark Finkelstein, Investor Relations
Prudential Financial, Inc. 2017 Investor Day Mark Finkelstein Senior Vice President Investor Relations
Slide 3: Forward Looking Statements and Non-GAAP Measures
Forward Looking Statements and Non-GAAP Measures 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. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “a
Slide 4: PGIM Disclosures
PGIM Disclosures Consider a fund's investment objectives, risks, charges and expenses carefully before investing. The prospectus and summary prospectus contain this and other information about the fund. For more information about a fund, click on the prospectus or summary prospectus link above. Read
Slide 5: PGIM Disclosures (cont.)
PGIM Disclosures (cont.) The Morningstar Rating for funds, or "star rating", is calculated for mutual funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-
Slide 6: Variable Annuities Cash Flow Assumptions
Variable Annuities Cash Flow Assumptions Present value of cash flows reflect total contract cash flows based upon the in force book of business and initial interest rates as of 12/31/16. Excludes any benefit from release of capital and excess reserves. Each scenario reflects impact of our dynamic la
Slide 7: Reconciliations between Adjusted Operating Income and the Comparable GAAP Measure
Reconciliations between Adjusted Operating Income and the Comparable GAAP Measure(1) Investor Day 6.6.2017 Represents results of the Financial Services Businesses (FSB) for periods prior to 2015.
Slide 8: Reconciliations for Pre-Tax Adjusted Operating Income excluding Market Driven and Discrete Items
Reconciliations for Pre-Tax Adjusted Operating Income excluding Market Driven and Discrete Items(1) Investor Day 6.6.2017 As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com. Represents results of FSB for periods prior to 2015
Slide 9: Reconciliation for Earnings Per Share excluding Market Driven and Discrete Items
Reconciliation for Earnings Per Share excluding Market Driven and Discrete Items(1) Investor Day 6.6.2017 As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com. Diluted; based on after-tax AOI; tax effect for market driven and d
Slide 10: Reconciliations between Adjusted Book Value and the Comparable GAAP Measure
Reconciliations between Adjusted Book Value and the Comparable GAAP Measure(1) Book value per share of Common Stock including AOCI as of December 31, 2016 includes a $500 million increase in equity and a 5.75 million increase in diluted shares reflecting the dilutive impact of exchangeable surplus n
Slide 11: Reconciliation for U.S. Businesses Pre-Tax Adjusted Operating Income
Reconciliation for U.S. Businesses Pre-Tax Adjusted Operating Income Excluding Market Driven and Discrete Items(1) Investor Day 6.6.2017 As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com. Includes refinements of reserves and
Slide 12: Reconciliation for Annuities Pre-Tax Adjusted Operating Income
Reconciliation for Annuities Pre-Tax Adjusted Operating Income Excluding Market Driven and Discrete Items(1) Investor Day 6.6.2017 As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com. Includes adjustments to reflect updated es
Slide 13: Reconciliation for Individual Life Pre-Tax Adjusted Operating Income
Reconciliation for Individual Life Pre-Tax Adjusted Operating Income Excluding Market Driven and Discrete Items(1) Investor Day 6.6.2017 As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com. Includes refinements of reserves and
Slide 14: Reconciliation for Group Insurance Pre-Tax Adjusted Operating Income
Reconciliation for Group Insurance Pre-Tax Adjusted Operating Income Excluding Market Driven and Discrete Items(1) Investor Day 6.6.2017 As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com. Includes refinements of reserves and
Slide 15: John Strangfeld, Chairman & CEO
Prudential Financial, Inc. 2017 Investor Day John Strangfeld Chairman & CEO
Slide 16: Strong Returns and Cash Flows Driven by High Quality Businesses
Strong Returns and Cash Flows Driven by High Quality Businesses A complementary mix of businesses with competitive advantages Investor Day 6.6.2017 Differentiated International business model with high returns and solid growth prospects Leading provider of Retirement services, led by our ‘best in cl
Slide 17: Superior Return Profile
Superior Return Profile EPS based on adjusted operating income (AOI) excluding market driven and discrete items taxed at a 35% rate for purposes of EPS and ROE calculations. Based on after-tax AOI excluding market driven and discrete items and adjusted book value as shown in disclosure section; 2012
Slide 18: Solid Compounding of Shareholder Value
Solid Compounding of Shareholder Value 10% Annual Growth(1) Annual growth rate from 2011 adjusted book value per share (BVPS) of $56.11. See reconciliation to GAAP book value in disclosure section. Amounts attributable to PFI; represents results of the former FSB for periods prior to 2015. Adjusted
Slide 19: Strong History of Capital Deployment
Strong History of Capital Deployment Nearly $12 billion of capital deployed over the last five years(1) toward shareholder return and M&A Represents cumulative capital deployed from 2012-2016 toward share repurchases, Common Stock dividends and M&A. ($ billions) Investor Day 6.6.2017
Slide 20: The 'Balancing Act'
The ‘Balancing Act’ Investor Day 6.6.2017 Growth and Return on Equity Cash Generation and Deployment Volatility and Risk Balance Produces Superior Financial Strength and Shareholder Value Creation
Slide 21: Key Takeaways
Key Takeaways Balanced and attractive portfolio of businesses that produce superior returns Diversified source of earnings mitigate impacts of market headwinds Strong capital position and cash generation support disciplined shareholder return Focus on talent and leadership enables execution, fosters
Slide 22: Mark Grier, Vice Chairman
Prudential Financial, Inc. 2017 Investor Day Mark Grier Vice Chairman
Slide 23: U.S. Businesses
Prudential Financial, Inc. U.S. Businesses Stephen Pelletier Executive Vice President Chief Operating Officer
Slide 24: Key Messages
Key Messages Investor Day 6.6.2017 Our business fundamentals are strong We earn attractive returns on new business Our U.S. Businesses generate high-quality, diversified earnings We are pursuing attractive growth opportunities in institutional, employer, and individual markets Our investments in str
Slide 25: High-Quality, Diversified Sources of Earnings
High-Quality, Diversified Sources of Earnings Pre-tax Adjusted Operating Income (AOI) excluding market driven and discrete items as shown in disclosure section. Strong Fundamentals Healthy pension risk transfer market Strong Asset Management 3rd party flows Diversified Annuities sales High persisten
Slide 26: Strong Business Fundamentals Drive U.S. Business Growth
(3) (4) (4) Strong Business Fundamentals Drive U.S. Business Growth Institutional Individual Represents compound annual growth rate from 2011-2016. In January 2013, Individual Life Insurance acquired The Hartford Financial Services Group, Inc.’s individual life insurance business through a reinsuran
Slide 27: Growth Opportunities
Growth Opportunities Investor Day 6.6.2017 Leveraging strong pension risk transfer pipeline to expand market-leading position Deepening employer and participant relationships through Financial Wellness platforms Diversifying product portfolios Developing more simplified, outcome-oriented solutions E
Slide 28: Financial Wellness
Financial Wellness Simplified products and outcome-oriented solutions Enhanced distribution Customer experience Talent Strategic Investments Investor Day 6.6.2017 Business growth Strategic Investments A substantial portion of new initiative spending is funded by efficiency gains across our businesse
Slide 29: Prudential Pathways
Launched in 2015 to provide financial wellness education to Prudential’s extensive customer base Adopted by nearly 250 employers, representing approximately 3 million employees Proving to be a differentiating capability in the marketplace Enhanced with a digital component in 2017 Prudential Pathways
Slide 30: Summary
Summary High-quality, diversified sources of earnings Growth opportunities in institutional, employer, and individual markets Strategic investments, with emerging benefits Investor Day 6.6.2017 Complementary mix of high-quality businesses, with long-term growth potential
Slide 31: David Hunt, President & CEO PGIM
David Hunt President & CEO PGIM
Slide 32: PGIM's Continued Success Underpinned by a Mutually Beneficial Business Model
PGIM’s continued success is underpinned by a mutually beneficial business model Key Messages PGIM is strongly positioned as a diversified global active asset manager with a distinct multi-manager model Our business has robust underlying fundamentals and delivers attractive returns for Prudential’s s
Slide 33: Agenda
Agenda Leading global asset manager Robust underlying fundamentals Strategic initiatives driving growth Mutually beneficial business model Investor Day 6.6.2017
Slide 34: Leading Global Asset Manager
Leading Global Asset Manager Global presence and footprint Distinct multi-manager model Broadly diversified revenue base and product suite Strong, sophisticated third party client base Top 10 asset manager worldwide(1) Pensions & Investments Top Money Manager’s list, May 30, 2017. AUM as of December
Slide 35: Well-Diversified Revenue Base
Well-Diversified Revenue Base Investor Day 6.6.2017 Asset Management Fees by Asset Class Over 50% of fees from higher growth areas(1) $630mn from real assets(2) & alternatives $314mn from private credit $145mn from non-U.S. equities $110mn from liability-driven and outcome-oriented solutions $106mn
Slide 36: Strong Third Party Client Base
Strong Third Party Client Base Investor Day 6.6.2017 Asset Management Fees by Client Type Third party institutional clients clients have over $1 billion invested with us of the top 300 Global Pension Funds(1) of the 25 largest U.S. corporate pension plans(2) of the 25 largest U.S. public pension pla
Slide 37: Our Global Footprint
Luxembourg Frankfurt Munich Milan London Paris Mumbai Singapore Shanghai Tokyo Seoul Hong Kong Taipei Sydney Boston New York Arlington Orlando Rio de Janeiro Mexico City Miami Atlanta Dallas Memphis Los Angeles San Francisco Minneapolis Chicago Newark Madison Our Global Footprint Investor Day 6.6.20
Slide 38: Our New Global Brand
Our New Global Brand Investor Day 6.6.2017 PGIM is a subsidiary of PFI, a company incorporated and with its principal place of business in the United States. Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, a company incorporated in the United King
Slide 39: Position of Strength
Position of Strength Investor Day 6.6.2017 Ranking Based on Worldwide Assets Top 10 Asset Managers(1) ASSETS ($ Billions) 1 BlackRock 5,148 2 Vanguard Group 3,965 3 State Street Global Advisors 2,468 4 Fidelity Investments 2,131 5 JP Morgan Asset Management 1,771 6 BNY Mellon Investment Management 1
Slide 40: Distinct Multi-Manager Model
Distinct Multi-Manager Model Investor Day 6.6.2017 PGIM $1,069bn QMA $120bn3 JENNISON ASSOCIATES $164bn2 PGIM FIXED INCOME $654bn1 PRUDENTIAL CAPITAL GROUP $79bn PGIM REAL ESTATE FINANCE $58bn PGIM REAL ESTATE $66bn4 PRUDENTIAL INTERNATIONAL INVESTMENTS $84bn5 PGIM INVESTMENTS $85bn6 Deep, specializ
Slide 41: Agenda
Agenda Leading global asset manager Robust underlying fundamentals Strategic initiatives driving growth Mutually beneficial business model Investor Day 6.6.2017
Slide 42: Robust Underlying Fundamentals
Robust Underlying Fundamentals Investment Performance Client Flows Earnings Consistent, strong investment performance Deep manager experience and robust investment processes drive Alpha generation More than a decade of consecutive positive net flows in both institutional and retail 11% annual AUM gr
Slide 43: Strong Investment Performance
Strong Investment Performance Investor Day 6.6.2017 Percentage of PGIM AUM(1) Outperforming Benchmark(2) Represents PGIM’s benchmarked AUM. 45% of total AUM is benchmarked over 3 years, 44% over 5 years, and 32% over 10 years. As of March 31, 2017. Represents excess performance net of fees, based on
Slide 44: Consistent Positive Third Party Net Flows
Consistent Positive Third Party Net Flows(1) Investor Day 6.6.2017 $ Billions 14 Consecutive Years of Positive Institutional Third Party Net Flows 12 Consecutive Years of Positive Retail Third Party Net Flows Represents unaffiliated third party net flows; excludes flows from the General Account and
Slide 45: Solid Earnings Track Record
Solid Earnings Track Record ($ millions) Asset Management Fees and Earnings(1) Pre-tax adjusted operating Income (AOI). Other Related Revenue Earnings include pre-tax AOI from other sources including strategic investing, incentive fees, transaction fees and commercial mortgage revenues, net of expen
Slide 46: Stable Margins While Funding Our Investments
Stable Margins While Funding Our Investments Investor Day 6.6.2017 Core Operating Margin, 2010 – 2016 Positioning for Growth, 2010 – 2016(3) Represents AOI as a percentage of revenue. Includes both PGIM and Corporate Initiatives. Figures represent change from YE 2010 to YE 2016. Excludes seeded CLOs
Slide 47: Agenda
Agenda Leading global asset manager Robust underlying fundamentals Strategic initiatives driving growth Mutually beneficial business model Investor Day 6.6.2017
Slide 48: Our Strategy
Our Strategy Investor Day 6.6.2017 To be widely regarded as a premier active global investment manager across a broad range of public and private asset classes Deliver superior risk-adjusted returns for clients and strong shareholder value Selectively acquire new investment capabilities Broaden our
Slide 49: Executing On Our Strategic Priorities
Executing On Our Strategic Priorities Investor Day 6.6.2017 Diversify products and vehicles 3 Launched UCITS platform that has gathered $2bn in AUM 35% of mutual fund flows in 2016 came from products launched in the last five years Broaden solution capabilities 2 Launched multi-asset class portfolio
Slide 50: Industry Challenges and Our Response
Industry Challenges and Our Response Rise of passive investing Exposure to US style-box equities limited to ~10% of AUM Strong investment performance track record Robust suite of high active share, alternatives and private strategies for a “core-satellite” portfolio Our fee yield has remained stable
Slide 51: Agenda
Agenda Leading global asset manager Robust underlying fundamentals Strategic initiatives driving growth Mutually beneficial business model Investor Day 6.6.2017
Slide 52: Mutually Beneficial Business Model
Mutually Beneficial Business Model Investor Day 6.6.2017 Strong, stable fee based earnings with solid returns and favorable growth prospects High net investment income margins for the General Account Enhanced competitiveness through privates and commercial mortgage loans Deep, specialized investment
Slide 53: PGIM's Continued Success Underpinned by a Mutually Beneficial Business Model
PGIM’s continued success is underpinned by a mutually beneficial business model Key Messages PGIM is strongly positioned as a diversified global active asset manager with a distinct multi-manager model Our business has robust underlying fundamentals and delivers attractive returns for Prudential’s s
Slide 54: Retirement, Phil Waldeck
Prudential Financial, Inc. Retirement Phil Waldeck President
Slide 55: Key Messages
Key Messages Leading provider in chosen Institutional and Full Service retirement markets with broad range of retirement products and services Increasing leverage of Prudential's broad capabilities to expand customer solutions, including financial wellness programs Investor Day 6.6.2017 Well managed
Slide 56: Opportunities and Challenges
Opportunities and Challenges Challenges Opportunities Investor Day 6.6.2017 $3 billion of new funded PRT and $1 billion longevity business required to offset annual in force run off Sustained low interest rate environment continues to challenge spread earnings – mitigated by asset liability manageme
Slide 57: Solid Business Growth
Solid Business Growth Investor Day 6.6.2017 11% Annual Growth Over 5 years(2) As of end of period. Annual growth from December 31, 2011 account values of $230 billion. Account Values(1) ($ billions)
Slide 58: Differentiated Capabilities Drive Growth Opportunities
Differentiated Capabilities Drive Growth Opportunities Investor Day 6.6.2017 Prudential is well positioned to benefit from U.S. funded PRT market growth Continued leadership position in Jumbo cases Renewed focus on specific segments of Non-Jumbo market Jumbo (> $1B) Non-Jumbo (< $1B) Market Pru 2014
Slide 59: Well Managed PRT Business Mix
(2) Well Managed PRT Business Mix(1) Prudently diversified business mix with strong risk management Good underwriting performance on existing book Expect to produce IRR’s at or above our 11% to 15% target Also well-diversified by gender, benefit size and occupation (Blue/White collar) Average Liabil
Slide 60: Retirement - Summary
Retirement - Summary Leadership positions in attractive select markets Best in class pension risk transfer capabilities Proven risk management and underwriting capabilities Demonstrated innovation and increased leverage of broader Prudential capabilities support growth opportunities Investor Day 6.6
Slide 61: Group Insurance, Andrew Sullivan
Prudential Financial, Inc. Group Insurance Andrew Sullivan President
Slide 62: Key Messages
Key Messages A leading U.S. provider of group life and disability insurance Steady revenue growth prospects while maintaining pricing discipline Strengthened underwriting supports greater earnings consistency Investor Day 6.6.2017 Long-term opportunity to expand margins through revenue growth and ex
Slide 63: Opportunities and Challenges
Opportunities and Challenges Investor Day 6.6.2017 Challenges Opportunities Maintain strong National segment market share while growing Premier segment Enhanced underwriting tools and predictive analytics to improve risk selection and increase return prospects Positioned to meet employers’ increased
Slide 64: A Leading Provider of Group Insurance
A Leading Provider of Group Insurance Providing benefit experiences that help create and protect financial wellness Broad product portfolio providing coverage to over 15 million U.S. workers Group Life and AD&D Group Short-Term and Long-Term Disability Absence Management Voluntary Market Position &
Slide 65: Strengthened Underwriting Supports Disciplined Growth
Strengthened Underwriting Supports Disciplined Growth Underwriting actions have resulted in improved benefits ratios to within targeted range: 87% - 91% Resumed controlled growth in 2016 ($ billions) (1) (2) Represents premiums, policy charges and fees. Benefits ratio excluding impact of market driv
Slide 66: Summary
Summary Investor Day 6.6.2017 Revenue growth strategies with pricing discipline Enhanced focus on attractive markets Strengthened underwriting Operating efficiency opportunities Positioned to meet financial wellness needs Underwriting actions and strategic initiatives position business for profitabl
Slide 67: Individual Life Insurance, Kent Sluyter
Prudential Financial, Inc. Individual Life Insurance Kent Sluyter Chief Executive Officer Individual Life Insurance & Prudential Advisors
Slide 68: Key Messages
Key Messages Investor Day 6.6.2017 Capitalized on the Hartford acquisition to drive growth, increase scale and enhance capabilities and distribution Distinctive product portfolio and multi-channel distribution network that provide broad market access and risk diversification Investing in capabilitie
Slide 69: Opportunities and Challenges
Opportunities and Challenges Investor Day 6.6.2017 Challenges Opportunities Capitalize on full product suite to increase penetration in existing distribution relationships Further expand our reach through new third party distribution relationships and captive distribution growth Streamline underwrit
Slide 70: Sales Growth and Product Strategy
Sales Growth and Product Strategy Sales increases have contributed to ~5% annual in force growth from 2014-2016 Life Sales by Product Based on Annualized New Business Premiums Individual Life actively manages the diversification of product risk by maintaining a well balanced portfolio Leadership pos
Slide 71: Claims Consistent with Expectations
Claims Consistent with Expectations While inherently variable, since 2006 our mortality experience has been in line with expected levels. This also reflects more favorable expectations over time. Begins to include the acquired Hartford block. Excludes mortality related reserve updates and amortizati
Slide 72: Summary
Summary 6 Strong business fundamentals Broad product, distribution, and service capabilities Robust risk management Positioned for sustained growth and solid returns Investor Day 6.6.2017
Slide 73: Annuities, Lori Fouché
Prudential Financial, Inc. Annuities Lori Fouché President
Slide 74: Key Messages
Key Messages Strong market position providing secure retirement income solutions Growth potential through expanded buyer universe Enhanced risk management reduces capital volatility Solid expected return on assets and cash flow generation Investor Day 6.6.2017 Sustained progress diversifying our bus
Slide 75: Prudential Annuities – Opportunities and Challenges
Prudential Annuities – Opportunities and Challenges Maturing block and near-term sales uncertainty Managing product complexities Adapting products to advisor and consumer demands Regulatory and tax uncertainty Less attractive benefit offerings in low interest rate environment Large and seasoned bloc
Slide 76: Solid Return on Assets
Solid Return on Assets Investor Day 6.6.2017 Pre-tax AOI excluding market driven and discrete items divided by average account values based on daily averages of separate accounts. (1) ($ billions) Large in force block with stable returns and solid cash flows
Slide 77: Continued Sales Diversification
Continued Sales Diversification(1) Investor Day 6.6.2017 2012 2014 2016 HDI 91% Other 9% HDI 70% Other 10% PPI 1% PDI 19% PPI 6% Other 5% HDI 48% PDI 41% Highest Daily Lifetime Income (HDI) Prudential Defined Income (PDI) Prudential Premier Investment (PPI) Other Sales represent gross sales. Better
Slide 78: Summary
Summary Product diversification drives continued growth opportunity Well managed risk and strong expected cash flows Broadening buyer universe, including worksite access Investor Day 6.6.2017 Solid in force earnings and cash flow with long- term growth opportunities
Slide 79: International Insurance, Charles F. Lowrey
Prudential Financial, Inc. International Insurance Charles F. Lowrey Executive Vice President Chief Operating Officer
Slide 80: Key Messages
Key Messages Sustained growth, strong returns and capital generation Japan remains a highly attractive market for Prudential Attractive opportunities outside Japan enhance long-term prospects Solid execution and differentiated business model help to successfully navigate across economic landscapes I
Slide 81: Opportunities and Challenges
Opportunities and Challenges Low interest rates Necessity to adapt products to regulatory changes (discount rate changes, new mortality tables, etc.) Product repricing / suspensions Increased competition for USD product sales in Japan Distribution expansion (Proprietary and Third Party channels) Ret
Slide 82: High Return Business
High Return Business 4 Investor Day 6.6.2017 Operating return on average equity (ROE) based on after-tax AOI, excluding market driven and discrete items as disclosed in the company’s earnings release, using the effective tax rate applicable to Prudential’s overall adjusted operating income for 2015
Slide 83: Sustained Strong Earnings and Track Record of Growth
Sustained Strong Earnings and Track Record of Growth Sustained earnings growth despite market challenges, including the adverse impact of foreign currency exchange rates and declining interest rates Investor Day 6.6.2017 International Insurance Pre-tax AOI(1) ($ billions) Reported AOI is not adjuste
Slide 84: Steady Growth in LP Count & Constant Currency AOI
Steady Growth in LP Count & Constant Currency AOI Since 2012 Investor Day 6.6.2017 Headcount Constant Exchange Rate Reported AOI; foreign denominated activity translated to U.S. Dollars at uniform exchange rates, including Japanese Yen 112 per U.S. Dollar and Korean Won 1130 per U.S. Dollar. Constan
Slide 85: Consistent International Strategy a Key to Success
Consistent International Strategy a Key to Success Product Development to Meet Customer Needs Building Digital, Mobile and Data Analytics Capabilities Complementing Organic Growth with M&A Superior Execution Distribution Expansion in Proprietary and Third Party Channels Investor Day 6.6.2017
Slide 86: Returns Primarily Derived from Mortality and Expense Margins
Returns Primarily Derived from Mortality and Expense Margins Conceptual illustration based on typical products with assumed profitability structure at time of sale; not intended to depict precise allocation of earnings sources. Based on annualized premiums from 2016; total does not add up to 100% as
Slide 87: Strategic Management of Japan's Product Portfolio
Strategic Management of Japan’s Product Portfolio Investor Day 6.6.2017 More Recurring Premium Products(1) Migration of Sales to USD Products(1) Annualized new business premiums.
Slide 88: Select Growth Markets
Select Growth Markets Investor Day 6.6.2017 Market Share By AUM (As of March 2017) Source: SPS local regulatory authority Chile Brazil US$ billions GDP Growth Life Planner insurance business modeled on successful Japanese operation Strong sales productivity and retention Strong growth of in-force de
Slide 89: Investments In Ownership Stakes
Investments In Ownership Stakes Investor Day 6.6.2017 Recent Highlights Strategic Approach Selective markets with attractive growth opportunities Good fit for our proven business models Prudent evaluation of prospective returns Thoughtful ownership approach to new markets Brazil Acquired a portfolio
Slide 90: Summary
Summary Superior execution and differentiated business model Japan remains highly attractive market Continued investment outside Japan enhances long-term prospects Investor Day 6.6.2017 Solid earnings and capital generation with long-term growth opportunities
Slide 91: Investment Portfolio Update, Scott Sleyster
Prudential Financial, Inc. Investment Portfolio Update Scott Sleyster Senior Vice President Chief Investment Officer
Slide 92: Our Approach to Portfolio Management
Our Approach to Portfolio Management Investor Day 6.6.2017
Slide 93: High Quality, Well Matched Investment Portfolio
Our Approach to Portfolio Management Investor Day 6.6.2017 High Quality, Well Matched Investment Portfolio
Slide 94: Disciplined Liability-Driven Investing
Disciplined Liability-Driven Investing Portfolio managers aligned with business units Comprehensive understanding of product liability characteristics First line of defense against key investment and market risks Participation in product design and pricing committees Portfolio construction designed
Slide 95: Strong Asset Liability Management and Well-Managed Interest Rate Risk
Strong Asset Liability Management and Well-Managed Interest Rate Risk Cash flows are well matched within the investable horizon, substantially providing the liquidity to meet the product cash flow requirements Average asset duration as of 12/31/16 was 8.5 years versus liability duration benchmark of
Slide 96: Diversified & High Quality Investment Portfolio
Diversified & High Quality Investment Portfolio General Account (GA) portfolio is well diversified across asset classes High quality portfolio with ~92% in Investment Grade (IG) assets(1) Investor Day 6.6.2017 Portfolio Composition(2) $379 billion Excludes Below Investment Grade (BIG), Non-Coupon an
Slide 97: Asset Mix Has Remained Relatively Consistent
Asset Mix Has Remained Relatively Consistent Asset mix(1) continues to be well diversified and quality focused Below Investment Grade (BIG) holdings have decreased to 4% over the past decade Investor Day 6.6.2017 Represents Prudential Financial, Inc. (PFI) GA excluding the Closed Block Division (CBD
Slide 98: Fixed Maturities Profile
Fixed Maturities Profile(1) $285 billion Modest Below Investment Grade Exposure BIG holdings are concentrated in the higher quality (NAIC 3) bucket Private placements comprise over 40% of BIG holdings Investor Day 6.6.2017 Represents PFI GA excluding the CBD based on fair value as of 12/31/16. BIG e
Slide 99: Value Derived from Private Corporate Bonds
Value Derived from Private Corporate Bonds Internal sourcing of private placements provides competitive advantages: Diversification benefits Illiquidity premium Favorable recovery experience Rate bumps upon credit migration Private bond holdings(1) are over 98% “Reg D” versus “144A” Investor Day 6.6
Slide 100: Well Diversified Commercial Mortgage Portfolio
Well Diversified Commercial Mortgage Portfolio Commercial mortgage portfolio well diversified by property type and region Modest Loan-to-Value (LTV) ratios ~55% Strong Debt Service Coverage (DSCR) ratios ~2.4x Only 2% of holdings have LTV greater than 70% and DSCRs less than 1.2x We are underweight
Slide 101: Total Direct Retail Exposure
Total Direct(1) Retail Exposure ~4.6% The majority of the retail corporate bond exposure is rated A or better and is ~90% IG Well diversified commercial mortgage portfolio Limited allocation to potentially “at-risk” segments (Regional Malls & Community Centers) Investor Day 6.6.2017 Retail Sector Ex
Slide 102: Well Diversified Non-Coupon Portfolio
Well Diversified Non-Coupon Portfolio Comprises ~3% of total invested assets Supports long-duration liabilities and surplus Blended long-term annual return expectation of ~5-6%(1) Managed by dedicated team with extensive asset class expertise Investor Day 6.6.2017 ($ millions) Total Non-Coupon Portf
Slide 103: Credit Losses have been Below Expectations
Credit Losses have been Below Expectations Actual credit losses have been below expectations High quality and strong portfolio diversification Value of direct PGIM origination channels Investor Day 6.6.2017 Previous credit cycle: 2004 – 2010(1) Current credit cycle: 2011 – Date(1) Includes Available
Slide 104: Strong Partnership with PGIM
Strong Partnership with PGIM Investor Day 6.6.2017 Access to best in class investment expertise of a top 10 Asset Manager Outstanding private and mortgage origination capabilities Enhanced competitiveness on Pension Risk Transfer and other opportunities Average PGIM senior management team experience
Slide 105: Summary
Summary Liability-driven and well-matched portfolio High quality and broadly diversified investment profile across asset classes Distinctive advantage from PGIM origination and asset management capabilities Investor Day 6.6.2017
Slide 106: Financial Management, Rob Falzon
Prudential Financial, Inc. Financial Management Rob Falzon Executive Vice President Chief Financial Officer
Slide 107: The 'Balancing Act'
The ‘Balancing Act’ Balance Produces Superior Financial Strength and Shareholder Value Creation Investor Day 6.6.2017 Growth and Return on Equity Cash Generation and Deployment Volatility and Risk
Slide 108: Superior Return Profile
Superior Return Profile Near to intermediate term ROE objective of 12% to 13% Five year growth (2011-2016); EPS based on AOI excluding market driven and discrete items taxed at a 35% rate for purposes of EPS and ROE calculations. ROE based on after-tax AOI excluding market driven and discrete items
Slide 109: Interest Rate Headwinds: Portfolio Book Yield Converges with Acquisition Yields
Fixed Income and Mortgage Portfolio; Domestic Portfolio excludes the Closed Block Division and Divested Businesses. Japan Portfolio includes USD and JPY blocks in the Gibraltar and POJ Businesses. “USD” and “JPY” are indicative of the currency of the products that the assets are supporting. Future p
Slide 110: Significant Capital Redeployment
Significant Capital Redeployment We expect free cash generation from our businesses of ~60% of after-tax AOI, on average over time, enabling steady distributions to shareholders and other accretive uses Over the past 5 years, nearly $12 billion of capital was deployed toward shareholder return and M
Slide 111: Historical Capital Redeployment
($ billions) Historical Capital Redeployment Forms of Cumulative Redeployment(1)(3) Data represents total International Insurance from 2012 through 2016 (Japan represents ~95% of the capital redeployed during that period). Represents after-tax AOI results, using the effective tax rate of PFI for 201
Slide 112: Conservative Capital Structure with Reduced Financial Leverage
Conservative Capital Structure with Reduced Financial Leverage Financial leverage ratio defined as senior capital debt plus 75% hybrids divided by the senior capital debt plus 100% hybrids plus total equity (as defined below). Equity in both periods excludes non-controlling interest, accumulated oth
Slide 113: Business Mix Drives a Balanced Risk Profile
Business Mix Drives a Balanced Risk Profile Business mix drives a risk profile that is well-balanced between insurance and market risks Insurance Risk Market Risk Volatility and Risk Gross Risk Profile(2) Investor Day 6.6.2017 Represents segment contribution to 2016 pre-tax AOI, excluding market dri
Slide 114: Offsetting Exposures Between Mortality & Longevity Based Businesses
Offsetting Exposures Between Mortality & Longevity Based Businesses 9 Increase or decrease based on longevity improvement significantly differing from baseline improvement assumptions; mortality and longevity risks are asymmetrical. Based on business in force as of 12/31/16. Mortality generated by I
Slide 115: Variable Annuities: Resilient Cash Flows, Even Under Extreme Stress
Variable Annuities: Resilient Cash Flows, Even Under Extreme Stress 10 The variable annuities in force block is expected to generate strong future contract cash flows under a range of market conditions and policyholder behavior sensitivities Represents the present value of future contract cash flows
Slide 116: Robust Capital Protection Framework
Robust Capital Protection Framework 11 In addition to holding reserves and capital to “AA” standards across our businesses, we have a robust Capital Protection Framework in place which will ensure our ability to withstand severe market stress, while maintaining a competitive capitalization Stress pa
Slide 117: Reduced Complexity and Volatility in GAAP Earnings
Reduced Complexity and Volatility in GAAP Earnings Percentages represent contribution to GAAP volatility (sum of nominal difference between GAAP Net Income and after-tax AOI) from 2012-2016. Primarily includes portfolio trading gains and losses, impairments and credit losses and divested business re
Slide 118: Key Takeaways
Key Takeaways 13 Complementary mix of businesses with competitive advantages that result in high-quality, diversified sources of earnings, cash flows and growth as well as a well-balanced risk profile Continue to reduce complexity and GAAP earnings volatility while improving transparency of our fina