Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (September 2016)
97 slides from Prudential Financial's investor day presentation, Sep 14, 2016
Slide 1: Prudential Financial, Inc. Tokyo Investor Day
Prudential Financial, Inc. Tokyo Investor Day September 15, 2016 Exhibit 99.1
Slide 2: Mark Finkelstein, Investor Relations
Mark Finkelstein Senior Vice President Investor Relations Prudential Financial, Inc. Tokyo Investor Day
Slide 3: Forward-Looking Statements and Non-GAAP Measure
Forward-Looking Statements and Non-GAAP Measure 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,” “as
Slide 4: Reconciliations Between Adjusted Operating Income and the Comparable GAAP Measure
Reconciliations Between Adjusted Operating Income and the Comparable GAAP Measure (1) Represents results of the former Financial Services Businesses for periods prior to 2015.
Slide 5: Reconciliation for International Insurance Pre-tax AOI Excluding Market Driven and Discrete Items
Reconciliation for International Insurance Pre-tax AOI Excluding Market Driven and Discrete Items(1) As disclosed in company earnings releases. Includes refinements of reserves and amortization of deferred policy acquisition and other costs.
Slide 6: Charles F. Lowrey, International Businesses
Charles F. Lowrey Executive Vice President and Chief Operating Officer International Businesses Prudential Financial, Inc. 2016 Tokyo Investor Day
Slide 7: Four Strategic Imperatives for PII
Four Strategic Imperatives for PII Superior Execution in Existing Business Product Development to Meet Customer Needs Distribution Expansion in Proprietary and Third Party Channels Complementing Organic Growth with M&A PII Strategy Tokyo Investor Day 9.15.2016
Slide 8: History of Growth
History of Growth Tokyo Investor Day 9.15.2016 Adjusted operating income (AOI) not adjusted for market driven and discrete items. Sustained earnings growth despite market challenges, including declining interest rates International Insurance Pre-tax AOI(1) ($ billions) JGB 10Y
Slide 9: Business Development Outside Japan
Business Development Outside Japan Strategic approach Selective markets with attractive growth opportunities, good fit for our proven business models Prudent evaluation of prospective returns Tokyo Investor Day 9.15.2016 Foreign denominated activity translated to U.S. dollars at uniform exchange rat
Slide 10: High Return Business
High Return Business International Insurance operations generate sustainable high ROE Tokyo Investor Day 9.15.2016 Return on equity (ROE) based on after-tax AOI using the effective tax rate applicable to Prudential’s overall adjusted operating income for 2015 and that of the former Financial Service
Slide 11: Japan Remains a Highly Attractive Market for Prudential
Japan Remains a Highly Attractive Market for Prudential High returns driven by mortality and expense margins History of growth across economic landscapes through distribution expansion, selective acquisitions and operating efficiencies Strong cash flow from Japanese operations; historically redeploy
Slide 12: Japan Demographic Change Drives Growth Opportunities for Prudential
Japan Demographics(1) Japan Demographic Change Drives Growth Opportunities for Prudential Source: United Nations: World Population Prospects, 2015. 24% 19% 15% 12% 10% 10% Retirement income needs Intergenerational wealth transfer needs Funding of health care expenses We have an experienced agent for
Slide 13: Growth Opportunities and Challenges
Growth Opportunities and Challenges Tokyo Investor Day 9.15.2016 Opportunities Distribution expansion Growth in Life Planner count Life Consultant force stabilized, positioned for growth Further development of complementary third-party channels Retirement and estate planning Multi-currency products
Slide 14: Japanese Insurance Operations
Mitsuo Kurashige Chief Executive Officer Japan Life Insurance Operations Japanese Insurance Operations
Slide 15: Despite Current Environment, Japan Remains an Attractive Market
Despite Current Environment, Japan Remains an Attractive Market Opportunities Challenges Differentiated business model facilitates higher margins Expanding distribution Life Planner growth Life Consultant count stabilized, poised for growth Selective growth in third party channels Multi-currency pro
Slide 16: Product Actions in 2016
Product Actions in 2016 Reduced guaranteed interest rates and commissions on single premium yen products Subsequently discontinued sales of all general account single premium yen products Reduced crediting rates on yen-based advanced premiums, suspended acceptance of advanced premiums on some produc
Slide 17: ROE of Japanese Business Remains Highly Attractive
ROE of Japanese Business Remains Highly Attractive(1) Tokyo Investor Day 9.15.2016 Return on Equity (ROE) represents estimates for Japanese Insurance operations on a stand-alone basis after allocation of Division level costs. ROE is based on after-tax adjusted operating income (AOI) excluding market
Slide 18: Focus on Death Protection Products Contributes to Margin Stability
Focus on Death Protection Products Contributes to Margin Stability Tokyo Investor Day 9.15.2016 Japan only. Foreign denominated activity translated to U.S. dollars at uniform exchange rate; including Japanese yen 106 per U.S. dollar. U.S. dollar denominated activity is included based on the amounts
Slide 19: Increased Demand for Multi-Currency Products
Increased Demand for Multi-Currency Products Tokyo Investor Day 9.15.2016 Japan only. Foreign denominated activity translated to U.S. dollars at uniform exchange rate; including Japanese yen 106 per U.S. dollar. U.S. dollar denominated activity is included based on the amounts as transacted in U.S.
Slide 20: History of Growth in Japan
History of Growth in Japan Tokyo Investor Day 9.15.2016 Face Amount of Individual Policies in Force(1)(2) At end of period. Foreign denominated activity translated to U.S. dollars at uniform exchange rates for all periods presented, including Japanese yen 106 per U.S. dollar. Includes Prudential of
Slide 21: Leading Position in Attractive Market
Leading Position in Attractive Market Source: Life Insurance Association of Japan, Insurance Business in 2014. Twelve months ended March 31, 2015. Market share data is based on Prudential estimates developed from publicly available data of Japanese insurance companies; Prudential’s premium income wa
Slide 22: Targeted Distribution Serving the Japanese Market
Targeted Distribution Serving the Japanese Market Affluent and mass affluent consumers Business and professional market Mass middle market Affinity group relationships Business and professional market Life Planners Life Consultants Bank Channel Independent Agency Channel Bank clients with investable
Slide 23: Productivity of Distribution Channels
Productivity(1) of Distribution Channels Tokyo Investor Day 9.15.2016 Average policies sold per agent, per month, over multiple years. Prudential of Japan Life Planners ~3-4 Gibraltar Life Consultants 6+
Slide 24: Quality People
Quality People Source: Million Dollar Round Table Association, Japan - membership data as of April 1, 2016. Total membership 4,417. MDRT Japan Membership(1) ~ One Third of all MDRT members in Japan are from POJ and Gibraltar(1) Industry leading Million Dollar Round Table memberships Prudential of Ja
Slide 25: Third Party Distribution Channels: Advantages and Challenges
Sales can be volatile due to changes in interest rates and competitor actions Less influence over distribution Profitability can vary with changes in product mix Manage to bottom line, not top line – accept sales volatility Aggressive product and pricing actions Balance profitability and business mi
Slide 26: Summary
Summary Adapting proactively to current market environment Strong margins sustainable with differentiated model and focus on sound asset/liability management Growth opportunities through expanding distribution, leveraging product capabilities, and lifetime customer relationships Tokyo Investor Day 9
Slide 27: Prudential of Japan
Prudential of Japan Shoichiro Ichitani President and Chief Executive Officer Prudential of Japan
Slide 28: Prudential of Japan: Differentiated Business Model
Prudential of Japan Strong sales and in force growth over three decades Steady growth in Life Planner count driven by solid selective recruitment and strong retention Superior Life Planner productivity Focus on needs-based selling of death protection products, operating efficiencies, and effective a
Slide 29: Decades of Sustained In Force Growth
Decades of Sustained In Force Growth (¥ billions) As of March 31 (fiscal year end for Japanese statutory reporting); in-force face amount for U.S. dollar business is translated at spot rate at end of each fiscal year. Prudential of Japan In Force Face Amount(1) Tokyo Investor Day 9.15.2016 20 year C
Slide 30: Prudential of Japan Sales Track Record
Prudential of Japan Sales Track Record Driven by Growth in Death Protection Products Foreign denominated activity translated to U.S. dollars at uniform exchange rates for all periods presented, Japanese yen 106 per U.S. dollar. Includes insignificant amount of savings products. Tokyo Investor Day 9.
Slide 31: Key Drivers
Key Drivers 2011 2012 2013 2014 2015 Number of Life Planners(1) 3,137 3,216 3,258 3,328 3,528 Annualized Premium Productivity(2) $18,469 $22,468 $18,617 $18,285 $18,308 Policy Count Productivity(3) As of end of each year. Annualized new business premiums per month for each Prudential of Japan (POJ)
Slide 32: Steady Growth Across Markets
Steady Growth Across Markets Prudential of Japan Insurance Revenues(1)(2) Net premiums, policy charges and fee income; foreign denominated activity translated to U.S. dollars at uniform exchange rates for all periods presented, including Japanese yen 106 per U.S. dollar. Amounts for 2006 and 2005 ar
Slide 33: Life Planner Model Sustainable Competitive Advantage
Life Planner Model Sustainable Competitive Advantage Driven by Distribution High Life Planner Retention High Life Planner Productivity High Policy Persistency Providing financial security over customers’ lifetime drives our beneficial cycle Data based on 2015 POJ. Annualized new business premiums (A
Slide 34: Recognized Leader in Quality Service
Recognized Leader in Quality Service Prudential of Japan consistently earns highest customer satisfaction rankings according to J.D. Power(1) Satisfied customers drive high policy persistency Life Support Insurance segment 2012 - 2014 and All segment 2015 - 2016 of J.D. Power Asia Pacific Japan Life
Slide 35: Continuing Growth Opportunities
Continuing Growth Opportunities Continued growth in Life Planner count Solid, selective recruiting by growing sales manager force Highly attractive career for entrepreneurial professionals – approximately 3 of 100 applicants accepted High agent retention rates Lifetime relationships promote “Second
Slide 36: Quality Products Meeting Financial Security Needs Over a Lifetime
Quality Products Meeting Financial Security Needs Over a Lifetime Age High Net Worth Market Business Insurance Market Individual Insurance Market 20’s – 40’s 50’s – 60’s+ Death Protection Owner Planning for Post-Retirement Employee Benefit Program Funding Sophisticated Estate Planning Business Succe
Slide 37: Lifetime Client Relationships Drive Subsequent Sales Opportunities
Lifetime Client Relationships Drive Subsequent Sales Opportunities Data based on Prudential of Japan sales to individual market; foreign denominated activity translated to U.S. dollars at uniform exchange rates; Japanese yen 106 per U.S. dollar. Annualized New Business Premiums(1) POJ Subsequent Sal
Slide 38: In Force Growth Sensitivity
In Force Growth Sensitivity Assumed Annual Sales Level 50% below 2015 level 36% below 2015 level 20% below 2015 level At 2015 level Prudential of Japan In Force Face Amount Tokyo Investor Day 9.15.2016 Assuming same sales mix, currency exchange rates for non-yen business including Japanese yen 113 p
Slide 39: Navigating the Current Environment
Navigating the Current Environment Focus on recurring premium death protection products with returns primarily driven by mortality and expense margins Increased sales of U.S. dollar products Product actions Suspended sales of single premium yen products, effective April 2016 Reduced crediting rates
Slide 40: Summary
Summary Superior Life Planner Productivity Strong Agent Retention Life Planner Growth Through Steady and Selective Recruitment High Policy Persistency Effective Product and ALM Strategies Superior Returns and Steady Growth Tokyo Investor Day 9.15.2016
Slide 41: Gibraltar Life
Gibraltar Life Kazuhiro Yamauchi President and Chief Executive Officer Gibraltar Life
Slide 42: Gibraltar Life: Solid Return In Force Business with Broad Distribution Reach
Gibraltar Life Tokyo Investor Day 9.15.2016 Solid Return In Force Business with Broad Distribution Reach Effective acquisition model with well integrated businesses provides stable block of highly profitable business Life Consultant count stabilized following Star / Edison acquisition and integratio
Slide 43: Consolidated Gibraltar Life Distribution
Consolidated Gibraltar Life Distribution Life Consultant(1) Channel Independent Agency Channel Gibraltar Life Overview Distribution Bank Channel Formal name is “Life Plan Consultant”. Prudential Gibraltar Financial Life. Gibraltar Life PGFL(2) Kyoei AIG Star AIG Edison 2001 Rehabilitation 2012 Merge
Slide 44: Distribution Channel Strategy
Distribution Channel Strategy Customer Segment Primary Customer Needs Product Solution Distribution Middle-market Affinity groups Life Consultant Channel Death protection Retirement Whole life & Term USD Whole life & Retirement income Accident & Health Multi-currency fixed annuities Independent Agen
Slide 45: Channel Product Mix
Channel Product Mix 2015 Sales(1)(2) $918 million Annualized new business premiums; excluding Bank Channel. Foreign denominated activity translated to U.S. dollars at uniform exchange rate; Japanese yen 106 per U.S. dollar. As of end of period; excluding Bank Channel. Life Consultants Independent Ag
Slide 46: Life Consultant Count Stabilized and Positioned for Growth
May 2016 8,734 Life Consultant Count(1) Stabilized Post Star/Edison Acquisition and Positioned for Growth Tokyo Investor Day 9.15.2016 At end of period. Positioned for Growth Star/Edison integration Kyoei acquired April 2001; implemented Prudential Business Model 8,734
Slide 47: Life Consultant Distribution - Broad Market Coverage
Life Consultant Distribution - Broad Market Coverage with Access to Nearly All of Japanese Population 83 branch offices supporting Life Consultants(1) Branch offices established in substantially all prefectures Prudential training supports emphasis on death protection products and needs-based sellin
Slide 48: Teachers Market Remains a Primary and Stable Source of Business
Teachers market remains a primary and stable source of business for Gibraltar Approximately one-quarter of Life Consultant channel new business is derived from this market Perennial source of sales through teacher career spans Protection products to entering and active teachers Retirement products f
Slide 49: Life Consultant Channel Key Driver – Teachers Market
Life Consultant Channel Key Driver – Teachers Market Approximately Life Consultants(1) Approximately Public schools nationwide(2) serving As of January 1, 2016. As of May 1, 2015, Source: Japan Ministry of Education, Culture, Sports, Science and Technology, and Japanese Educational Mutual Aid Associ
Slide 50: Independent Agency Channel A Differentiated Strategy
Independent Agency Channel A Differentiated Strategy Key strategies Focus on “Quality” not just top-line growth; price competition not key to winning sales Deeper relationships with fewer agencies post Star/Edison integration Strong partnership with high performing agencies Key success factors Devel
Slide 51: Successful Distribution Channel Development Strategies
Successful Distribution Channel Development Strategies Tokyo Investor Day 9.15.2016 Foreign denominated activity translated to U.S. dollars at uniform exchange rates; Japanese yen 106 per U.S. dollar. Average policies sold per Life Consultant, per month. Annualized New Business Premiums(1) Steady gr
Slide 52: Emphasis on Protection Products
Emphasis on Protection Products Tokyo Investor Day 9.15.2016 Foreign denominated activity translated to U.S. dollars at uniform exchange rates; Japanese yen 106 per U.S. dollar. Annualized New Business Premiums First Half 2016(1) Life Consultants $375 million Independent Agency $127 million
Slide 53: In Force Growth Sensitivity
In Force Growth Sensitivity Tokyo Investor Day 9.15.2016 Assumed Annual Sales Level 20% below 2015 level 7% below 2015 level At 2015 level 20% above 2015 level Gibraltar Life In Force Face Amount(1) Excludes Bank channel. Assuming same sales mix, currency exchange rates for non-yen business, and per
Slide 54: Productivity
Productivity Tokyo Investor Day 9.15.2016 Life Consultant 2011 2012 2013 2014 2015 Number of Life Consultants(1) 12,791 11,333 9,327 8,707 8,805 Annualized Premium Productivity(2) $5,637 $5,403 $6,072 $6,413 $6,605 Policy Count Productivity(3) 3.5 3.1 3.6 3.6 3.8 As of end of each year; 2011 indepen
Slide 55: Summary
Summary Solid earnings base from stable block of high quality business with strong persistency Successful proprietary distribution concepts adapted from Life Planner model to support protection product emphasis in middle-market across Japan Broad national distribution coverage with opportunities for
Slide 56: Bancassurance in Japan
Bancassurance in Japan Takeshi Soeda President and Chief Executive Officer Prudential Gibraltar Financial Life
Slide 57: Proven Differentiated Approach to Japanese Bank Distribution
Bancassurance in Japan Proven Differentiated Approach to Japanese Bank Distribution Drives Growth of High Quality Business Emphasizing Mortality-Based Margins Focus on death protection products; recurring premium emphasis “Seconded” Life Planners and skilled wholesalers enhance value proposition and
Slide 58: Bancassurance Market in Japan
Bancassurance Market in Japan Source: “Population Estimates (as of December 1, 2015)” released by the Statistics Bureau of the Ministry of Internal Affairs and Communications. Compiled by Prudential based on the balance as of the end of September in Bank of Japan’s “the data on Flow of Funds Account
Slide 59: Bank Channel Relationships Provide Broad National Coverage
Bank Channel Relationships Provide Broad National Coverage Prudential Distribution Partners(1)(2) Deposits, etc(3) （Trillion USD） Mega Bank(4) 4 $3.2 Major Trust Bank 3 $1.5 Regional bank, etc. 67 $2.0 Brokerage firm 1 $1.0 Total 75 $7.7 As of December 1, 2015. The number of banks/financial institut
Slide 60: Comprehensive Product Portfolio Emphasizes Protection Products
Product portfolio as of June 30, 2016. U.S. Dollar variable annuities also available in portfolio; insignificant sales. Comprehensive Product Portfolio Emphasizes Protection Products Annuity Single pay fixed annuities(2) USD, AUD Whole Life Single pay whole life insurance USD, AUD Whole life insuran
Slide 61: Bank Channel Sales Focused on Recurring Premium Protection and Non-Yen Products
Bank Channel Sales Focused on Recurring Premium Protection and Non-Yen Products Annualized New Business Premiums(1) Foreign denominated activity translated to U.S. dollars of uniform exchange rates for all periods presented; Japanese yen 106 per U.S. dollar. Tokyo Investor Day 9.15.2016 Year ended D
Slide 62: Intergenerational Wealth Transfer Drives Enhanced Bank Channel Opportunity
Intergenerational Wealth Transfer Drives Enhanced Bank Channel Opportunity As of 2014(1) After the tax law revision(2) (January, 2015) National Average 4.4% nearly 6% Tokyo 7.5% nearly 20% Percentage of People Subject to Inheritance Tax Payment National Tax Agency “State of inheritance tax return fo
Slide 63: Bank Channel Sales Support Prudential's Differentiated Approach
Bank Channel Sales Support Prudential’s Differentiated Approach As of June 30, 2016. At certain banks. With more than 8 years since Japan’s full deregulation of Bancassurance in 2007, Prudential has secured substantial marketing expertise and skilled human resources to serve the Bank Channel Tokyo I
Slide 64: Prudential's Insurance Consultant Secondment Model
Prudential’s Insurance Consultant “Secondment” Model Experienced Life Planners “seconded” as Insurance Consultants to partner with banks, directly bringing strength of Prudential’s distribution model to bank channel(1) Growth of Insurance Consultant – Secondment Model - Key Role of Insurance Consult
Slide 65: Bank Channel Growth Driven By Death Protection Products
Bank Channel Growth Driven By Death Protection Products Bank Channel Annualized New Business Premiums(1) Foreign denominated activity translated to U.S. dollars at uniform exchange rates for all periods presented, Japanese yen 106 per U.S. dollar. ($ millions) Tokyo Investor Day 9.15.2016 699 701 14
Slide 66: Active Product Management in the Current Environment
Active Product Management in the Current Environment Suspended sales of yen-based single premium products, early 2016 Reduced crediting rates for advance premiums on yen business, effective June 2016 Suspended acceptance of full year advance premiums on yen-based increasing whole life, effective Jun
Slide 67: Summary
Summary Japan bancasssurance offers attractive customer base, wealth concentration Unique bank channel approach applying Prudential’s differentiated capabilities Focus on death protection coverage, emphasizing recurring premium products and U.S. dollar business Intergenerational wealth transfer mark
Slide 68: Investments and Asset–Liability Management in Japan
Scott Sleyster Senior Vice President and Chief Investment Officer Prudential Financial, Inc. Investments and Asset–Liability Management in Japan
Slide 69: Meeting Investment Challenges in Japanese Macro Environment
Meeting Investment Challenges in Japanese Macro Environment Tokyo Investor Day 9.15.2016 Decades-long decline in Japanese interest rates Negative rates on certain benchmark Japanese government bonds follow Japan monetary stimulus strategies Limited availability of attractive long-dated Yen fixed inc
Slide 70: Strong Asset/Liability Management Discipline
Strong Asset/Liability Management Discipline Disciplined ALM approach mitigates risks, including the impact of changes in interest rates Tokyo Investor Day 9.15.2016 Globally Consistent Approach Domestic and International investment organizations share common ALM approach, framework and tools Liabil
Slide 71: Investment Portfolio Diversified by Currency
Investment Portfolio Diversified by Currency, Supporting Multi-Currency Product Offerings Japan business is diversified by currency, reducing reliance on Yen investments New and recurring cash flows denominated in USD, JPY and AUD Liabilities are supported by assets denominated in or hedged to same
Slide 72: Pace and Mix of Reinvestment Flows: Yen Liability Portfolio
Pace and Mix of Reinvestment Flows Reduce Impact of Current Market Conditions Investments Supporting Japanese Yen Liability Portfolio: $97.1 billion(1)(2) As of June 30, 2016. Portfolio based on currency of underlying products. Based on amortized cost using exchange rate of JPY106 per USD. JPY asset
Slide 73: Pace and Mix of Reinvestment Flows: U.S. Dollar Liability Portfolio
Pace and Mix of Reinvestment Flows Reduce Impact of Current Market Conditions Investments Supporting U.S. Dollar Liability Portfolio: $32.5 billion(1)(2) As of June 30, 2016. Portfolio based on currency of underlying products. Based on amortized cost. Excludes $4.5 billion of USD investments hedged
Slide 74: U.S. Dollar Investments Deployed to Support Liabilities and Yen Equity Hedge Program
U.S. Dollar Investments Deployed to Support Liabilities and As Part of The Yen Equity Hedge Program As of June 30, 2016. Based on amortized cost. Contracts subject to Market Value Adjustments in event of premature surrender. U.S. Dollar investments exceed similarly denominated liabilities by approxi
Slide 75: Manageable Exposure to Investment of Net Insurance Cash Flows
Manageable Exposure to Investment of Net Insurance Cash Flows Annual Net Insurance Cash Flows(1) Japanese Yen(2) $5.3 U.S. Dollar $2.3 Australian Dollar(2) $2.0 For the year ended December 31, 2015, represents premiums, policy charges and fees and investment income, less policy benefits and expenses
Slide 76: Japan More Fully Leveraging Prudential's Global Asset Management Capabilities
Japan More Fully Leveraging Prudential’s Global Asset Management Capabilities Japan portfolios take advantage of Prudential’s global asset management and private asset origination capabilities Tokyo Investor Day 9.15.2016
Slide 77: Diversified and High Quality Asset Portfolio
Portfolio Asset Class(2) Investment Grade Credit Rating Distribution(2)(3) Includes fixed maturities, commercial mortgages and other loans, and non-coupon investments including equities. As of June 30, 2016 based on amortized cost. Includes public investment grade fixed income, private placements an
Slide 78: 2016 YTD Asset Purchases
2016 YTD Asset Purchases Tokyo Investor Day 9.15.2016 Fixed Income Acquisitions 2016 YTD: $11.5 billion(1)(2) As of June 30, 2016 based on U.S. GAAP carrying value and book yield by currency of invested assets. Converted to USD based on weighted average exchange rates. Higher proportion of acquisiti
Slide 79: Additional Capacity for Credit Allocations in Japan
Additional Capacity for Credit Allocations in Japan Japan portfolios have additional capacity for credit risk, which could be utilized to further enhance Net Investment Income (NII) The ultimate size of this credit position would take capital and risk implications into account 12 Tokyo Investor Day
Slide 80: Conclusion
Conclusion Strong ALM focus coupled with product portfolio currency mix and emphasis on mortality and expense margins limits exposure of overall returns to Yen investment yields Pace and mix of reinvestment flows reduce impact of current market conditions Diversified high quality investment portfoli
Slide 81: Prudential International Insurance Financial Overview
Rob Falzon Executive Vice President and Chief Financial Officer Prudential Financial, Inc. Prudential International Insurance Financial Overview
Slide 82: The Balancing Act – Operating Metric Objectives
‘The Balancing Act’ – Operating Metric Objectives Tokyo Investor Day 9.15.2016 …All underpinned by balance sheet strength and stability Growth and Return on Equity Cash Generation and Deployment Volatility and Risk
Slide 83: High Return Business
High Return Business Tokyo Investor Day 9.15.2016 1)Not adjusted for market driven and discrete items. Represents after-tax results based on pre-tax AOI tax effected using the overall effective tax rate of PFI for 2015 and the former FSB for periods prior to 2015. Return on equity (ROE) based on aft
Slide 84: Returns Primarily Derived from Mortality & Expense Margins
Returns Primarily Derived from Mortality & Expense Margins Tokyo Investor Day 9.15.2016 Conceptual illustration based on typical individual products with assumed profitability structure at time of sale; not intended to depict precise allocation of earnings sources. Mortality, Expense & Other Margin
Slide 85: Key Mitigants for Interest Rate Exposure
Key Mitigants for Interest Rate Exposure Tokyo Investor Day 9.15.2016 Interest rates have been low in Japan for many years Key Mitigants Low portfolio turnover Strong asset/liability management, including investment asset classes supported by PGIM skills Emphasis on protection products – stable earn
Slide 86: Hypothetical Impact of Interest Rates on Earnings
Hypothetical Impact of Interest Rates on Earnings Assuming Rates Stay at 6/30/16 Levels Assumes profit drivers including mortality, persistency, expenses, and other assumptions, and mix of investments purchased, consistent with our base projection, with yields unchanged from June 30, 2016. Impact on
Slide 87: Statutory Reserving Interest Rates Recent Developments in Japan
Statutory Reserving Interest Rates Recent Developments in Japan Tokyo Investor Day 9.15.2016 Standard reserve rates driven by formulas prescribed by the Financial Services Agency (FSA) Applicable only to new business for Yen-denominated products commencing at effective dates Standard rate reduced fr
Slide 88: Foreign Currency Exchange Rate Hedging Objectives
Foreign Currency Exchange Rate Hedging Objectives Tokyo Investor Day 9.15.2016 Protect Enterprise Earnings and ROE Protect Long-term Value of Investment in Japanese Business Mitigate Currency Exchange Rate Impact on Solvency Margin Ratio (SMR) Dampen Annual Reported Earnings Volatility due to Foreig
Slide 89: Currency Sensitivity of International Insurance Earnings
During the first half of 2016, approximately 34% of International Insurance earnings are yen-based Currency Sensitivity Tokyo Investor Day 9.15.2016 International Insurance First Half 2016 Earnings at Different Yen Hedging Rates(1) ($ millions) Hypothetical Hedging Rates ¥80 ¥90 ¥100 ¥106 ¥120 ¥130
Slide 90: Yen Hedging Strategy
For Internal and External equity hedges. Break-even at June 30, 2016 is ¥107/ $. Protection Protects Near-term Earnings and Cash Flow Protects Long-term Value Yen Hedging Strategy – Mitigates ROE Dilution Income Hedges $15.4B Equity Hedges $1.8B $12.8B $0.8B Forwards USD Assets Dual Currency Bonds E
Slide 91: Yen Earnings Hedge
Yen Earnings Hedge Tokyo Investor Day 9.15.2016 Historical Yen Spot Rates vs. Hedging Rates (¥) ¥99 ¥92 ¥85 ¥80 ¥82 Expected yen-based AOI is hedged over a 36 month rolling period using a series of FX forwards with laddered maturities Each quarter’s expected yen earnings are hedged over the precedin
Slide 92: Yen Equity Hedge Protects USD Value of Japan Operations
Yen Equity Hedge Protects USD Value of Japan Operations and Overall Prudential ROE from FX Movements Tokyo Investor Day 9.15.2016 U.S. dollar investments in Japan support value of Yen-based business Cash flows to / from Japan on internal hedge reflect currency movements Provides cash to holding comp
Slide 93: Fair Value of Yen Equity Hedge
Fair Value of Yen Equity Hedge(1) Tokyo Investor Day 9.15.2016 Equity Hedges $13.6 billion “notional” value of yen exposure $(0.5) billion fair value of PFI hedges Cash is realized over time as settlements occur Equity Hedge FX Sensitivity Spot Rate as of 6/30/16 10% JPY Appreciation 10% JPY Depreci
Slide 94: Historical Capital Generation and Redeployment
Historical Capital Generation and Redeployment Tokyo Investor Day 9.15.2016 Through December 31, 2015. Represents after-tax results based on pre-tax AOI tax effected using the effective tax rate of PFI for 2015 and the former FSB for periods prior to 2015. Redeployed excess capital of ~65% of earnin
Slide 95: Capital Management Opportunities
Capital Management Opportunities Redeployment Method Description Dividends In accordance with regulatory and solvency standards Affiliated Debt Repayment Approximately $0.9 billion outstanding on books of Prudential’s Japanese insurance companies(1) Affiliated Lending In accordance with regulatory a
Slide 96: Solvency Margin Ratio
Solvency Margin Ratio SMR March 31, 2016(1) Stressed Scenario Prudential of Japan 801% Consistent with Target Gibraltar Life 928% Consistent with Target Based on Japanese statutory accounting and risk management standards applicable to regulatory filing. On a consolidated basis. Represents indicated
Slide 97: Key Messages
Key Messages Tokyo Investor Day 9.15.2016 Manageable Exposure to Macro-Environment Developments Robust Financial Position Strong Capital Generation and Deployment Product Focus Drives Return Prospects 17