Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (December 2004)
101 slides from Prudential Financial's investor day presentation, Dec 2, 2004
Slide 1: Investor Day
Investor Day December 2, 2004
Slide 2: Prudential Financial Investor Day
Prudential Financial Investor Day December 2, 2004 Eric Durant Senior Vice President, Investor Relations
Slide 3: Forward-Looking Statements
Forward-Looking Statements Certain of the statements included in the following 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,” “assumes,” “est
Slide 4: Non-GAAP Measure
Non–GAAP Measure In managing our businesses, we use a non-GAAP measure we call “adjusted operating income” to measure the performance of our Financial Services Businesses (FSB). Our goals for return on equity (ROE) and earnings per share (EPS) are based on FSB after-tax adjusted operating income and
Slide 5: Investor Day
Investor Day December 2, 2004
Slide 6: Prudential Financial, Inc. - Art Ryan
Prudential Financial, Inc. Art Ryan Chairman and CEO
Slide 7: ROE levers: 2001-2005
ROE levers: 2001—2005 Expense cuts Resolve underperforming businesses Grow high return businesses Redeploy capital
Slide 8: What has happened since demutualization
What has happened since demutualization Divested P&C business Combined retail brokerage into Wachovia Acquired American Skandia Acquired CIGNA Retirement Repurchased $2.9 billion of Common Stock(1) Increased cash dividend: 25% in 2003, 25% in 2004 Achieved significant expense reductions Doubled earn
Slide 9: After 2005 …
After 2005 … Two substantial growth opportunities: International businesses Domestic retirement and savings businesses Evolving multi-channel distribution strategy Substantial operating cash flows enable share repurchases, growing cash dividends Opportunistic acquisitions
Slide 10: Execution and business mix drive superior shareholder value growth
2005 — 2007 Execution and business mix drive superior shareholder value growth ROE of 12% - 14% Double digit average annual growth: AOI, EPS Reasonably consistent operating results Visible, sustainable cash flow “AA”capital management
Slide 11: Investor Day
Investor Day December 2, 2004
Slide 12: Prudential Financial, Inc. - Mark Grier
Prudential Financial, Inc. Mark Grier Vice Chairman, Financial Management
Slide 13: Year to date financial highlights
Year to date financial highlights (1) For the nine months ended September 30 2003 2004 Change Pre-tax adjusted operating income (2) $1,482 $1,815 22% Earnings per share of Common Stock (3) $1.90 $2.63 38% Return on Equity (4) 7.6% 10.0% (1) For the Financial Services Businesses (FSB) (2) In millions
Slide 14: Total attributed equity of $19.0 billion
Total attributed equity of $19.0 billion (1) Operating Businesses $14.9 $4.1 Corporate & Other (1) As of September 30, 2004 for the FSB; excludes unrealized gains and losses on investments. Investor Day 12.02.04 15
Slide 15: Attributed equity of operating businesses
Attributed equity of operating businesses INTERNATIONAL INSURANCE Life Planner model Gibraltar Life RETIREMENT & SAVINGS Retirement Individual Annuities DOMESTIC INSURANCE Individual Life Group Insurance INVESTMENT BUSINESSES Financial Advisory Asset Management International Investments Attributed e
Slide 16: Complementary and diversified businesses
Complementary and diversified businesses Adjusted operating income(1) $1,815 million RETIREMENT & SAVINGS Retirement Individual Annuities INTERNATIONAL INSURANCE Life Planner model Gibraltar Life 29% 39% 10% 22% INVESTMENT BUSINESSES & CORPORATE Financial Advisory Asset Management International Inve
Slide 17: International Insurance
International Insurance (1) 5,234 Life Planners 4,759 Gibraltar Life Advisors 6.3 million policies in force Annualized new business premiums: $904 million(2) (1) As of September 30, 2004 (2) For the year ended December 31, 2003; GAAP Exchange rate basis – translated based on applicable average excha
Slide 18: Life Planner model business driver growth
Life Planner model business driver growth CAGR 1998 – 2003 Adjusted Operating Income (2) Annualized New Number of Policies Business in Force (000) Premiums (1) Number of Life 21% 26% Planners 18% 16% $608 mm 2,010 $449 mm 4,989 $270 mm 2,332 776 $144 mm (1) GAAP Exchange rate basis – translated base
Slide 19: Gibraltar Life progress report
Gibraltar Life progress report ROE consistently above 20% (1) Persistency better than expected Agent compensation transitioned to variable Agent productivity up; exceeds norm in Japan Increased recurring premium sales (1) Based on after-tax adjusted operating income Investor Day 12.02.04
Slide 20: Annuities
Annuities American Skandia acquisition created top ten variable annuity business ?Compelling economics: over 16% ROE (1) ?Leading distributor of variable annuities through independent financial planners Combined annuity account values now $48 billion (2) Combined gross annuity sales, $5.0 billion (3
Slide 21: Strategic benefits of CIGNA acquisition
Strategic benefits of CIGNA acquisition Doubles our defined contribution record keeping business Adds established benefit consultant channel Adds strong 401(k) and Taft-Hartley presence to our strengths in 403(b) and 457 market segments Adds total retirement outsourcing capabilities Strong fit with
Slide 22: Individual Life ROE
Individual Life ROE (1) ($, millions) Pre-tax adjusted operating income (AOI) (2) $ 381 After-tax AOI (3) 267 Direct equity adjustment (DEA) (2) 85 After-tax AOI, including DEA $ 352 Attributed equity $ 2,600 Return on equity 14% (1) Based on annualized after-tax adjusted operating income for the ni
Slide 23: Individual Life sales
Individual Life sales Sales(1) YTD 2003 YTD 2004 Term Universal Variable $231 million $285 million (1) Scheduled premiums from new sales on an annualized basis and first year excess premiums and deposits on a cash-received basis, excluding COLI; for the nine months ended September 30
Slide 24: Group Insurance
Group Insurance Controlled growth – emphasis on margins Selective repricing to retain profitable business High persistency of quality business Improving disability claims resolution capability Return on equity of 12% in 2003 (1) (1) Based on after-tax adjusted operating income for the year ended Dec
Slide 25: Financial Advisory
Financial Advisory Combination of Private Client Group with Wachovia closed July 1, 2003 62% Wachovia, 38% Prudential Combined business created 3rd largest brokerage firm in the U.S. (1) Integration on track; expect significant expense saves JV operating results in line with expectations Segment res
Slide 26: Asset Management: significant scale and breadth
Asset Management: significant scale and breadth Total AUM $470 billion (1) AUM by asset type AUM by client type Non-proprietary insurance, annuity & other 17% International Fixed 14% Real Income 48% Equity 18% Estate 3% Non-proprietary insurance, Institutional customers annuity & other 17% 23% CB In
Slide 27: Financial strength
Financial strength (1) Attributed equity (excl FAS 115, in millions) $ 18,987 Corporate Debt/Capital (2) 14.1 % Fixed Maturities (in millions) Gross unrealized gains $ 4,705 Gross unrealized losses $ 429 Net unrealized gains $ 4,276 (1) Financial Services Businesses; as of September 30, 2004 (2) Bas
Slide 28: Update on 12% ROE goal
Update on 12% ROE goal 2005 timeframe Grow high performing businesses Integration of CIGNA Retirement business Achieve expected expense saves from Wachovia JV Manage margins and returns Continue share repurchases
Slide 29: Investor Day
Investor Day December 2, 2004
Slide 30: Retirement and Annuities: Key Businesses in a Growing Market
Retirement and Annuities: Key Businesses in a Growing Market John Strangfeld Vice Chairman, Investment Division Investor Day 12.02.04
Slide 31: The U.S. customer base is aging
The U.S. Customer base is aging 1960 Male Age Female 85+ 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 1990 Male Age Female 85+ 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 2020 Male Age Female 8
Slide 32: Individuals assume more responsibility for their own retirement security
Individuals assume more responsibility for their own retirement security 20 Years Ago Today Retirement income from Social Security 65% 35-50% Households covered by DB plan 50% 35% Households covered by DC plan 11% 49%
Slide 33: Rapidly growing retirement / savings market
Rapidly growing retirement / savings market $19 trillion market in 2003 IRAs $2.7 Personal Savings $6.8 Defined Contribution $3.3 Annuities Defined Benefit $1.3 $4.8 $19 Trillion 2003 9% CAGR $39 Trillion 2012
Slide 34: Prudential's retirement and annuities businesses
Prudential’s retirement and annuities businesses: focused on key aspects of retirement / savings $19 trillion market in 2003 IRAs $2.7 Personal Savings $6.8 Defined Contribution $3.3 Defined Benefit Annuities $4.8 $1.3
Slide 35: Retirement and annuities – a growing part of the FSB
Retirement and annuities – a growing part of the Financial Services Businesses Attributed equity of the FSB(1) December 31, 2002 September 30, 2004 $18.4 billion $19.0 billion $1.3 $3.4 $0.8 $1.9 11% Retirement & Annuities 28% Retirement & Annuities Retirement Annuities (1) Excludes unrealized gains
Slide 36: American Skandia and CIGNA acquisitions create scale
American Skandia and CIGNA acquisitions create scale Account values December 31, 2002 September 30, 2004 $80.7 billion $172.6 billion $124.3 Retirement Retirement $62.0 $48.3 Annuities Annuities $18.7
Slide 37: Retirement and annuities – growing contribution to earnings
Retirement and annuities – a growing contribution to earnings results Adjusted operating income of the FSB (1) Year ended December 31, 2002 $1.7 billion Nine months ended September 30, 2004 (2) $1.8 billion 6% Retirement & Annuities 29% Retirement & Annuities (1) Pre-tax (2) Includes results of reti
Slide 38: Drivers of growth
Drivers of growth Full product suites in retirement and annuities Attractive stable value retirement products Complementary distribution channels Ratings upgrades enhance attractiveness Strengthening a major brand in retirement / savings Investor Day 12.02.04
Slide 39: Summary
Summary Retirement / Savings is a key domestic growth market Prudential has added scale and breadth to its expertise in the Retirement and Annuities businesses Product / Distribution / Service strengths support growth potential… ratings upgrades a plus A strong brand in a growing market Investor Day
Slide 40: Investor Day
Investor Day December 2, 2004
Slide 41: Prudential Retirement
Prudential Retirement John Kim President, Prudential Retirement Investor Day 12.02.04
Slide 42: Prudential Retirement financial performance
Prudential Retirement financial performance Year Ended Nine Months Ended December 31 September 30 2002 2003 2004(1) Total account values (2) (3) $61,972 $70,613 $124,325 Gross sales (2) 5,325 8,435 10,035 Pre-tax adjusted operating income(2) 141 192 238 Attributed equity (3)(4) 1.3 1.6 3.4 (1) Refle
Slide 43: A Growing Part of Grow and Protect
A Growing Part of “Grow and Protect” Retirement market increasingly important in asset gathering •CIGNA acquisition creates a leading retirement market provider •Total retirement services capability provides market advantage •Stable value products offer attractive returns with limited risk Complemen
Slide 44: CIGNA acquisition creates a leading retirement provider
CIGNA acquisition creates a leading retirement provider Prudential CIGNA Combined Retirement Retirement Business Account Values (1)(2) Defined Contribution $29 $34 $63 Defined Benefit/ Guaranteed Products $42 $19 $61 Total $71 $53 $124 Participants(1) Defined Contribution 990,000 994,000 1,984,000 D
Slide 45: CIGNA acquisition creates a leading retirement provider
CIGNA acquisition creates a leading retirement provider Prudential CIGNA Combined Business Retirement Retirement Distribution Commissioned Direct/Consultant Commissioned advisors advisors Direct/Consultant Market 403(b) Mid/Large market 401(k) 403(b) Strengths 457/Governmental Multi-employer 457/Gov
Slide 46: CIGNA Retirement integration on track
CIGNA Retirement integration on track Created project management office; successfully completed one-third of all key milestones since the close Legal and regulatory approvals progressing well Company name change—46 state approvals (1) Contract transfer process (e.g. novation) – 43 state approvals (1
Slide 47: Integration: Alignment of product, process, service
Integration: Alignment of product, process, service CIGNA Book of Business Acquisition Novation Integration Alignment of Product, Process, and Service Prudential Book of Business Business As Usual Prudential Retirement (1) Defined Contribution CIGNA % of Combined Book Number of Clients Converting 1,
Slide 48: Full suite of retirement products and services
Full suite of retirement products and services(1) Defined Contribution $63B Account values 4,900 Clients 31% Stable Value (2) Scale provides competitive advantage Expanded distribution capability Major platform for stable value products Guaranteed Products Active Defined Benefit: $12B Account values
Slide 49: A leader in total retirement services
A leader in total retirement services DC Total DB Retirement Services Non-Qualified Plans Total Plan Benefits Sponsor Outsourcing Health / Welfare HR Payroll We have distinguished ourselves as one of the few Total Retirement Services players with integrated DB, DC, and Non-qualified plan capabilitie
Slide 50: Market leading capabilities across product offerings
Market leading capabilities across product offerings “Total Retirement Services” Full suite of stable value products Offer access to both separate account and mutual fund platforms Award winning participant communications capabilities and highest independent ratings Extensive fiduciary support capab
Slide 51: $23 billion stable value balances are major source of earnings
$23 billion stable value balances (1) are major source of earnings Stable value characteristics Low risk profile: about 90% of balances experience-rated with client sharing investment risk Rate resets semi-annually on most products Future crediting rates typically reflect prior experience Low intere
Slide 52: Complementary distribution channels address Defined Contribution market
Complementary distribution channels address Defined Contribution market Emerging (Small) Middle/Large Tax-Exempt Corporate Market Profile (1): AUM (2) $11 billion $29 billion $21 billion Clients 2,900 500 1,500 Participants (3) 400,000 906,000 648,000 Distribution Commission-based Fee-based Speciali
Slide 53: Ratings upgrades enhancing market position
Ratings upgrades enhancing market position Standard A. M. Best Moody’s & Poor’s Insurance Claims Paying Ratings (1): Prudential Insurance Prudential Retirement Insurance and Annuity Company A+ Aa3 AA- A+ NR(2) AA- Upgraded Upgraded Upgraded February October November 2004 2004 2004 (1) As of December
Slide 54: Opportunities for increased asset gathering
Opportunities for increased asset gathering Rollover Assets Income Protection Products Health Savings Accounts
Slide 55: Summary
Summary Retirement market increasingly important in asset gathering CIGNA acquisition creates a leading retirement market provider; integration on track Total retirement services capability provides market advantage Stable value products offer attractive returns with limited risk Complementary distr
Slide 56: Investor Day
Investor Day December 2, 2004 Investor Day 12.02.04
Slide 57: Individual Annuities
Individual Annuities David Odenath President, Prudential Annuities
Slide 58: Individual annuities financial performance
Individual annuities financial performance Year Ended Nine Months Ended December 31 September 30 2002 2003(1) 2004 Account values (2): Variable annuities $ 15,338 $ 43,949 $ 44,474 Fixed annuities 3,396 3,514 3,860 Total account values 18,734 47,463 48,334 Gross sales (3) 2,000 4,665 4,981 Pre-tax a
Slide 59: Successful acquisition builds a market leader
Successful acquisition builds a market leader Business strengthened by American Skandia acquisition; integration successfully completed Variable annuity emphasis complemented by fixed annuities Net sales positive and growing Complementary distribution channels; a leader with independent financial pl
Slide 60: Acquisition strengthens annuity business
Acquisition strengthens annuity business Gross Sales ($, millions) 6,000 4,000 2,000 0 2,000 2002 2,495 2,170 2003 4,981 YTD 2004(1) Account Values ($, billions) (2) 60 40 20 0 18.7 2002 26.0 21.5 2003 48.3 9/30/2004 Prudential American Skandia Combined (1) Nine months ended September 30, 2004 (2) A
Slide 61: Market share has climbed as a result of the acquisition
Market share has climbed as a result of the acquisition Prudential variable annuity market share (1) (2) 6.00% 5.00% 4.00% 3.00% 2.00% 5.2% 5.0% 4.9% 5.0% 4.2% 4.6% 4.6% 4.6% 4.4% 4.5% 4.2% 4.1% 4.0% 3.4% 3.4% 1Q’01 2Q’01 3Q’01 4Q’01 1Q’02 2Q’02 Prior to acquisition 3Q’ 02 4Q’02 1Q’03 2Q’03 3Q’03 4Q
Slide 62: Emphasis on variable annuities
Emphasis on variable annuities More than 90% of gross product sales and account values come from variable annuity products Nine months ended September 30, 2004 ($, millions) Variable Fixed Gross Sales $ 4,518 $ 463 Net Sales 637 317 Account values (1) 44,474 3,860 (1) At end of period Investor Day 1
Slide 63: Top VA Company
Top 10 VA Company AUM: 3Q’04 Prudential Annuities is ranked #5 in advisor-sold VA Assets Under Management (1) ($, millions) Hartford 87,298 Equitable 51,271 MetLife 45,106 Lincoln 43,568 Prudential 42,644 #5 Nationwide 37,500 AIG Sun/VALIC 31,139 IDS 31,376 Manulife 29,989 ING 28,795 (1) Advisor-sol
Slide 64: Top variable annuity sales companies
Top 10 variable annuity sales companies And Prudential is ranked #8 in advisor-sold VA new sales (1) 3Q’04 3Q’04 3Q’04 Rank Company Sales ($B) Share% 1. Hartford $3.4 13.7% 2. Equitable $2.2 9.0% 3. MetLife $2.0 7.9% 4. Lincoln $1.7 6.9% 5. ING Group $1.6 6.3% 6. Pacific Life $1.4 5.7% 7. Manulife $
Slide 65: Variable annuity channel sales
Variable annuity channel sales The majority of the annuities business is driven by third party channels, particularly the independent broker dealer channel VA Channel Sales Share: 3Q ‘04 (1) Annuity Industry 16% 37% 1% 22% 13% 11% Prudential Annuities 64% 5% 24% 5% 2% Independent Banks Direct Agency
Slide 66: Net sales in positive territory and growing
Net sales in positive territory and growing Annuity net sales ($, millions) 1000 0 -1000 ($174) $808 $484 $954 Year Ended Year Ended 9 Months Ended 9 Months Ended 12/31/02 12/31/03 9/30/03 9/30/04 Investor Day 12.02.04
Slide 67: Guaranteed Living and Death Benefits
Guaranteed Living and Death Benefits Prudential Annuities offers a full suite of living and death benefit riders Guaranteed Minimum Death Benefit (GMDB) Guarantees return of premium Step-up/roll-up options Guaranteed Minimum Accumulation Benefit (GRO) Guarantees principal preservation after 7 year w
Slide 68: Variable annuity guarantees
Variable annuity guarantees ($, billions) 12/31/02 12/31/03 9/30/04 Total variable annuity account values $ 15.3 $ 43.9 $ 44.5 GMDB amount at risk 3.4 5.6 5.6 Account values with living benefit features: Accumulation (“GRO”) — 3.7 5.0 Income (GMIB) 0.2 1.1 2.0 Withdrawal (GMWB) — 0.03 0.4
Slide 69: Balanced, manageable product risks
Balanced, manageable product risks Predominant living benefit – “GRO” : Guarantee supported by company allocation of customer funds Limited exposure to guaranteed minimum income benefits (GMIB) and guaranteed minimum withdrawal benefits (GMWB) GMDB “at risk” is $5.6 billion, on $45 billion of variab
Slide 70: Summary
Summary Business strengthened by American Skandia acquisition; integration successfully completed Variable annuity emphasis complemented by fixed annuities Net sales positive and growing Complementary distribution channels; a leader with independent financial planners Attractive full product suite B
Slide 71: Investor Day
Investor Day December 2, 2004 Investor Day 12.02.04
Slide 72: International Division
International Division Rodger Lawson Vice Chairman, International Insurance and Investments Division Investor Day 12.02.04
Slide 73: International Division financial performance
International Division financial performance Year Ended Nine Months December 31 Ended September 30 $, millions) 2002 2003 2004 Pre-tax adjusted operating income: International Insurance excluding Gibraltar Life $ 379 $ 449 $ 389 Gibraltar Life 378 370 309 27% ROE (1) 698 International Investments (6
Slide 74: Key elements of our international strategy
Key elements of our international strategy Focus on limited number of attractive countries Prioritize the affluent and mass affluent individual markets Develop business platforms based on Life Insurance or Investment Management or both Pursue opportunistic acquisitions Maintain very strict financial
Slide 75: Life Planning insurance
Life Planning insurance Value Proposition – Life Planners – A highly trained, professional field force focused on providing life insurance plans tailored to the specific needs of each individual client Competitive Advantage – Client focus – Needs based selling – Industry leadership service capabilit
Slide 76: Life Planners
Life Planners (1) 5,234 4,989 4,505 4,104 3,495 2,884 2,332 1,908 1,603 1996 1997 1998 1999 2000 2001 2002 2003 3Q04 Japan Korea Taiwan All others (1) At end of period
Slide 77: Life Planner model number of individual policies in-force
Life Planner model number of individual policies in-force (1) 2,229 2,010 # of Policies (Thousands) 1,719 1,482 1,181 962 776 1998 1999 2000 2001 2002 2003 3Q04 Japan Korea All Others (1) At end of period
Slide 78: Life Planner productivity
Life Planner productivity (1) Japan Korea 8.5 4.6 12 8 4 0 7.0 2.2 Prudential of Japan Top 5 Prudential of Korea Top 3 (1) Policies per Life Planner per month, based on new business, for the twelve months ended March 31, 2004. Industry data include medical riders; Prudential data do not. Industry da
Slide 79: Life Planner retention and policy persistency
Life Planner retention and policy persistency Life Planner model 2000 2001 2002 2003 3Q04 12-month Retention 75% 66% 72% 75% 74% 24-month Retention 65% 61% 55% 57% 58% 13-month policy 94% 93% 93% 93% 93% persistency(1) 25-month policy 88% 88% 86% 87% 86% persistency(1) Renewal policy 95% 94% 95% 94%
Slide 80: Life Planner model strategy and plans
Life Planner model strategy and plans Disciplined implementation Organic expansion in existing markets Continued growth in Life Planners Maintenance of Life Planner productivity Maintenance of client policy persistency levels Very selective entry into new markets
Slide 81: Gibraltar Life—summary
Gibraltar Life—summary Stable earnings and distribution system High return on equity Strong free cash flow Year Ended Nine Months December 31 Ended September 30 2002 2003 2004 Adjusted operating income (1) $378 $370 $309 Equity (2) 1.1 1.1 0.8 ROE (3) 22% 23% 34% (1) Before-tax; in millions (2) Aver
Slide 82: Gibraltar key drivers
Gibraltar key drivers (1) Key drivers Gibraltar Top 5 (2) Productivity (3) 3.8 2.2 Policy Persistency(4) 13—month 93.3% 83.4% 25—month 81.7% 72.7% Life Advisor Retention 12—month 56.3% 38.6% 24—month 29.1% 17.0% (1) For the twelve months ended March 31, 2004 (2) Industry data based on company inform
Slide 83: Where we are today—summary
Where we are today—summary Leadership positions in life planning Gibraltar generates high ROEs and cash flows Developing asset management platforms Profitability dominated by Japan and Korea Management depth; country expertise Acquisitions potentially additive Investor Day 12.02.04
Slide 84: Investor Day
Investor Day December 2, 2004 Investor Day 12.02.04
Slide 85: International Insurance Finance
International Insurance Finance John Hanrahan Chief Financial Officer, International Insurance Investor Day 12.02.04
Slide 86: Sources of financial performance
Sources of financial performance Sales Persistency Growth in business in-force Emphasis on protection products Improving investment spreads Strengthening Yen
Slide 87: Long term sales growth tracks LP growth
Long term sales growth tracks LP growth Reasons for higher sales in 2001: Gibraltar LA sold POJ products during restructuring period Temporary surge in sales before premium rate increases New Business Annualized Premiums ($, millions) (1) 500 400 300 200 L i f e P l a n n e r s Sales of POJ products
Slide 88: POJ sources of product profitability
POJ sources of product profitability (1) Term/Riders Whole Life Endowment 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% 35% 26% 9% 0% 11%10% 14% 4% 10% 4% -7% -10% Mortality Expense Interest TOTAL (1) Estimated percentage based on before-tax income (on an adjusted operating income basis) to premiums Invest
Slide 89: Sources of total profitability 2003
Sources of total profitability 2003 Profitability (1) ($, millions) POJ POK Gibraltar Mortality $ 242 $ 72 $ 290 Interest (106) (4) 100 Expenses 220 69 4 Surrenders — — (24) TOTAL $ 356 $ 137 $ 370 (1) Estimated breakdown of before-tax adjusted operating income Investor Day 12.02.04
Slide 90: Improving interest rate environment in Japan
Improving interest rate environment in Japan Required interest rates coming down $1.8 billion of POJ and Gibraltar asset portfolio will mature in the next 12 months. Average yield of these maturing assets is 2.3%. Average new money investment yield under current environment is 2.5% Conservative port
Slide 91: Interest rate impact on profitability—POJ
Interest rate impact on profitability—POJ Nine months 2003 ended 9/30/04 Average Required Interest 4.00% 3.89% Average Yield 2.37% 2.59% Negative Spread (1.63%) (1.30%) Negative Spread (millions) ($106) ($77) Investor Day 12.02.04
Slide 92: Foreign exchange hedge impact
Foreign exchange hedge impact Yen income hedging plan on 12 quarter rolling basis Yen forward rates exceed spot rates against the dollar A strengthening Yen helps earnings Hedging delays impact on earnings, but does not eliminate it Yen / $ Actual vs. AOI Yen / $ Rate 2001 – 3Q04 Actual Yen / $ rate
Slide 93: Strong capital position
Strong capital position Solvency Margins 9/30/04 Solvency Margin Prudential of Japan Gibraltar Typical Rating Agency Targets 1,045% 1,117% AA – 700%, A – 500% Significantly higher capital than needed to operate businesses International Insurance has successfully redeployed nearly $1 billion of exces
Slide 94: Summary
Summary Strong sales and superior persistency provide growth of business in-force Life Planner system sales track LP growth over long term Emphasis on protection products leads to superior margins Improving Japanese investment spreads and strengthening Yen contribute to results Strong capital positi
Slide 95: Investor Day
Investor Day December 2, 2004
Slide 96: Financial Outlook
Financial Outlook Richard J. Carbone Chief Financial Officer Investor Day 12.02.04
Slide 97: Considerations for 2005
Considerations for 2005 Business growth Improved results from Wachovia JV Transitioning complete Expense synergies realized Impact of recent acquisitions Full year of earnings for CIGNA retirement Full year of earnings for Hyundai, Aoba US Dollar = ¥110 Lower pension credit 8% market appreciation 30
Slide 98: FSB full year 2005 earnings guidance
FSB full year 2005 earnings guidance (1) Capital management Strengthening yen Recent acquisitions CIGNA Hyundai, Aoba Wachovia JV Business growth • international • domestic 2004 guidance (1) $3.30—$3.40 (1) Based on after-tax adjusted operating income for the Financial Services Businesses Investor D
Slide 99: Investor Day
Investor Day December 2, 2004 Investor Day 12.02.04
Slide 100: Closing Comments
Closing Comments Art Ryan Chairman and CEO
Slide 101: Investor Day
Investor Day December 2, 2004