Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (May 2012)
114 slides from Prudential Financial's investor day presentation, May 24, 2012
Slide 1: Prudential Financial, Inc. Financial Strength Symposium
Exhibit 99.1 Prudential Financial, Inc. Financial Strength Symposium May 24, 2012
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain of the statements included in this presentation constitute forward-looking statements within the meaning of the U. S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,”
Slide 3: Non-GAAP Measures
Non–GAAP Measures This presentation includes references to “adjusted operating income.” Adjusted operating income is a non-GAAP measure of performance of our Financial Services Businesses. Adjusted operating income excludes “Realized investment gains (losses), net,” as adjusted, and related charges
Slide 4: RBC Disclosure
RBC Disclosure This presentation includes references to Risk Based Capital (“RBC”). Prudential manages its insurance subsidiaries' RBC ratios to a level at or above a "AA" ratings target. RBC is determined by statutory guidelines and formulas that consider, among other things, risks related to the t
Slide 5: Prudential's U.S. Businesses
Prudential’s U.S. Businesses Charles Lowrey Executive Vice President and Chief Operating Officer, U.S.
Slide 6: Prudential's U.S. Businesses
Prudential’s U.S. Businesses U.S. Individual Life and U.S. Retirement Solutions and Group Insurance Division Investment Management Division Attributed Equity $3.9 billion (1) Attributed Equity $12.6 billion (1) Individual Group Prudential Asset Individual Life Insurance Retirement Management Annuiti
Slide 7: Prudential's U.S. Businesses
Prudential’s U.S. Businesses U.S. Individual Life and U.S. Retirement Solutions and Group Insurance Division Investment Management Division • Risk diversification; relatively limited • Strong growth prospects in U.S. financial market sensitivity retirement market • Historically solid cash flows and
Slide 8: U.S. Businesses Broad Earnings Diversification by Product and Risk
U.S. Businesses Broad Earnings Diversification by Product and Risk 2011 Earnings: $2.6 billion(1) Group Insurance $205 Individual 8% Individual Life 25% Annuities $482 $662 19% 25% Asset Retirement 23% Management $594 $659 1) Pre-tax adjusted operating income for U.S. Retirement Solutions and Invest
Slide 9: Positioned for Market Developments – Retirement Market
U.S. Businesses: Annuities, Retirement and Asset Management Positioned for Market Developments – Retirement Market Market Developments Prudential Positioning • Retirement income security goals • Popular “Highest Daily” variable annuity challenged by financial market volatility, products offer retire
Slide 10: Positioned for Market Developments – Protection Market
U.S. Businesses: Individual Life and Group Insurance Positioned for Market Developments – Protection Market Market Developments Prudential Positioning • Under-insured individuals seek • Effective capital, risk and expense convenient access for life insurance management support competitively protecti
Slide 11: Prudential Annuities
Prudential Annuities • Consistent approach to product design and demonstrated commitment to advisor-sold market provide strong competitive advantage • Proven, superior value proposition based on “Highest Daily” living benefits coupled with auto- rebalancing tailored to each customer’s account • Soli
Slide 12: Individual Annuities Account Values, Sales and Flows
Individual Annuities Account Values, Sales and Flows Account Values (1) $120 $113.5 $106.2 ($ billions) $100 $84.0 $80 $60 $40 $20 $0 2009 2010 2011 Sales and Flows $25 $21.8 ($ billions) $20.3 $20 $16.3 $15 $13.4 $11.7 $10 $9.1 $5 $0 2009 2010 2011 1) As of end of period. Gross Sales Net Flows Fina
Slide 13: Prudential Retirement
Prudential Retirement • Full Service Stable Value products: solid value proposition for pre-retirees; experience rating limits risks; low contractual interest rate floors • Strong growth in Investment Only Stable Value risk management/asset management solutions for pension plan sponsors • Emerging D
Slide 14: Prudential Retirement Account Values, Sales and Flows
Prudential Retirement Account Values, Sales and Flows Account Values (1) $250 $229.5 ($ billions) $205.5 $200 $178.3 $150 $100 $50 $0 2009 2010 2011 Sales and Flows $50 ($ billions) $44.6 $40 $34.6 $31.0 $30 $19.3 $20 $8.7 $10.8 $10 $0 2009 2010 2011 1) As of end of period. Gross Deposits and Sales
Slide 15: Prudential Retirement Sales and Flows
Prudential Retirement Sales and Flows Full Service ($ billions) $25 $23.2 $19.3 $20 $16.8 $15 $10 $8.8 $5 $2.5 $0 -$5 -$2.3 Institutional 2009 2010 2011 Investment Products ($ billions) $30 $27.8 $21.6 $20 $15.3 $10 $7.8 $8.3 $0.0 $0 2009 2010 2011 Gross Deposits and Sales Net Flows Financial Streng
Slide 16: Full Service Stable Value Products
Full Service Stable Value Products Account Values: $41 billion (1) • Principal guarantee feature attractive to pre-retirees • Value proposition strengthened by low available interest rates on alternatives for security-minded clients • Low risk profile: substantially all balances experience-rated, wi
Slide 17: Investment Only Stable Value Products
Investment Only Stable Value Products Account Values: $45 billion (1) • Prudential recordkeeping relationship not required; asset management mandate required for at least 50% of each account • Prudential sets investment guidelines • Wrap guarantee of book value based on zero-percent crediting rate f
Slide 18: Defined Benefit Risk Transfer An Emerging Opportunity
Defined Benefit Risk Transfer An Emerging Opportunity • Large potential market: $2.2 trillion private sector defined benefit plan assets(1); few companies equipped to offer solutions • Actuarially-driven long-term risks; relatively limited exposure to financial markets volatility • Products draw on
Slide 19: Flexible, Innovative Risk Transfer Strategies
Prudential Retirement Flexible, Innovative Risk Transfer Strategies Traditional Pension Plan “Buy-Out” Plan sponsor completely transfers pension plan risk to Prudential through general account products Portfolio Protected “Buy-In” 2011 Gross Sales Plan holds specially designed Prudential Over $2 bil
Slide 20: Asset Management
Asset Management • Leading third party asset manager • Robust institutional and retail businesses attract and retain talented investment professionals • Growing base of AUM driven revenues • Limited capital requirements; sustainable high ROE • Competitive advantage for Prudential businesses; seasone
Slide 21: Prudential Asset Management Competitive Advantages
Prudential Asset Management Competitive Advantages Experience and Third Party Clients Track Record $320 billion (1) third party AUM Breadth and Depth 12% AUM CAGR of Capabilities (2006 – 2011) Access to Capital and Co-investing (2) Manager Continuity Brand and 219 portfolio managers Reputation Avera
Slide 22: Asset Management An Integral Business
Asset Management An Integral Business Total AUM $637 billion (1) AUM by Asset Type AUM by Client Type 1) As of March 31, 2012. Financial Strength Symposium 5.24.2012 18
Slide 23: Strong Asset Management Net Flows
Strong Asset Management Net Flows (1) ($ billions) 1) Third party, excluding money market activity. Financial Strength Symposium 5.24.2012 19
Slide 24: AUM Growth Driving Asset Management Fees
AUM Growth Driving Asset Management Fees Assets ($ billions) $700 Under $619 Management $600 $537 by Asset Class(1) $500 $457 $400 $300 $200 $100 $0 2009 2010 2011 Fixed Income Equity Real Estate Asset ($ millions) $1,600 $1,467 Management $1,400 Fees $1,273 by Asset Class $1,200 $1,049 $1,000 $800
Slide 25: Building Sustainable Asset Management Revenues
Building Sustainable Asset Management Revenues(1) 2007 2011 $1.6 billion (2) $1.8 billion • Growth in asset management fees • Reduced strategic investing exposure • Exited commercial mortgage securitization conduit Asset Management Fees ITSICM 1) Asset management fees and incentive, transaction, str
Slide 26: Group Insurance
Group Insurance • Emphasis on group life insurance: approximately 75% of business in force(1) • Experience-rated larger-case business: pricing reflects experience over time • Relatively short pricing cycle for smaller cases not subject to retrospective experience rating • Focus on appropriate return
Slide 27: Group Insurance
Group Insurance Annualized New Business Premiums ($ millions) $690 $700 $607 $577 $600 $500 $400 $300 $200 $100 $0 2009 2010 2011 Voluntary Group Life Basic Group Life Group Disability Financial Strength Symposium 5.24.2012 23
Slide 28: Individual Life
Individual Life • Focus on returns through capital management, cost effective distribution • Complementary products and distribution channels • Quality business: pricing and underwriting discipline • Product mix limits overall interest rate and equity market sensitivity • Historically solid cash flo
Slide 29: Individual Life Building Quality Business
Individual Life Building Quality Business Annualized New Business ($ millions) $400 $359 Premiums (1) $350 $300 $260 $278 $250 $200 $150 $100 $50 $0 2009 2010 2011 Term Life Universal Life Variable Life Face Amount $700 $631 ($ billions) $613 In Force (2) $589 $600 $500 $400 $300 $200 $100 $0 1) Exc
Slide 30: Key Takeaways
Key Takeaways • Strong growth prospects in U.S. retirement market • Popular “Highest Daily” variable annuity products offer superior value proposition supported by proven product-based risk management • Investment Only Stable Value products offer compelling risk management / asset management solutio
Slide 31: Prudential Annuities
Prudential Annuities Robert O’Donnell President Prudential Annuities 1
Slide 32: Strong Position in an Attractive Market
Strong Position in an Attractive Market • Superior value proposition for retirement income security • Consistency of approach, demonstrated commitment to market, brand and reputation are competitive advantages • Risk management by design: contract level auto-rebalancing proven over track record of m
Slide 33: Market Developments – Client Perspective
Market Developments – Client Perspective Today’s Variable Annuity Market Prudential Positioning • Reduced availability of defined benefit • Highest Daily living benefit features help retirement plans and increasing retirement increase retirement income base, protect lifespans strengthen client deman
Slide 34: Market Developments – Distributor Perspective
Market Developments – Distributor Perspective Today’s Variable Annuity Market Prudential Positioning • Market entries, exits and re-entries by • Prudential’s Highest Daily product suite variable annuity writers create challenges forms basis of consistent approach to for distributors and raise questi
Slide 35: Prudential Annuities 2011 Asset and Sales Rankings
Prudential Annuities 2011 Asset and Sales Rankings FY 2011 Variable Annuity FY 2011 Advisor-Sold Assets Under Management 1 Variable Annuity Sales 1 ($ millions) MetLife $126,164 MetLife $28,262 Prudential $108,936 Prudential $20,236 Hartford $68,725 Jackson $17,494 Lincoln $66,471 Lincoln $8,692 Jac
Slide 36: Building Multi-Channel Distribution Strength
Building Multi-Channel Distribution Strength Prudential Individual Annuity Gross Sales (1) 2008 2010 2011 $10,329 $21,754 $20,293 Insurance Insurance Insurance Agents Agents Agents 13% 16% 24% Bank Independent 17% Bank 45% Independent 17% Bank 49% Independent 7% 57% Wirehouse 12% Wirehouse Wirehouse
Slide 37: Differentiated Value Proposition: Highest Daily Lock-In
Differentiated Value Proposition The Highest Daily Lock-In – Protected Value What are the chances of a daily lock-in Protected Withdrawal Value – capturing the notional amount for calculation best day? of lifetime annual withdrawals 100% What are the chances of a quarterly lock-in capturing the best
Slide 38: Differentiated Value Proposition: Contract Level Auto-Rebalancing
Differentiated Value Proposition Contract Level Auto-Rebalancing Recent Market Approaches Prudential Auto-Rebalancing for Client Risk Sharing • Fund-based approaches typically limit • Powerful algorithm mitigates risk by investment choices to designated funds protecting client account values in mark
Slide 39: Account Value and Protected Withdrawal Value
Account Value and “Protected Withdrawal Value” Market Downturn Scenario (1) $250,000 “PWV”: notional amount $200,000 for calculation of lifetime annual withdrawals $150,000 Account value available to customer $100,000 $50,000 $0 Year0 0 6 60 12 Protected Withdrawal Value Total Account Value Bond Fun
Slide 40: Auto-Rebalancing Preserving Account Values to Fund Retirement Income
Auto-Rebalancing Preserving Account Values to Fund Retirement Income Market Downturn Scenario (1) Income Without Auto-Rebalancing $100,000 Account Value AGE 60 72 73 74 75 76 77 78 79 80 81 82+ Income Account Value With Auto-Rebalancing $100,000 AGE 60 72 73 74 75 76 77 78 79 80 81 82+ = Payments Fu
Slide 41: Auto-Rebalancing Proven Through Financial Market Crisis… and Beyond
Auto-Rebalancing Proven Through Financial Market Crisis… and Beyond Account Value Protected Withdrawal Value $700,000 +38% HD7 Account $600,000 Value +23% $500,000 Account Value w/o Auto- $400,000 Rebalancing 0% (1) S&P 500 +4% $300,000 $200,000 % of HD Account Value $100,000 Invested in Customer- S
Slide 42: Protecting from Market Downturns – Returning Funds for Growth
Auto-Rebalancing Protecting from Market Downturns – Returning Funds for Growth Accounts with Auto-Rebalancing (1) ($ millions) $80,000 $78,622 $68,273 $70,341 $70,000 $64,786 $64,769 $57,336 $60,000 $50,000 1,408 1,326 1,321 1,258 1,258 $40,000 1,131 $30,000 $20,000 $10,000 $0 4Q10 1Q11 2Q11 3Q11 4Q
Slide 43: Variable Annuity Account Values Balanced Market Exposure Mitigates Risk
Variable Annuity Account Values Balanced Market Exposure Mitigates Risk December 31, 2010 December 31, 2011 $102 billion $110 billion 8% 7% 7% Average Duration approximately 19% 6 years 46% 30% 55% 28% Equity Funds – Client selected Bond Funds and Fixed Income Investments – Client selected Auto-reba
Slide 44: Retirement Income Security A Continuing Market Opportunity
Retirement Income Security A Continuing Market Opportunity Profile of a Typical Prudential “HD” Variable Annuity Purchaser (1) • Average age at purchase: 60 • Average ticket size: $102,000 • Median net worth (excluding primary residence): $350,000 (2) • Objective: lifetime retirement income • 77 mil
Slide 45: Innovation Culture Captures Market Opportunities
Innovation Culture Captures Market Opportunities ONGOING EVALUATION OF OPPORTUNITIES TO EXPAND RETIREMENT INCOME SECURITY • Partnered with Edward Jones to create the O Share variable annuity • O share evolves the A share business model and complements our HD living benefit(1) • Levelized recovery of
Slide 46: Value Proposition, Distribution Strength and Market Commitment Drive Sales and Flows
Value Proposition, Distribution Strength and Market Commitment Drive Sales and Flows $25 Sales and Flows $21.8 ($ billions) $20.3 $20 $16.3 $15 $13.4 $11.8 $11.7 $9.7 $10.3 $10 $9.1 $5 $0.6 $0.6 $0.8 $0 2006 2007 2008 2009 2010 2011 Gross Sales Net Flows Account Values (1) HD Lifetime Products intro
Slide 47: Improving Risk Profile
Improving Risk Profile The accelerated growth in our overall block has increased the percentage of account values with auto-rebalancing, which will continue to improve the level and volatility of returns. 1) As of end of period. Financial Strength Symposium 5.24.2012 17 14
Slide 48: Well Positioned to Retain Auto-Rebalancing Business In-Force
Well Positioned to Retain Auto-Rebalancing Business In-Force Surrender Charges Applicable to Account Values (1) Surrender Charge Less Than 1% 1% to 3% Over 3% Living Benefits With Average surrender Auto-Rebalancing 8% 2% 90% charge 6.9% $71 B Living Benefits Without Auto-Rebalancing 47% 9% 44% $15 B
Slide 49: Growing Base of Profitable Business Drives Underlying Earnings Growth
Growing Base of Profitable Business Drives Underlying Earnings Growth Individual Annuities 2009 2010 2011 End of period account values $83,971 $106,185 $113,535 Pre-tax adjusted operating income $672 $950 $662 Market performance unlocking(1) 319 101 (280) Assumption unlocking(1) (48) 167 24 Actual e
Slide 50: Key Takeaways
Key Takeaways • Market leadership driven by superior value proposition • Consistent approach and market commitment drive competitive advantage in distribution • Product-based risk management based on auto-rebalancing proven over track record of more than five years • Growing base of business with fa
Slide 51: Prudential International Insurance
Prudential International Insurance Edward Baird Executive Vice President and Chief Operating Officer, International
Slide 52: The Evolution of our International Strategy
The Evolution of our International Strategy Our Historical Strategy and …Is the Foundation For Our Business Model… Evolving Strategy • Concentrate on a limited number of • Concentrate on a limited number of attractive countries attractive countries • Target the affluent and mass- • Expand the breadt
Slide 53: Sustained Earnings Growth Through Challenging Markets and Events
Sustained Earnings Growth Through Challenging Markets and Events Pre-Tax Adjusted Operating Income (1) ($ millions) Earnings Earnings are are primarily primarily the result the result of stable drivers of stable drivers $2,263 $1,887 Investment Margin $1,581 $1,651 Mortality Margin and Expense & Oth
Slide 54: High Return on Equity Driven by Fundamentals
High Return on Equity Driven by Fundamentals Return on Equity(1) Reflects Reflects 22.2% Star Star // Edison Edison 17.5% before before expense expense synergies synergies 2010 2011 1) Based on after-tax adjusted operating income of our International Insurance operations excluding the results of our
Slide 55: Sustained Business Momentum Through Financial Crisis and Beyond
Sustained Business Momentum Through Financial Crisis and Beyond Annualized New Business Premiums(1) ($ millions) $3,040 $2,312 Star / Edison $1,870 $1,495 Excluding $1,293 $1,345 Star / Edison 2007 2008 2009 2010 2011 1) Foreign denominated activity translated to U.S. dollars at uniform exchange rat
Slide 56: Japan: Track Record of Success
Japan: Track Record of Success $2,321 Pre-Tax Adjusted Operating Income (1) $1,724 $1,497 ($ millions) 2009 2010 2011 Annualized New $2,724 Business Premiums (2) ($ millions) $1,600 $1,224 2009 2010 2011 1) Excludes corporate management and development expenses incurred in the U.S. related to Japane
Slide 57: Japan: Substantial Growth Opportunities in an Attractive Market
Japan: Substantial Growth Opportunities in an Attractive Market Market Size • World’s second largest life insurance market: Life premiums $448 billion (1) Household • Household sector wealth $19.3 trillion, similar to Wealth U.S. on per-capita basis(2) Investable • $10.9 trillion household pool of c
Slide 58: World's Largest Life Insurance Markets
World’s Largest Life Insurance Markets 2010 Life Insurance Premiums(1) ($ billions) 507 448 410 201 193 122 United Japan Overall United France Italy States Asian Market Kingdom excluding Japan 1) Source: Swiss Re – statistical appendix, January 2012. Financial Strength Symposium 5.24.2012 8
Slide 59: Japan has the Largest Pool of Household Assets in Currency and Deposits
Japan has the Largest Pool of Household Assets in Currency and Deposits Financial Assets in Household Sector Financial Assets in Currency & Deposits ($ trillions) ($ trillions) 49.1 Total 42.0 10.9 All others 10.5 19.3 Currency & deposits 7.1 8.4 4.4 10.9 2.6 7.1 6.7 6.7 6.0 5.5 1.9 1.6 1.7 0.8 Unit
Slide 60: Household Sector Financial Assets – Japan and the United States
Household Sector Financial Assets – Japan and the United States Financial Assets of the Household Sector Japan United States $19.3 Trillion $49.1 Trillion Other Other 4% 4% Insurance Insurance and Pension and Pension Shares and Reserves Reserves Currency and Equities 28% 29% Deposits 6% 14% Investme
Slide 61: Star / Edison Acquisition Enhances Client Base and Distribution in Japan
Star / Edison Acquisition Enhances Client Base and Distribution in Japan Number of Number of Number of Policies In-force(1) Captive Agents Bank Relationships 10,155 10,178 Star / Edison 15,928 15,384 98 Gibraltar / POJ (2), excluding Star / Edison 6,452 prior to merger 9,403 58 31 12/31/10 12/31/11
Slide 62: Star / Edison Integration On Track
Star / Edison Integration On Track • Business integration proceeding on schedule • Successful merger of Star and Edison into Gibraltar in January 2012, a major milestone • Systems integration well underway • “Prudentializing” sales force: implementing training programs, variable compensation and pro
Slide 63: Overall Position – New Business (Face Amount)
Overall Position – New Business (Face Amount) (1) Market Share Improvement of 3.1 Percentage Points 4 Years Ago Nine Months ended Share Share FY 2007 December 31, 2011 1. Dai-ichi 13.3% 1. Nippon 12.7% 2. Sumitomo 11.1% 2. Dai-ichi 10.9% 3. Nippon 9.7% 3. Prudential 10.4% 4. T&D Financial 9.3% 4. T&
Slide 64: Prudential Sales in Japan Compared to U.S. Life Insurance Companies
Prudential Sales in Japan Compared to U.S. Life Insurance Companies 2011 Annualized New Business Premiums(1) $2,500 ($ millions) $2,000 $1,500 $1,000 $500 $- PII Japan Total of 4 Northwestern New York Life MetLife Lincoln National Largest U.S. Mutual Companies 1) Source: LIMRA U.S. individual life i
Slide 65: Solvency Margins Position Prudential's Japanese Companies
Solvency Margins Position Prudential’s Japanese Companies As Well Capitalized and Financially Secure “New Method” Estimated Solvency Margins as of March 31, 2012(1) Prudential of Japan Over 700% Gibraltar Life(2) Over 700% 1) Based on Japanese statutory accounting and risk measurement standards appl
Slide 66: New Business Product Trend Driven by Evolving Financial Security Needs
New Business Product Trend Driven by Evolving Financial Security Needs Annualized New Business Premiums(1) ($ millions) Annuity Retirement Accident & Health $3,040 Death Protection $1,870 $1,495 $1,293 $1,345 $819 $660 2007 2008 2009 2010 2011 1Q11 1Q12 1) Foreign denominated activity translated to
Slide 67: Needs-Based Selling over a Lifetime
Needs-Based Selling over a Lifetime Financial Risk Prudential Client Life Cycle Protection Needs Solutions Young household, Premature death Term insurance early professional income replacement career Accident and health Income loss and expenses policies and riders Mid career, due to accident or sick
Slide 68: Current Customers are Excellent Prospects for Additional Coverages
Current Customers are Excellent Prospects for Additional Coverages to Meet Needs Annualized New Business Premiums(1) Second Sales to Existing Customers ($ millions) 150 6 128 119 7 105 3 102 1 84 Annuity 69 68 Retirement 57 58 Accident & Health 5 4 Death Protection 3 4 4 48 55 41 43 44 2007 2008 200
Slide 69: Protecting Financial Security For a Lifetime
Protecting Financial Security For a Lifetime Aging population leads to demand for larger policy size 1) Based on average annual premium for Prudential of Japan individual life and annuity policies newly issued during 2011; foreign-denominated activity translated to U.S. dollars at uniform exchange r
Slide 70: Growing Retirement Market Complements Premature Death Protection Market
Growing Retirement Market Complements Substantial Premature Death Protection Market Japan Demographic Trend 5% 7% 6% 12% 8% 23% 9% 12% 32% 65+ 10% 11% 55-64 15% 14% 15% 14% 15% 45-54 16% 12% 17% 35-44 14% 13% 15% 25-34 11% 55% 12% 0-24 43% 10% 33% 23% 18% 1950 1970 1990 2010 2030 Population (million
Slide 71: Well Diversified Products Meeting Evolving Client Needs
Well Diversified Products Meeting Evolving Client Needs Japanese Life Planner/Life Consultant Sales Average $4,503 Premium per $3,547 New Policy by Product (1) ($ whole amount) $1,939 $1,725 Overall Average Premium = $2,387 Accident & Death Annuity Retirement Health Protection 2011 $703 Annualized N
Slide 72: International Insurance Growing Sales Throughout Multiple Channels
International Insurance Growing Sales Throughout Multiple Channels Annualized New Business Premiums (1) ($ millions) Independent Agency Bank Channel $ 3,040 Life Consultants Life Planners $ 1,870 $ 1,495 $ 1,293 $ 1,345 2007 2008 2009 2010 2011 1) Foreign denominated activity translated to U.S. doll
Slide 73: Life Planner Distribution
Life Planner Distribution • Life Planner – a selective, high quality sales force – Hire about 3 out of 100 candidates – Well trained and professional – Customer focused – Disciplined, and demonstrate “missionary zeal” • Emphasize protection products requiring analysis of client needs • Significant s
Slide 74: Teachers Association Core Relationship Contributes to Life Consultant Distribution
Teachers Association Core Relationship Contributes to Life Consultant Distribution Japanese Educational Mutual Aid Association of Welfare Foundation (Teachers Association) • Relationship since 1952 • Approximately 600,000 members(1) • Access to approximately 950,000 teachers and school personnel thr
Slide 75: Teachers Association: Perennial Sales Opportunities
Teachers Association: Perennial Sales Opportunities Active Market Retiree Market 1) Numbers approximate as of March 31, 2012. Financial Strength Symposium 5.24.2012 25
Slide 76: Bancassurance Powered by Prudential
Bancassurance Powered by Prudential Typical Bank Channel Approach Prudential’s Distinctive in Japanese Market Bank Channel Strategy • Foreign carriers drove high bank • Focus on underserved death channel sales through protection needs and aggressive variable annuity complementary products strategies
Slide 77: Bank Channel Sales Growth Driven By Protection Products
Bank Channel Sales Growth Driven By Protection Products Annualized New Business Premiums (1) ($ millions) $580 Annuity Retirement Accident & Health $336 Death Protection $182 $137 $132 $56 $22 2007 2008 2009 2010 2011 1Q11 1Q12 1) Foreign denominated activity translated to U.S. dollars at uniform ex
Slide 78: Bancassurance Enhances Access to Substantial Japanese Household Investable Wealth
Bancassurance Enhances Access to Substantial Japanese Household Investable Wealth Japanese household wealth held in currency and deposits (1) $10.9 Trillion Prudential policies typically purchased in bank channel • Limited-pay whole life(2) • Retirement income • U.S. dollar and other non-yen fixed a
Slide 79: Bank Channel Building Relationships for Continued Growth
Bank Channel Building Relationships for Continued Growth 2009 (1) 2012 (2) • Sales through 25 banks, primarily • Total of 58 bank sales relationships established, fixed annuities including three of Japan’s four largest banks • Active relationships offer approximately 6,000+ potential points of sale
Slide 80: Independent Agency Channel
Independent Agency Channel • Commenced distribution of selected products in 2010; contributed $435 million(1) to annualized new business premiums for 2011 including $298 million from Star / Edison distribution • Star / Edison acquisition provided over 4,000 independent agent relationships (2) • Broa
Slide 81: Key Takeaways
Key Takeaways • Solid business model with sustained track record of success • High ROE, strong AOI growth, low volatility: returns and earnings primarily the result of stable drivers • Leading position in attractive Japanese market, strengthened by Star / Edison acquisition • Competitive advantages
Slide 82: Investment Portfolio
Investment Portfolio Scott Sleyster Senior Vice President Chief Investment Officer, U.S.
Slide 83: Well Positioned Investment Portfolio
Well Positioned Investment Portfolio Investment Management is a core competency for Prudential Our General Account investment portfolio is well diversified to support our insurance liabilities We underwrite much of our own credit risk through direct originations of Private Placements and Commercial
Slide 84: Broad Investment Expertise Supports Risk Diversification
Broad Investment Expertise Supports Risk Diversification FSB General Account FSB General Account Investment Portfolio Fixed Maturities $278.3 Billion (1) $211.4 Billion (4) Other Foreign Government Bonds, 5% U.S. Government (5) Japanese 4% Government Bonds 23% CMBS, 3% ABS(6), 3% Public Fixed Maturi
Slide 85: Japanese Portfolio Almost 50% of FSB General Account
Japanese Portfolio Almost 50% of FSB General Account (1) 60% FSB General Account, ex. Japanese Operations: $140.0 Billion 52% FSB General Account, Japanese Operations: $138.3 Billion 50% 37% 40% 31% 30% 20% 16% 14% 13% 11% 10% 5% 4% 4% 2% 2% 1% 1% 2% 2% 2% 1% 0% (3) Governments Public Private Commer
Slide 86: Asset Selection Focus on Quality
Asset Selection Focus on Quality FSB General Account Fixed Maturity Portfolio (1) ($ billions) $225 (2) High or Highest Quality: Governments $200.9 $198.4 $200 High or Highest Quality: Non-Governments (2) (3) Other Securities $175 $82.8 $81.3 $147.4 41% $150 41% $134.9 $127.7 $125 $113.5 $54.4 $111.
Slide 87: Defensively Positioned Corporate Bond Portfolio
Defensively Positioned Corporate Bond Portfolio Corporate Bond Holdings by Sector (1) Financial Services Businesses vs. Barclays Index March 31, 2012 20% Financial Services Businesses Exposure Over/Under Weight vs Barclays Capital Indices 15% 10% 5% 0% -5% -10% (1) Market Value (2) Non-Corporate inc
Slide 88: Strong Commercial Loan Portfolio
Strong Commercial Loan Portfolio FSB General Account Portfolio (1) (100% = $278.3 billion) Commercial Mortgage and Other Loans $25,231 ($ millions) 9.1 % Weighted Average Debt Service Coverage Ratio (DSCR) 1.9x Weighted Average Loan to Value Ratio (LTV) 58% Agricultural and Commercial Loans at a Fix
Slide 89: Broadly Diversified Commercial Loan Portfolio
Broadly Diversified Commercial Loan Portfolio Commercial Loans Commercial and Agricultural Loans by Major Property Type (1,2) by Region (1,3) 35% 33% New West North Prudential (03/31/12) Non-US England 30% Mountain Central 4.0% 2.7% 25% 5.2% 2.5% 24%25% ACLI ex. Prudential (12/31/11) East North 25%
Slide 90: Commercial & Agricultural Mortgage Loan Portfolio
Commercial & Agricultural Mortgage Loan Portfolio FSB General Account (1) ($ millions) Debt Service Coverage Ratio (DSCR) Greater 1.8x 1.5x 1.2x 1.0x Less Totals than 2.0x to 2.0x to < 1.8x to < 1.5x to < 1.2x than 1.0x 0%-49.99% $ 3,467 $ 1,033 $ 1,129 $ 703 $ 331 $ 76 $ 6,739 50%-59.99% 1,555 723
Slide 91: Commercial Mortgage-Backed Securities
Commercial Mortgage-Backed Securities (1) FSB General Account Amortized Cost at Lowest Rating Agency Rating ($ millions) AAA AA A BBB BB and Below Total Fair Value $ 7,212 $ 494 $ 199 $ 24 $ 37 $ 7,966 $ 8,550 $ 6,589 Super Senior AAA Total (2) 60.2% Super Senior AAA Shorter Duration Tranches Focus
Slide 92: Limited Exposure to NAIC 3 – 6
Limited Exposure to NAIC 3 – 6 (1) FSB General Account Fixed Maturity Securities ($ millions) $5,951 $6,000 $5,000 42% Private Fixed Maturities: $3,876 million $4,000 Public Fixed Maturities: $5,144 million $3,000 $1,938 $2,000 58% 37% $910 $1,000 63% 59% $221 52% 41% 48% $0 NAIC- 3 NAIC- 4 NAIC- 5
Slide 93: Investment Portfolio Yield
Investment Portfolio Yield Strong Private Placement and Commercial Mortgage production by our investment staff over the past few years has helped to lessen the decline in portfolio yield due to lower reinvestment rates • Our investment staff has originated the majority of our annual private placemen
Slide 94: Fixed Maturities and Commercial Mortgage Yields
Fixed Maturities and Commercial Mortgage Yields FSB General Account (1) 7.0% 5.78% 5.64% 5.70% 6.0% 5.31% 5.0% 4.0% 4.62% 3.0% 4.27% 4.02% 3.74% 2.0% Commercial Mortgages 1.0% Fixed Maturities 0.0% (2) 1Q 2009 1Q 2010 1Q 2011 1Q 2012 FSB General Account, ex. Japanese Operations (1) 7.0% 5.77% 5.95%
Slide 95: Key Takeaways
Key Takeaways High quality, well diversified portfolio Continue to prefer to underwrite and manage our credit risk directly • High priority on private asset classes, both Corporates and Mortgages • Disciplined approach to Commercial Mortgage Loan underwriting and diversification Current High Yield a
Slide 96: Approach to Capital Management
Approach to Capital Management Rich Carbone Executive Vice President Chief Financial Officer Prudential Financial, Inc.
Slide 97: Delivering Superior Value
Delivering Superior Value Superior Value Proposition for Customers, Creditors & Appropriate Investors ROE Strong Ratings Financial Strength Financial Strength Symposium 5.24.2012 2
Slide 98: Key Measures of Financial Strength
Key Measures of Financial Strength • Excess Liquidity • Appropriate Leverage • Adequate Coverage • Strong Regulatory Ratios “AA” Rating – Risk Based Capital – Solvency Margin • Financial Flexibility Financial Strength Symposium 5.24.2012 3
Slide 99: Holding Company Liquidity Profile
Holding Company Liquidity Profile Targeted $1.8B Cash Cushion (1) $1.2B 1) The Finance Committee of the Board of Directors approved increasing the targeted cash cushion to $1.2 billion on May 8, 2012. 2) PFI cash, cash equivalents and short-term investments. 3) Includes current portion of long-term
Slide 100: ROE Target of 13%-14% in 2013
Key Drivers of ROE ROE Target of 13%-14% in 2013 (1) Organic Growth Synergies from from Capital Superior Star & Management Business Edison Mix (1) For the Financial Services Businesses (“FSB”) Financial Strength Symposium 5.24.2012 5
Slide 101: Superior Business Mix Drives Organic Growth
Superior Business Mix Drives Organic Growth Key Considerations: Organic • Credible diversification of risks Growth from • High value added business models Superior • Fit with proven execution and risk Business Mix management capabilities • Solid cash flows and ROE potential Financial Strength Sympos
Slide 102: Opportunities for Strong Organic Growth
Opportunities for Strong Organic Growth % of 2011 % of 2011 2013 ROE Business Unit Attributed Equity(1) Pre-Tax AOI (2) Potential(3) International Insurance 43% 48% ~18% - 19% Annuities, Retirement & 44% 38% ~14% - 15% Asset Management Individual Life & Group Insurance 13% 14% ~11% – 12% 1) Attribut
Slide 103: Capital Management Philosophy
Capital Management Philosophy Protect Deploy Capital Distribute to Downside for Growth Shareholders Adequate capital & Organic Growth Stable dividend payout excess liquidity in Opportunistic M&A ratio stress Share repurchases Appropriate financial leverage Financial Strength Symposium 5.24.2012 8
Slide 104: Capital and Liquidity Management
Capital and Liquidity Management Robert Falzon Senior Vice President Treasurer Prudential Financial, Inc.
Slide 105: Approach to Capital and Liquidity Management
Approach to Capital and Liquidity Management AA standards for capital, leverage Financial Strength and liquidity Diverse sources result in significant Liquidity financial flexibility Capital Protection Provides for competitive levels of Framework capital under stress Financial Strength Symposium 5.2
Slide 106: Regulatory Capital Ratios
Regulatory Capital Ratios (1) Risk Based Capital Ratio (“RBC”) Target December 31, 2011 Prudential Insurance 400% 491% Estimated as of Solvency Margin Ratio “New- Method” Target March 31, 2012 ofJapan(2) Prudential 600 -700% Over 700% (2)(3) Gibraltar Life 600 -700% Over 700% 1) The inclusion of RBC
Slide 107: On Balance Sheet Capital
On Balance Sheet Capital Financial Services Businesses (“FSB”) December 31, 2011 $ in Billions (1) Required Capital ~$34.3 $ - 34.8 (2) $27.6 Attributed Equity Capital Debt and Hybrids Outstanding $11.2 Total Capital Outstanding $38.8 TotalAvailableOnBalanceSheetCapital(3) ~$4.0 -$4.5 Estimated “Rea
Slide 108: Key Leverage Metrics - FSB
Key Leverage Metrics - FSB Ratio Target Actual Total Leverage < 40% (1) 43.5% Fixed Charge Coverage Ratio > 2x 2.4x(2) 1) PFI debt divided by PFI debt plus equity. Calculated as of March 31, 2012. Reflects the retrospective adoption of amended accounting guidance for deferred policy acquisition cost
Slide 109: Cash Flows from Subsidiaries
Cash Flows from Subsidiaries (1) $4.5 $4.0 $4.0 $3.5 $3.2 $3.3 $3.2 $3.0 $2.5 $2.0 $1.5 $1.3 75% $1.0 $0.5 $0.0 2007 2008 2009 2010 2011 Prudential Insurance International Asset Management Other 1) Reflects dividends and returns of capital to PFI. Financial Strength Symposium 5.24.2012 6
Slide 110: Holding Company Liquidity
Holding Company Liquidity Diverse Sources of Alternate Liquidity As of March 31, 2012 ($ in Billions) $9.0 $1.4 $8.4 $8.0 $3.8 $7.0 $6.0 $5.0 $7.2 $4.0 $0.2 $3.0 $3.0 $2.0 $1.8 $1.0 Targeted Cash Cushion Targeted Cash Cushion $1.2 $1.2 $- (1) (3) (4) Net Cash Additional Commercial PaperCommitted Cre
Slide 111: Prudential Insurance Liquidity
Prudential Insurance Liquidity Diverse Sources of Alternate Liquidity As of March 31, 2012 ($ in Billions) $14 $13.3 $2.0 $12 $1.8 $10 $3.9 $8 $6 $5.6 $4 $2 $- (2) (3) Cash(1) Additional FHLBNY CapacityCommitted Credit Lines Additional Commercial PaperTotal Liquidity Resources Capacity(4) • In addit
Slide 112: Capital Protection Framework
Capital Protection Framework Stress Parameters Our Toolbox On Balance Equity Market Sheet Capital Decline Capacity Interest Rate Derivatives Shock Credit Shock Reinsurance Contingent Currency Shock Capital Financial Strength Symposium 5.24.2012 9
Slide 113: Dynamic Capital Protection
Dynamic Capital Protection Cyclical High Modest Severe Med Illustrative Worst in History Low Less Most Severe Severe Severity of Shocks Financial Strength Symposium 5.24.2012 10
Slide 114: Summary
Summary • Financial Strength is the foundation for commercial success and informs our views regarding: – Appropriate ROE target – Deployment of capital • We manage capital to AA standards and provide for adequate protection under stress. • We rely on diverse sources of liquidity to ensure financial