Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (September 2006)
77 slides from Prudential Financial's investor day presentation, Sep 13, 2006
Slide 1: Tokyo Investor Day
Tokyo Investor Day September 14, 2006 Tokyo, Japan
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. It is possible that actual results may differ materially from any expectations or predictions expr
Slide 3: Non-GAAP Measure
Non-GAAP Measure This presentation includes references to “adjusted operating income”, and return on equity, or ROE. ROE is determined by dividing after-tax adjusted operating income by average attributed equity excluding unrealized gains and losses on investments. Adjusted operating income is a non
Slide 4: International Insurance and Investments Division Reconciliation
International Insurance and Investments DivisionReconciliation Between Adjusted Operating Income and Comparable GAAP MeasureOperating (in millions) Year ended December 31, Six months ended June 30, 20022003 2004 2005 2005 2006 Revenues (1): Life Planner Operations$ 2,354 $ 2,886 $ 3,404 $ 4,482 $ 2,
Slide 5: Tokyo Investor Day: Rodger Lawson
Tokyo Investor Day Rodger Lawson Vice Chairman International Insurance and Investments Division
Slide 6: International Division Organizational Structure
International Division Organizational Structure Finance Investment Management Operations and Technology Human Resources International Division Japanese Life Planner Operations Gibraltar Life Insurance Operations Outside Japan International Investments Businesses
Slide 7: International Division Today
International Division Today Mature Prudential Businesses Today Emerging / Developing Markets for Prudential Today Life Planning Insurance Traditional Insurance International Investments Japan Korea Taiwan Mexico China Argentina Brazil Germany Italy Poland
Slide 8: International Division Financial Performance
International Division Financial Performance Year ended December 31, Six months ended June 30, 2006 2005 ($ millions) 2003 2004 Adjusted operating income before tax: Life Planner businesses $379 $449 $515 $808 $450 Gibraltar Life 378 370 402 502 212 International Insurance 23% ROE (1) 662 Internatio
Slide 9: Our Division Goals
Our Division Goals Sustainable low to mid-teen AOI growth Sustainable 20% ROE’s Strong free cash flow Complementary group of International businesses with short-term and long-term growth potential
Slide 10: Key Elements of Our International Strategy
Key Elements of Our International Strategy Concentrate on a limited number of attractive countries Emphasize proprietary distribution: recruiting, selection, needs-based selling Target the affluent and mass affluent consumer Focus on both life insurance and asset management Establish a strong Pruden
Slide 11: Life Planning Insurance Distribution: Competitive Advantage
Life Planning Insurance Distribution: Competitive Advantage – Very selective recruiting – Highly trained, professional field force – Financial planning approach; needs-based selling Emphasis on Protection Products – Life insurance plans tailored to specific client needs – U.S. dollar products and “t
Slide 12: Business Model: Needs-Based Selling
Business Model Needs-Based Selling Life Planner profile similar to customer profile Intensive Life Planner training fosters financial planning approach Identify protection needs before discussing products Protection life insurance purchased as solution to identified need Life Planner maintains conta
Slide 13: The Beneficial Cycle
The Beneficial Cycle Proven Execution Track Record Needs-Based Selling/Protection products High Customer Satisfaction High Life Planner Income High Policy Persistency Excellent Client Referrals High Life Planner Retention High Quality Life Planner Recruits Superior ROE Favorable Growth Prospects
Slide 14: Where We Are Today
Where We Are Today Summary Leadership positions in life planning Gibraltar generates high ROE’s and cash flows Developing asset management platforms Profitability dominated by Japan and Korea Acquisitions potentially additive Expect to achieve our financial goals
Slide 15: International Insurance Finance: John Hanrahan
International Insurance Finance John Hanrahan Chief Financial Officer Prudential International Insurance
Slide 16: Drivers of Sustainable Financial Performance
Drivers of Sustainable Financial Performance Sales and persistency drive organic growth; increasing scale benefits Emphasis on protection products U.S. dollar product and investment strategies Strong capital generation; capital management opportunities Strengthening yen can contribute to results
Slide 17: Disciplined Life Planner Growth, Continued Strong Persistency
Disciplined Life Planner Growth Continued Strong Persistency Number of Life Planners 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - 2001 2002 2003 2004 2005 2Q2006 93% 93% 93% 93% 93% 93% 9% LP Growth CAGR 4,026 4,432 4,910 5,316 5,627 5,726 13 Month Persistency Ratio 100% 80% 60% 40% 20% 0% # of Life
Slide 18: Life Planner Business Revenue Illustration
Life Planner Business Established Sales Force and Excellent Persistency Drive Baseline Growth Revenues ($ millions) 8,000 7,000 6,000 5,000 4,000 Years 0 1 2 3 4 5 Illustration assuming current policy persistency and Life Planner productivity, and No Life Planner count increase 5% annual Life Planne
Slide 19: Life Planner Business Emphasis on Protection Products
Life Planner Business Emphasis on Protection Products Prudential of Japan In Force Annualized Premium as of June 30, 2006 (1) 15% 51% 17% 17% Yen-based protection products(2) Yen-based savings and retirement income products(3) U.S. Dollar-based products(4) Third Sector(5) 1) Includes single premium
Slide 20: Strong Protection Insurance Margins Continue
Strong Protection Insurance Margins Continue(1) 1994-1996 1996-1999 1999-2001 2001-Current Interest Rate 4.50% 3.10% 2.35% 2.00% Whole Life Premium Per $13 $17 $20 $22 $1,000 (approx.) 1) Based on a typical Prudential of Japan whole life policy for a male at age 30, paid up at 60 years old
Slide 21: Gibraltar Life: Growing Distribution, Maintaining High Persistency
Gibraltar Life – Growing Distribution, Maintaining High Persistency Number of Life Advisors 5,800 5,600 5,400 5,200 5,000 4,800 4,600 4,400 4,200 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 90% 13-month persistency ratio 94%
Slide 22: Gibraltar Life: U.S. Dollar Fixed Annuities Complement Core Products
Gibraltar Life U.S. Dollar Fixed Annuities Complement Core Protection Products In-force Annualized Premium as of June 30, 2006 (1) 1% 4% 35% 60% Yen-based protection products Yen-based savings and retirement income products New Business Annualized Premium six months ended June 30, 2006 (1) 41% 47% 7
Slide 23: U.S. Dollar Product and Investment Strategies
U.S. Dollar Product and Investment Strategies U.S. Dollar Investments U.S. Dollar Denominated Products Enhanced portfolio yield Natural hedge for Prudential Financial, Inc. Favorable value proposition Favorable expected returns
Slide 24: Gibraltar Life U.S. Dollar Fixed Annuities
Gibraltar Life U.S. Dollar Fixed Annuities Expected Returns Consistent with Overall Portfolio Life Insurance Mortality Margin Expense Margin Investment Spread Target 20% + ROE U.S. Dollar Fixed Annuities U.S. Dollar Spread – “MVA” Products: limited capital requirements – Conservative investment stra
Slide 25: Improving Investment Portfolio Returns
Improving Investment Portfolio Returns(1) Total POJ 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 ($ millions) 40 30 20 10 -(10) (20) (30) (40) Normalized Investment Spread Amount ($millions) Normalized Yield Crediting Rate 1) Excludes US dol
Slide 26: Strong Capital Generation
Strong Capital Generation High ROE business generates significant excess capital “Net level premium reserves” achieved at POJ in 2005; first dividend paid in 2006 Gibraltar Life: full amortization of “statutory goodwill” enhances capital generating capacity
Slide 27: Significantly Higher Capital Than Needed
Significantly Higher Capital Than Needed Solvency Margin(1) Prudential of Japan 1,006% Gibraltar Life 1,110% Typical Rating AA: 700% Agency Targets A: 500% 1) As of March 31, 2006; based on Japanese statutory accounting Tokyo Investor Day 9.14.06
Slide 28: Capital Management Opportunities
Capital Management Opportunities Cross entity investments Acquisitions Subordinated debt repayments Reinsurance POJ dividend capacity adds flexibility
Slide 29: Foreign Exchange Income Hedges
Foreign Exchange Income Hedges Yen income hedging plan on 12 quarter rolling basis A strengthening Yen helps earnings over the longer term Yen forward rates strengthen against the dollar Rate as of 6/30/06 Spot Rate 1 Yr Forward 2 Yr Forward 3 Yr Forward 4 Yr Forward Yen / US$ 114.3 108.8 104.2 100.
Slide 30: Rolling Hedge Program
“Rolling Hedge” Program (1) Average Spot FX 2006 Hedge Rate 2007 Hedge Rate 116 107 N/A 108 102 99 110 102 101 2006(2) 116 109 Average 103 ? 1) Japanese yen for U.S. dollar 2) Through June 30
Slide 31: Summary
Summary Sales and persistency drive baseline growth Emphasis on protection products; continued favorable margins U.S. dollar product and investment strategies contributing to results Strong capital generation; capital management opportunities Strengthening yen can contribute to results
Slide 32: Japanese Insurance Operations: Kazuo Maeda
Japanese Insurance Operations Kazuo Maeda Co-President Prudential International Insurance
Slide 33: Japanese Insurance Operations Overview
Japanese Insurance Operations Overview Six months ended June 30, 2005 2005 2006 Pre-tax adjusted operating income (1) Life Planner model $426 $700 $313 $368 Gibraltar Life 402 502 250 212 1,202 563 580 Equity (2) 2.0 2.5 2.3 2.9 Return on Equity (3) 29% 33% 34% 28% Number of Life Planners/Life Advis
Slide 34: Life Insurance Market in Japan
Life Insurance Market in Japan Total population of Japan is 127 million (#10 in the world) (1) Total GDP is $4.5 trillion (#2) (2) Total life insurance premium is $376 billion (#2) (3) Total life insurance premium is 8.4% of GDP (3) 88% of households have life insurance (4) 1) As of October 1, 2005;
Slide 35: Competitive Advantage Distribution Emphasis
Competitive Advantage Distribution Emphasis Life Planners – Prudential of Japan Protection life insurance to mass affluent and affluent markets Life Advisors – Gibraltar Life Protection life insurance complemented by retirement/savings products, to mid-market and affinity groups Bank Distribution –
Slide 36: Distribution Strength in Selected Markets
Distribution Strength in Selected Markets First half 2006 : $455 million new business annualized premiums(1) Bank Distribution (U.S. Dollar Fixed Annuities) 4% 39% Gibraltar Life Advisors 57% Prudential of Japan Life Planners 1) Translated at average exchange rate for the year ended December 31, 200
Slide 37: Growth in Japan Operations
Growth in Japan Operations POJ and Gibraltar Combined Number of LPs & LAs 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Number of Life Planners Number of Life Advisors New Business Annualized Premiums 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 N
Slide 38: Prudential of Japan
Prudential of Japan Face amount in force, $200 billion(1) $19.6 billion in assets (1) 83 sales offices (2) Solvency margin ratio, 1,006% (3) Ratings: Standard & Poor’s, AA– A.M. Best, A+ – Sales Offices 1) As of June 30, 2006; translated based on exchange rate as of December 31, 2005 2) As of June 3
Slide 39: Life Planner Needs-Based Selling
Business Model Life Planner – Needs-Based Selling Life Planner – a selective, high quality sales force – Only 2-4 out of 100 candidates are hired — – Well trained and professional – Customer focused – Disciplined, and demonstrates “missionary zeal” Profile of a typical POJ new Life Planner – Age 32
Slide 40: Prudential of Japan Emphasis on Protection Products
Prudential of Japan Emphasis on Protection Products In-force Annualized Premium Mix as of June 30, 2006(1) 15% 17% 17% 51% Yen-based protection products(2) Yen-based savings and retirement income products(3) New Business Annualized Premium Mix 6 months ended June 30, 2006(1) 28% 13% 17% 42% U.S. Dol
Slide 41: Prudential of Japan History of Growth
Prudential of Japan History of Growth Established in 1987 with 15 people and $70 million capital – interest in previous joint-venture sold to SONY 32 Life Planners (LPs) started selling life insurance in 1988 Growth of Business and LPs Number of LPs Number of LPs Number of Policies Aoba Life adds 35
Slide 42: POJ in the Life Insurance Industry
POJ in the Life Insurance Industry New Business Face Amount (1) Industry 1,500 1,000 500 Industry POJ 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 30 20 10 0 POJ 1) In billions of U.S. Dollars; on fiscal year basis; industry data from Japanese Life Insurance Association; translated at
Slide 43: Prudential of Japan Key Drivers
Prudential of Japan Key Drivers (1) Productivity (2) 6.9 Policy Persistency (Face-amount) – month 95.3% – month 90.0% Life Planner Retention – month 86.7% – month 77.0% 1) Measured as of or for the year ended December 31, 2005 2) Policies sold per Life Planner, per month
Slide 44: Prudential of Japan Outlook
Prudential of Japan Outlook Continued demand for death protection insurance Customers increasingly selective of insurers Changing strategies of competitors Death Protection Medical insurance, nursing care, and variable annuities Recovery of the Japanese economy: “business insurance” opportunity
Slide 45: Gibraltar Life: Prudentialized 2001-2004
Gibraltar Life “Prudentialized” 2001 — 2004 Acquired by Prudential Financial in 2001 Leveraged Life Planner model – Variable compensation structure – Needs-based selling— – Emphasis on protection products – Focus on key drivers Strengthened management team Built infrastructure Cultivated affinity gr
Slide 46: Gibraltar Life: Building on a Sound Foundation, 2005
Gibraltar Life: Building on a Sound Foundation, 2005 Enhanced investment portfolio Growing Life Advisor distribution Introduced products targeted to customer base and Life Advisor distribution Commenced bank distribution for selected products Tokyo Investor Day 9.14.06
Slide 47: Gibraltar Life: U.S. Dollar Fixed Annuities Complement Product Line
Gibraltar Life: U.S. Dollar Fixed Annuities Complement Product Line New Business Annualized Premiums (1) $141M $160M Bank Distribution $194M Yen-based protection products(2) US dollar-based protection products(3) Yen-based savings and retirement income products(4) US dollar fixed annuities First Hal
Slide 48: Gibraltar Life Growing Distribution
Gibraltar Life Growing Distribution # of Life Advisors 6,000 5,500 5,000 4,500 4,000 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Productivity(1) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Count Productivity 1) Policies sold per Life Advisor, per month Gibra
Slide 49: Gibraltar in the Life Insurance Industry
Gibraltar in the Life Insurance Industry New Business Face Amount (1) Industry 1,000 900 800 700 600 500 Industry Gibraltar 2001 2002 2003 2004 2005 20 10 0 Gibraltar 1) In billions of U.S. Dollars; on fiscal year basis; industry data from Japanese Life Insurance Association; translated at average e
Slide 50: Gibraltar Life
Gibraltar Life Strong affinity group relationships Face amount in force, $178 billion(1) $31.9 billion in assets (1) 80 sales offices (2) Solvency margin ratio, 1,110% (3) Ratings: Standard & Poor’s, AA–Moody’s, A1 1) As of June 30, 2006; translated based on exchange rate as of December 31, 2005 2)
Slide 51: Gibraltar Life Prudentialized Key Drivers
Gibraltar Life “Prudentialized” Key Drivers(1) POJ Gibraltar Productivity (2) 6.9 3.8 Policy Persistency (Face-amount) – month 95.3% 94.2% – month 90.0% 87.3% Life Advisor Retention – month 86.7% 60.8% – month 77.0% 32.9% 1) Measured as of of for the year ended December 31, 2005 2) Policies sold per
Slide 52: Japanese Life Insurance Market Developments
Japanese Life Insurance Market Developments Development Prudential Positioning Privatization of “Kampo” postal life insurance Needs-based selling continues as competitive advantage Growing demand for savings and retirement products U.S. dollar fixed annuities offer attractive value proposition and f
Slide 53: Summary
Summary Life Planner model offers sustained competitive advantages Needs-based selling, emphasis on protection products Superior policy persistency contributes to returns Gibraltar Life leverages Life Planner model attributes in affinity group and mid-market customer base Growing distribution Busine
Slide 54: Insurance Operations Outside Japan: Tim Feige
International Insurance Operations Outside Japan Tim Feige Co-President Prudential International Insurance
Slide 55: Insurance Outside Japan Overview: Asian Life Planner Operations
International Insurance Outside Japan Overview—Asian Life Planner Operations Korea and Taiwan CAGR 2001 – 2005 Number of Life Planners 9% 2,229 1,578 Number of Policies in Force (000) 20% Insurance Revenues (1) 23% $1,070 mm $461 mm Adjusted Operating Income (2) 21% $178 mm $83 mm 1) Net premiums, p
Slide 56: Developing Markets and Initiatives
International Insurance Outside Japan Developing Markets and Initiatives Life Planner Operations Europe: Italy, Poland Latin America: Argentina, Brazil New Territory Initiatives China: Strategic position Mexico: Greenfield operation India: Market entry investigation
Slide 57: Life Insurance Market in Korea
Life Insurance Market in Korea Total Population of South Korea is 48.6 million (#22 in the world) (1) Total GDP is $809 billion (#10) (1) Total Life Insurance Premium is $59 billion (#7) (1) Total Life Insurance Premium is 7.3% of GDP (#8) (1) 88% of households have life insurance (2) 1) Based on 20
Slide 58: Prudential of Korea
Prudential of Korea Face amount in force, $71 billion (1) Ranks #7 in insurance in force (2) $3.7 billion in assets (1) 76 sales offices (3) Focused Life Planner Model: – Selective, high quality sales force – Needs-based selling – Emphasis on protection products – “Missionary zeal” 1) As of June 30,
Slide 59: Prudential of Korea Product Mix
Prudential of Korea Product Mix POK Annualized Premiums In Force June 30, 2006 Savings and retirement income(1) Third sector(2) 24% 16% Whole life and term(3) 60% Policy persistency(4): 13 month 90.6%, 25 month 84.4% 1) Includes endowment and variable annuities 2) Riders other than term 3) Includes
Slide 60: Prudential of Korea Performance Measures
Prudential of Korea – Performance Measures First Half 2005 2005 2006 Pre-tax adjusted operating income (1) $137 $169 $80 $107 Annualized new business premiums (1)(2) 181 205 103 108 Business in force – face amount (3)(4)(5) 63 69 67 71 Number of Life Planners (4) 1,639 1,668 1,716 1,639 1) In millio
Slide 61: Strong Business Model in Challenging Market
Prudential of Korea Strong Business Model in Challenging Market Life Planner Count (1) Sales (2) Revenue (3) AOI First Half 2006 versus -4% 4% 13% 34% First Half Continued growth: revenues, adjusted operating income Sales and Life Planner count affected by current competitive conditions Maintaining
Slide 62: Prudential of Korea Baseline Growth Illustration
Prudential of Korea Established Sales Force and Excellent Persistency Drive Baseline Growth Revenues ($ millions) 1,800 1,600 1,400 1,200 1,000 800 Years 0 1 2 3 4 5 Illustration assuming current policy persistency and Life Planner productivity, and No Life Planner count increase 5% annual LP count
Slide 63: Taiwan: Building Momentum to a Mature Life Planner Operation
Taiwan–Building Momentum to a Mature Life Planner Operation New Business Annualized Premiums ($ millions)(1) 100 80 60 40 20 10 0 Life Planners 561 $26 $33 $44 2003 2004 2005 # of LPs 1) Translated based on average exchange rate for the year ended December 31, 2005 Tokyo Investor Day 9.14.06
Slide 64: Developing Markets and Initiatives
International Insurance Developing Markets and Initiatives Life Planner Model is transferable – Selected markets for protection products – Local management; selective Life Planner recruiting – Life Planner profile consistent with customer profile – Proven training – Compensation rewards productivity
Slide 65: Acquisition Strategy
Acquisition Strategy Transactions must be: In target countries Strategic fit Consistent with our financial targets Within our country risk parameters Business integration a core strength Gibraltar Life Aoba
Slide 66: Summary
Summary Three Growth Opportunities: – Organic growth of established Life Planner businesses – Development of new Life Planner businesses – Acquire and “Prudentialize” traditional businesses Korea: Growing contribution to results; strong business model in a challenging environment Disciplined approac
Slide 67: Life Planners: The Heart of Our Business Model
Life Planners The Heart of Our Business Model Nick Miyazaki Chief Marketing Officer Life Planner Operations Prudential International Insurance
Slide 68: The Life Planner Career
The Life Planner Career Strong values and beliefs: protection life insurance serves society A career that”s “right” for 2-4 of 100 candidates Comprehensive, ongoing training Customer needs drive sales Compensation rewards productivity, persistency Entrepreneurial success while “making the world a be
Slide 69: Life Planner Values and Beliefs
Life Planner Values and Beliefs Life insurance protection serves society’s greater good Financial security and peace of mind are of great value Customer needs come first; products serve those needs Continuing, caring service is part of the customer relationship The Life Planner is a trusted advisor
Slide 70: Life Planner Value System Cultivated and Reinforced
Life Planner Value System Cultivated and Reinforced Indoctrination begins before hire, continues through career Fosters sense of teamwork, identification with company, work ethic The foundation of “missionary zeal”
Slide 71: Business Model Founded on Values and Beliefs
Business Model Founded on Values and Beliefs Strategy Fulfill protection needs in customer focused distribution and service based model Mission Help customers achieve financial security and peace of mind Vision Most trusted and admired life insurance company Values: Worthy of trust, customer-focused
Slide 72: Life Planner Selection Process
Life Planner Selection Process Orientation Career Info Program 1 Career Info Program 2 Career Info Program 3 Targeted Selection Interview 1 Targeted Selection Interview 2 Final Decision (Hire)
Slide 73: Life Planner Selection Process: What Makes the Grade
Life Planner Selection Process What Makes the Grade Impact Oral communications skills Listening skills Energy Persuasiveness and salesmanship High objectives and standards Motivation; self starter Mental resilience Trainability
Slide 74: Life Planner Selection Process: Only the Strong Survive
Life Planner Selection Process Only the Strong Survive Percentage of Initial Group Orientation 100% Career Info Program 1 32% Career Info Program 2 21% Career Info Program 3 17% Targeted Selection Interview 1 10% Targeted Selection Interview 2 6% HIRE 2 – 4%
Slide 75: Comprehensive Training Supports Needs-Based Selling
Comprehensive Training Supports Needs-Based Selling Full-Time Training Program STRUCTURED TRAINING PROGRAM Beginning Training Program Continuing On the Job Training Weeks 1—4 Weeks 5—50 Weeks 51—100
Slide 76: Compensation Rewards Productivity and Persistency
Life Planner Compensation Rewards Productivity and Persistency Percentage of Overall Life Planner Compensation (1) Productivity & Persistency Bonus 24% Renewal Commissions 25% 51% First Year Commission Compensation = Contribution 1) Based on year ended December 31, 2005 for Life Planners beyond init
Slide 77: Distribution Differences Are Its Strengths
Life Planner Distribution Differences Are Its Strengths Typical Salespeople Life Planners Highly trained full time professionals Often part time and/or short-term career Emphasis on protection products Savings products (easier to sell) Needs-based selling Sell what you can Service oriented; customer