Prudential Financial, Inc. · NYSE:PRU
Prudential Financial — Investor Day (December 2006)
93 slides from Prudential Financial's investor day presentation, Dec 5, 2006
Slide 1: Prudential Financial, Inc. Investor Day
Exhibit 99.1 Prudential Financial, Inc. Investor Day December 5, 2006
Slide 2: Eric Durant, Investor Relations
Prudential Financial Investor Day December 5, 2006 Eric Durant Senior Vice President, Investor Relations
Slide 3: 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 4: Non-GAAP Measure
Non–GAAP Measure 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 and adjustments. A significant element of realized losses is impairment
Slide 5: Art Ryan, Chairman and CEO
Prudential Financial, Inc. Art Ryan Chairman and CEO Prudential Financial
Slide 6: Prudential Financial's First Five Years
Prudential Financial’s First Five Years Achieved significant expense reductions Divested P&C business Acquired: American Skandia, CIGNA Retirement and Allstate Variable Annuity Business Combined retail brokerage into Wachovia Repurchased $7.3 billion of Common Stock (1) Achieved “AA” financial stren
Slide 7: Earnings Per Share Growth
Earnings Per Share Growth (1) 33% CAGR $2.06 $2.53 $3.61 $4.83 $3.76 $4.48 2002 2003 2004 2005 9 mo 05 9 mo 06 1) Based on after-tax adjusted operating income of the Financial Services Businesses (FSB)
Slide 8: ROE Progress
ROE Progress (1) 20.0% 15.0% 10.0% 5.0% 0.0% 6.3% 7.5% 10.2% 12.4% 14.5% 2002 2003 2004 2005 YTD Sept 2006 1) Based on after-tax adjusted operating income of the FSB; interim period on an annualized basis Investor Day 12.05.06
Slide 9: Where We Are Today
Where We Are Today Balanced mix of businesses and risks Strong capital position and cash flow generation Sustained high returns and growth of international insurance business Leading position in domestic retirement and savings market Asset management skills complement product manufacturing Complemen
Slide 10: Where We're Headed
Where We’re Headed Two substantial growth opportunities: - International businesses - Domestic retirement and savings businesses Evolving multi-channel distribution strategy Manage margins and returns Substantial operating cash flows enable share repurchases, growing cash dividends Opportunistic acq
Slide 11: Mark Grier, Financial Management
Prudential Financial, Inc. Mark Grier Vice Chairman, Financial Management Prudential Financial
Slide 12: Financial Highlights
Financial Highlights (1) Year ended December 31, Nine months ended September 2003 2004 2005 30, 2006 Pre-tax adjusted operating income (2) $ 1,970 $ 2,516 $ 3,552 $ 3,064 Earnings per share of Common Stock (3) $ 2.53 $ 3.61 $ 4.83 $ 4.48 Return on Equity (3)(4) 7.5% 10.2 % 12.4 % 14.5 % 1) For the F
Slide 13: 84% of Equity is Attributed to Operating Businesses
84% of Equity is Attributed to Operating Businesses Total attributed equity of $21 billion (1) Operating Businesses 84% 16% Corporate & Other 1) As of September 30, 2006 for the FSB; excludes unrealized gains and losses on investments
Slide 14: Complementary and Diversified Businesses
Complementary and Diversified Businesses Adjusted operating income (1) $3,064 million INTERNATIONAL INSURANCE Life Planner model Gibraltar Life RETIREMENT & SAVINGS Retirement Individual Annuities 27% 34% 19% 20% INVESTMENT BUSINESSES & CORPORATE Financial Advisory Asset Management International Inv
Slide 15: International Insurance
International Insurance 5,802 Life Planners (1) 6,036 Gibraltar Life Advisors (1) 7.1 million policies in force (1) Annualized new business premiums: $1.2 billion (2) 1) As of September 30, 2006 2) For the year ended December 31, 2005; GAAP exchange rate basis – translated based on applicable averag
Slide 16: Large Retirement / Savings Market
Large Retirement / Savings Market $21 trillion market in 2005 Personal Savings IRAs Defined Contribution Annuities Defined Benefit $3.7 $7.1 $2.9 $1.8 $5.7 Sources: Federal Reserve Flow of Funds; LIMRA; company estimates
Slide 17: Retirement and Annuities
Retirement and Annuities A Leading Provider in a Growing Market Annuities Retirement ($ billions) Account values (1) $217 $191 $183 $118 $81 12/31/02 12/31/03 12/31/04 12/31/05 9/30/06 1) Includes acquired businesses from dates of acquisitions
Slide 18: Individual Life ROE
Individual Life ROE Nine months ended September 30, 2006 Pre-tax adjusted operating income (1) $ 412 Equity (2) $ 2.6 Return on equity (3) 18 % 1) In millions 2) Average attributed equity for the period; in billions 3) Based on annualized after-tax adjusted operating income giving effect to direct e
Slide 19: Individual Life Sales
Individual Life Sales Sales by distribution channel (1) ($ millions) $419 $500 $391 $341 $400 $320 $303 $287 $300 $200 $100 $0 YTD YTD Sept 2005 Sept 2006 Prudential Agents Third-party 1) Scheduled premiums from new sales on an annualized basis and first year excess premiums and deposits on a cash-r
Slide 20: Group Insurance
Group Insurance Controlled growth – emphasis on margins High persistency of quality business Voluntary life opportunity Return on equity of 14%(1) 1) Based on annualized after-tax adjusted operating income for the nine months ended September 30, 2006
Slide 21: 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) JV operating results represent 16% ROE (2) Segment results absorb expense for retained obligations and costs Prude
Slide 22: Asset Management: Significant Scale and Breadth
Asset Management: Significant Scale and Breadth Total AUM $586 billion (1) AUM by Asset Type Non-proprietary insurance, annuity & other Fixed Income International Real Estate Equity AUM by Client Type Non-proprietary insurance, annuity & other Institutional Customers International Retail customers G
Slide 23: Rating Agencies Have Recognized Financial Strength
Rating Agencies Have Recognized Financial Strength Standard A. M. Best Moody’s & Poor’s Insurance Claims Paying Ratings (1): Prudential Insurance Prudential Retirement Insurance and Annuity Company Upgraded Upgraded Upgraded February October November 2004 2004 2004 1) As of November 1, 2006 2) Assig
Slide 24: Well Diversified Portfolio of Businesses and Risks
Well Diversified Portfolio of Businesses and Risks INTERNATIONAL INSURANCE • Life Planner model Gibraltar Life Attributed equity $17.8 billion (1) RETIREMENT & SAVINGS Retirement • Individual Annuities DOMESTIC INSURANCE Individual Life Group Insurance INVESTMENT BUSINESSES Financial Advisory Asset
Slide 25: Prudential's Value Proposition to Investors
Prudential’s Value Proposition to Investors High value-added business models produce high returns with low risk Highest return businesses are our fastest growing businesses: – International – Domestic Retirement and Savings “Portfolio of businesses”: risks are well diversified by type and are largel
Slide 26: Individual Annuities
Individual Annuities David Odenath President, Prudential Annuities Prudential Financial
Slide 27: Individual Annuities Financial Performance
Individual Annuities Financial Performance(1) Year ended Nine months ended December 31, September 30, 2004 2005 2006 Account values:(2) Variable annuities $ 47,418 $ 50,778 $ 70,555 Fixed annuities 3,879 3,991 3,814 Total 51,297 54,769 74,369 Gross sales (3) 6,338 7,467 7,045 Pre-tax adjusted operat
Slide 28: Top Variable Annuity Company Account Values
Top 10 Variable Annuity Company Account Values Prudential Annuities is ranked #4 in advisor-sold VA account values (1) ($ billions) Hartford MetLife AXA Prudential Lincoln Hancock ING Nationwide Ameriprise Pacific Life $102.5 89.8 69.0 68.8 #4 63.2 42.1 40.1 39.7 39.3 37.5 1) Source: VARDS 2Q06 and
Slide 29: Consistent Annuity Business Strategy
Consistent Annuity Business Strategy Develop innovative products and features to meet needs of retirement market Utilize risk management skills to offer attractive value proposition for customers, favorable risk-adjusted return for Prudential Expand distribution Focus on expense management
Slide 30: The Changing Variable Annuity Market
The Changing Variable Annuity Market Circa 1999 2006 VA viewed as savings/investment VA is key element of individual’s product retirement solution VA’s main advantage is tax deferral VA offers sophisticated risk and wrapper for mutual fund investment management in favorable value proposition Investm
Slide 31: Prudential Annuities: Competitive Advantage
Prudential Annuities: Competitive Advantage in Retirement-Focused VA Market Proven product innovation capabilities; speed to market Sophisticated risk management skills Scale allows competitive pricing Growing multi-channel distribution Strong branding
Slide 32: Market-Leading Product Innovation
Market-Leading Product Innovation Guaranteed Minimum Death Benefits Basic protection Roll-up, step-up options Highest daily value option Full suite of living benefits Guaranteed minimum accumulation benefit (“GRO Plus”) Guaranteed minimum income benefit Guaranteed minimum withdrawal 3Q:06 benefit Ta
Slide 33: Variable Annuity Guarantees
Variable Annuity Guarantees 9/30/06 Excluding Allstate 12/31/04 12/31/05 Total Allstate Contribution ($ billions) Total variable annuity $ 47.4 $ 50.8 $ 54.2 $ 16.4 $ 70.6 account values Account values with living benefit features: Accumulation (GMAB) 5.8 7.2 8.1 1.6 9.7 Income (GMIB) 2.4 3.0 3.2 3.
Slide 34: Current Generation Living Benefits
Current Generation Living Benefits Meet Retirement Security Needs Lifetime Five Spousal Lifetime Five Income Benefit 5% of protected value for 5% of protected value for Feature individual’s life life for married couple, no reduction at first death Alternate Guaranteed 7% of protected value until N/A
Slide 35: Highest Daily Lifetime Five
Highest Daily Lifetime Five Introduced November 2006 Withdrawal benefit: 5% of protected value for individual’s life Initial protected value: – Greatest 5% roll-up based on each daily account value (10 years — or until first withdrawal); or – Account value at first withdrawal; if greater Equity risk
Slide 36: Active Management of Product Risks
Active Management of Product Risks Product/feature “risk management by design” Strategic risk retention – Retain risks we are best suited to carry – Actively hedge risks where appropriate Strong governance structure provides constant monitoring and oversight
Slide 37: Product/Feature Risk Management by Design
Product/Feature Risk Management by Design Guaranteed Minimum Automatic allocation to fixed bucket Accumulation Benefit, (i.e., “Self-hedging”) “GRO Plus” Guaranteed Minimum “Special” annuity rates and mortality table Income Benefit Lifetime Five, Requires asset allocation programs; Spousal Lifetime
Slide 38: Hedging Program Reduces Market Exposure
Hedging Program Reduces Market Exposure Hedging Objectives – Provide protection in severe scenarios – Maximize capital efficiency – Reduce earnings volatility Hedging Approach – “Three-Greek” hedging program for Lifetime Five, GMWB, Allstate GMAB – Long-dated options and swaps used to better match e
Slide 39: Growing Multi-Channel Distribution
Growing Multi-Channel Distribution Percentage 3Q:05 3Q:06 Channel Strategy of 3Q:06 Sales Sales(1) Sales(1) Independent Maintain leadership position Financial 60% $ 1,300 $ 1,407 Planners Insurance Maintain momentum in Agents 20% Prudential agent channel 373 466 Develop Allstate agent channel Wireho
Slide 40: Allstate Variable Annuity Business Enhances Distribution and Scale
Allstate Variable Annuity Business Enhances Distribution and Scale Exclusive rights to sell variable annuities through Allstate’s 13,700 independent contractors and financial professionals for three years Opportunity to enhance relationships with wirehouse firms including Morgan Stanley Enhances ban
Slide 41: Allstate Variable Annuity Business Integration On Track
Allstate Variable Annuity Business Integration On Track Major Project Milestones Transition Service Agreement Period with Allstate(1) 2006 2007 2008 June 1 August September March(2) February(2) Launch Launch Allstate- Prudential Signed Closed Prudential Launch branded, assumes products in Prudential
Slide 42: Products and Distribution Drive Sales Growth
Products and Distribution Drive Sales Growth Year ended Nine months ended December 31(1) September 30(2) 8 7 6 5 4 3 2 1 0 Gross sales ($ billions) (3) $7.5 $7.0 Allstate Distribution $6.3 $5.5 $4.7 $2.0 2003 2004 2005 2005 2006 1) Includes American Skandia from May 1, 2003 acquisition date 2) Inclu
Slide 43: Variable Annuity Market Share
Variable Annuity Market Share (1) Allstate Transaction Increases Market Share 5/03: American 10/04: American 3/05: Lifetime Five & HDV Launch Skandia Acquisition Skandia Systems Conversion 8 7 6 5 4 3 2 7.8% 6.6% 6.8% 6.8% 6.5% 5.5% 5.0% 5.0% 5.4% 5.8% 5.8% 5.5% 4.7% 4.1% 6/06: Allstate Transaction
Slide 44: Sustained Account Value Growth
Sustained Account Value Growth Account values (1) ($ billion) 70 60 50 40 30 20 10 0 $16.4 $54.8 $51.3 $58.0 $47.5 2003 2004 2005 Sept-06 Prudential Allstate 1) As of end of period
Slide 45: Summary
Summary Leading variable annuity market position Innovative products and features meet retirement market needs Risk management skills drive attractive value proposition, favorable risk-adjusted returns Allstate variable annuity business acquisition adds distribution and scale Developing multi-channe
Slide 46: Prudential Retirement
Prudential Retirement John Kim President, Prudential Retirement Prudential Financial
Slide 47: Prudential Retirement Financial Performance
Prudential Retirement Financial Performance(1) Year ended Nine months ended December 31, September 30, 2004 2005 2006 Account values: (2) (3) Institutional Investment Products $ 47,680 $ 48,080 $ 49,468 Full Service Retirement 83,891 88,385 93,364 Total 131,571 136,465 142,832 Gross deposits and sal
Slide 48: Emphasis on Full Service Retirement
Emphasis on Full Service Retirement Account Values ($ billions) (1) 0 20 40 60 80 100 120 140 160 12/31/03 12/31/04 12/31/05 09/30/06 Institutional Investment Products Full Service 1) Includes results of business acquired from CIGNA from April 1, 2004 acquisition date Investor Day 12.05.06 49
Slide 49: Full Service Retirement – Deposits and Sales
Full Service Retirement – Deposits and Sales (1) Year ended Nine months ended December 31, September 30, ($ millions) 2003 2004 2005 2005 2006 Gross deposits and sales $ 6,311 $ 11,665 $ 13,006 $ 9,960 $ 12,433 2,663 (1,422) (912) 572 278 Net additions (withdrawals) CIGNA Retirement Business integra
Slide 50: Institutional Investment Products Complement Portfolio
Institutional Investment Products Complement Portfolio Account values $49.5 billion (1) Structured Funding agreements, settlements GIC’s, other products $3.8 $13.2 $32.5 Group annuities, Close-out pensions 1) As of September 30, 2006
Slide 51: Full Service Retirement Broad Market Coverage
Full Service Retirement Broad Market Coverage Emerging (Small) Mid/Large Case Market Tax Exempt Corporate Market Market Primary Products DC plans - DC plans - DB plans - Total Retirement Services - Non-qualified plans - Investment only products Distribution - Commission - Fee based consultants Speci
Slide 52: Today's Retirement Market
Today’s Retirement Market Individuals increasingly responsible for their own retirement security Focus moving from “saving for retirement” to satisfaction of retirement income needs Defined contribution plans becoming only retirement solution for many, as defined benefit plans are de-emphasized Empl
Slide 53: Prudential Retirement Competitive Advantages
Prudential Retirement Competitive Advantages Total Retirement Services capabilities support bundled solutions Robust product lineup includes full suite of stable value products Scale allows market-leading service capabilities with competitive pricing structure Access to Prudential’s risk management,
Slide 54: Prudential Retirement Positioned for Market Trends
Prudential Retirement Positioned for Market Trends Development Prudential Positioning Individuals seek independent Stable value products offer principal retirement security protection Risk management and product Aging baby boomers need to design skills support income convert assets into income produ
Slide 55: Full Service Stable Value Products
Full Service Stable Value Products $31 billion account values (1) Principal guarantee feature attractive to security-minded pre-retirees Low risk profile: Substantially all balances experience- rated, with employer clients sharing investment risk Rate resets semi-annually on most products Future cre
Slide 56: Retirement Income Products
Retirement Income Products Traditional DC Focus New Option Age 20 yrs 30 yrs 40 yrs 50 yrs 60 yrs 65+ Accumulation Income DC Plan investment Guaranteed income options Downside protection with Guaranteed upside potential accumulation products Revocable Think “Lifetime Five”
Slide 57: Secure Retirement
Secure Retirement Auto “Default” Employer Principal Creating Enrollment Investments Match Protection Income and Aligned with Design Products Streams Escalation Retirement Encourages Goals Participation Phase I Phase II Defined Contribution Plan
Slide 58: A Leader in Total Retirement Services
A Leader In Total Retirement Services Integrated Solution for Plan Sponsors Non-DB DC qualified Plan Plan Plan Recordkeeping Participant communications Actuarial services Compliance Investment products and services
Slide 59: Pension Protection Act of 2006
Pension Protection Act of 2006 Enhanced Opportunities Pension Reform Legislation Reform Expected Impact 401(k) Automatic Encourages employers to Greater participation Enrollment auto-enroll workers rates 401(k) Automatic Facilitates automatic Greater account balance Contribution increases of partici
Slide 60: Summary
Summary Leading position in retirement market, emphasizing full service products Stable value products attractive to security-minded pre-retirees, offer favorable risk-adjusted returns to Prudential Leveraging Prudential’s risk management, asset management and annuity product capabilities as market
Slide 61: International Division
International Division Rodger Lawson Vice Chairman International Insurance and Investments Division Prudential Financial
Slide 62: International Division Financial Performance
International Division Financial Performance Year ended December 31, Nine months ended ($ millions) 2002 2003 2004 2005 Sept. 30, 2006 Adjusted operating income before tax: Life Planner businesses $ 379 $ 449 $ 515 $ 808 $ 698 Gibraltar Life 378 370 402 502 361 International Insurance 24.5% ROE (1)
Slide 63: 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 64: 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 65: 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 66: The Beneficial Cycle
The Beneficial Cycle Proven Execution Track Record High Policy Superior Persistency ROE High Customer Satisfaction Excellent Client Needs-Based Referrals Selling/Protection products High Life Planner High Life Planner Retention Favorable Income Growth High Quality Life Prospects Planner Recruits
Slide 67: Gibraltar Life
Gibraltar Life Strong affinity group relationships Face amount in force, $178 billion(1) $33.5 billion in assets (1) 80 sales offices (2) Solvency margin ratio, 1,125% (3) Ratings: Standard & Poor’s, AA–Moody’s, A1 1) As of September 30, 2006; translated based on exchange rate as of December 31, 200
Slide 68: Japanese Life Insurance Market Developments
Japanese Life Insurance Market Developments Development Prudential Positioning Privatization of “Kampo” postal life Needs-based selling continues as insurance competitive advantage Growing demand for savings and U.S. dollar fixed annuities offer retirement products attractive value proposition and f
Slide 69: Where We Are Today
Where We Are Today Leadership positions in life planning Gibraltar generates high ROE’s and cash flows Developing asset management platforms Profitability dominated by Japan and Korea Acquisitions potentially additive Expect to achieve our financial goals
Slide 70: International Insurance Finance
International Insurance Finance John Hanrahan Chief Financial Officer Prudential International Insurance Prudential Financial
Slide 71: Drivers of Sustainable Financial Performance
Drivers of Sustainable Financial Performance Sales and persistency drive organic growth; increasing scale benefits Emphasis on protection products U.S. dollar product and investment strategies Strong capital generation; capital management opportunities Strengthening yen can contribute to results
Slide 72: Life Planner Business
Life Planner Business Established Sales Force and Excellent Revenues Persistency Drive Baseline Growth ($ 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 73: Prudential of Japan Emphasis on Protection Products
Prudential of Japan Emphasis on Protection Products In-Force Annualized Premium New Business Annualized Premium as of September 30, 2006 (1) nine months ended September 30, 2006 (1) 17% 17% 27% 13% 16% 16% 50% 44% Yen-based protection Yen-based savings U.S. Dollar-based Third Sector(5) products(2) a
Slide 74: 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 $1,000 (approx.) 1) Based on a typical Prudential of Japan whole life policy for a male at age 30, paid up at 60 years old
Slide 75: Gibraltar Life – Growing Distribution, Maintaining High Persistency
Gibraltar Life – Growing Distribution, Maintaining High Persistency Number of Life Advisors 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 13-month persistency ratio 94% 90% Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Sep-06
Slide 76: U.S. Dollar Fixed Annuities Complement Core Protection Products
Gibraltar Life U.S. Dollar Fixed Annuities Complement Core Protection Products In-force Annualized Premium New Business Annualized Premium as of September 30, 2006 (1) nine months ended September 30, 2006 (1) 1% 4% 35% 60% 41% 49% 6% 4% Yen-based Yen-based U.S. dollar-based U.S. dollar protection pr
Slide 77: U.S. Dollar Fixed Annuities Expected Returns
Gibraltar Life U.S. Dollar Fixed Annuities Expected Returns Consistent with Overall Portfolio Life Insurance U.S. Dollar Fixed Annuities Mortality Margin Expense Margin Investment Spread Target 20% + ROE U.S. Dollar Spread – “MVA” Products: limited capital requirements – Conservative investment stra
Slide 78: U.S. Dollar Product and Investment Strategies
U.S. Dollar Product and Investment Strategies Enhanced portfolio yield U.S. Dollar Investments Natural hedge for Prudential Financial, Inc. U.S. Dollar Favorable Denominated value Products proposition Favorable expected returns
Slide 79: Improving Investment Portfolio Returns
Improving Investment Portfolio Returns(1) Total POJ($ millions) 4.00% 40 3.50% 30 3.00% 20 2.50% 10 2.00% -1.50%(10) 1.00%(20) 0.50%(30) 0.00%(40) 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 Normalized Investment Spread Amount ($ millions) Normalized Yield Crediting Rate 1) Excludes US do
Slide 80: 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 81: Capital Management Opportunities
Capital Management Opportunities Cross entity investments Acquisitions Subordinated debt repayments Reinsurance POJ dividend capacity adds flexibility
Slide 82: 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 83: Capital Management and Financial Outlook
Capital Management and Financial Outlook Rich Carbone Chief Financial Officer Prudential Financial
Slide 84: Capital Management: A Tool for ROE Expansion
Capital Management A Tool for ROE Expansion Equity attributed to businesses: – Regulatory/rating agency models – Business risks – “Actual usage” in some instances Business level equity requirements: managed by strategy and design Capital migrating to businesses with favorable growth and return prosp
Slide 85: Attributed Equity Based on Nature of Business
Attributed Equity Based on Nature of Business - Domestic Regulatory Rating Business GAAP Insurance Models Agency Risk Requirements - Retirement (RBC) Models Analysis(DAC) Attributed - Annuities Equity International Actual Equity Resident in Business for Insurance Rating Business Operating Regulatory
Slide 86: Managing Equity: Capital Requirements by Strategy and Design
Managing Equity Capital Requirements by Strategy and Design Product Emphasis Offer products with • Retirement –relatively low risk profile, Stable value attractive value proposition • International Insurance –Protection products Product Design Build risk management • Annuities –features into attract
Slide 87: Equity Capital Migration
Equity Capital Migration Businesses with Favorable Growth and Return Prospects $18.4 Billion (1) $19.6 Billion (1) $21.0 Billion (1) total 11 27 13 of 28 Percentage 21 18 18 18 42 24 16 12/31/02 12/31/04 9/30/06 International Insurance Retirement & Annuities 1) Attributed equity of Financial Service
Slide 88: Attributed Equity – September 30, 2006
Attributed Equity – September 30, 2006 $21.0 billion (1) INTERNATIONAL INSURANCE RETIREMENT & SAVINGS Life Planner Insurance $3.0 Individual Annuities $2.5 Gibraltar Life $1.4 Retirement $3.5 Corporate & other $3.2 INVESTMENT BUSINESSES DOMESTIC INSURANCE Financial Advisory $1.3 Individual Life $2.6
Slide 89: Strong Available Capital Position
Strong “Available Capital” Position September 30, 2006 Ongoing Capital Generation $10 Potential value of Wachovia JV “put” High ROE, high growth businesses International Insurance excess capital Mature businesses: favorable returns, modest capital needs Hybrid security issuance capacity (1) Unused d
Slide 90: Migrating to Optimal Capital Structure
Migrating to Optimal Capital Structure 17% Capital Debt 83% Equity (approx. $21 billion) “Assuming no Acquisitions” Share Repurchases Share Repurchase Program Considerations: - Capital generation -Business growth requirements - Market opportunities - Rating agency views - Sustainability $ 3 billion
Slide 91: Diverse and Consistent Cash Flow Sources Enhance Flexibility
Diverse and Consistent Cash Flow Sources Enhance Flexibility De-stacked structure enhances flexibility Mature domestic insurance businesses: strong cash flow generation International Insurance: dividends commenced in 2006 to complement cash flow “alternatives” Non-insurance businesses provide additi
Slide 92: Considerations for 2007
Considerations for Baseline 2006 earnings Business growth Allstate variable annuity business Capital management: share repurchases, increased leverage US dollar @ 102 yen 8% equity market appreciation 29.5% effective tax rate
Slide 93: FSB Full Year 2007 Earnings Guidance
FSB Full Year 2007 Earnings Guidance 2006 Guidance (1) $5.90 - $6.00 Non Recurring/ Unsustainable 2006 Items Baseline Earnings Level $5.70 - $5.80 2007 Guidance (1) Capital management: share repurchases, increased leverage Allstate variable annuity business Growth / Expense Management 1) Based on af