Post on 12-Mar-2018
Prudential Financial, Inc.Prudential Financial, Inc.
Art RyanArt Ryan
Chairman and CEOChairman and CEO
Sanford C. Bernstein’s 22Sanford C. Bernstein’s 22ndnd Annual Strategic Decisions ConferenceAnnual Strategic Decisions Conference
May 2006 May 2006
Prudential Financial, Inc. May 2006 1
The presentations today may include some forward-looking statements. It is possible that actual results may differ materially from any expectations or predictions expressed in these presentations. Additional information regarding factors that could cause such a difference appears in the section titled “Forward-Looking Statements”of our Form 10-K and Form 10-Q SEC filings and in our earnings press releases, which can be found on our Web site at www.investor.prudential.com.
The presentations today include references to “adjusted operating income” and to earnings per share, or EPS, or return on equity, or ROE, which are determined based on “adjusted operating income”. Adjusted operating income is a financial measure we use in managing our businesses to measure the performance of our Financial Services Businesses. Adjusted operating income excludes net realized investment gains and losses (other than those representing profit or loss of certain of our businesses which primarily originate investments for sale or syndication to unrelated investors, and those associated with terminating hedges of foreign currency earnings and current period yield adjustments) and related charges and adjustments, as well as results from divested businesses. Adjusted operating income also excludes recorded changes in asset values that will ultimately accrue to contract holders, and recorded changes in contract holder liabilities resulting from changes in related asset values. Adjusted operating income is not the same as income from continuing operations or net income determined in accordance with generally accepted accounting principles, or GAAP. The comparable GAAP presentation and the reconciliation between the two are set out in our Form 10-K and Form 10-Q SEC filings and in our earnings press releases and Quarterly Financial Supplements, which can be found on our Web site.
Prudential Financial, Inc. of the United States is not affiliated with Prudential PLC which is headquartered in the United Kingdom.
ForwardForward--Looking Statements and Looking Statements and NonNon--GAAP MeasureGAAP Measure
Prudential Financial, Inc. May 2006 2
Demutualization through 2005Demutualization through 2005
Achieved significant expense reductionsAchieved significant expense reductions
Divested P&C business Divested P&C business
Acquired and integrated: American Skandia and CIGNA Acquired and integrated: American Skandia and CIGNA RetirementRetirement
Combined retail brokerage into WachoviaCombined retail brokerage into Wachovia
Repurchased $6 billion of Common Stock Repurchased $6 billion of Common Stock (1)(1)
Increased cash dividend 25% per year for ‘03, ‘04, and ‘05Increased cash dividend 25% per year for ‘03, ‘04, and ‘05
Achieved “AA” financial strength ratings from four agenciesAchieved “AA” financial strength ratings from four agencies
Surpassed ROE goal of 12%Surpassed ROE goal of 12%
(1) Through March 31, 2006
Prudential Financial, Inc. May 2006 3
$2.06$2.53
$3.61
$4.83
2002 2003 2004 2005
Earnings per share growthEarnings per share growth (1)(1)
33% CAGR33% CAGR
(1) Based on after-tax adjusted operating income of the Financial Services Businesses (“FSB”)
Prudential Financial, Inc. May 2006 4
ROE progressROE progress (1)(1)
(1) Based on after-tax adjusted operating income of the FSB; 1Q06 on annualized basis
6.3%7.5%
10.2%12.4%
13.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2002 2003 2004 2005 1Q2006
Prudential Financial, Inc. May 2006 5
Where we are todayWhere we are today
Balanced mix of businesses and risksBalanced mix of businesses and risks
Strong capital position and cash flow generationStrong capital position and cash flow generation
Leading position in domestic retirement and savings marketLeading position in domestic retirement and savings market
Sustained high returns and growth of international Sustained high returns and growth of international insurance businessinsurance business
Asset management skills complement product manufacturingAsset management skills complement product manufacturing
Complementary distribution channelsComplementary distribution channels
Acquisition and integration track recordAcquisition and integration track record
Prudential Financial, Inc. May 2006 6
82% of equity is attributed to operating businesses82% of equity is attributed to operating businesses
Operating BusinessesOperating Businesses
Corporate & OtherCorporate & Other
(1) As of March 31, 2006 for the FSB; excludes unrealized gains and losses on investments.
Total attributed equity of $20.4 billionTotal attributed equity of $20.4 billion (1)
18%
82%
Prudential Financial, Inc. May 2006 7
Attributed equity of operating businessesAttributed equity of operating businesses
INTERNATIONAL INSURANCEINTERNATIONAL INSURANCE
RETIREMENT & SAVINGSRETIREMENT & SAVINGS
DOMESTIC INSURANCEDOMESTIC INSURANCE
Attributed equity $16.8 billionAttributed equity $16.8 billion (1)
•• Life Planner model Life Planner model •• Gibraltar LifeGibraltar Life
•• RetirementRetirement•• Individual AnnuitiesIndividual Annuities
•• Individual LifeIndividual Life•• Group InsuranceGroup Insurance
(1) As of March 31, 2006 for the FSB operating businesses; excludes unrealized gains and losses on investments.
INVESTMENT BUSINESSESINVESTMENT BUSINESSES
•• Financial AdvisoryFinancial Advisory•• Asset ManagementAsset Management•• International InvestmentsInternational Investments
$3.7
$4.1$5.4
$3.6
Prudential Financial, Inc. May 2006 8
Complementary and diversified businessesComplementary and diversified businesses
DOMESTIC INSURANCEDOMESTIC INSURANCE••Individual LifeIndividual Life••Group InsuranceGroup Insurance
INTERNATIONAL INSURANCEINTERNATIONAL INSURANCE••Life Planner model Life Planner model ••Gibraltar LifeGibraltar Life
Adjusted operating incomeAdjusted operating income (1) $ 946 million$ 946 million
(1) Before-tax; for the FSB; quarter ended March 31, 2006
RETIREMENT & SAVINGSRETIREMENT & SAVINGS••RetirementRetirement••Individual AnnuitiesIndividual Annuities
INVESTMENT BUSINESSES & CORPORATEINVESTMENT BUSINESSES & CORPORATE••Financial AdvisoryFinancial Advisory••Asset ManagementAsset Management••International InvestmentsInternational Investments••Corporate & OtherCorporate & Other
INTERNATIONAL INSURANCEINTERNATIONAL INSURANCE••Life Planner model Life Planner model ••Gibraltar LifeGibraltar Life
27%
19%18%
36%
Prudential Financial, Inc. May 2006 9
International Insurance financial performanceInternational Insurance financial performance
(1) In millions(2) Average attributed equity for period; in billions(3) Based on after-tax adjusted operating income; 1Q05 and 1Q06 on annualized basis
3382851,310917110106502402Gibraltar Life
$ 228$ 179$ 808$ 515Life Planner model
25%
$3.9
1Q06
28%
$ 2.8
1Q0520052004
25%
$ 2.5
28%Return on Equity (3)
$ 3.2Equity (2)
Pre-tax adjusted operating income (1)
Prudential Financial, Inc. May 2006 10
Life Planner model strategy and plansLife Planner model strategy and plans
Organic expansion in existing marketsOrganic expansion in existing markets
Maintenance of policy persistency levelsMaintenance of policy persistency levels
Very selective entry into new marketsVery selective entry into new markets
Disciplined implementationDisciplined implementation
Continued growth in Life PlannersContinued growth in Life Planners
Countries: Mainly Japan, Korea,Taiwan; total 8Countries: Mainly Japan, Korea,Taiwan; total 8
Maintenance of Life Planner productivityMaintenance of Life Planner productivity
Prudential Financial, Inc. May 2006 11
Growth in the Life Planner businessGrowth in the Life Planner business
(1) Before-tax, GAAP exchange rate basis
Million $Units
0
1,000
2,000
3,000
4,000
5,000
6,000
1998 1999 2000 2001 2002 2003 2004 2005$-$100
$200$300$400
$500$600$700
$800$900
Life Planners Policies in force (000) Adjusted operating income (1)
Prudential Financial, Inc. May 2006 12
Gibraltar LifeGibraltar Life
Acquired by Prudential Financial in 2001Acquired by Prudential Financial in 2001
Strong affinity group relationshipsStrong affinity group relationships
High return on equityHigh return on equity
Strong free cash flow and capital generationStrong free cash flow and capital generation
“Traditional model” Japanese life insurance company“Traditional model” Japanese life insurance company
Prudential Financial, Inc. May 2006 13
Large retirement / savings marketLarge retirement / savings market
Personal SavingsPersonal Savings$7.0$7.0
IRAsIRAs$3.5$3.5
Defined ContributionDefined Contribution$2.7$2.7
Defined BenefitDefined Benefit$4.9$4.9
AnnuitiesAnnuities$1.7$1.7
$20 trillion market in 2004$20 trillion market in 2004
Sources: Federal Reserve Flow of Funds; LIMRA; company estimates
Prudential Financial, Inc. May 2006 14
A Leading Retirement providerA Leading Retirement provider
Account ValuesAccount Values (1)
$ 139$ 139$ 132$ 132TotalTotal
$ 47$ 47$ 48$ 48InstitutionalInstitutionalInvestment ProductsInvestment Products
$ 92$ 92$ 84$ 84Full ServiceFull Service
1Q20061Q20061Q20051Q2005
(1) At end of period; in billions.
Prudential Financial, Inc. May 2006 15
Prudential RetirementPrudential Retirement
Full service retirement: defined contribution; defined benefit; Full service retirement: defined contribution; defined benefit; nonnon--qualified plans; retail/rolloverqualified plans; retail/rollover
Stable value products offer attractive returns with limited riskStable value products offer attractive returns with limited risk
Complementary distribution channels address selected Complementary distribution channels address selected marketsmarkets
Institutional Investment products complement product lineupInstitutional Investment products complement product lineup
Business integration completed on schedule, 1Q06Business integration completed on schedule, 1Q06
Total retirement services capability provides market advantageTotal retirement services capability provides market advantage
Prudential Financial, Inc. May 2006 16
AnnuitiesAnnuities
(1) As of March 31, 2006(2) Based on after-tax adjusted operating income for the year ended December 31, 2005
Leading Distributor of variable annuities through Leading Distributor of variable annuities through independent financial plannersindependent financial planners
Expanding distributionExpanding distribution
Account values exceed $57 billion Account values exceed $57 billion (1)(1)
Successful full suite of living benefitsSuccessful full suite of living benefits
Return on equity of 18% Return on equity of 18% (2)(2)
Acquisition of Allstate’s VA business expected 2Q06Acquisition of Allstate’s VA business expected 2Q06
Prudential Financial, Inc. May 2006 17
Individual Life ROEIndividual Life ROE
(1) In millions(2) Average attributed equity for the period; in billions(3) Based on after-tax adjusted operating income giving effect to direct equity credit
16 %16 %Return on equityReturn on equity (3)(3)
$ 2.6$ 2.6EquityEquity (2) (2)
$$ 498498PrePre--tax adjusted operating incometax adjusted operating income (1)(1)
Year ended Year ended December 31, 2005December 31, 2005
Prudential Financial, Inc. May 2006 18
Group InsuranceGroup Insurance
Controlled growth Controlled growth –– emphasis on marginsemphasis on margins
(1) Based on after-tax adjusted operating income for the year ended December 31, 2005
Return on equity of 16%Return on equity of 16%(1)(1)
Addressing disability claims resolutionsAddressing disability claims resolutions
High persistency of quality businessHigh persistency of quality business
Prudential Financial, Inc. May 2006 19
Asset Management: significant scale and breadthAsset Management: significant scale and breadth
AUM by asset typeAUM by asset type AUM by client typeAUM by client type
Equity20%
Fixed Income
44%
Real Estate
4%
Non-proprietaryinsurance,
annuity & other18%
International14%
Institutionalcustomers25%
General account
29%Retailcustomers14%
International14%
CB
Total AUM $547 billion Total AUM $547 billion (1)(1)
Non-proprietaryinsurance,
annuity & other18%
(1) As of March 31, 2006
Prudential Financial, Inc. May 2006 20
2006 and beyond …2006 and beyond …
Two substantial growth opportunities:Two substantial growth opportunities:International businessesInternational businessesDomestic retirement and savings businessesDomestic retirement and savings businesses
Evolving multiEvolving multi--channel distribution strategychannel distribution strategy
Manage margins and returnsManage margins and returns
Opportunistic acquisitionsOpportunistic acquisitions
Substantial operating cash flows enable share Substantial operating cash flows enable share repurchases, growing cash dividendsrepurchases, growing cash dividends
Prudential Financial, Inc. May 2006 21
2006 2006 –– 20072007Execution and business mix drive superior Execution and business mix drive superior
shareholder value growthshareholder value growth
ROE: 12% 14%Double digit average annual growth: AOI, EPSReasonably consistent operating resultsVisible, sustainable cash flow“AA”capital management
ROE: 12% 14%ROE: 12% 14%Double digit average annual growth: AOI, EPSDouble digit average annual growth: AOI, EPSReasonably consistent operating resultsReasonably consistent operating resultsVisible, sustainable cash flowVisible, sustainable cash flow“AA”capital management“AA”capital management