Attached files
| file | filename |
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| 8-K - 8-K - PRUDENTIAL FINANCIAL INC | d933921d8k.htm |
 PRUDENTIAL
FINANCIAL,
INC. 2015
INVESTOR
DAY
JUNE
17, 2015 Exhibit 99.1 |
 PRUDENTIAL
FINANCIAL,
INC. 2015
INVESTOR
DAY
MARK
FINKELSTEIN
SENIOR
VICE
PRESIDENT
INVESTOR
RELATIONS |
 FORWARD-LOOKING STATEMENTS AND NON-GAAP MEASURE
3 Investor Day 6.17.2015 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,” “projects,” “intends,” “should,” “will,” “shall,” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments
and their potential effects upon Prudential Financial, Inc. and its subsidiaries.
There can be no assurance that future developments affecting Prudential
Financial, Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. Certain important factors that could cause actual
results
to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements can be found in the “Risk Factors” section included in Prudential Financial, Inc.’s Annual Report on Form 10-K for the year ended December 31,
2014. Prudential Financial, Inc. does not intend, and is under no
obligation, to update any particular forward-looking statement included in this presentation. This presentation also includes references to “adjusted operating income” and return on equity, which is based on adjusted
operating income. Adjusted operating income is a measure of
performance that is not calculated based on accounting principles
generally accepted in the United States of America (GAAP). For additional
information about adjusted operating income and the comparable GAAP
measure, including a reconciliation between the two, please refer to our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are available on our Web site at www.investor.prudential.com.
A reconciliation is also included as part of this presentation. _______________________________________________________________________________
Prudential Financial, Inc. of the United States is not affiliated with Prudential PLC
which is headquartered in the United Kingdom. |
 RECONCILIATIONS BETWEEN
ADJUSTED OPERATING INCOME AND THE COMPARABLE GAAP MEASURE (1) 4 Investor Day 6.17.2015 1) Represents results of former Financial Services Businesses. 2) Reflects restatement for the Company's retrospective adoption in 2012 of amended accounting guidance for deferred policy acquisition costs and a
discretionary change in accounting principle related to the Company's
pension plans. Does not reflect restatement for the Company's retrospective adoption in 2013 of a discretionary change in accounting principle for recognition of performance based incentive fee revenue.
($ millions) 2007 (2) 2014 Total pre-tax adjusted operating income 3,916 $ 5,892 $ Income taxes, applicable to adjusted operating income 1,066 1,537 After-tax adjusted operating income 2,850 4,355 Reconciling items: Realized investment gains (losses), net, and related charges and adjustments (88) (4,130) Investment gains (losses) on trading account assets supporting insurance liabilities, net
- 339 Change in experience-rated contractholder liabilities due to asset value changes
13 (294) Divested businesses 339 167 Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests
(354) 44 Total reconciling items, before income taxes (90) (3,874) Income taxes, not applicable to adjusted operating income (99) (1,082) Total reconciling items, after income taxes 9 (2,792) Income (loss) from continuing operations (after-tax) before equity in earnings of operating joint ventures
2,859 1,563 Equity in earnings of operating joint ventures, net of taxes and earnings attributable to noncontrolling interests
179 (41) Income (loss) from continuing operations attributable to Prudential Financial, Inc.
3,038 1,522 Earnings attributable to noncontrolling interests 67 57 Income (loss) from continuing operations (after-tax) 3,105 1,579 Income from discontinued operations, net of taxes 217 11 Net income (loss) 3,322 1,590 Less: Income attributable to noncontrolling interests 67 57 Net income (loss) attributable to Prudential Financial, Inc. 3,255 $ 1,533 $ |
 5 Investor Day 6.17.2015 RECONCILIATION FOR PRE -TAX ADJUSTED OPERATING INCOME EXCLUDING MARKET DRIVEN AND DISCRETE ITEMS (1) 1) 2) Includes adjustments to reflect updated estimates of profitability based on market performance in relation to our assumptions, as well as annual
reviews of actuarial assumptions and refinements of reserves and
amortization of deferred policy acquisition and other costs. ($
millions) 2007
2014 Pre-tax adjusted operating income 3,916 $ 5,892 $ Reconciling items: Unlockings and experience true-ups (2) 130 (420) Gains on sales of business/investments 51 - Integration costs for Hartford Life - (32) Other (5) - Sub-total 176 (452) Pre-tax adjusted operating income excluding market driven and discrete items 3,740 $ 6,344 $ Adjusted Operating Income (AOI) excluding market driven and discrete items as disclosed in company earnings conference call presentations and
earnings releases available at
www.investor.prudential.com. |
 RECONCILIATION FOR
INTERNATIONAL
INSURANCE
PRE -TAX ADJUSTED OPERATING INCOME EXCLUDING MARKET DRIVEN AND DISCRETE ITEMS (1) 6 Investor Day 6.17.2015 1) AOI excluding market driven and discrete items as disclosed in company earnings conference call presentations and earnings releases available at
www.investor.prudential.com. 2) Includes refinements of reserves and amortization of deferred policy acquisition and other costs.
($ millions) 2009 2010 2011 2012 2013 2014 International Insurance pre-tax adjusted operating income 1,651 $ 1,887 $ 2,263 $ 2,704 $ 3,152 $ 3,252 $ Reconciling items: Annual review of actuarial assumptions and reserve refinements 14 - - 20 (190) (95) Gains on sales of investment - 66 237 60 66 - Impact of earthquake in Japan - - (69) - - - Integration costs for Star/Edison - - (213) (138) (28) - Other 15 - - - - - Sub-total 29 66 (45) (58) (152) (95) International Insurance pre-tax adjusted operating income excluding market driven and discrete items 1,622 $ 1,821 $ 2,308 $ 2,762 $ 3,304 $ 3,347 $ (2) |
 RECONCILIATION FOR
U.S. BUSINESSES
PRE -TAX ADJUSTED OPERATING INCOME EXCLUDING MARKET DRIVEN AND DISCRETE ITEMS (1) 7 Investor Day 6.17.2015 1) AOI excluding market driven and discrete items as disclosed in company earnings conference call presentations and earnings releases available at
www.investor.prudential.com. 2) Includes adjustments to reflect updated estimates of profitability based on market performance in relation to our assumptions, as well as annual
reviews of actuarial assumptions and refinements of reserves and
amortization of deferred policy acquisition and other costs.
3) Includes gain on sale of investment in Afore XXI, as well as an impairment and gains on certain other investments.
($ millions) 2010 2011 2012 2013 2014 U.S. Businesses pre-tax adjusted operating income 2,694 $ 2,789 $ 2,661 $ 4,587 $ 3,988 $ Reconciling items: Unlockings and experience true-ups (2) 384 (202) 48 764 (306) Gains on sales of business/investments (3) - 157 (34) - - Integration costs for Hartford Life - - (15) (51) (32) Other - - 11 - - Sub-total 384 (45) 10 713 (338) U.S. Businesses pre-tax adjusted operating income excluding market driven and discrete items 2,310 $ 2,834 $ 2,651 $ 3,874 $ 4,326 $ |
 RECONCILIATION FOR
SELECTED
BUSINESSES
PRE -TAX ADJUSTED OPERATING INCOME EXCLUDING MARKET DRIVEN AND DISCRETE ITEMS (1) 8 Investor Day 6.17.2015 1) AOI excluding market driven and discrete items as disclosed in company earnings conference call presentations and earnings releases available at
www.investor.prudential.com. 2) Includes adjustments to reflect updated estimates of profitability based on market performance in relation to our assumptions, as well as annual
reviews of actuarial assumptions and refinements of reserves and
amortization of deferred policy acquisition and other costs. ($
millions) Individual Life &
Group Insurance Retirement Individual Annuities & Asset Management Individual Life & Group Insurance Retirement Individual Annuities & Asset Management Pre-tax adjusted operating income 656 $
565 $
1,473 $ 521 $
1,215 $
2,252 $
Reconciling items: Unlockings and experience true-ups (2) 38 (15) 361 (179) 2 (129) Integration costs for Hartford Life - - - (32) - - Sub-total 38 (15) 361 (211) 2 (129) Pre-tax adjusted operating income excluding market driven and discrete items 618 $
580 $
1,112 $ 732 $
1,213 $
2,381 $
2010 2014 |
 RECONCILIATION FOR
EARNINGS PER SHARE EXCLUDING MARKET DRIVEN AND DISCRETE ITEMS (1) 9 Investor Day 6.17.2015 Adjusted Operating Income basis: 2010 2014 Earnings Per Share 5.64 $ 9.21 $ Reconciling items: Unlockings and experience true-ups (2) 0.52 (0.59) Gains on sales of businesses/investments 0.09 - Integration costs for Hartford Life - (0.04) Sub-total 0.61 (0.63) Earnings Per Share - excluding market driven and discrete items 5.03 $ 9.84 $ 1) As disclosed in company earnings conference call presentations and earnings releases available at www.investor.prudential.com.
2) Includes adjustments to reflect updated estimates of profitability based on market performance in relation to our assumptions, as well as annual
reviews of actuarial assumptions and refinements of reserves and
amortization of deferred policy acquisition and other costs. |
 PRUDENTIAL
FINANCIAL,
INC. 2015
INVESTOR
DAY
JOHN
STRANGFELD
CHAIRMAN
& CEO |
 BUILDING
PRUDENTIAL’S
INVESTOR
VALUE
PROPOSITION
2 Investor Day 6.17.2015 Repositioned Company 1999 - 2004 Enhanced Business Performance 2005 - 2007 Navigated Crisis 2008 - 2009 Capitalized on Market Dislocation 2010 - 2014 Financial Objectives and Results • Set 12% ROE target • Exceeded 12% ROE target • Balance sheet strength • Set and exceeded 13 – 14% ROE target Business Priorities and Actions • Redefined core business lines Life Retirement Asset Management • Transitioned US distribution – increased presence in third party channels • Reduced costs • Product innovation • Initiated PRT research and development effort • Strengthened third party distribution • No TARP • Modest equity raise • Enhanced risk profile • Strong organic growth in all major business segments • Established leadership in PRT • Improving return prospects • Implemented Capital Protection Framework • Balanced approach: investing in businesses, return to shareholders Key Transactions Acquired: • Kyoei (Japan) • Skandia Annuities • Cigna Retirement Divested: • Healthcare • P&C Formed: • Securities JV (Wachovia) Acquired: • Allstate Variable Annuities Divested: • Pru Equity Group Divested: • Securities JV Acquired: • Star and Edison • Hartford Life Divested: • Global Commodities • Real Estate & Relocation THE FUTURE… |
 2015
and Beyond: Fortify Leadership Position
BUILDING
PRUDENTIAL’S
INVESTOR
VALUE
PROPOSITION
• Maintain 13 – 14% ROE across cycle • Strong cash flow supporting balanced capital deployment • Solid earnings and book value growth with lower volatility 3 Investor Day 6.17.2015 • Enhance capabilities in digital, data, infrastructure • Pursue growth opportunities: existing businesses, selected growth markets and M&A • Constructively navigate evolving regulatory environment Achieve Key Financial Objectives Business Priorities and Actions |
 PRUDENTIAL
FINANCIAL,
INC. 2015
INVESTOR
DAY
MARK
GRIER
VICE
CHAIRMAN |
 PRUDENTIAL
FINANCIAL,
INC.
INTERNATIONAL
INSURANCE
CHARLES
LOWREY
EXECUTIVE
VICE
PRESIDENT
CHIEF
OPERATING
OFFICER |
 KEY
MESSAGES
2 • Superior execution • Emphasize death protection • Core proprietary and complementary third party distribution • Strong capital management • Growing retirement and inheritance needs • Rising income and wealth • Expanding markets • Growing third party distribution Challenges • Economic environment • Currency and interest rate risks • Aging population in Japan Growth Prospects Sustainable High Returns Investor Day 6.17.2015 |
 HIGH
RETURN
BUSINESS
Historical Earnings (1) & ROE (2) • International Insurance operations generate sustainable high ROE and strong earnings 1) Pre-tax adjusted operating income (AOI) excluding market driven and discrete items as shown in disclosure section.
2) Return on equity (ROE) based on after-tax AOI as adjusted herein using an overall effective rate for the former Financial Services Businesses
(FSB), and average attributed equity excluding accumulated other
comprehensive income and is adjusted to remove the impact of foreign currency exchange rate remeasurement. 3 Star & Edison Acquisition Investor Day 6.17.2015 $1.6 $1.8 $2.3 $2.8 $3.3 $3.3 24.9% 22.0% 17.4% 18.3% 21.2% 19.8% 2009 2010 2011 2012 2013 2014 AOI ($ billions) ROE |
 FOCUS ON
PROTECTION
PRODUCTS
• High margin protection products • Retirement financial security needs • Lifetime customer relationships 4 Premiums In Force (1)(2) Annualized New Business Premiums (1)(3) 1) Japan only. Foreign denominated activity translated to U.S. dollars at uniform exchange rates for all periods presented; including Japanese
yen 91 per U.S. dollar. U.S. dollar denominated activity is
included based on the amounts as transacted in U.S. dollars.
2) As of 12/31/14. Annualized premiums in force, including paid-up policies and 10% of single premium. Percentages
approximate. 3)
For the year ended 12/31/14.
4) Savings includes annuities and yen based bank channel single premium whole life. Sales of yen based bank channel single premium whole life were
discontinued in 2013.
(4) Investor Day 6.17.2015 (4) Protection 51% A&H 12% Retirement 20% Savings 17% Death Death Protection 55% A&H 7% Retirement 19% Savings 19% |
 FOCUS ON
PROTECTION
PRODUCTS
– BANK CHANNEL • Excluding discontinued yen savings product (1) , our bank channel sales are growing steadily 5 Annualized New Business Premiums (2) 1) Represents discontinued yen based single premium whole life product (SPWL). 2) Foreign denominated activity translated to U.S. dollars at uniform exchange rates for all periods; Japanese yen 91 per U.S. dollar. Japanese bank
channel results only.
($ millions) $202 $204 $190 $173 $149 $160 $172 $165 $168 $106 Investor Day 6.17.2015 56 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 Discontinued Yen Based SPWL Single Premium - All Other 3 and 5 Pay Whole Life 10 Pay and Longer Whole Life 96 44 22 |
 $0.2 $0.3 $0.6 $0.8 $0.8 $0.9 $1.3 $1.4 $1.4 $1.6 $1.7 $1.9 $2.3 $2.7 $3.2 $3.3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 HISTORY OF GROWTH • Majority of our earnings come from Japan operations • Sustained track record of earnings growth despite volatile financial markets and challenging Japan macro environment International Insurance Pre-tax AOI (1) 6 ($ billions) Star & Edison Acquisition Yamato Acquisition Aoba Acquisition Kyoei Acquisition • Driven by a combination of organic growth, M&A, and successful business integrations 1) Not adjusted for market driven and discrete items. Investor Day 6.17.2015 |
 $0.2 $0.3 $0.6 $0.8 $0.8 $0.9 $1.3 $1.4 $1.4 $1.6 $1.7 $1.9 $2.3 $2.7 $3.2 $3.3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 HISTORY OF GROWTH • Sustained earnings growth despite low/negative GDP growth in Japan International Insurance Pre-tax AOI 7 ($ billions) -0.2% 2.3% 0.4% 0.3% 1.7% 2.4% 1.3% 1.7% 2.2% -1.0% -5.5% 4.7% -0.5% 1.8% 1.6% 0.0% -9% -6% -3% 0% 3% 6% 9% Japan GDP Growth Rate (2) 1) Not adjusted for market driven and discrete items. 2) Source: Economic and Social Research Institute, Cabinet Office. Based on annual real gross domestic product (GDP).
Investor Day 6.17.2015 |
 HISTORY OF
GROWTH
• Sustained earnings growth despite foreign exchange (FX) rate volatility International Insurance Pre-tax AOI (1) 8 ($ billions) 1) Not adjusted for market driven and discrete items. Investor Day 6.17.2015 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $0.2 $0.3 $0.6 $0.8 $0.8 $0.9 $1.3 $1.4 $1.4 $1.6 $1.7 $1.9 $2.3 $2.7 $3.2 $3.3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 120 60 80 100 120 140 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 JPY/USD FX rate (¥) |
 HISTORY OF
GROWTH
• Sustained earnings growth despite Japanese equity market volatility (Index) International Insurance Pre-tax AOI (1) 9 ($ billions) 1) Not adjusted for market driven and discrete items. Investor Day 6.17.2015 17,451 6,000 9,000 12,000 15,000 18,000 21,000 Nikkei 225 $0.2 $0.3 $0.6 $0.8 $0.8 $0.9 $1.3 $1.4 $1.4 $1.6 $1.7 $1.9 $2.3 $2.7 $3.2 $3.3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 |
 HISTORY OF
GROWTH
• Sustained earnings growth despite declining interest rates (% Yield) International Insurance Pre-tax AOI (1) 10 ($ billions) 1) Not adjusted for market driven and discrete items. .3% Investor Day 6.17.2015 $0.2 $0.3 $0.6 $0.8 $0.8 $0.9 $1.3 $1.4 $1.4 $1.6 $1.7 $1.9 $2.7 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.0 0.5 1.0 1.5 2.0 2.5 JGB 10Y $3.2 $3.3 $2.3 |
 FOUR
PILLARS
FOR PROFITABLE GROWTH 11 Superior Execution in Existing Business Product Development to Meet Customer Needs Distribution Expansion in Proprietary and Third Party Channels Complementing Organic Growth with M&A Our Growth Strategies Investor Day 6.17.2015 |
 CORE
FUNDAMENTAL
GROWTH
OPPORTUNITIES
12 Life Planner Operations • Continuing Life Planner force growth • Expansion in selected markets • Inheritance market opportunity in Japan Gibraltar Life & Other Operations • Life Consultant force stabilized and poised to grow • Expansion in selected markets and third party distribution • Inheritance market opportunity in Japan Investor Day 6.17.2015 |
 CHALLENGES AND
POSITIONING
13 Challenges • Selectivity limits pace of growth of Life Planner force • Expected gradual attrition of large acquired blocks of business partly offsets business growth • Aging Japanese population • Currency risk • Interest rate risk Prudential Positioning • Expanding complementary third party distribution • Building operations in selected growth markets • Proven track record of M&A and business integrations • Product solution for retirement financial security and inheritance protection needs • Lifetime client relationships support subsequent sales for changing needs • Currency hedging programs for income and equity • Limited portfolio turnover, strong asset liability management, emphasis on mortality and expense margins Investor Day 6.17.2015 |
 PRUDENTIAL
FINANCIAL,
INC.
INTERNATIONAL
INSURANCE
JOHN
HANRAHAN
SENIOR
VICE
PRESIDENT
CHIEF
FINANCIAL
OFFICER |
 KEY
MESSAGES
15 • Exposure • Sensitivity • Risk mitigation Interest Rate • Exposure • Sensitivity • Risk mitigation FX Capital Management • Generation • Utilization • Solvency margin ratios Investor Day 6.17.2015 |
 CURRENCY
EXPOSURE
• Less than half of Japan’s earnings are yen sensitive – Certain expenses related to non-yen denominated business are paid in yen and are
reducing exposure of earnings to yen value changes
• Contributing factors to declining yen AOI as a percentage to total AOI include increase in USD investments, disproportionately higher yen expenses, and weaker
yen currency exchange rate
16 1) Percentage based on pre-tax AOI excluding market driven and discrete items for our Japanese insurance operations.
USD/JPY Plan Rate 80 91 Japan Earnings (1) (Currency Mix) Investor Day 6.17.2015 49% 37% 51% 63% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 1Q15 Non -Yen Yen |
 CURRENCY
SENSITIVITY
International Insurance 1Q 2015
Earnings at Different Yen Hedging Rates (1) 1) Based on actual and alternative assumed hedging rates for Japanese yen income to U.S. dollars.
17 Hypothetical Hedging Rates ¥110 ¥120 ¥130 ¥140 Difference from Actual Hedging Rate 21% 32% 43% 54% Pro Forma Impact to AOI (6)% (9)% (11)% (13)% ($ millions) Investor Day 6.17.2015 Pro Forma AOI at indicated rates 834 781 759 741 726 0 300 600 900 ¥110 ¥120 ¥130 ¥140 ¥91 Actual Rate |
 HEDGING
OBJECTIVES
18 • Protect Enterprise Earnings and ROE • Protect Long-term Value • Insulate Solvency Margin Ratio Investor Day 6.17.2015 |
 HEDGING
CURRENCY
EXPOSURE
19 • Yen Hedging Strategy $1.9 $15.5 $12.1 $0.7 $0.8 Hedge Type Forwards USD Assets Yen Debt Dual Currency Bonds Protects Long-term Value Protects Near-term Earnings and Cash Flow Protection Income Hedge Equity Hedge ($ billions) Investor Day 6.17.2015 Existing Hedges as of 3/31/15 |
 YEN
EARNINGS
HEDGE
Historical Yen Spot Rates vs. Hedging Rates
2010 2011 2012 2013 2014 (¥) ¥106 ¥92 ¥85 ¥80 ¥82 • Expected yen-based AOI is hedged over a 36 month rolling period using a series of FX forwards with laddered maturities • Each quarter’s expected yen earnings are hedged over the preceding 9 quarters. The hedged rate is an average of these transactions. 2009 2015 ¥91 ¥99 20 Investor Day 6.17.2015 70 80 90 100 110 120 130 USD/JPY Spot Rate Hedging Rate Trailing 3-Yr Rolling Avg. Spot Rate |
 FAIR
VALUE
OF YEN EQUITY HEDGE (1) Equity Hedges 1) As of 3/31/15. 21 Equity Hedge FX Sensitivity Spot Rate as of 3/31/15 10% JPY Appreciation 10% JPY Depreciation USD/JPY Rate ¥120 ¥108 ¥132 Fair Value of Equity Hedges ($ billions) 2.4 1.2 3.7 Maturity Profile of Equity Hedge Settlements • $13.6 billion “notional” value of yen exposure - $2.4 billion fair value of PFI hedges - Cash is realized over time as settlements occur Investor Day 6.17.2015 24% 18% 58% 0% 25% 50% 75% 100% 2015 2016 2017 + |
 YEN
EQUITY
HEDGE
ILLUSTRATION
(1) 22 Weakening Yen USD Assets Worth More ¥ Cash from Japan Stable Yen Strengthening Yen • We protect our equity investment in Japan by primarily purchasing U.S. dollar investments in Japan • We hedge these bonds primarily internally, to insulate Solvency Margin Ratios from FX volatility. This can create cash flow transfers between Japan
and the U.S. ~800% SMR ~800% SMR ~800% SMR 1) Broadly equivalent solvency margin ratio (SMR) over time. USD Assets Worth Same ¥ No Cash Movement USD Assets Worth Less ¥ Cash to Japan Investor Day 6.17.2015 |
 KEY
MITIGANTS
FOR INTEREST RATE EXPOSURE • Low portfolio turnover • Strong asset liability management • Emphasis on protection products – stable earnings from mortality and expense margins • Reprice new business when appropriate to maintain margins • Fixed annuity products designed to mitigate interest rate risk (i.e., bi-weekly repricing for new business, market value adjustments) 23 Key Mitigants 10 Year Government Bond Yield • Interest rates have been low in Japan for many years Investor Day 6.17.2015 0% 1% 2% 3% 4% 5% 6% 7% 8% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 JGB UST |
 1) Pre-tax AOI excluding market driven and discrete items as shown in disclosure section. The analysis represents assumed investment of renewal
premiums and reinvestment
of investment income and proceeds from maturing investments at market interest rates 25 bps higher or lower than actual rates during the year. ($ millions) • In the near-term, earnings are not materially impacted by modest changes in interest rates IMPACT OF CHANGING INTEREST RATE ENVIRONMENT Earnings (1) +/- 25 bps = ~$15 million in near-term 24 Sensitivity of AOI to Interest Rate (-25 bp) 2014 2015 2016 2017 Pro Forma Impact to 2014 Pre-tax AOI ($ millions) (15) (45) (75) (105) Investor Day 6.17.2015 3,347 3,332 3,362 2014 If Interest rates -25 bps If interest rates +25bps Investment Margin Mortality, Expense & Other Margin |
 • Redeployed excess capital of more than 60% of after-tax AOI since 2009 (1) • As the Japan business matures, we expect capital returned to increase relative to earnings
as less capital will be needed to support growth
• Japan returns capital to the U.S. through diverse means and in accordance with regulatory
standards HISTORICAL CAPITAL GENERATION AND REDEPLOYMENT 25 ($ billions) Historical Capital Redeployment 1) Through 2014. 2) After-tax AOI reflects the effective tax rate of the former FSB. Forms of Cumulative Redeployment $7.0 Investor Day 6.17.2015 Dividends 13% Debt Repayment 27% Affiliate Lending 21% Acquisition Funding and Other 39% $11.0 Cumulative 2009 - 2014 $1.2 $1.4 $1.7 $2.0 $2.3 $2.4 $0.7 $0.4 $1.6 $1.3 $1.5 $1.5 2009 2010 2011 2012 2013 2014 After-Tax AOI Capital Redeployed (2) |
 SOLVENCY
MARGIN
RATIO
26 SMR (1) March 31, 2015 Stressed Scenario Prudential of Japan 844% ~745% Gibraltar Life (2) 882% ~740% 1) Based on Japanese statutory accounting and risk measurement standards applicable to regulatory filings as of 3/31/15.
2) Gibraltar consolidated basis. 3) Represents indicated change applied to asset valuations. • Solvency margin position of Prudential’s Japanese insurance companies – well capitalized and financially secure • Well above our target SMR of 600% - 700% Stressed Scenario (3) • Japan Equity • Real
Estate • USD & AUD FX Rates • Interest Rates
Down 55% Down 35% Strengthening 20% Up 100 bps Investor Day 6.17.2015 |
 PRUDENTIAL
FINANCIAL,
INC. U.S.
BUSINESSES
STEPHEN
PELLETIER
EXECUTIVE
VICE
PRESIDENT
CHIEF
OPERATING
OFFICER |
 EXECUTIVE
SUMMARY
• Prudential’s U.S. business portfolio has been designed to: – Generate sustainable earnings and attractive returns – Be resilient in the face of headwinds – Provide diversification and facilitate risk management – Position us for growth opportunities • We integrate our distinctive set of investment and insurance capabilities to deliver a range of solutions to meet changing customer needs • We invest within and across businesses to enhance the customer experience and enable new growth opportunities 2 Investor Day 6.17.2015 |
 OUR
BUSINESS
MIX
GENERATES
SUSTAINABLE
EARNINGS
3 Pre-Tax Earnings (1) 1) Adjusted Operating Income (AOI) excluding market driven and discrete items as shown in disclosure section.
Retirement Annuities Asset Management Group Insurance Individual Life AOI (1) CAGR 17% (~15% - 16% excluding Hartford) ($ billions) Investor Day 6.17.2015 $2.3 $2.8 $2.7 $3.9 $4.3 $0.0 $1.0 $2.0 $3.0 $4.0 2010 2011 2012 2013 2014 |
 THE U.S.
BUSINESS
PORTFOLIO
IS WELL-BALANCED
BY TYPE OF RISK 4 Principal Risks 2014 Earnings (1) $4.3 billion Equity Markets, Interest Rates, Longevity Credit, Longevity, Interest Rates Equity Markets Mortality, Interest Rates, Credit Mortality, Morbidity 1) Pre-tax AOI excluding market driven and discrete items as shown in disclosure section.
Annuities Retirement Asset Management Individual Life Group Insurance Investor Day 6.17.2015 |
 OUR
BUSINESS
MIX
CREATES
HIGH
QUALITY,
DIVERSIFIED
EARNINGS
STREAMS
5 Pre-Tax Earnings (1) ($ millions) Individual Annuities Asset Management Retirement Individual Life Group Insurance $ 1,112 $ 2,381 $ 1,213 $ 732 $ 618 $ 580 2010 2014 Underwriting Spread Fee Primary Source of Earnings Business 1) AOI excluding market driven and discrete items as shown in disclosure section. Investor Day 6.17.2015 |
 OUR
BUSINESS
MIX
DRIVES
ATTRACTIVE
RETURN
PROSPECTS
6 ROE Potential (1) Mid-High Teens Low Double Digits Growth Potential Asset Management Retirement Annuities Individual Life Group Insurance Investor Day 6.17.2015 1) Return on equity (ROE) potential ranges based on after-tax AOI using an overall effective tax rate for Prudential Financial, Inc. excluding
the Closed Block division, and average attributed equity excluding
accumulated other comprehensive income. Reflects view of weighted average potential returns over long term using base case assumptions. |
 EVOLVING
CUSTOMER
NEEDS
CREATE
GROWTH
OPPORTUNITIES
THAT
WE
ARE WELL-POSITIONED
TO ADDRESS 7 Movement toward derisking in large Defined Benefit markets • Building on Pension Risk Transfer (PRT) market leadership in U.S.; pursuing international opportunities • Offering range of institutional investment solutions, including fixed income and liability driven investing • Expanding voluntary benefits offerings Employers’ need to control benefit costs while offering employees an attractive suite of benefit options • Redesigning defined contribution plans • Enhancing life insurance policy features • Expanding Prudential Advisors outreach beyond the traditional approach Increasing individual responsibility for financial security, resulting in a growing need for more certain outcomes • Expanding retail investment offerings • Expanding annuity offerings to include non-equity aligned and investment-focused products Older population controlling vast majority of financial assets Investor Day 6.17.2015 |
 WE ARE
INVESTING
WITHIN
AND ACROSS BUSINESSES TO ENHANCE THE CUSTOMER EXPERIENCE AND ENABLE NEW GROWTH OPPORTUNITIES 8 2014 investment in our businesses ~$100 million (1) Digital Experience Data Analytics Systems Upgrades Talent 1) Approximate pre-tax amount spent, after impact of cost savings and efficiencies realized.
Investor Day 6.17.2015 |
 WE ARE
MAINTAINING
A STRONG FOUNDATION FROM WHICH TO GENERATE SUSTAINABLE PROFITABLE GROWTH 9 Asset Management – Generating earnings that are driven primarily and increasingly by “core” asset management fees
– Experiencing sustained, positive net flows driven by strong investment performance
– Investing in new asset management capabilities and product offerings, and expanding international presence
– Hired a significant number of investment professionals Retirement – Continuing to invest in advancing PRT leadership capabilities – Investing in Full Service business to position for long term profitability and growth
Group Insurance – Rationalized product portfolio and market segment focus – Completing disability turnaround to position for resumed controlled growth – Making improvements in pricing, underwriting, and claims management practices Individual Life Insurance – Generating sales that reflect a more diversified product mix – Completed final steps of Hartford integration; run-rate benefits expected to be fully realized by third quarter
2015 Annuities – Executing product diversification strategy, improving risk profile and offering a broad range of solutions
Investor Day 6.17.2015 |
 PRUDENTIAL
FINANCIAL,
INC.
RETIREMENT
CHRISTINE
MARCKS
PRESIDENT
PRUDENTIAL
RETIREMENT |
 PRUDENTIAL
RETIREMENT:
STRENGTH,
BREADTH AND
DEPTH
ACROSS MARKETS 2 1) 2014 PLANSPONSOR DC Recordkeeping Survey, based on total recordkeeping assets as of 12/31/13.
Mission: To serve the retirement
security needs of institutions and individuals #6 in DC assets (1) Leading provider in our chosen markets #1 in Stable Value (2) #1 in PRT (3) Defined Contribution (DC) Full spectrum of retirement products and solutions Defined Benefit (DB) Non-qualified Investment-Only Stable Value Other Institutional Investments Pension Risk Transfer (PRT) Structured Settlements Investor Day 6.17.2015 2) 3) Internally managed, domestic institutional, tax-exempt, Stable Value Assets as of 12/31/13 – Pensions and Investments’ Money
Managers Directory, 5/31/15. LIMRA Group Annuity Survey 1Q15. |
 STRONG AND
CONSISTENT
ACCOUNT
VALUE
GROWTH
3 $205 $230 $290 $323 $364 Full Service Pension Risk Transfer Investment-Only Stable Value Other Institutional Investment Products Account Values (1) ($ billions) 1) As of end of period. Investor Day 6.17.2015 $141 $140 $148 $174 $184 $28 $30 $64 $59 $92 $18 $41 $61 $73 $70 $18 $19 $17 $17 $18 2010 2011 2012 2013 2014 |
 SIGNIFICANT
EARNINGS
GROWTH
SINCE
2010 4 Pre-Tax AOI (1) ($ millions) ~$110 ~$280 Non-coupon investments returns, case experience on pension risk transfer business more favorable than average expectations,
and significant mortgage loan prepayment income.
1) Adjusted Operating income (AOI). Investor Day 6.17.2015 $565 $594 $638 $1,039 $1,215 2010 2011 2012 2013 2014 |
 PRUDENTIAL AS
A PENSION LEADER 5 Since 1928 PROVIDING INTEGRATED PENSION PLAN SERVICES 2 nd LARGEST ACTIVE INSTITUTIONAL MANAGER OF DOMESTIC FIXED INCOME (1) 23 25 LARGEST CORPORATE DB PLANS (2) USE PRUDENTIAL INVESTMENT MANAGEMENT of the 1) Pensions & Investments Top Money Manager List, May 2015. Ranked by total worldwide institutional assets under management, as of
12/31/14. 2)
Based on U.S. Plan Sponsor rankings in Pensions & Investments, as of
12/31/14. Investor Day 6.17.2015 |
 PENSION
RISK
TRANSFER
PHILIP
WALDECK
SENIOR
VICE
PRESIDENT
PENSION
& STRUCTURED
SOLUTIONS |
 PROGRESSION OF
EXPERTISE
& CAPABILITIES
The Pension Risk Transfer team’s expertise has substantially benefited
from experience with U.K. and jumbo U.S. pension risk transfer markets.
2007 2009 2011 2012 2014 Applied U.K. longevity underwriting best practices Developed unique capabilities for GM and Verizon 7 Applied best practices further into the market resulting in key case wins Closed U.S. and U.K. transactions Large sponsor opportunities identified 1928 First pension guarantee written • Established core team • Explored emerging U.K. solutions • Adapted/modernized for U.S. market 2006 Investor Day 6.17.2015 |
 PRT MARKET IS
LARGE
AND GROWING 8 1) Pension Protection Fund, estimated in U.S. dollars, as of 12/31/14. 2) Investment Company Institute, as of 12/31/14. 3) Towers Watson Global Pension Assets Study 2015. $1.5 trillion (3) $1.9 trillion (1) $3.2 trillion (2) Pension Liabilities U.K. U.S. Canada 33 5 1 Number of Transactions Over $1 billion PRT Transactions Since 2007 $186 billion $50 billion $4 billion World 39 $240 billion >$6.6 trillion Investor Day 6.17.2015 |
 PRUDENTIAL’S COMPETITIVE ADVANTAGE IN PRT MARKET Deep Expertise Across Multiple Disciplines Proven Structuring Skills Demonstrated Service Excellence Track Record of Successful Execution Experience and Credibility in the Pension Market Financial Strength 9 Investor Day 6.17.2015 |
 PRUDENTIAL’S PRT BUSINESS HAS EXPERIENCED SIGNIFICANT GROWTH OVER THE PAST FOUR YEARS (1) 10 $75 billion (2) PENSION LIABILITIES 550,000 RETIREES 130+ PLANS IN U.S. & U.K. 1) Through 3/31/15. 2) Includes ~$35 billion of longevity reinsurance. Investor Day 6.17.2015 |
 PRUDENTIAL’S EDGE: CREATIVE
SOLUTIONS
11 Execution Confidence • Advanced purchase agreement • Proven documentation and process • Seamless transition, payments and personalized communications Asset • Asset in kind (AIK) transfer • Client risk hedging strategies Liability • Data adjustments • Lump sum adjustments • Tailored mortality tables Transaction Structure • Customized price roll forward • Independent fiduciary • Sponsor-owned insurer Meet Client Needs Manage Risk Investor Day 6.17.2015 |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Types of Risk Investment Liquidity Asset/Liability Management Insurance Concentration Pricing 12 Investor Day 6.17.2015 |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Pricing Prudent best estimates “AA” loss absorption capacity Negotiated price adjustment triggers 13 Investor Day 6.17.2015 |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Investment Primarily high quality corporate bonds Well-diversified portfolio Prudent default assumptions 14 Investor Day 6.17.2015 Investment |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Liquidity Long-dated, illiquid liabilities Disciplined cash flow management 15 Investor Day 6.17.2015 |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Insurance Very limited benefit optionality Significant & credible plan mortality experience 16 Investor Day 6.17.2015 |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Asset/Liability Management Manage within tight duration corridors Rigorous ongoing monitoring 17 Investor Day 6.17.2015 Asset/Liability Management |
 CRITICAL
SUCCESS
FACTORS,
KEY
RISKS
AND MITIGANTS Concentration Deliberately building diversified book over time More credible experience data Better pricing: Fewer competitors & complex execution needs 18 Investor Day 6.17.2015 |
 WELL-DIVERSIFIED BUSINESS MIX 19 Northeast U.S. 16% South U.S. 16% Midwest U.S. 17% West U.S. 9% U.K. 42% 15% 57% 28% Geographic Diversity (1) Age Distribution (1) • Also well-diversified by Gender, Industry, Benefit Size, and Occupation (blue/white collar)
• Average liability duration: Buy-Out 9-10 years, Longevity Reinsurance 8-12 years
Below 60 Above 80 60-80 1) Number of annuitants as of 3/31/15. Investor Day 6.17.2015 |
 STRONG
INVESTMENT
RISK
MANAGEMENT
Representative Funded PRT Asset Portfolio
Key Attributes • High quality • Well-matched to liability • Well-diversified • Assets in-kind reduce risk and expense: – Taxes – Transaction costs – Interest rates and spreads locked in 20 Other (e.g. Agency Mortgage Backed Securities) Investment Grade Public Securities ~45% Investment Grade Private Securities ~20% Mortgage Loans ~20% Below Investment Grade Alternatives ~5% ~5% ~5% Investor Day 6.17.2015 |
 COMPLEMENTARY
PROFIT
EMERGENCE
PATTERNS
21 1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 Longevity Reinsurance Funded Buy-out Projection Years Annual Expected AOI Pattern, Net of Defaults ($1 Billion Representative Case) Investor Day 6.17.2015 |
 RETURN
SENSITIVITIES
(1) 22 1) Impacts are approximate. The sensitivities may vary by transaction. Sensitivities are meant to reflect a moderately adverse/beneficial
scenario. 2)
Internal rate of return (IRR).
Credible plan-specific
mortality experience data
Complementary long-
term exposures not reflected in pricing Tight key rate duration management mitigates risk Diversified, high- quality investments Base Mortality Mortality Improvement Interest Rates Credit Defaults -0.5% -2% -1% -3% +0.5% +2% +3% +1% Mortality rates +/-1% Long-term interest rates +/-100bps Default shock of 1%/lower default probability by half Mortality trend improvement +/-0.25% MITIGANTS Target IRR (2) 11-15% Capital is set at the higher of regulatory and economic frameworks; We further analyze sensitivity of returns to changes in key underwriting assumptions
-3% -2% -1% +1% +2% +3% Blue shaded area indicates shock scenario ASSUMPTIONS Investor Day 6.17.2015 |
 PRUDENTIAL PRT:
AN
ATTRACTIVE
GROWTH
OPPORTUNITY
• Premier franchise in a very attractive market • Leverages best of Prudential – deep partnership and collaboration across business units and functions, building on nearly 140 years of mortality risk and
90 years of longevity risk experience
• Opportunity identified early; built unparalleled platform of expertise and solid
risk management over a decade
• Currently expect returns on PRT block to be at or above our targets • Ongoing growth opportunity with solid expected returns and sustainable competitive advantages • Commitment, talent & intense focus 23 Investor Day 6.17.2015 |
 PRUDENTIAL
FINANCIAL,
INC.
ANNUITIES
ROBERT
O’DONNELL
PRESIDENT
PRUDENTIAL
ANNUITIES |
 INDIVIDUAL
ANNUITIES
CONTINUES
TO BE A CORE COMPONENT OF PRUDENTIAL'S
DIVERSIFIED
BUSINESS
MIX
2 Product Mix Policyholder Behavior In Force Cash Flow Balance Sheet Strength Our product mix diversifies our risk profile while meeting customers’ retirement income needs Sophisticated approach using data analytics and emerging policyholder behavior experience In force expected cash flows continue to provide significant value Our living benefit liability is supported by high quality on-balance sheet assets Investor Day 6.17.2015 |
 PRODUCT
MIX |
 PRODUCT
PORTFOLIO
– DIVERSIFYING OUR RISK 4 • A fixed single premium immediate annuity • Highest minimum income payments • No death benefit • Monthly rate setting capability (2) • Lower minimum income payments • Secure Value Account • ROP (1) / optional enhanced death benefit • Monthly rate setting capability (2) “Highest Daily” Suite (HDI) • Higher minimum income payments • No equity exposure • ROP (1) death benefit • Monthly rate setting capability (2) Prudential Defined Income (PDI) • No living benefit • Accumulation focused • Account value death benefit / optional ROP (1) High Capital Market & Behavior Risk Prudential Premier Investment Variable Annuity (PPI) High Low 1) Return of Premium (ROP) is a standard death benefit on variable annuity contracts. Optional ROP is available on PPI contracts for an extra
charge. 2)
For new business. Prudential Immediate Income Annuity (PII) Investor Day 6.17.2015 |
 PRODUCT
DIVERSIFICATION
5 Annual Gross Sales 2012 $20.0 billion 2014 $10.0 billion 1) Includes Legacy variable annuities, fixed annuities and base contracts with no living benefit guarantees.
2015 and 2016 new business risk profile will be impacted by our HDI 3.0 reinsurance
transaction HDI
91% Other 9% (1) HDI 70% PDI 19% PPI 1% Other 10% (1) Investor Day 6.17.2015 |
 EXTERNAL
REINSURANCE
AGREEMENT
Prudential Annuities has entered into a new business reinsurance
transaction with Union Hamilton
• Transaction covers the HDI 3.0 living benefit rider • Covers approximately 50% of new business written in 2015 and 2016 • Reduces growth of exposure to new contracts with living benefits • Accelerates the diversification strategy 6 Investor Day 6.17.2015 |
 PRUDENTIAL
FINANCIAL,
INC.
ANNUITIES
YANELA
FRIAS
VICE
PRESIDENT,
FINANCE
PRUDENTIAL
ANNUITIES |
 POLICYHOLDER
BEHAVIOR |
 SOPHISTICATED
APPROACH
USING DATA ANALYTICS AND EMERGING POLICYHOLDER BEHAVIOR EXPERIENCE • Partnered with industry leaders to create enhanced data analytic capabilities • These enhanced capabilities drive a more thorough understanding of factors influencing policyholder behavior and improve our ability to interpret emerging trends in our data • Data analytic capabilities were leveraged to refine our annual assumption setting process 9 Investor Day 6.17.2015 |
 DATA
ANALYTICS
DROVE
INCREASED
SOPHISTICATION
OF GLWB (1) LAPSE RATE ASSUMPTIONS • Traditional “In-the- Moneyness” remains a key driver of lapses • Lapse rates now incorporate the impact of interest rates on alternative income solutions • The relative value of a policy’s guarantee to current market options influences lapse behavior GLWB LAPSE RATES 1) Guaranteed Lifetime Withdrawal Benefit. 10 Investor Day 6.17.2015 "At the Money" Policy 20% "In the Money" Policy Prior "At the Money" Policy Prior 20% "In the Money" Policy |
 IN
FORCE
CASH
FLOW
ANALYSIS |
 PROFILE OF
BASELINE
ASSUMPTIONS
FOR IN FORCE CONTRACTS 1) Based on GAAP best estimates as of 12/31/14. 2) Return includes 2% dividend yield. 3) Policyholder behavior assumptions for guaranteed lifetime withdrawal benefit products only.
Capital Markets Policyholder Behavior (3) Assumptions underlying cash flows reflect our current best estimates Baseline Assumptions (1) Equity Market Return (2) 3.5% increasing to 8.0% by year 6 Fixed Income Return 1.8% grading to 5.5% by year 10 Blended Return 2.9% grading to 6.6% by year 10 Cash Flows assume Living Benefit Liability is fully hedged Dynamic Lapse Assumption Lapse rates based upon in-the- moneyness and level of interest rates Benefit Utilization 95% take lifetime withdrawals Benefit Efficiency 86% of guaranteed amount 12 Investor Day 6.17.2015 |
 $17.9 $32.2 $0.7 ($13.1) ($1.9) Fees, Net of Expenses Hedging Costs Benefits, Net of Hedging Recoveries Investment Income PV of Contract Cash Flows IN FORCE CASH FLOWS REMAIN STRONG 1) Reflects total remaining contract cash flows based upon the in force book of business and initial interest rates as of 12/31/14. Excludes any benefit from release of capital and excess reserves. 2) Cash flows are shown on a present value (PV) basis, are discounted at the forward curve, and reflect the results of hedging
activity. BASELINE
SCENARIO
CASH
FLOWS
(1)(2) Living Benefit Fees $14.8 ($ billions) 13 Investor Day 6.17.2015 |
 ($4.0) ($8.8) 2012 2014 THE INCREASED ECONOMIC VALUE OF THE IN FORCE IS NOT REFLECTED IN THE GAAP LIABILITY The risk neutral nature of the assumptions used to derive the FAS 133/157 (1) reserve drive a meaningful disparity between the change in the economic cash flows and the GAAP liability
GROSS
GAAP LIABILITY
(3) CASH FLOWS (2) 1) Reserves for variable annuity living benefits are accounted for as embedded derivatives under U.S. GAAP.
2) Present value of expected cash flows in baseline scenario. 3) Includes Post NPR living benefit and SOP03-1 Reserve. ($ billions) ($ billions) 14 Investor Day 6.17.2015 |
 IN A
RANGE
OF CAPITAL MARKET SCENARIOS, THE
IN
FORCE
BOOK
PRODUCES
POSITIVE
CASH
FLOWS
1) Reflects total contract cash flows based upon the in force book of business and initial interest rates as of 12/31/14. Excludes any benefit from
release of capital and excess reserves. Each scenario reflects impact of
our dynamic lapse assumptions on policyholder behavior. 2)
Cash flows are shown on a present value basis, are discounted at the forward curve, and
reflect the results of hedging activity. 3)
Scenario reflects an immediate up shock of 30% on 12/31/14, followed by baseline equity
market returns thereafter with fixed income returns 100 bps above the
expected long term rate.
4) Scenario reflects an immediate down shock of 30% on 12/31/14, followed by baseline equity returns, coupled with a 100 bps decline in fixed income
returns over year 1. 5)
Scenario reflects annual equity return of -13% including dividend yield.
($ billions) 15 PV OF TOTAL CONTRACT CASH FLOWS (1)(2) Investor Day 6.17.2015 Equity Markets Immediate Shock Post-shock Annual Equity Returns Positive Markets (3) Baseline Negative Markets (4) Break Even (5) +30% n/a -30% n/a Baseline Baseline Baseline -13% annually Fixed Income Long Term Assumption +100 bps Baseline Year End -100 bps over year 1; flat thereafter Year End -100 bps over year 1; flat thereafter $23.1 $17.9 $5.2 $0.0 |
 STRONG
CASH
FLOWS
EVEN
IF POLICYHOLDER BEHAVIOR DEVIATES FROM EXPECTATIONS 1) Reflects total contract cash flows based upon the in force book of business and initial interest rates as of 12/31/14. Excludes any benefit from
release of capital and excess reserves. Each scenario reflects impact of
our dynamic lapse assumptions on policyholder behavior. 2)
Cash flows are shown on a present value basis, are discounted at the forward curve, and
reflect the results of hedging activity. 3)
Capital market and benefit utilization assumptions are unchanged relative to the
baseline scenario. 4)
Scenario reflects an increase in benefit efficiency from 86% to 95% across all periods.
Capital market and benefit utilization assumptions are unchanged relative to the baseline scenario. PV OF TOTAL CONTRACT CASH FLOWS (1)(2) ($ billions) 16 Investor Day 6.17.2015 Lower Lapses (3) Baseline Higher Benefit Efficiency (4) Lapses All periods reduced by 20% Baseline Baseline Benefit Efficiency Baseline Baseline 95% of guaranteed amount $18.5 $17.9 $12.6 |
 RESILIENT
CASH
FLOWS
DESPITE
SEVERELY
ADVERSE
MARKETS
AND POLICYHOLDER BEHAVIOR STRESSES 1) Reflects total contract cash flows based upon the in force book of business and initial interest rates as of 12/31/14. Excludes any benefit from
release of capital and excess reserves. Each scenario reflects impact of
our dynamic lapse assumptions on policyholder behavior. 2)
Cash flows are shown on a present value basis, are discounted at the forward curve, and
reflect the results of hedging activity. 3)
Benefit utilization assumptions are unchanged relative to the baseline scenario.
4) Scenario reflects an increase in benefit efficiency from 86% to 95% across all periods. Benefit utilization assumptions are unchanged relative to
the baseline scenario. ($
billions) 17 PV OF TOTAL CONTRACT CASH FLOWS (1)(2) Investor Day 6.17.2015 Lower Lapses and Negative Markets (3) Baseline Higher Benefit Efficiency and Negative Markets (4) Lapses All periods reduced by 20% Baseline Baseline Benefit Efficiency Baseline Baseline 95% of guaranteed amount Equity Markets Immediate -30% equity shock Baseline markets thereafter Baseline Immediate -30% equity shock Baseline markets thereafter Fixed Income Year End -100 bps over year
1; flat thereafter Baseline Year End -100 bps over year 1;
flat thereafter $3.1 $17.9 $0.4 |
 CASH
FLOWS
REMAIN
POSITIVE
ACROSS
ALL
OF THE STOCHASTICALLY MODELED PATHS Min=$3.3 (3) Equity market decline of ~45% coupled with the 10 year Treasury rate falling below 1%
Low PV of Cash Flows Scenario High PV of Cash Flows Scenario Stochastic Cash Flows (1) ($ billions) 1) Reflects capital market shocks only. 2) Represents average outcome of 30 most unfavorable scenarios out of 1,000 projected capital market paths.
3) This scenario includes cumulative equity market returns of -38% over 5 years and -8% over 10 years in addition to an average 10-year
treasury rate of 1.93% over 10 years, including a low of
0.97%. 18
(2) Investor Day 6.17.2015 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 Max=$41.8 Mean Cash Flows= $17.1 CTE 97= $5.2 |
 BALANCE
SHEET
STRENGTH |
 GAAP BALANCE
SHEET
- ANNUITY FOOTPRINT (1) 1) Includes fixed annuities. 2) Hedge Target Liability is a modified GAAP measure of our living benefit liability; differences between the Hedge Target Liability and the GAAP
Liability are included in Other Liabilities. Includes living benefits
reinsured to captive and risk retained in direct writing entities.
3) Refers to Guaranteed Minimum Death and Income Benefit Reserves. 4) Accumulated Other Comprehensive Income. 5) Includes approximately ~$3.6 billion of equity attributable to Pruco Re. ~$24 billion of liquid assets ~$22 billion of long term liabilities 20 Investor Day 6.17.2015 Assets Liabilities Separate Account $143.7 Separate Account $143.7 Invested Assets $ 17.9 General Account $ 8.7 Hedge Assets $ 5.7 Hedge Target Liability (2) $ 8.7 Other $ 0.6 Other $ 3.9 DAC, DSI & VOBA $ 6.9 SOP 03-1 (GMDB/GMIB) (3) $ 0.8 Total Assets $174.8 Total Liabilities $165.8 AOCI (4) $0.3 Other Attributed Equity (5) $8.7 Total Equity $9.0 Balance Sheet 12/31/2014 ($ billions) |
 CLAIM
ABSORPTION
RESOURCES
IN VA CAPTIVE EXCEED STATUTORY RESERVE CREDIT (1)(2) 1) As of December 31. 2) Claim absorption resources represent total assets available to pay claims. 3) Represents the risk associated with the living benefits reinsured to the captive.
4) Other primarily represents Asset Adequacy Testing (AAT) reserves. 10 yr. Treasury (1) $9.1 $2.4 $12.2 ($ billions) Reserve Credit Capital and Other (4) Hedge Target Liability (3) 21 Investor Day 6.17.2015 $4.3 $3.5 $5.3 $(1.2) $8.0 $3.8 $3.6 $4.2 1.78%
3.04%
2.17%
2012 2013 2014 $0.5 |
 INDIVIDUAL
ANNUITIES
CONTINUES
TO BE A CORE COMPONENT OF PRUDENTIAL'S
DIVERSIFIED
BUSINESS
MIX
Product Mix Policyholder Behavior In Force Cash Flow Balance Sheet Strength Our product mix diversifies our risk profile while meeting customers’ retirement income needs Sophisticated approach using data analytics and emerging policyholder behavior experience In force expected cash flows continue to provide significant value Our living benefit liability is supported by high quality on-balance sheet assets Investor Day 6.17.2015 22 |
 PRUDENTIAL
FINANCIAL,
INC.
FINANCIAL
MANAGEMENT
ROBERT
FALZON
EXECUTIVE
VICE
PRESIDENT
CHIEF
FINANCIAL
OFFICER |
 DEFINING
SUCCESS
2 Drivers Stakeholder Value Creation • Diversified and balanced mix of insurance and market risks Business Focus • “AA” standards for capital, leverage and liquidity • Comprehensive risk management framework Financial Strength • Targeted sustainable ROE of 13-14% through a market cycle • Growth in earnings and book value Balanced and Sustainable Sources of Earnings • Cash flow (1) ~60% of after-tax AOI over time • Capital deployment, including growing shareholder dividend Consistency and Transparency of Earnings Investor Day 6.17.2015 1) Includes capital deployed in subsidiaries. Talent Collaboration Innovation Execution Superior Client Experience |
 FOCUS ON
PROTECTION,
RETIREMENT AND
ASSET
MANAGEMENT
PROVIDES
A DIVERSIFIED AND BALANCED MIX OF INSURANCE AND MARKET RISKS 3 1) Adjusted operating income (AOI) excluding market driven and discrete items as shown in disclosure section; exhibit excludes Corporate & Other
Operations pre-tax loss of $1.3 billion.
2) Includes U.S. Individual Life and Group Insurance. Full Year 2014 Pre-tax Earnings Insurance Risk Market Risk Investor Day 6.17.2015 (2) International Insurance 44% U.S. Insurance 9% Retirement 16% Individual Annuities 21% Asset Management 10% (1) $6.3 Billion |
 WE
HAVE
SUBSTANTIAL
ON
BALANCE
SHEET
CAPITAL
CAPACITY
4 ($ billions) March 31, 2015 GAAP Equity (1) $31.6 Capital Debt (2) $13.9 Total Available Capital $45.5 Estimated Gross On Balance Sheet Capital Capacity (3) >$4.5 Capital Earmarked for Reduction of Capital Debt ~$2.0 Estimated On Balance Sheet Capital Capacity (3) >$2.5 1) GAAP equity excluding accumulated other comprehensive income (AOCI) and the impact of foreign currency exchange rate remeasurement. This
measure of equity includes the non-economic impact of
non-performance risk (net of deferred policy acquisition costs), which we exclude from “Equity” as defined on subsequent slides, for purposes of calculating Total and Financial Leverage ratios.
2) As reported; subsequent slides related to capital structure and total debt gives pro-forma effect to senior capital debt repayment of $1.4
billion with earmarked proceeds from dividend declared by Prudential
Insurance in second quarter 2015. 3)
Based on targeted Risk Based Capital (RBC) ratio of 400% for Prudential Insurance and
equivalent levels of capital at other insurance operating entities.
Investor Day 6.17.2015 |
 70% 12% 18% Senior Capital Debt Junior Subordinated Capital Debt (Hybrids) Equity March 31, 2015 Financial Leverage Ratio CAPITAL STRUCTURE NEAR TARGET 5 1) Gives pro-forma effect to senior capital debt repayment of $1.4 billion with earmarked proceeds from dividend declared
by Prudential Insurance in second quarter 2015.
2) Total equity including non-controlling interests and excluding the impact of foreign currency exchange rate remeasurement,
non-performance risk (net of deferred policy acquisition costs), and
AOCI. 3)
Defined as senior capital debt plus 75% hybrids divided by the senior capital debt plus
100% hybrids plus total equity as defined above. (2)
Composition of Outstanding Capital Target Range 27.3% < 15% 70-75% Investor Day 6.17.2015 (1) (3) < 25% |
 TOTAL
LEVERAGE
RATIO
WITHIN TARGET OF < 45% 6 $25.5 $24.5 $22.7 $25.2 (5) (6) $23.7 Composition of Outstanding Debt (1) ($ billions) (6) Investor Day 6.17.2015 38% 24% 22% 30% 34% 6% 18% 20% 21% 21% 56% 58% 58% 49% 45% 12/31/11 12/31/12 12/31/13 12/31/14 3/31/15 Operating Debt (2) Junior Subordinated Capital Debt (Hybrids) Senior Capital Debt (3) Total Leverage Ratio (4) 1) Represents the former Financial Services Businesses (FSB) for periods prior to 3/31/15. 2) Operating debt is utilized to finance business funding needs to meet specific purposes tied to assets or revenue sources as well to finance
invested assets or portfolios of invested assets, proceeds of which will
service the debt. 3) Senior capital debt is utilized to meet capital requirements of the Prudential businesses. 4) Defined as total debt divided by total debt plus total equity including non-controlling interest adjusted to exclude the impact of foreign
currency exchange rate remeasurement, non-performance risk (net of
deferred policy acquisition costs), and AOCI totaling $7.9 billion, $11.5 billion, $6.3 billion, $13.6 billion and $16.6 billion as of 12/31/ 2011, 2012, 2013, 2014 and 3/31/15, respectively.
5)
Reflects the retrospective adoption of amended accounting guidance for deferred policy
acquisition costs effective 1/1/12, which reduced GAAP equity by $2.8 billion. Also reflects a discretionary change in accounting principle related to the Company's pension plans. 6) 12/31/14 gives pro-forma effect to Closed Block restructuring; 3/31/15 assumes capital debt repayment of $1.4 billion with earmarked proceeds
from dividend declared by Prudential Insurance in second quarter 2015. 46.6% 45.1% 44.0% 49.3% 49.9% |
 SUBSTANTIAL
HOLDING
COMPANY
CASH
AND SOURCES OF LIQUIDITY 7 1) Prudential Financial, Inc. (PFI) cash, cash equivalents and short-term investments, less short-term intercompany borrowings and
commercial paper. 2)
PFI has access to liquid assets through a 10-year contingent funding facility, established in November 2013, that can be used to meet liquidity needs and/or to downstream as capital to operating subsidiaries. 3) Includes $1.8 billion shared with Prudential Funding, LLC, a subsidiary of PICA. Effective 4/14/15, we renegotiated the two existing facilities
into one $4 billion 5-year facility available to both PFI and
PICA. 4) Primarily includes Enterprise Liquidity Account which is a facility for lending and borrowing of funds between PFI and its subsidiaries on a
daily basis. 5)
Represents estimated total capacity. $128 million of PFI commercial paper was
outstanding as of 3/31/15. Investor Day 6.17.2015
Targeted Cash Level $1.3 Targeted Cash Level $1.3 $2.4 $9.7 $1.5 $3.8 $1.0 $1.0 Net Cash Contingent Capital Facility Committed Credit Lines Internal Sources Commercial Paper Capacity Total Liquidity Resources $3.7 $11.0 (1) (2) (3) (4) (5) As of March 31, 2015 ($ billions) PFI Alternate Sources of Liquidity |
 MANAGING
RISK
THROUGH
MULTIPLE
LENSES
8 • Focus on economics while striking a balance between various regimes Investor Day 6.17.2015 GAAP Stat Economics Tax |
 RISK
MANAGEMENT
STRATEGIES
9 • Product Design • Diversification • Asset Liability Management • Hedging • Risk Appetite & Limits Market Risk (Credit, Equity, Interest Rate, FX) • Pooling • Diversification / Risk Selection • Product Design • Actuarial Capabilities • Internal Controls • Business Continuation Planning • Contingency Planning • Systems Security Insurance Risk (Longevity, Mortality, Morbidity, Policyholder Behavior) Operational Risk (Systems, Security, Compliance, Reputation) Investor Day 6.17.2015 |
 MORTALITY AND
LONGEVITY
RISK
EXPOSURE:
BUSINESS
MIX
PRODUCES
OFFSETTING
IMPACTS
10 1) Increase based on longevity improvement greater than base improvement assumptions.
2) Decrease based on longevity improvement less than base improvement assumptions. 3) Based on business in force as of 12/31/14. Life Expectancy Increase (1) Life Expectancy Decrease (2) Investor Day 6.17.2015 Individual Life & International Insurance Mortality Risk Retirement & Annuities Longevity Risk |
 MARKET
RISK
MANAGEMENT
11 “Tail Risk” “Normal Market Volatility” • Portfolio and Product Hedging • Excess Capital • Macro Hedging • Management Actions • Capital Protection Framework Investor Day 6.17.2015 |
 CAPITAL
PROTECTION
FRAMEWORK
12 On Balance Sheet Capital Capacity Credit Facilities Derivatives / Hedging Equity Market Decline Interest Rate Shock Credit Shock Currency Shock 50%-60% varying by country U.S. 325 bps 100 bps Japan 150 bps 50 bps Great Depression Yen appreciates to ~80/USD Contingent Capital Tail Stress Parameters Our Toolbox Expected Outcome • Maintain adequate and competitive regulatory capital position at insurance companies • Temporary increase in Financial Leverage Ratio • Maintain adequate cash position at parent company 1) Tail event stress parameters assume immediate shock. Up Down Investor Day 6.17.2015 (1) |
 ROE
based on after-tax AOI excluding market driven and discrete items; gives effect to direct equity adjustment for earnings per share calculation. Based on 2010 2014 10.2% 15.8% Return on Equity (2)(3) TRACK RECORD OF FINANCIAL PERFORMANCE (1) 1) Amounts attributable to PFI; represents results of the former FSB. Per share data amounts on diluted basis.
2) Excluding market driven and discrete items as shown in disclosure section; based on application of 35% tax rate for EPS and ROE
calculations. 3)
average attributed equity excluding AOCI and adjusted to remove amount included for
foreign currency exchange rate remeasurement. 4)
Excludes AOCI and adjusted to remove amount included for foreign currency exchange rate
remeasurement. 13
$5.03 $9.84 Earnings Per Share (2) 2010 2014 Investor Day 6.17.2015 Targeted Sustainable ROE of 13% - 14% 2010 2014 $51.28 $64.75 Book Value Per Share (4) |
 Dividends $0.6 Dividends $0.7 Dividends $0.7 Dividends $0.8 Dividends $1.0 Share Repurchases $1.0 Share Repurchases $0.7 Share Repurchases $0.8 Share Repurchases $1.0 M&A $2.2 M&A $0.6 M&A $0.1 2010 2011 2012 2013 2014 STRONG HISTORY OF CAPITAL DEPLOYMENT 14 $3.9 $1.4 $2.2 $2.1 ($ billions) • Expected capital available for redeployment, ~60% of after-tax adjusted operating income
over time, allows us to consistently return capital to shareholders and deploy toward
other accretive uses
Investor Day 6.17.2015 |
 KEY
TAKEAWAYS
15 • Diversified and complementary mix of businesses and risks • Strong capital and liquidity positions – Substantial on balance sheet capital capacity – Improved total leverage ratio • Focused on risk management and capital preservation • Strong profitability and opportunities for growth • Strong track record of capital redeployment supported by capital generated from
our balanced mix of businesses
Investor Day 6.17.2015 |