THE PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY (PRIAC)

Transcription

1 THE PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY (PRIAC) A Guide to the General Account March 2012 Unless otherwise noted, information is as of December 31, 2011.

2 Basis of Presentation This report contains only selected data about PRIAC s General Account portfolio. The information presented in this report is unaudited and, unless otherwise indicated, based upon generally accepted accounting principles (GAAP). Unless otherwise indicated, all information is as of December 31, 2011, and does not reflect any subsequent events or results, and should not be construed as being indicative of results for any subsequent period.

3 Executive Summary The State of PRIAC Is Strong Clients of PRIAC can continue to rely on its strength, stability, and vigilance. The guarantee we make to our insurance contract holders is backed by the investment portfolio of PRIAC s General Account. The information in this document is designed to clearly explain both its holdings and the disciplined approach behind their selection. We believe our rigorous investment process effectively safeguards the guarantee we have made to you. PRIAC has strong financial strength ratings rated AA by Standard & Poor s, A2 by Moody s, A+ by Fitch, and A+ by A.M. Best. These ratings are as of February 24, These independent evaluations are based on Prudential Financial operating companies : Strong capitalization Diverse and substantial sources of revenue and earnings Strong franchises in core businesses Excellent economies of scale in operations Strong financial discipline and risk management capabilities Financial flexibility and market presence We make risk management a priority. That practice has had a significant impact on our ability to weather the recent financial crisis. Insurance products are issued by PRIAC, not Prudential Financial. Guarantees are based on PRIAC s claims-paying ability. PRIAC is solely responsible for its financial condition and contractual obligations. Please see Important Notices on page 13. An Acknowledged Industry Leader Prudential Retirement Insurance and Annuity Company (PRIAC) is an indirect wholly owned subsidiary of Prudential Financial Inc., with insurance financial strength ratings of AA /A2/A+/A+ (S&P/Moody s/fitch/a.m. Best) as of February 24, Prudential Financial and its subsidiaries represent: One of the world s largest financial institutions A more than 135-year commitment to financial services $901 billion in assets under management as of 12/31/11 The eleventh-largest institutional asset manager worldwide as of 12/31/10 (Pensions & Investments, 05/31/11) Clients in over 35 countries as of 12/31/11 Approximately $3.6 trillion of gross life insurance in force worldwide as of 12/31/11 Bottom line: Our promise to insurance contract holders is sound. 1

4 The State of the PRIAC General Account Portfolio From the office of the Domestic Chief Investment Officer, Scott Sleyster March 2012 State of the Portfolio 2011 was a year characterized by modest but progressively improving U.S. economic conditions. A full economic recovery was impeded by continued uncertainty throughout Europe particularly around the handling of the Greek debt situation and the housing and consumer debt overhang in the U.S. The U.S. markets experienced volatility as Congress and the White House were unable to negotiate a comprehensive budget and recovery package. The markets also reacted to changing prospects of additional quantitative easing by the Federal Reserve. U.S. Treasury rates fell and have remained range-bound at historically low levels for the past six to nine months, with the 10-year rate only recently crossing the resistance level of 2.10%. At the same time that the market continues to view the U.S. Treasury as a safe-haven investment from the continued global financial stresses, corporate spreads have contracted to near-historic tights due to strong business fundamentals and improving balance sheets. Additionally, there is strong demand for fixed income products in both the retail and institutional markets. The combined effect of these factors has produced critically low overall investment yields. The low-interest-rate environment presents particular challenges to our insurance businesses and associated investment portfolios. As a predominantly fixed income investor, we look to yields on investments to support our product offerings. Interest-rate risk in the portfolio is minimal given that our asset portfolio is constructed to support the cash flow and liquidity characteristics of our insurance liabilities largely through well-diversified, high-quality investments. We are handling the challenges posed by continued low rates by maintaining our vigilance in underwriting, credit research, and risk management. We have not deviated from our core principles in a quest for additional yield. The overall credit quality of the portfolio remains strong, and both our commercial mortgage and private placement portfolio metrics continue to improve. The decline in the overall yield on our investment portfolio has been partially mitigated by our direct access to private placement and commercial mortgage loan investments. We feel that these asset classes offer investment spreads and terms that are typically equal to or better than similarly rated public market alternatives was a strong production year for both our corporate private placement and commercial mortgage organizations. Our European regional office structure has bolstered our private placement lending across Europe as many banks have withdrawn from the market as the crisis escalated. We have long maintained a presence as a private placement lender in Europe with evaluation metrics consistent with those we use for domestic borrowers. We view this as a competitive advantage that nicely supplements our portfolio positioning and provides a bit of yield enhancement at this important time in the market cycle. We have had success at managing through credit and interest-rate cycles in the past and plan to do the same through this period of time. We are comfortable that the risk positions we take are well understood and well managed. We have a solid asset/liability management framework in place with separate and independent oversight by our enterprise risk management organization. We look for continued healing of global capital markets in 2012 and remain confident in our ability to generate long-term value to our clients. Scott Sleyster Chief Investment Officer 2

5 PRIAC s Investment Process Withstanding Short-Term Volatility. Providing Long-Term Value. At PRIAC, we seek to achieve the objectives of our clients and participants in three key ways: 1. We consistently apply a disciplined and long-standing risk management framework. 2. We maintain a deep understanding of asset/liability management. 3. We develop strategic and tactical asset allocations. The PRIAC General Account portfolio is broadly diversified across asset classes, industry sectors, geographic regions, and issuers. The portfolio is invested primarily in public and private fixed maturity securities and commercial mortgage loans. The size of our portfolio and the capabilities of its affiliate asset managers allow it to invest in asset classes that may be unavailable to the typical investor. PRIAC benefits from Prudential Financial s core asset management units. These units have over 430 investment professionals, including: 180 public fixed income professionals Managing fixed income portfolios since 1875 Asset-class specialists responsible for identifying the most attractive investments available in their respective sectors 140 private placement professionals One of North America s largest private capital providers* Transactions sourced on an agent and direct basis through a network of regional offices across the U.S. 110 private commercial mortgage loan professionals 130-year track record in commercial real estate finance Members of real estate finance team originate commercial mortgages through both direct and advisory relationships, researching and analyzing property types and local real estate markets We perform our own independent credit analysis, rather than relying solely on rating agencies. This proprietary research has helped us avoid many of the problems that have beset commercial and investment banks, and some insurance companies. Prudential s asset managers have the knowledge and skills to prudently construct a diversified pool of investments within their areas of expertise while remaining mindful of the nondiversifiable interest-rate risk inherent in a predominantly fixed income portfolio. Our commitment to diversification extends beyond the overall PRIAC General Account portfolio to the composition of each individual sleeve within the portfolio. We believe this approach will allow PRIAC to withstand the volatility currently being experienced in the capital markets. The balance we maintain between portfolio liquidity and product requirements is yet another way we are navigating today s challenging environment. * Source: SourceMedia Private Placement Letter May

6 A Proven Track Record of Prudent Risk Management Risk management is an essential component of the approach PRIAC uses to manage financial assets and of our commitment to clients and participants. We have safeguards in place to prevent us from taking disproportionate risks. To help enhance the rigor of our approach, we separate risk-taking on the investment side from risk management. We maintain an independent risk management organization within Prudential Financial. This structure demonstrates our commitment to a system of checks and balances. Our risk managers establish investment-risk limits for exposures to any issuer, geographic region, type of security, or industry sector. We take risk in the PRIAC portfolio in order to achieve competitive crediting rates on our products, while maintaining limited intentional exposure to interest-rate risk. We believe it is more appropriate to concentrate risk in the PRIAC General Account portfolio in the following areas: Credit risk Illiquidity risk (private and commercial mortgage loans) Real estate debt risk (mortgage loans) Structuring risk (asset-backed securities) Underpinning our asset/liability process is our objective of managing duration in order to limit our interest-rate-risk exposures. We seek to control our duration mismatch of assets and liabilities our relative sensitivity to changes in interest rates. Prudential: Structured to Manage Risk Using a System of Checks and Balances Office of the Chairman Asset/Liability Management Risk Management Bottom line: We consider risk management an integral part of managing our core businesses and of meeting our obligations to clients and participants. 4

7 Highlights of the PRIAC General Account Holdings The following information provides a summary of the more detailed financial data contained in the PRIAC Portfolio Report. PRIAC s Diversified General Account Investment Portfolio Holdings Total Investments, PRIAC (in millions, unaudited) Fair value* as of 12/31/11, $24.7 billion $284 $164 $404 $14 $1,011 $9 $1,483 $1,990 $2,617 $4,170 $12,542 Corporate securities 51% Commercial mortgage and other loans 17% Commercial mortgagebacked securities (CMBS) 10% Residential MBS 8% Asset-backed securities 6% Short term 4% U.S. government 2% Other 1% Foreign government 1% Equity <1% State and municipal <1% *Commercial mortgage and other loans and other investments at book value PRIAC s General Account portfolio represents broad coverage of the fixed income markets; a significant market presence and expertise in a broad range of sectors; and in-depth, focused expertise within individual sectors. We maintain a diversified investment portfolio in PRIAC to support its liabilities to contract holders, as well as our other general liabilities. The primary investment objectives include: Matching the liability characteristics of the major products and other obligations of the company Optimizing the portfolio book yield within risk constraints Maximizing total return, including both investment yield and capital gains, and preserving principal, within risk constraints, while matching the liability characteristics of its major products Despite a recent reduction of overall market volatility, we believe that research, security selection, and position sizing remain critical. 5

8 Corporate Securities Roughly 51% of PRIAC s General Account is invested in public and private corporate securities. Public securities are managed by the Prudential Fixed Income group, which has asset-class specialists responsible for identifying the most attractive investments available in their respective sectors. Private securities are originated by the Prudential Capital Group and are sourced both on a direct basis through a network of regional offices across the U.S. and through intermediaries. The direct-origination capabilities of Prudential Capital Group allow us to be more selective in originating investments by broadening the range of opportunities and provide us with better information about potential borrowers through access to the management of the borrower. The corporate securities portion of PRIAC s General Account portfolio is well diversified by industry and is of high quality. Prudential s risk management process establishes limits within the portfolio by industry sector and issuer. Corporate Securities in the General Account Composition of Corporate Securities by Industry (in millions, unaudited) Fair value as of 12/31/11, $12.5 billion $696 $576 $1,733 $865 $3,943 Manufacturing 31% Utilities 19% Services 18% Finance 14% Energy 7% $2,292 $2,437 Transportation 6% Retail and wholesale 5% Total Investments, PRIAC (in millions, unaudited) Fair value* as of 12/31/11, $24.7 billion $284 $164 $404 $14 $1,011 $9 $1,483 $1,990 $2,617 $4,170 $12,542 Corporate securities 51% Commercial mortgage and other loans 17% Commercial mortgagebacked securities (CMBS) 10% Residential MBS 8% Asset-backed securities 6% Short term 4% U.S. government 2% Other 1% Foreign government 1% Equity <1% State and municipal <1% *Commercial mortgage and other loans and other investments at book value 6 Bottom line: A breadth of diverse industries constitutes the PRIAC General Account.

9 Below Investment Grade (BIG) Fixed Income Holdings The BIG portion of PRIAC s General Account portfolio is broadly diversified across high-yielding asset types. Below investment grade (BIG) securities in the PRIAC General Account are primarily held in bank loans and private placements. We also invest in commercial asset financing transactions (leasing). These holdings place us generally higher in the capital structure or provide physical collateral supporting our investment. Our BIG holdings offer better protection than the typical public high-yield bond portfolio. We have a high proportion of direct-origination private placements, which generally offer covenant protection, early warnings in the event of problems, and a historically higher rate of recovery from defaults. Our bank loans are senior secured loans, and the commercial asset finance deals we hold are secured by underlying assets such as equipment fleets. The bulk of our BIG holdings are rated BB or B. We hold very little rated below B. It is important to note that these holdings are not necessarily the result of downgrades of investment-grade securities. Our BIG exposures are predominantly positions we took deliberately, using the selection expertise of our asset managers. Below Investment Grade Fixed Income Holdings in the PRIAC General Account (5.8% of the Portfolio) Total Investments, PRIAC 1% 2% 4% 4% 17% (Fair value* as of 12/31/11, $24.7 billion, unaudited) <1% Numbers to Note Private BIG $904 million (3.6%) Public BIG $536 million (2.2%) 52% Public IG Private IG Commercial loans Short term Public BIG Other 20% Private BIG Equity *Commercial mortgage loans at book value BIG Breakdown (Fair value as of 12/31/11, $1.4 billion, unaudited) 7% 6% Numbers to Note BIG holdings rated B or above 87.0% 9% 9% 46% Private Ba Public Ba Private B Public B 23% Private C and lower Public C and lower Bottom line: Below investment grade fixed income assets make up only 5.8% of the PRIAC General Account portfolio as of December 31,

10 Commercial Mortgage Loans (CMLs) Roughly 17% of PRIAC s General Account portfolio is invested in commercial mortgage loans, which are originated by Prudential Mortgage Capital Company (PMCC), an affiliate of PRIAC. PMCC s origination network and associated local market knowledge allow us to construct a CML portfolio that is well diversified and maintains a conservative risk profile. PRIAC s General Account portfolio holdings are diversified by geography and property type. We have made loans across a broad range of properties, including offices, hotels, and others. Our CML holdings are notable for two key measures of risk: Loan-to-value ratio (LTV). This is the amount a borrower owes as a percentage of what the underlying property is worth. This is relevant if a lender is forced to sell a property on which the borrower has defaulted. The lower the LTV, the greater the security of the loan. At present, our commercial loan holdings have a weighted average LTV of 59%, which means the portfolio is positioned to withstand a drop in commercial real estate values. Debt-service coverage (DSC). This is the amount a borrower earns in operating income from a property relative to the mortgage payments the borrower must make. A DSC of 1.0 means the borrower is making just enough to pay the mortgage. The higher the number, the greater the security of the loan. Our CMLs have a weighted average debt-service coverage ratio of Thus, on average the properties are generating more income than is needed to fund the mortgage payments, with excess in the event of a downturn in revenues. Commercial Mortgage Loan Holdings in the PRIAC General Account Total Investments, PRIAC (in millions, unaudited) Fair value* as of 12/31/11, $24.7 billion $284 $164 $404 $14 $1,011 $9 $1,483 Numbers to Note Total exposure to commercial mortgage loans (CMLs) 17% Weighted average loan-to-value ratio 59% Weighted average debt-service coverage ratio 1.82 $1,990 Corporate securities 51% Short term 4% $2,617 $4,170 $12,542 Commercial mortgage and other loans 17% Commercial mortgagebacked securities (CMBS) 10% Residential MBS 8% Asset-backed securities 6% U.S. government 2% Other 1% Foreign government 1% Equity <1% State and municipal <1% *Commercial mortgage and other loans and other investments at book value 8

11 Highlights of Commercial Mortgage Loan Holdings Diversification of Commercial Mortgage Loan Holdings in the PRIAC General Account Portfolio Commercial Mortgage Loans by Region (amortized cost as of 12/31/11, $4.2 billion) $76 $70 $133 $158 Pacific 31% $325 $431 $252 $554 $896 $1,314 South Atlantic 21% Middle Atlantic 13% West South Central 10% East North Central 8% Mountain 6% New England 4% West North Central 3% East South Central 2% Non-U.S. 2% Commercial Mortgage Loans by Property Type (amortized cost as of 12/31/11, $4.2 billion) $461 $541 $303 $569 $237 $1,103 $995 Retail 26% Industrial 24% Office 13% Other 13% Apartments/multifamily 11% Hospitality 7% Agricultural properties 6% CMLs vs. CMBS The PRIAC General Account holds both commercial mortgage loans (CMLs) and commercial mortgage-backed securities (CMBS). Here is a brief explanation of the differences: CMLs are directly negotiated loans between a borrower and a lender. If the borrower defaults on its mortgage, the lender may foreclose on the property and retain ownership of the real estate. Because CMLs involve inherent property-specific risk, individual asset selection and underwriting matter a great deal. Prudential Mortgage Capital Company (PMCC) acts as lender on behalf of PRIAC s General Account through its network of transaction teams. CMBS, on the other hand, are generally publicly traded mortgage-backed securities collateralized by pools of loans on commercial properties. The transactions are sold in tranches of varying qualities and levels of subordination. Since multiple loans (traditionally hundreds of loans and billions of dollars) represent the underlying collateral of each deal, the CMBS structure may limit the impact of regional or property-specific real estate market volatility. 9

12 Commercial Mortgage-Backed Securities (CMBS) Although CMBS pricing has experienced unusual volatility, PRIAC will continue to maintain exposure to this asset class. We believe that given how these securities are structured, certain tranches provide an attractive alternative to traditional fixed income securities. They offer additional diversification within the public sleeve of our portfolio, and we concentrate our holdings among those tranches that our research indicates have a lower risk profile. We buy CMBS of higher credit quality, with an average rating of AAA. The PRIAC General Account portfolio holds older vintages that tend to have better delinquency statistics. The newer vintages we own are generally higher in the tranche structure, with greater credit enhancement. If the underlying loans were to default, PRIAC would be among the first to be made whole. Commercial Mortgage-Backed Securities Holdings in the PRIAC General Account Portfolio Total Investments, PRIAC (in millions, unaudited) Fair value* as of 12/31/11, $24.7 billion $284 $164 $404 $14 $1,011 $9 $1,483 Numbers to Note Average credit quality of CMBS sleeve AAA Portion in 2005 or earlier vintages 55% $1,990 Corporate securities 51% Short term 4% $2,617 $4,170 $12,542 Commercial mortgage and other loans 17% Commercial mortgagebacked securities (CMBS) 10% Residential MBS 8% Asset-backed securities 6% U.S. government 2% Other 1% Foreign government 1% Equity <1% State and municipal <1% *Commercial mortgage and other loans and other investments at book value Credit Quality and Origination Year of CMBS Holdings as of 12/31/11 (in millions, unaudited) Fair value as of 12/31/11 $1,500 $1,250 $1,000 $750 $500 $250 $ & Prior Vintages Lowest Rating Agency Rating AAA AA A BBB BB & below 10

13 Market Volatility The recent financial crisis and the subsequent recession have made the financial markets behave in a volatile manner. It is important to know that we are in a position to effectively manage these short-term fluctuations. Even though the current market environment is challenging, PRIAC maintains a careful management of assets relative to liabilities. While unrealized losses in the portfolio are primarily driven by overall changes in the interest-rate environment and spreads, and not necessarily by downgrades of our securities or by troubled assets, we do not expect to realize the majority of these losses. The PRIAC General Account portfolio has significant natural liquidity, since a portion of the portfolio matures each year. This provides liquidity without forcing PRIAC to realize losses. We feel confident that PRIAC has sufficient liquid assets available to satisfy its liability flows. Today s interest rates notwithstanding, PRIAC remains well capitalized. Bottom line: We utilize the breadth of our investment capabilities to provide a solid foundation intended to withstand the disruptions that periodically affect the capital markets. 11

14 Statutory Capital and Other Information Accounting practices used to prepare statutory financial statements for state insurance regulators differ in certain instances from GAAP. The Connecticut Insurance Department (the Department ) recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under Connecticut Insurance law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. Generally, no consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determinations. The following information is unaudited and was prepared following statutory accounting practices. Statutory Information December 31, 2011 (unaudited) General Account Separate Account Total Total admitted assets $23,223,255,808 $40,219,690,342 $63,442,946,150 Total liabilities $22,160,455,859 $40,203,112,877 $62,363,568,736 Total capital and surplus $1,062,799,949 $16,577,465 $1,079,377,414 As of December 31, 2011, the amount of general account assets included in admitted assets that are pledged as collateral for any loan or guaranty, or that are otherwise not available to pay losses and claims, or are not held to protect policyholders or creditors (but excluding any amounts held in reinsurance trusts in respect of reinsurance policies issued by PRIAC): Securities lending purposes $783,173,500 Assets pledged as collateral $27,939,066 Other items on deposit or restricted to sale $16,503,870 New York Basis* December 31, 2011 (unaudited) General Account Separate Account Total Total admitted assets (NY basis) $23,223,255,808 $40,219,690,342 $63,442,946,150 Total liabilities (NY basis) $22,051,875,735 $40,202,971,404 $62,254,847,139 Total capital and surplus (NY basis) $1,171,380,073 $16,718,938 $1,188,099,011 *Available at year-end only. 12

15 Important Notices Basis of Presentation This report contains only selected data about PRIAC s General Account portfolio. The information presented in this report is unaudited and, unless otherwise indicated, prepared in accordance with generally accepted accounting principles (GAAP). Unless otherwise indicated, all information is as of December 31, 2011, and does not reflect any subsequent events or results, and should not be construed as being indicative of results for any subsequent period. Accounting practices used to prepare statutory financial statements for state insurance regulators differ in certain instances from GAAP. The Connecticut Insurance Department recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under Connecticut insurance law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. Generally, no consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determinations. For more complete information about Prudential Financial, Inc. and its subsidiaries, please refer to Prudential Financial, Inc. s Annual Report on Form 10-K for the year ended December 31, 2011, as well as any Current Reports on Form 8-K filed by Prudential Financial, Inc. Forward-Looking Statements/Risk Factors Certain of the statements included in this report constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of Words such as expects, believes, anticipates, includes, plans, assumes, estimates, projects, intends, should, will, or 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, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market, and political conditions, including the performance and fluctuations of fixed income, equity, real estate, and other financial markets; (2) the availability and cost of additional debt or equity capital or external financing for our operations; (3) interest-rate fluctuations or prolonged periods of low interest rates; (4) the degree to which we choose not to hedge risks, or the potential ineffectiveness or insufficiency of hedging or risk management strategies we do implement, with regard to variable annuity or other product guarantees; (5) any inability to access our credit facilities; (6) reestimates of our reserves for future policy benefits and claims; (7) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, in establishing liabilities and reserves, or for other purposes; (8) changes in our assumptions related to deferred policy acquisition costs, value of business acquired, or goodwill; (9) changes in assumptions for retirement expense; (10) changes in our financial strength or credit ratings; (11) statutory reserve requirements associated with term and universal life insurance policies under Regulation XXX and Guideline AXXX; (12) investment losses, defaults, and counterparty nonperformance; (13) competition in our product lines and for personnel; (14) difficulties in marketing and distributing products through current or future distribution channels; (15) changes in tax law; (16) economic, political, currency, and other risks relating to our international operations; (17) fluctuations in foreign currency exchange rates and foreign securities markets; (18) regulatory or legislative changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (19) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (20) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including in connection with our divestiture or winding down of businesses; (21) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (22) ineffectiveness of risk management policies and procedures in identifying, monitoring, and managing risks; (23) effects of acquisitions, divestitures, and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions, including risks associated with the acquisition of certain insurance operations in Japan; (24) interruption in telecommunication, information technology, or other operational systems or failure to maintain the security, confidentiality, or privacy of sensitive data on such systems; (25) changes in statutory or U.S. GAAP accounting principles, practices, or policies; (26) Prudential Financial, Inc. s primary reliance, as a holding company, on dividends or distributions from its subsidiaries to meet debt payment obligations and the ability of the subsidiaries to pay such dividends or distributions in light of our ratings objectives and/or applicable regulatory restrictions; and (27) risks due to the lack of legal separation between our Financial Services Businesses and our Closed Block Business. PRIAC does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. Investments in PRIAC s products entail risks. See Risk Factors included in Prudential Financial, Inc. s Annual Report on Form 10-K for the year ended December 31, 2011, for a discussion of material risks that could affect PRIAC s business. Other Information Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, is a wholly owned subsidiary of The Prudential Insurance Company of America (Prudential), Newark, NJ, which in turn is an indirect wholly owned subsidiary of Prudential Financial, Inc. Insurance products are issued by PRIAC. Guarantees are based on PRIAC s claims-paying ability. PRIAC is solely responsible for its financial condition and contractual obligations. AAA (Extremely Strong) is the highest of 24 ratings that Standard & Poor s extends, the lowest being R (has experienced regulatory action), and is a measure of claims-paying ability. Aaa (offers exceptional financial security) is the highest of 21 ratings that Moody s extends, the lowest being C (having extremely poor prospects of ever offering financial security), and is a measure of financial security. A++ (Superior) is the highest of 15 ratings that A.M. Best extends, the lowest being F (In Liquidation), and is a measure of claims-paying ability. AAA (Exceptionally Strong) is the highest of 21 ratings that Fitch Ratings extends, the lowest being D (Distressed), and is a measure of insurer financial strength. Ratings are not an indication of any variable portfolios performance, which fiuctuates with market conditions. Ratings are not a guarantee of future financial strength and/or claims-paying ability. 13

16 280 Trumbull Street Hartford, CT Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide Exp. 10/11/2013