Prudential Financial, Inc. Art Ryan Chairman and CEO Sanford C. Bernstein 23 rd Annual Strategic Decisions Conference
Forward-Looking Statements and Non-GAAP Measure This presentation may include some forward-looking statements. It is possible that actual results may differ materially from any expectations or predictions expressed in this presentation. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements of our Form 10-K and Form 10-Q SEC filings and in our earnings press releases, which can be found on our Web site at www.investor.prudential.com. This presentation includes references to adjusted operating income and to earnings per share, or EPS, or return on equity, or ROE, which are determined based on adjusted operating income. Adjusted operating income is a non-gaap measure of performance of our Financial Services Businesses. Adjusted operating income excludes Realized investment gains (losses), net, as adjusted, and related charges and adjustments. A significant element of realized investment gains and losses are impairments and credit-related and interest rate-related gains and losses. Impairments and losses from sales of credit-impaired securities, the timing of which depends largely on market credit cycles, can vary considerably across periods. The timing of other sales that would result in gains or losses, such as interest rate-related gains or losses, is largely subject to our discretion and influenced by market opportunities as well as our tax profile. Realized investment gains (losses) representing profit or loss of certain of our businesses which primarily originate investments for sale or syndication to unrelated investors, and those associated with terminating hedges of foreign currency earnings and current period yield adjustments are included in adjusted operating income. Realized investment gains and losses from products that are free standing derivatives or contain embedded derivatives, and from associated derivative portfolios that are part of an economic hedging program related to the risk of those products, are included in adjusted operating income. Adjusted operating income also excludes investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes, because these recorded changes in asset and liability values will ultimately accrue to contractholders. Trends in the underlying profitability of our businesses can be more clearly identified without the fluctuating effects of these transactions. In addition, adjusted operating income excludes the results of divested businesses, which are not relevant to our ongoing operations. Discontinued operations, which is presented as a separate component of net income under GAAP, is also excluded from adjusted operating income. We believe that the presentation of adjusted operating income as we measure it for management purposes enhances understanding of the results of operations of the Financial Services Businesses by highlighting the results from ongoing operations and the underlying profitability of our businesses. However, adjusted operating income is not a substitute for income determined in accordance with GAAP, and the excluded items are important to an understanding of our overall results of operations. The comparable GAAP presentation and the reconciliation between the two are set out in our Form 10-K and Form 10-Q SEC filings and in our earnings press releases and Quarterly Financial Supplements, which can be found on our Web site. Prudential Financial, Inc. of the United States is not affiliated with Prudential PLC which is headquartered in the United Kingdom. 1
Prudential Financial s First Five Years Achieved significant expense reductions Divested P&C business Acquired: American Skandia, CIGNA Retirement and Allstate Variable Annuity Business Combined retail brokerage into Wachovia Repurchased $8.6 billion of Common Stock (1) Achieved AA financial strength ratings from four agencies 1) Through March 31, 2007 2
Earnings Per Share Growth (1) 31% CAGR $3.61 $4.83 $6.15 $2.06 $2.53 2002 2003 2004 2005 2006 1) Based on after-tax adjusted operating income of the Financial Services Businesses (FSB) 3
ROE Progress (1) 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 14.6% 12.3% 10.1% 7.5% 6.3% 2002 2003 2004 2005 2006 1) For the FSB; based on after-tax adjusted operating income and on attributed equity excluding accumulated other comprehensive income related to unrealized gains and losses on investments for all periods and accumulated other comprehensive income related to pension and postretirement benefits for periods including and after 2004 4
EPS and ROE EPS (1) ROE (2) 1Q2006 1Q2007 (1) $1.36 $1.85 (2) 13.4% 16.4% 1) Based on after-tax adjusted operating income of the FSB 2) For the FSB; based on annualized after-tax adjusted operating income and on attributed equity excluding accumulated other comprehensive income related to unrealized gains and losses on investments and accumulated other comprehensive income related to pension and postretirement benefits 5
Where We Are Today Balanced mix of businesses and risks Strong capital position and cash flow generation Sustained high returns and growth of international insurance business Leading position in domestic retirement and savings market Asset management skills complement product manufacturing Complementary distribution channels Acquisition and integration track record 6
85% of Equity is Attributed to Operating Businesses Total attributed equity of $21.7 billion (1) Operating Businesses 85% 15% Corporate & Other 1) As of March 31, 2007 for the FSB; excludes accumulated other comprehensive income related to unrealized gains and losses on investments and pension/postretirement benefits 7
Attributed Equity of Operating Businesses INTERNATIONAL INSURANCE Life Planner model Gibraltar Life RETIREMENT & SAVINGS Retirement Individual Annuities DOMESTIC INSURANCE Individual Life Group Insurance Attributed equity $18.4 billion (1) $3.8 $4.7 $3.4 $6.5 INVESTMENT BUSINESSES Financial Advisory Asset Management International Investments 1) As of March 31, 2007 for the FSB; excludes accumulated other comprehensive income related to unrealized gains and losses on investments and pension/postretirement benefits 8
International Insurance Financial Performance ($ millions) 2004 2005 2006 Pre-tax adjusted operating income Life Planner model $ 515 $ 808 $ 930 Gibraltar Life 402 502 493 917 1,310 1,423 Equity (1) $ 2.5 $ 3.2 Return on Equity (2) 25% 28% $4.2 24% 1) Average attributed equity for period; in billions 2) Based on after-tax adjusted operating income 9
Life Planner Model Strategy and Plans Disciplined implementation Organic expansion in existing markets Continued growth in Life Planners Maintenance of Life Planner productivity Maintenance of policy persistency levels Very selective entry into new markets 10
Gibraltar Life Acquired by Prudential Financial in 2001 Strong affinity group relationships High return on equity Strong free cash flow and capital generation 11
Large Retirement / Savings Market $21 trillion market in 2005 Personal Savings $7.1 $3.7 $2.9 IRAs Defined Contribution $1.8 $5.7 Annuities Defined Benefit Sources: Federal Reserve Flow of Funds; LIMRA; company estimates 12
Retirement and Annuities A Leading Provider in a Growing Market Annuities ($ billions) $226 $229 Retirement Account values (1) $81 $120 $183 $191 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 3/31/2007 1) Includes acquired businesses from dates of acquisitions 13
Prudential Annuities Top 10 Variable Annuity Company Prudential Annuities is ranked #4 in advisor-sold VA account values (1) Hartford 104.5 ($ billions) Met Life AXA Equitable Prudential Lincoln National 64.7 75.5 71.6 88.1 #4 John Hancock Ameriprise Pacific Life ING Nationwide 48.1 47.3 46.0 44.2 42.7 1) Source: VARDS 4Q06 and Company data; Advisor-sold market excludes group/retirement plan contracts 14
Annuities Leading distributor of variable annuities through independent financial planners Expanding distribution Acquisition of Allstate s VA business completed 2Q06 Successful, innovative suite of living benefits Return on equity of 16.2% (1) 1) Based on annualized after-tax adjusted operating income for the period ended March 31, 2007 15
Retirement and Annuities Competitive Advantages Unique positioning: market leading annuity and full service retirement provider Access to Prudential s risk management, asset management, and product design capabilities Growing emphasis on retirement income products Distribution breadth, supported by strong branding Scale allows competitive pricing and marketleading service capabilities 16
Individual Life ROE Pre-tax adjusted operating income (1) Equity (2) Return on equity (3) Three months ended March 31, 2007 $ 101 $ 2.2 15.5 % 1) In millions 2) Average attributed equity for the period; in billions 3) Based on annualized after-tax adjusted operating income giving effect to the direct equity credit 17
Group Insurance Controlled growth emphasis on margins High persistency of quality business Voluntary life opportunity Return on equity of 12.0% (1) 1) Based on annualized after-tax adjusted operating income for the period ended March 31, 2007 18
Asset Management Significant Scale and Breadth Total AUM $629.8 billion (1) AUM by Asset Type AUM by Client Type Non-proprietary insurance, annuity & other Fixed Income Non-proprietary insurance, annuity & other Institutional Customers 14% 4% 20% 19% 43% 14% 20% 26% 13% 27% CB Real Estate International Equity International Retail customers General account 1) As of March 31, 2007 19
Migrating to Optimal Capital Structure 17% Capital Debt 83% Equity (approx. $21 billion) Share Repurchases Share Repurchase Program Considerations: - Capital generation - Business growth requirements - Market opportunities - Rating agency views - Sustainability $3 billion annual authorization effective 2007 Assuming no Acquisitions 10% Hybrid Securities 20% Capital Debt 70% Equity (approx. $21 billion) 12/31/06 Not later than 2009 20
2007 and Beyond Two substantial growth opportunities: - International businesses - Domestic retirement and savings businesses Evolving multi-channel distribution strategy Manage margins and returns Substantial operating cash flows enable share repurchases, growing cash dividends Opportunistic acquisitions 21
2007 2009 Financial Objectives ROE expansion to 15% 17% range (1) Solid double digit average annual growth in EPS (1) Reasonably consistent operating results Stock buybacks of $3 billion a year through 2009 under base case AA capital management 1) Based on after-tax adjusted operating income of the FSB. ROE targets based on attributed equity excluding accumulated other comprehensive income related to unrealized gains and losses on investments and pension and postretirement benefits. 22