Prudential 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 196

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196

PRUDENTIAL FINANCIAL 2007 ANNUAL REPORT

Table of contents

  • Page 1
    PRUDENTIAL FINANCIAL 2007 ANNUAL REPORT

  • Page 2
    ... wealth. We offer individual and institutional clients a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management and real estate services. Today, we are one of the largest financial services companies in the...

  • Page 3
    ... established a foundation for Prudential's continued growth in the future. We have the right mix of businesses to capitalize on opportunities in the marketplace. We have grown our highreturn businesses-our domestic retirement and annuities businesses and our international businesses-both organically...

  • Page 4
    ...options outperformed their benchmarks in 2007. We also grew our year-over-year sales of variable annuities through third parties, including large securities firms that represent the wirehouse channel, and the insurance agent channel. In the latter, sales were boosted by our exclusive rights to sell...

  • Page 5
    .... The increase was driven mainly by sales of our term life products, which were up 43 percent in 2007. In December, we introduced a new term life insurance policy called MyTerm, which offers customers of select banks and other financial institutions term life insurance over the Internet in just 10...

  • Page 6
    ... the life insurance market in India, partnering with real estate giant DLF Group to form a joint venture. This new company will enable us to take advantage of India's rapidly growing insurance market. Our investment-through a consortium of investors led by the Carlyle Group-to acquire a minority...

  • Page 7
    ... Skandia's annuity business and Kyoei Life-our Gibraltar Life business today-has helped us establish strong positions in the U.S. retirement and savings and international insurance markets. to realize our full potential. ARTHUR F. RYAN Chairman of the Board Prudential Financial 2007 Annual Report...

  • Page 8
    ... operations Consolidated net income Net income: Financial Services Businesses Closed Block Business Consolidated net income FINANCIAL POSITION Invested assets Total assets Attributed equity: Financial Services Businesses Closed Block Business Total equity Assets under management (in billions) 2007...

  • Page 9
    ...; net investment gains and losses on trading account assets supporting insurance liabilities; change in experience-rated contractholder liabilities due to asset value changes; results of divested businesses and discontinued operations; and the related tax effects thereof. Adjusted operating income...

  • Page 10
    ... Prudential Annuities Distributors, Inc. Life Insurance issued by The Prudential Insurance Company of America, Newark, NJ, and its insurance affiliates. We define customers as primary customers, plan participants and consumers of our products and services. 8 Prudential Financial 2007 Annual Report

  • Page 11
    ... U.S. Private Securities Reform Act of 1995. Please see page 192 for a description of certain risks and uncertainties that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. Prudential Financial 2007 Annual Report...

  • Page 12
    ... associated with an investment in Prudential Financial and all of its businesses. The Common Stock and the Class B Stock will be entitled to dividends, if and when declared by Prudential Financial's Board of Directors from funds legally available to pay them, as if the businesses were separate legal...

  • Page 13
    ... acquisition. The 2005 income tax provision includes a benefit of $720 million from reduction of tax liabilities in connection with the Internal Revenue Service examination of our tax returns for the years 1997 through 2001. On April 1, 2004, we acquired the retirement business of CIGNA Corporation...

  • Page 14
    ... before income taxes, extraordinary gain on acquisition and cumulative effect of accounting change excluding undistributed income from equity method investments, fixed charges and interest capitalized. Fixed charges are the sum of gross interest expense, interest credited to policyholders' account...

  • Page 15
    ... the Class B Stock and IHC debt, except for $72 million used to purchase a guaranteed investment contract to fund a portion of the bond insurance cost associated with that debt, were allocated to the Financial Services Businesses. However, we expect that the IHC debt will be serviced by the net cash...

  • Page 16
    ... rates, taxes, foreign exchange rates, securities, credit and real estate market conditions and general economic conditions affect our profitability. In some of our product lines, particularly those in the Closed Block Business, we share experience on mortality, morbidity, persistency and investment...

  • Page 17
    ... rates. Results from the segment's Gibraltar Life operation improved in 2007, due primarily to improved investment income margins reflecting investment portfolio strategies and growth of account values for its U.S. dollar denominated fixed annuity product. Prudential Financial 2007 Annual Report...

  • Page 18
    ... sale of an interest in operating joint ventures during 2007, higher income from market value changes on securities relating to exchange memberships, and a benefit in 2007 from recoveries related to a former investment, as well as more favorable results in the segment's asset management businesses...

  • Page 19
    ... whole life, term life, and life contingent structured settlement and group annuity products of our Financial Services Businesses. The future policy benefit reserves for the traditional participating life insurance products of our Closed Block Business, which as of December 31, 2007, represented 47...

  • Page 20
    ... the variable and universal life policies in our International Insurance segment, mortality assumptions impact to a much lesser extent our estimates of future gross profits due to differences in policyholder demographics, the overall age of this block of business, the amount of mortality margins and...

  • Page 21
    ...in separate account investment options, and the shorter average life of the contracts. This rate of return influences the fees we earn, costs we incur associated with minimum death benefit and other contractual guarantees specific to our variable annuity contracts, as well as other sources of profit...

  • Page 22
    ... cost or benefit from our pension and other postretirement benefit plans may change due to factors such as actual experience being different from our assumptions, special benefits to terminated employees, or changes in benefits provided under the plans. Taxes on Income Our effective tax rate...

  • Page 23
    ...U.S. Treasury Department and the Service are addressing through new regulations the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity contracts. The statute of limitations for the 2002-2003 tax years expires in 2009. The Company...

  • Page 24
    ... valuing employee stock options issued in 2007, 2006, and 2005. Excess Tax Benefits An excess tax benefit is generated whenever the tax deduction associated with share-based payment arrangements exceeds the related cumulative compensation cost recognized for financial reporting purposes. Excess tax...

  • Page 25
    ... the Closed Block Business for the periods presented. Year ended December 31, 2007 2006 2005 (in millions) Financial Services Businesses by segment: Individual Life ...Individual Annuities ...Group Insurance ...Total Insurance Division ...Asset Management ...Financial Advisory ...Retirement ...Total...

  • Page 26
    ... by the policy servicing fee arrangement that is based upon insurance and policies in force and statutory cash premiums. As statutory cash premiums and policies in force in the Closed Block Business decline, we expect the benefit to the Common Stock holders from the direct equity adjustment...

  • Page 27
    ...; • net investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes; • the contribution to income/loss of divested businesses that have been or will be sold or exited that do not...

  • Page 28
    ... claims payments and increases in reserves on term life insurance associated with growth in our in force block of term insurance compared to 2006. Also on this basis, amortization of deferred policy acquisition costs increased $8 million, reflecting less favorable separate account fund performance...

  • Page 29
    ... excess premiums and deposits on a cash-received basis. 2007 to 2006 Annual Comparison. Sales of new life insurance, excluding corporate-owned life insurance, measured as described above, increased $64 million, from $430 million in 2006 to $494 million in 2007. Sales of term life products increased...

  • Page 30
    ... acquisition and other costs and the reserve for the guaranteed minimum death and income benefit features of our variable annuity products. Adjusted operating income for 2007 included a $30 million benefit from this annual review, reflecting market value increases in the underlying assets associated...

  • Page 31
    ...benefit options. The increase in asset management fees and other income was primarily due to an increase in asset based fees driven by an increase in the average market value of variable annuity customer accounts and positive net flows of our variable annuities. The decrease in net investment income...

  • Page 32
    ... of our optional living benefit product features, particularly guaranteed lifetime withdrawal benefit programs introduced in 2005 and 2006, growth of our distribution relationships, including those associated with the business acquired from Allstate, our retirement marketing strategy and sales of...

  • Page 33
    ... rates on shorter-term investments. Less favorable claims experience in our group life business and higher expenses, including higher costs in 2006 related to legal and regulatory matters, largely offset these increases. Revenues 2007 to 2006 Annual Comparison. Revenues, as shown in the table...

  • Page 34
    ... coverage under our Servicemembers' Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts, and include premiums from the takeover of claim liabilities. (2) Includes long-term care products. 32 Prudential...

  • Page 35
    ... Comparison. Adjusted operating income increased $129 million, from $464 million in 2005 to $593 million in 2006. Results for 2006 benefited from an increase in performance based incentive fees of $61 million associated with appreciation and gains on sale of real estate investments which we manage...

  • Page 36
    ...group insurance contracts. (2) Consists of individual mutual funds and both variable annuities and variable life insurance assets in our separate accounts. This also includes funds invested in proprietary mutual funds through our defined contribution plan products. Fixed annuities and the fixed rate...

  • Page 37
    ... sale transactions in the prior year. Asset management fees increased $88 million mainly from institutional and retail customer assets as a result of increased asset values due to market appreciation and net asset flows. Expenses 2007 to 2006 Annual Comparison. Expenses, as shown in the table above...

  • Page 38
    ... liabilities due to asset value changes in the pool of investments supporting these experiencerated contracts. See "-Trading account assets supporting insurance liabilities." On April 1, 2004, we acquired the retirement business of CIGNA Corporation for cash consideration of $2.1 billion. Beginning...

  • Page 39
    ... the market value of certain externally managed investments in the European market. Premiums increased $35 million, driven by higher single premium group annuity and life-contingent structured settlement sales, and resulted in a corresponding increase in policyholders' benefits, including the change...

  • Page 40
    ... rates on full service general account liabilities. Interest expense increased $98 million primarily due to increased financing costs on increased borrowings, the proceeds of which were used to purchase invested assets. Policyholders' benefits, including the change in policy reserves, increased...

  • Page 41
    ... Investment Products to Full Service as a result of one client's change in contract form. Remaining amounts for all periods presented primarily represent changes in asset balances for externally managed accounts. 2007 to 2006 Annual Comparison. Account values in our full service business...

  • Page 42
    ..., including specific discussion of our Japanese general account investment portfolio. International Insurance The results of our International Insurance operations are translated on the basis of weighted average monthly exchange rates, inclusive of the effects of the intercompany arrangement...

  • Page 43
    ...." (4) Benefits and expenses exclude changes in contractholder liabilities due to asset value changes in the pool of investments supporting these experiencerated contracts. See "-Trading Account Assets Supporting Insurance Liabilities." Adjusted Operating Income 2007 to 2006 Annual Comparison...

  • Page 44
    ... to transition from traditional products, on which we record premiums, to products with a retirement and savings objective, for which customer funds received are recorded as deposits. More than offsetting the decrease in premium was a $104 million increase in net investment income, from $788 million...

  • Page 45
    ... denominated fixed annuity business, the favorable effect of certain investment portfolio strategies initially implemented in 2005, and income of $6 million in 2006 from a single real estate related investment as discussed above. Benefits and Expenses 2007 to 2006 Annual Comparison. Benefits and...

  • Page 46
    ..., new annualized premiums from our Japanese Life Planner operations increased $10 million reflecting increased sales of retirement income and U.S. dollar denominated whole life products, partially offset by lower sales of increasing term life products to corporations as a result of pending tax law...

  • Page 47
    ... Pramerica Asset Management S.a.r.l., which we accounted for under the equity method, to our partner Oppenheim S.C.A. for $121 million. These businesses establish, package and distribute mutual fund products to German and other European retail investors. We recorded a pre-tax gain on the sale of $37...

  • Page 48
    ... asset management and brokerage services, which agreement extends until February 27, 2009. 2006 to 2005 Annual Comparison. Adjusted operating income increased $37 million, from $106 million in 2005 to $143 million in 2006. This increase reflects income recognized in 2006 from market value changes on...

  • Page 49
    ... return on assets reflecting the transfer of assets to our retiree medical benefit plans discussed above. In 2008, pension and other postretirement benefit service costs related to active employees will continue to be allocated to our business segments. Adjusted operating income of our real estate...

  • Page 50
    ... paid to Closed Block policyholders, unless otherwise offset by future experience, with an offsetting amount reported in accumulated other comprehensive income. Operating Results Management does not consider adjusted operating income to assess the operating performance of the Closed Block Business...

  • Page 51
    ... $92 million. Policyholders' benefits, including changes in reserves, increased $54 million primarily reflecting higher claim costs in 2007 that continue to increase with the aging of the Closed Block policyholders, and a reserve release in 2006. 2006 to 2005 Annual Comparison. Benefits and expenses...

  • Page 52
    ...prepayment premiums received on private fixed maturity securities, recoveries of principal on previously impaired securities, provisions for losses on commercial loans, fair value changes on commercial mortgage operations' loans, gains and losses on commercial loans in connection with securitization...

  • Page 53
    ... portfolio management objectives. Other-than-temporary impairments, interest rate related losses and credit losses (other than those related to certain of our businesses which primarily originate investments for sale or syndication to unrelated investors) are excluded from adjusted operating income...

  • Page 54
    ...Life ...Individual Annuities ...Group Insurance ...Asset Management ...Financial Advisory ...Retirement ...International Insurance ...International Investments ...Corporate and Other Operations ...Total ...Realized investment gains (losses), net-Financial Services Businesses ...Closed Block Business...

  • Page 55
    ... private bond prepayment premiums of $40 million. Net gains on sales and maturities of fixed maturity securities in 2007 included gross losses of $219 million, mainly in the Retirement and International Insurance segments, and were primarily related to credit spread increases in the credit markets...

  • Page 56
    ..., partially offset by private bond prepayment premiums of $32 million. Net realized losses on fixed maturity securities include gross losses on sales and maturities of fixed maturity securities of $517 million mainly in the Retirement, Individual Annuities and International Insurance segments, which...

  • Page 57
    ...income in future periods. See "-General Account Investments-Investment Results" for a discussion of current period yields of the Financial Services Businesses. Gross realized gains on sales of fixed maturity securities in 2006 included $60 million in our International Investment segment on a private...

  • Page 58
    ... investment experience, such as fixed annuities and universal life insurance; • participating individual and experience rated group products in which customers participate in actual investment and business results through annual dividends, interest or return of premium; and • guaranteed products...

  • Page 59
    ... for sale, at fair value ...Commercial loans, at book value ...Policy loans, at outstanding balance ...Other long-term investments(1) ...Short-term investments(2) ...Total general account investments ...Invested assets of other entities and operations(3) ...Total investments ...Closed Block Business...

  • Page 60
    ...at amortized cost ...Trading account assets supporting insurance liabilities, at fair value ...Other trading account assets, at fair value ...Equity securities, available for sale, at fair value ...Commercial loans, at book value ...Policy loans, at outstanding balance ...Other long-term investments...

  • Page 61
    ... Fixed maturities ...Trading account assets supporting insurance liabilities ...Equity securities ...Commercial loans ...Policy loans ...Short-term investments and cash equivalents ...Other investments ...Gross investment income before investment expenses ...Investment expenses ...Investment income...

  • Page 62
    ... Fixed maturities ...Trading account assets supporting insurance liabilities ...Equity securities ...Commercial loans ...Policy loans ...Short-term investments and cash equivalents ...Other investments ...Gross investment income before investment expenses ...Investment expenses ...Investment income...

  • Page 63
    ... fixed income portfolio that is larger than the industry average as a percentage of total fixed income holdings. Over the last several years, our investment staff has directly originated more than half of our annual private placement originations. Our origination capability offers the opportunity...

  • Page 64
    ... Services Businesses, reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of European fixed income securities and derivatives, including corporate bonds and asset-backed securities. Our investment in these notes further diversifies...

  • Page 65
    ...Credit Quality" for additional information regarding guarantees from monoline bond insurers. (3) Includes collateralized debt obligations with amortized cost of $220 million and fair value of $214 million, with less than 2% secured by sub-prime mortgages. Prudential Financial 2007 Annual Report 63

  • Page 66
    ...and 2007, including less stringent loan underwriting, higher levels of leverage, and rapid real estate price appreciation. The following tables set forth the amortized cost and fair value of our commercial mortgage backed securities attributable to the Financial Services Businesses as of December 31...

  • Page 67
    ... managed investments in European markets, included in asset-backed securities of the Closed Block Business, reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of European fixed income securities and derivatives, including corporate bonds...

  • Page 68
    ... Quality" for additional information regarding guarantees from monoline bond insurers. (3) Includes collateralized debt obligations with amortized cost of $27 million and fair value of $31 million, with none secured by sub-prime mortgages. The tables above provide ratings as assigned by nationally...

  • Page 69
    ... and 2007, including less stringent loan underwriting, higher levels of leverage, and rapid real estate price appreciation. The following tables set forth the amortized cost and fair value of our commercial mortgage backed securities attributable to the Closed Block Business as of December 31, 2007...

  • Page 70
    ... no company representing more than 35% of the overall amortized cost of the securities supported by bond insurance attributable to the Closed Block Business. The amortized cost of our public and private below investment grade fixed maturities attributable to the Financial Services Businesses totaled...

  • Page 71
    ... portfolios by NAIC rating attributable to the Closed Block Business as of the dates indicated. December 31, 2007 December 31, 2006 Gross Gross Gross Gross NAIC Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Designation Rating Agency Equivalent Cost Gains Losses Value Cost...

  • Page 72
    ... adjusted operating income as an adjustment to "Realized investment gains (losses), net" over the life of the derivative. The following table sets forth our exposure where we have sold credit protection through credit derivatives in the Financial Services Businesses by NAIC rating of the underlying...

  • Page 73
    ..., respectively, the Closed Block Business had $205 million and $122 million of outstanding notional amounts, reported at fair value as an asset of $5 million and $0 million. The premium paid for the credit derivatives we purchase attributable to the Financial Services Businesses was $1 million and...

  • Page 74
    ... Trading account assets supporting insurance liabilities Certain products included in the retirement business we acquired from CIGNA, as well as certain products included in the International Insurance segment, are experience-rated, meaning that the investment results associated with these products...

  • Page 75
    ... Short-term Investments and Cash Equivalents ...Fixed Maturities: Corporate Securities ...Commercial Mortgage Backed(1) ...Asset-Backed Securities ...Residential Mortgage Backed ...Foreign Government ...U.S. Government ...Total Fixed Maturities ...Equity Securities ...Total trading account assets...

  • Page 76
    ...U.S. insurance regulatory authorities. (3) Amounts are reported in "Asset management fees and other income." Commercial Loans Investment Mix We originate domestic commercial mortgages using dedicated investment staff and a network of independent companies through our various regional offices across...

  • Page 77
    ... strategy emphasizes diversification by property type and geographic location. The following tables set forth the breakdown of the gross carrying values of our commercial loan portfolio by geographic region and property type as of the dates indicated. December 31, 2007 Financial Services Businesses...

  • Page 78
    ...254 $4,487 Fair Value $4,162 152 $4,314 Public equity securities include common stock mutual fund shares representing our interest in the underlying assets of certain of our separate account investments. These mutual funds invest primarily in high yield bond funds. The cost, gross unrealized gains...

  • Page 79
    ... The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. Estimated fair values for publicly traded equity securities are based on quoted market prices or prices obtained from independent pricing services. Estimated fair values for privately traded...

  • Page 80
    ... shares previously held by Prudential Equity Group ...Property and casualty insurance ...Prudential Securities capital markets ...Prudential Home Mortgage Company ...Total divested business excluded from adjusted operating income ... In the second quarter of 2007, we exited the equity sales, trading...

  • Page 81
    ...to subsidiaries(5) ...Capital contribution to rabbi trust(6) ...Share repurchases(7) ...Shareholder dividends ...Purchase of funding agreements from Prudential Insurance, net of maturities(2) ...Other, net ...Total uses ...Net increase in cash and short-term investments ...$3,212 937 2,245 861 1,003...

  • Page 82
    ... American Skandia subsequently paid as a dividend to Prudential Financial. Uses of Capital Share Repurchases. cost of $3.0 billion. During the year ended December 31, 2007, we repurchased 32.0 million shares of our Common Stock at a total In November 2007, Prudential Financial's Board of Directors...

  • Page 83
    ... and investment maturities and sales associated with our insurance and annuity operations. The principal uses of that liquidity include benefits, claims, dividends paid to policyholders, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan...

  • Page 84
    ... the extent, timing and profitability impact of withdrawals of funds by customers from annuity contracts and deposit liabilities. The following table sets forth withdrawal characteristics of our general account annuity reserves and deposit liabilities (based on statutory liability values) as of...

  • Page 85
    ...form of either additional policy values or cash. Gibraltar Life's investment portfolio is structured to provide adequate liquidity for the special dividend. Prudential of Japan had $19.2 billion and $16.8 billion of general account insurance related liabilities, other than dividends to policyholders...

  • Page 86
    ... Subsidiaries Our asset management businesses, which include real estate, public and private fixed income and public equity asset management, as well as commercial mortgage origination, servicing and securitization, proprietary investing and retail investment products, such as mutual funds and other...

  • Page 87
    ... net increase to shareholders' equity of $44 million, reflecting the tax benefit associated with the conversion of the senior notes. The payment of principal and accrued interest was funded primarily through the liquidation of the investment grade fixed income investment portfolio purchased with the...

  • Page 88
    ... shares of Prudential Financial Common Stock only for the portion of the settlement amount in excess of the par amount, if any. Prudential Financial used the majority of the offering proceeds to fund operating needs of our subsidiaries, purchase short-term investment grade fixed income investments...

  • Page 89
    ... Closed Block Business. (4) Does not include $8.5 billion and $6.5 billion of medium-term notes of consolidated trust entities secured by funding agreements purchased with the proceeds of such notes as of December 31, 2007 and 2006, respectively. These notes are included in "Policyholders' account...

  • Page 90
    ... in "Policyholders' account balances" and not included in the foregoing table) secured by funding agreements issued to the trust by Prudential Insurance and included in our Retirement segment. The funding agreements provide cash flow sufficient for the debt service on the related medium-term notes...

  • Page 91
    ... of the expiration in exchange for a fee. (5) The estimated payments due by period for insurance liabilities reflect future estimated cash payments to be made to policyholders and others for future policy benefits, policyholders' account balances, policyholder's dividends, reinsurance payables and...

  • Page 92
    ... total guaranteed value of $4.428 billion. We arrange for credit enhancements of certain debt instruments that provide financing for commercial real estate assets, including certain tax-exempt bond financings. The credit enhancements provide assurances to the debt holders as to the timely payment of...

  • Page 93
    ..., and 8% related to our Closed Block Business. If we were to experience a significant decrease in asset values or increase in lapse or surrender rates on policies for which we amortize DAC based on gross margins or gross profits, such as participating and variable life insurance, we would expect...

  • Page 94
    ... For variable annuity and variable life insurance products with minimum guaranteed death benefits and variable annuity products with living benefits such as guaranteed minimum income, withdrawal, and accumulation benefits, we also face the risk that declines in the value of underlying investments as...

  • Page 95
    ......Futures ...Options ...Forwards ...Variable Annuity Living Benefit Feature Embedded Derivatives ...Financial liabilities with interest rate risk: Short-term and long-term debt ...Investment contracts ...Bank customer liabilities ...Net estimated potential loss ... Hypothetical Change in Fair Value...

  • Page 96
    ... loans ...Mortgage bank-loan inventory(1) ...Policy loans ...Derivatives: Swaps ...Futures ...Options ...Forwards ...Variable Annuity Living Benefit Feature Embedded Derivatives ...Financial liabilities with interest rate risk: Short-term and long-term debt ...Investment contracts ...Bank customer...

  • Page 97
    ... for Financial Services Businesses by Segment-International Insurance and Investments Division." We manage our investment foreign currency exchange rate risks, described above, within specified limits. Foreign currency exchange risks for our domestic general account investment portfolio and the...

  • Page 98
    ... formal policies, risk and position limits, counterparty and credit limits, daily position monitoring, and other forms of risk management. In the second quarter of 2007, the Company announced its decision to exit the equity sales, trading and research operations of the Prudential Equity Group. See...

  • Page 99
    ... reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or...

  • Page 100
    ... Company changed its method of accounting for uncertainty in income taxes, for deferred acquisition costs in connection with modifications or exchanges of insurance contracts, and for income taxrelated cash flows generated by a leveraged lease transaction on January 1, 2007 and for defined benefit...

  • Page 101
    ... trading account assets, at fair value ...Equity securities, available for sale, at fair value (cost: 2007-$7,895; 2006-$6,824) ...Commercial loans ...Policy loans ...Securities purchased under agreements to resell ...Other long-term investments ...Short-term investments ...Total investments ...Cash...

  • Page 102
    ... per share amounts) 2007 REVENUES Premiums ...Policy charges and fee income ...Net investment income ...Realized investment gains, net ...Asset management fees and other income ...Total revenues ...BENEFITS AND EXPENSES Policyholders' benefits ...Interest credited to policyholders' account balances...

  • Page 103
    ... ...Common Stock acquired ...Stock-based compensation programs ...Conversion of Senior Notes ...Dividends declared on Common Stock ...Dividends declared on Class B Stock ...Cumulative effect of changes in accounting principles, net of taxes ...Comprehensive income: Net income ...Other comprehensive...

  • Page 104
    ... investing activities ...CASH FLOWS FROM FINANCING ACTIVITIES Policyholders' account deposits ...Policyholders' account withdrawals ...Net change in securities sold under agreements to repurchase and cash collateral for loaned securities ...Cash dividends paid on Common Stock ...Cash dividends paid...

  • Page 105
    ... remain outstanding. The Common Stock, which is publicly traded, reflects the performance of the Financial Services Businesses, and the Class B Stock, which was issued through a private placement, reflects the performance of the Closed Block Business. Prudential Financial 2007 Annual Report 103

  • Page 106
    ... used in determining deferred policy acquisition costs, goodwill, valuation of business acquired, valuation of investments including derivatives, future policy benefits including guarantees, pension and other postretirement benefits, provision for income taxes, reserves for contingent liabilities...

  • Page 107
    ... Closed Services Block Businesses Business (in millions, except per share amounts) $3,219 $ 321 28 1 38 $3,209 $ 6.45 $ 6.43 $ 6.34 $ 6.32 $ 1 321 Net income, as reported ...Add: Total employee stock option compensation expense included in reported net income, net of taxes ...Deduct: Total employee...

  • Page 108
    ...Net investment income." Equity securities are comprised of common stock and non-redeemable preferred stock and are carried at fair value. The associated unrealized gains and losses, net of tax and the effect on deferred policy acquisition costs, valuation of business acquired, future policy benefits...

  • Page 109
    ... in certain cases other debt financing, to purchase various classes of assets on behalf of its investors. Specialized industry accounting for investment companies calls for the feeder fund to reflect its investment in the master fund as a single net asset equal to its proportionate share of the net...

  • Page 110
    ...Cash and cash equivalents include cash on hand, amounts due from banks, money market instruments and other debt instruments with maturities of three months or less when purchased, other than cash equivalents that are included in "Trading account assets supporting insurance liabilities, at fair value...

  • Page 111
    ..., broker-dealer related payables and employee benefit liabilities. As a result of certain acquisitions and the application of purchase accounting, the Company reports a financial asset representing the valuation of business acquired ("VOBA"). VOBA represents the present value of future profits...

  • Page 112
    ...Gibraltar Life, a Japanese insurance company acquired in April 2001, and dividends payable in accordance with certain group insurance policies. The special dividends payable to the policyholders of Gibraltar Life are based on 70% of the net increase in the fair value of certain real estate and loans...

  • Page 113
    ... as payment for interest-sensitive group and individual life contracts, deferred fixed annuities, structured settlements and other contracts without life contingencies, and participating group annuities are reported as deposits to "Policyholders' account balances." Revenues from these contracts are...

  • Page 114
    ... SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) consolidated entities that follow specialized investment company fair value accounting are also included in "Asset management fees and other income." In certain asset management fee arrangements, the Company is entitled to receive performance...

  • Page 115
    ... contract, carried at fair value, and changes in its fair value are included in "Realized investment gains (losses), net." Income Taxes The Company and its eligible domestic subsidiaries file a consolidated federal income tax return that includes both life insurance companies and non-life insurance...

  • Page 116
    ... fair value option for certain commercial loans held for investment and for commercial loans originated on or after January 1, 2008 that are held for sale, both of which are within the Company's commercial mortgage operations. Electing the fair value option for these loans will allow the changes in...

  • Page 117
    ... or Exchanges of Insurance Contracts." SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs, including deferred policy acquisition costs, valuation of business acquired and deferred sales inducements, on internal replacements of insurance and investment...

  • Page 118
    ... element of the acquisition, the Company had the right, beginning two years after the acquisition, to commute the modified-coinsurance-with-assumption arrangement related to the acquired defined benefit guaranteed-cost contracts in exchange for cash consideration from CIGNA. Effective April 1, 2006...

  • Page 119
    ... pre-tax loss in connection with this decision, primarily related to employee severance costs. (2) Reflects the income or loss from discontinued real estate investments, primarily related to gains recognized on the sale of real estate properties. (3) In the third quarter of 2006, the Company entered...

  • Page 120
    ... their political subdivisions ...Foreign government bonds ...Corporate securities ...Asset-backed securities ...Commercial mortgage-backed securities ...Residential mortgage-backed securities ...Total fixed maturities, available for sale ...Equity securities, available for sale ...$ 5,829 864 27,214...

  • Page 121
    ... states ...Foreign government bonds ...Corporate securities ...Asset-backed securities ...Commercial mortgage-backed securities ...Residential mortgage-backed securities ...Total fixed maturities ...Equity securities ...Total trading account assets supporting insurance liabilities ... Net change in...

  • Page 122
    ... investment income recognized on these loans totaled $1 million, $3 million and $4 million for the years ended December 31, 2007, 2006 and 2005, respectively. The Company's loans held for sale are primarily commercial mortgage loans to be sold in securitization transactions. The net carrying value...

  • Page 123
    ... in certain cases other debt financing, to purchase various classes of assets on behalf of its investors. Specialized industry accounting for investment companies calls for the feeder fund to reflect its investment in the master fund as a single net asset equal to its proportionate share of the net...

  • Page 124
    ... POSITION Investments in real estate ...Investments in securities ...Cash and cash equivalents ...Receivables ...Property and equipment ...Other assets(1) ...Total assets ...Borrowed funds-third party ...Borrowed funds-Prudential ...Payables ...Other liabilities(2) ...Total liabilities ...Partners...

  • Page 125
    ... for sale ...Fixed maturities, held to maturity ...Equity securities, available for sale ...Trading account assets ...Commercial loans ...Policy loans ...Broker-dealer related receivables ...Short-term investments and cash equivalents ...Other long-term investments ...Gross investment income ...Less...

  • Page 126
    ... Deferred Other Policy Comprehensive Net Acquisition Income (Loss) Unrealized Costs and Deferred Related To Net Gains (Losses) Valuation Future Income Tax Unrealized On of Business Policy Policyholders' (Liability) Investment Investments(1) Acquired Benefits Dividends Benefit Gains (Losses...

  • Page 127
    ... months Unrealized Fair Value Losses Fixed maturities(1) U.S. Treasury securities and obligations of U.S. government corporations and agencies ...Obligations of U.S. states and their political subdivisions ...Foreign government bonds ...Corporate securities ...Commercial mortgage-backed securities...

  • Page 128
    ... Cost Method Investments ...$47 $2 Total Unrealized Fair Value Losses $82 $6 Less than twelve months Unrealized Fair Value Losses Cost Method Investments ...$43 $3 Total Unrealized Fair Value Losses $49 $3 The aggregate cost of the Company's cost method investments included in "Other long-term...

  • Page 129
    ... for sale ...Fixed maturities, held to maturity ...Commercial loans ...Other long-term investments ...Cash and cash equivalents ...Accrued investment income ...Other assets ...Total assets of consolidated VIEs ...Total liabilities of consolidated VIEs ... In addition, the Company has created a trust...

  • Page 130
    ... in "Other assets." The restricted cash and securities primarily represent funds deposited by clients and funds accruing to clients as a result of trades or contracts. 5. DEFERRED POLICY ACQUISITION COSTS The balances of and changes in deferred policy acquisition costs as of and for the years...

  • Page 131
    ... business, determined as if it were a public company and including a control premium such as would apply in the case of a sale of 100% of its common equity. However, if in connection with the "lookback" option the Company elects at the end of the "lookback" period to make payments to avoid or limit...

  • Page 132
    ...insurance operation. The indirect investment in China Pacific Group as of December 31, 2007 includes unrealized market value increases, which are included in accumulated other comprehensive income, related to China Pacific Group's initial public offering on the Shanghai Exchange in 2007. The Company...

  • Page 133
    ... 31, 2007 Impairment Acquisitions Charge Other(1) (in millions 5 - - - - - 4 - - 1 - - 1 $- $- $ 11 Balance at January 1 Individual Annuities ...Asset Management ...Retirement ...International Insurance ...International Investments ...Real Estate and Relocation Services ...Total ...$ 97 238...

  • Page 134
    ... and certain other reserves for group and individual life and health products. Future policy benefits for individual participating traditional life insurance are based on the net level premium method, calculated using the guaranteed mortality and nonforfeiture interest rates which range from 2.5% to...

  • Page 135
    ... ...Group annuities ...Guaranteed investment contracts and guaranteed interest accounts ...Funding agreements ...Interest-sensitive life contracts ...Dividend accumulations and other ...Policyholders' account balances ... Policyholders' account balances represent an accumulation of account deposits...

  • Page 136
    ... the amounts listed may not be mutually exclusive. As of December 31, 2007 and 2006, the Company had the following guarantees associated with these contracts, by product and guarantee type: December 31, 2007 In the Event of Death Variable Annuity Contracts Return of net deposits Account value ...Net...

  • Page 137
    ... Liabilities For Guarantee Benefits The table below summarizes the changes in general account liabilities for guarantees on variable contracts. The liabilities for guaranteed minimum death benefits ("GMDB") and guaranteed minimum income benefits ("GMIB") are included in "Future policy benefits" and...

  • Page 138
    ...of first withdrawal; (2) cumulative deposits when withdrawals commence, less cumulative withdrawals plus a minimum return; or (3) the highest contract value on a specified date minus any withdrawals. The income option guarantees that a contract holder can, upon the election of this benefit, withdraw...

  • Page 139
    ..., Prudential Insurance's Board of Directors acted to increase the dividends payable in 2008 on Closed Block policies. This increase reflects improved mortality as well as recent investment gains. These actions resulted in an $89 million increase in the liability for policyholder dividends recognized...

  • Page 140
    ...Other trading account assets, at fair value ...Equity securities, available for sale, at fair value ...Commercial loans ...Policy loans ...Other long-term investments ...Short-term investments ...Total investments ...Cash and cash equivalents ...Accrued investment income ...Other Closed Block assets...

  • Page 141
    ... in order to provide additional capacity for future growth, to limit the maximum net loss potential arising from large risks and in acquiring or disposing of businesses. On June 1, 2006, the Company acquired the variable annuity business of Allstate through a reinsurance transaction. The reinsurance...

  • Page 142
    ...Individual and group annuities(1) ...Life insurance ...Other reinsurance ...Total reinsurance recoverable ... (1) Primarily represents reinsurance recoverables established under the reinsurance arrangements associated with the acquisition of the retirement business of CIGNA. The Company has recorded...

  • Page 143
    ... 2.65% in 2006. On December 7, 2006, Prudential Financial issued in a private placement $2.0 billion of floating rate convertible senior notes that are convertible by the holders at any time after issuance into cash and shares of Prudential Financial's Common Stock. The conversion price, $104.21 per...

  • Page 144
    ... payments, the holder of the surplus notes may have the right to sell the surplus notes to Prudential Financial. As of December 31, 2007 and 2006, these derivative instruments had no material value. During 2007, a subsidiary of Prudential Insurance issued $500 million of 45-year floating rate...

  • Page 145
    ... the Closed Block Business and the ability of Prudential Insurance, the sole direct subsidiary of PHLLC, to dividend such funds to PHLLC. The payment of scheduled principal and interest on the Series A notes and the Series B notes is insured by a financial guarantee insurance policy. The payment of...

  • Page 146
    ...the Company distributed to policyholders as part of the demutualization. The Common Stock is traded on the New York Stock Exchange under the symbol "PRU." Also on the date of demutualization, Prudential Financial completed the sale, through a private placement, of 2.0 million shares of Class B Stock...

  • Page 147
    ..., returns of capital, interest income from its subsidiaries and cash and short-term investments. The regulated insurance and various other subsidiaries are subject to regulatory limitations on their payment of dividends and other transfers of funds to Prudential Financial. Pursuant to Gibraltar Life...

  • Page 148
    ...of operations, cash requirements, future prospects and other factors relating to the Financial Services Businesses. Furthermore, dividends on the Common Stock are limited to both the amount that is legally available for payment under New Jersey corporate law if the Financial Services Businesses were...

  • Page 149
    ... policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. Statutory net income of Prudential Insurance amounted...

  • Page 150
    ... Financial Services Businesses available to holders of Common Stock after direct equity adjustment ...Effect of dilutive securities and compensation programs Stock options ...Deferred and long-term compensation programs ...Convertible senior notes ...Diluted earnings per share Income from continuing...

  • Page 151
    ... expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following chart summarizes the compensation cost recognized and the related income tax benefit for stock options, restricted stock shares, restricted stock units, and performance share awards...

  • Page 152
    ... are employees and non-employees (i.e., statutory agents who perform services for the Company and participating subsidiaries). A summary of the status of the Company's employee and non-employee stock option grants is as follows: Employee Stock Options Weighted Average Shares Exercise Price...

  • Page 153
    PRUDENTIAL FINANCIAL, INC. Notes to Consolidated Financial Statements 15. SHARE-BASED PAYMENTS (continued) The weighted average remaining contractual term and the aggregate intrinsic value of stock options outstanding and exercisable as of December 31, 2007 is as follows: December 31, 2007 Employee...

  • Page 154
    ..., no shares of common stock were issued under the plan and no compensation cost was recorded in 2006 or 2005. Participants are employees and non-employees (i.e., statutory agents who perform services for the Company and participating subsidiaries). 152 Prudential Financial 2007 Annual Report

  • Page 155
    ... future issuance under the plan. Settlement of Awards The Company's policy is to issue shares from Common Stock held in treasury upon exercise of employee and non-employee stock options, the release of restricted stock shares, restricted stock units, and performance shares, as well as for purchases...

  • Page 156
    ... on an account balance that takes into consideration age, service and earnings during their career. The Company provides certain health care and life insurance benefits for its retired employees, their beneficiaries and covered dependents ("other postretirement benefits"). The health care plan is...

  • Page 157
    ...Annuity purchase ...Employer contributions ...Plan participants' contributions ...Contributions for settlements ...Disbursement for settlements ...Benefits paid ...Foreign currency changes ...Effect of Section 420 transfer ...Fair value of plan assets at end of period ...Funded status Funded status...

  • Page 158
    ...future annual benefit payment payable by Prudential Insurance for all annuity contracts was $26 million and $24 million as of December 31, 2007 and 2006, respectively. The benefit obligation for pension benefits increased by $4 million in 2007 related to plan amendments, as a result of the immediate...

  • Page 159
    ... (benefit) cost Service cost ...Interest cost ...Expected return on plan assets ...Amortization of transition obligation ...Amortization of prior service cost ...Amortization of actuarial (gain) loss, net ...Settlements ...Curtailments ...Contractual termination benefits ...Special termination...

  • Page 160
    ... of the expected long-term rate of return on plan assets in 2008. The expected long-term rate of return for 2008 is 7.75% and 8.00%, respectively, for the pension and postretirement plans. The Company, with respect to pension benefits, uses market related value to determine the components...

  • Page 161
    ...benchmark return on a diversified portfolio of stocks, bonds, and other investments, while meeting the cash requirements for the postretirement obligations that includes a medical benefit including prescription drugs, a dental benefit and a life benefit. Stocks are used to provide expected growth in...

  • Page 162
    ... will make cash contributions in 2008 of approximately $100 million to the pension plans and approximately $10 million to the postretirement plans. Postemployment Benefits The Company accrues postemployment benefits primarily for health and life benefits provided to former or inactive employees who...

  • Page 163
    ... ...Income tax expense (benefit) on discontinued operations ...Income tax expense (benefit) reported in stockholders' equity related to: Other comprehensive income (loss) ...Stock-based compensation programs ...Conversion of senior notes ...Cumulative effect of changes in accounting principles...

  • Page 164
    ..., earnings from its Taiwan investment management subsidiary were no longer considered permanently reinvested. A U.S. income tax benefit of $18 million associated with the assumed repatriation of those earnings was recognized in 2006. During 2007, the Company sold its investment in its German...

  • Page 165
    ... related to variable life insurance and annuity contracts. Within the table above, reconciling the Company's effective tax rate to the expected amount determined using the federal statutory rate of 35%, the dividends received deduction is the primary component of the non-taxable investment income in...

  • Page 166
    ... Company's commercial mortgage operations is based upon various factors, including the terms of the loans, the intended exit strategy for the loans based upon either a securitization pricing model or commitments from investors, prevailing interest rates, and credit risk. Policy Loans The fair value...

  • Page 167
    ...,751 8,887 9,837 66,550 66,574 64,518 64,571 29,758 29,737 23,959 24,276 1,333 1,334 903 903 Fixed maturities, held to maturity ...Commercial loans ...Policy loans ...Investment contracts ...Short-term and long-term debt ...Bank customer liabilities ... Prudential Financial 2007 Annual Report 165

  • Page 168
    ... payment for such a contract is made at a specified future date. In its mortgage operations, the Company enters into commitments to fund commercial mortgage loans at specified interest rates and other applicable terms within specified periods of time. These commitments are legally binding agreements...

  • Page 169
    ... accounts for these investments as available for sale fixed maturities containing embedded derivatives. Such embedded derivatives are marked to market through "Realized investment gains (losses), net," based upon the change in value of the underlying portfolio. The table below provides a summary...

  • Page 170
    ...: Net investment income Interest rate ...Currency(1) ...Interest credited to policyholder account balances-(increase)/decrease Interest rate ...Interest expense-(increase)/decrease Interest rate ...Realized investment gains (losses), net Interest rate ...Currency ...Other income Currency ...Other...

  • Page 171
    ... Company effects exchange-traded futures and options transactions through regulated exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of nonperformance by counterparties to such financial instruments. Prudential Financial 2007 Annual...

  • Page 172
    ... products and provides administrative services for qualified and non-qualified retirement plans and offers guaranteed investment contracts, funding agreements, institutional and retail notes, structured settlement annuities and group annuities. International Insurance and Investments Division...

  • Page 173
    ... policy acquisition costs, VOBA, unearned revenue reserves and deferred sales inducements; interest credited to policyholders' account balances; reserves for future policy benefits; payments associated with the market value adjustment features related to certain of the annuity products the Company...

  • Page 174
    ... as held to maturity, and loans where the Company's intent is to hold them to maturity, the change in value related to foreign currency fluctuations associated with the U.S. dollar interest payments is recorded in "Asset management fees and other income." Since these investments will be held until...

  • Page 175
    ... for sale securities, adjusted operating income also excludes the change in contractholder liabilities due to asset value changes in the pool of investments (including commercial loans) supporting these experience-rated contracts, which are reflected in "Interest credited to policyholders' account...

  • Page 176
    ...Income before income taxes for Financial Services Businesses by Segment: Individual Life ...Individual Annuities ...Group Insurance ...Total Insurance Division ...Asset Management ...Financial Advisory ...Retirement ...Total Investment Division ...International Insurance ...International Investments...

  • Page 177
    ...' Account Dividends to Interest Acquisition Revenues Income Benefits Balances Policyholders Expense Costs (in millions) Financial Services Businesses: Individual Life ...Individual Annuities ...Group Insurance ...Total Insurance Division ...Asset Management ...Financial Advisory ...Retirement...

  • Page 178
    ...' Account Dividends to Interest Acquisition Revenues Income Benefits Balances Policyholders Expense Costs (in millions) Financial Services Businesses: Individual Life ...Individual Annuities ...Group Insurance ...Total Insurance Division ...Asset Management ...Financial Advisory ...Retirement...

  • Page 179
    ...of Deferred Net Policyholders' Policy Investment Policyholders' Account Dividends to Interest Acquisition Revenues Income Benefits Balances Policyholders Expense Costs (in millions) Financial Services Businesses: Individual Life ...$ 2,262 Individual Annuities ...1,717 Group Insurance ...4,200 Total...

  • Page 180
    ...Retirement ...Total Investment Division ...International Insurance ...International Investments ...Total International Insurance and Investments Division ...Corporate Operations ...Real Estate and Relocation Services ...Total Corporate and Other ...Total Financial Services Businesses ...Closed Block...

  • Page 181
    ..., respectively. The following table presents, at December 31, 2007, the Company's contractual maturities on long-term debt, as more fully described in Note 12, and future minimum lease payments under non-cancelable operating leases along with associated sub-lease income: Long-term Debt 2008 ...2009...

  • Page 182
    ...AND REGULATORY MATTERS (continued) The Company arranges for credit enhancements of certain debt instruments that provide financing for commercial real estate assets, including certain tax-exempt bond financings. The credit enhancements provide assurances to the debt holders as to the timely payment...

  • Page 183
    ... of Insurance and agreed to business reforms and disclosures as to group insurance contracts insuring customers or residents in California and to pay certain costs of investigation. These matters are also the subject of litigation brought by private plaintiffs, including purported class actions that...

  • Page 184
    ... program are subject to the indemnification provisions of the acquisition agreement pursuant to which the Company purchased the American Skandia entities in May 2003 from Skandia. Securities Prudential Securities has been named as a defendant in a number of industry-wide purported class actions...

  • Page 185
    ... Association of Securities Dealers, the New York Stock Exchange, the New Jersey Bureau of Securities and the New York Attorney Generals Office. These settlements resolve the investigations by the above named authorities into these matters as to all Prudential entities without further regulatory...

  • Page 186
    ... of New Jersey, claiming that the Company failed to pay overtime to insurance agents who were registered representatives in violation of federal and state law, and that improper deductions were made from these agents' wages in violation of state law. In December 2006, these cases were transferred to...

  • Page 187
    ...in connection with businesses contributed to the retail securities brokerage joint venture with Wachovia, including an increase in the reserve for estimated settlement costs related to market timing issues involving Prudential Equity Group, LLC's former Prudential Securities operations, with respect...

  • Page 188
    ..., at fair value ...Other trading account assets, at fair value ...Equity securities, available for sale, at fair value ...Commercial loans ...Policy loans ...Securities purchased under agreements to resell ...Other long-term investments ...Short-term investments ...Total investments ...Cash and cash...

  • Page 189
    ... Services Businesses REVENUES Premiums ...Policy charges and fee income ...Net investment income ...Realized investment gains, net ...Asset management fees and other income ...Total revenues ...BENEFITS AND EXPENSES Policyholders' benefits ...Interest credited to policyholders' account balances...

  • Page 190
    ... Closed Block Business without the prior consent of the Class B Stock holders or IHC debt bond insurer. The Financial Services Businesses and Closed Block Business participate in the Company's commingled internal short-term cash management facility, pursuant to which they invest cash from securities...

  • Page 191
    ...the Closed Block policies as well as the consequences of certain potential adverse tax determinations. In connection with the sale of the Class B Stock and IHC debt, the cost of indemnifying the investors with respect to certain matters will be borne by the Financial Services Businesses. Prudential...

  • Page 192
    ... net increase to shareholders' equity of $44 million, reflecting the tax benefit associated with the conversion of the senior notes. The payment of principal and accrued interest was funded primarily through the liquidation of the investment grade fixed income investment portfolio purchased with the...

  • Page 193
    ... of the S&P 500 Life & Health Insurance and S&P 500 Diversified Financials indices. The figures presented below assume the reinvestment of all dividends into shares of common stock and an initial investment of $100 at the closing prices on December 31, 2002. ANNUAL RETURN PERCENTAGE Years Ending...

  • Page 194
    ... our assumptions related to deferred policy acquisition costs, valuation of business acquired or goodwill; (6) changes in our claims-paying or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) economic, political...

  • Page 195
    ..., Inc. Computershare Trust Company, N.A., the transfer agent for Prudential Financial, Inc., can assist registered shareholders with a variety of services, including: • Change of address • Transfer of stock • Direct deposit of dividends • Electronic delivery of annual reports and proxy...

  • Page 196