Prudential 2007 Annual Report Download - page 16

administrative fees from the distribution, servicing and management of mutual funds, retirement products and other asset management
products and services. Our operating expenses principally consist of insurance benefits provided, general business expenses, dividends to
policyholders, commissions and other costs of selling and servicing the various products we sell and interest credited on general account
liabilities.
Profitability
Our profitability depends principally on our ability to price and manage risk on insurance products, our ability to attract and retain
customer assets and our ability to manage expenses. Specific drivers of our profitability include:
• our ability to manufacture and distribute products and services and to introduce new products that gain market acceptance on a
timely basis;
• our ability to price our insurance products at a level that enables us to earn a margin over the cost of providing benefits and the
expense of acquiring customers and administering those products;
• our mortality and morbidity experience on individual and group life insurance, annuity and group disability insurance products,
which can fluctuate significantly from period to period;
• our persistency experience, which affects our ability to recover the cost of acquiring new business over the lives of the contracts;
• our cost of administering insurance contracts and providing asset management products and services;
• our returns on invested assets, net of the amounts we credit to policyholders’ accounts;
• the performance of our investment in Wachovia Securities Financial Holdings, LLC, or Wachovia Securities;
• the amount of our assets under management and changes in their fair value, which affect the amount of asset management fees we
receive;
• our ability to generate favorable investment results through asset/liability management and strategic and tactical asset allocation;
• our ability to maintain our credit and financial strength ratings; and
• our ability to manage risk and exposures.
In addition, factors such as regulation, competition, interest 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 results with our customers, which can offset the
impact of these factors on our profitability from those products.
Historically, the participating products included in the Closed Block have yielded lower returns on capital invested than many of our
other businesses. As we have ceased offering domestic participating products, we expect that the proportion of the traditional participating
products in our in force business will gradually diminish as these older policies age, and we grow other businesses. However, the relatively
lower returns to us on this existing block of business will continue to affect our consolidated results of operations for many years. Our
Common Stock reflects the performance of our Financial Services Businesses, but there can be no assurance that the market value of the
Common Stock will reflect solely the performance of these businesses.
See “Risk Factors” included in Prudential Financial’s 2007 Annual Report on Form 10-K for a discussion of risks that could
materially affect our business, results of operations or financial condition, cause the trading price of our Common Stock to decline
materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made
by or on behalf of the Company.
Executive Summary
Prudential Financial, one of the largest financial services companies in the U.S., offers individual and institutional clients a wide array
of financial products and services, including life insurance, annuities, mutual funds, pension and retirement-related services and
administration, investment management, real estate brokerage and relocation services, and, through a joint venture, retail securities
brokerage services. We offer these products and services through one of the largest distribution networks in the financial services industry.
Significant developments and events in 2007 reflect our continued efforts to redeploy capital effectively to seek enhanced returns.
These developments included:
• The continuation of our share repurchase program. In 2007, we repurchased 32.0 million shares of Common Stock at a total cost of
$3.0 billion. In November 2007, Prudential Financial’s Board of Directors authorized us, under a new stock repurchase program, to
repurchase up to $3.5 billion of our outstanding Common Stock during 2008.
• A 21% increase in our annual Common Stock dividend, to $1.15 per share.
We analyze performance of the segments and Corporate and Other operations of the Financial Services Businesses using a measure
called adjusted operating income. See “—Consolidated Results of Operations” for a definition of adjusted operating income and a
discussion of its use as a measure of segment operating performance.
14 Prudential Financial 2007 Annual Report