Prudential 2007 Annual Report Download - page 41

(4) Ending total account value for the institutional investment products business includes assets of Prudential’s retirement plan of $5.5 billion, $5.3 billion
and $6.4 billion as of December 31, 2007, 2006 and 2005, respectively.
(5) Transfers between the Retirement and Asset Management segments, previously presented within Withdrawals and benefits, have been reclassified to
Other for all periods presented.
(6) Other includes transfers from (to) the Asset Management segment of $185 million, $(1,475) million, and $(1,186) million for 2007, 2006, and 2005
respectively. Other also includes $(511) million for 2007 representing a transfer from Institutional 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 amounted to $112.2 billion as of December 31, 2007,
an increase of $14.8 billion from December 31, 2006. The increase in account values was driven primarily by an increase in the market
value of customer funds and $7.3 billion of account values acquired from Union Bank of California, N.A. Net additions (withdrawals)
increased $776 million, from net additions of $167 million in 2006 to net additions of $943 million in 2007, reflecting lower plan lapses,
partially offset by lower new plan sales. Net additions in 2006 included three large client sales totaling $2.7 billion, and four large plan
terminations totaling $2.7 billion primarily associated with merger and plan consolidation activity.
Account values in our institutional investment products business amounted to $51.6 billion as of December 31, 2007, an increase of
$1.3 billion from December 31, 2006, primarily reflecting interest on general account business and an increase in the market value of
customer funds, partially offset by net withdrawals of $893 million. Net additions (withdrawals) decreased $2.0 billion, from net additions
of $1.1 billion in 2006 to net withdrawals of $893 million in 2007. This decrease reflects lower additions driven by lower sales of
guaranteed investment products in the institutional markets due to unfavorable market conditions in 2007, as well as higher withdrawals
from fee-based account values.
2006 to 2005 Annual Comparison. Account values in our full service business amounted to $97.4 billion as of December 31, 2006,
an increase of $9.045 billion from December 31, 2005. The increase in account values was driven principally by an increase in the market
value of customer funds, together with the reinvestment of income. Net additions (withdrawals) improved $1.079 billion, from net
withdrawals of $912 million in 2005 to net additions of $167 million in 2006, primarily reflecting an increase in net plan sales, as an
increase in new plan sales was partially offset by an increase in plan lapses. Partially offsetting this increase were greater deposits in 2005
for existing defined benefit plans, including a significant deposit by a single client.
Account values in our institutional investment products business amounted to $50.3 billion as of December 31, 2006, an increase of
$2.189 billion from December 31, 2005, primarily reflecting interest on general account business and an increase in the market value of
customer funds. Net additions (withdrawals) improved $1.394 billion, from net withdrawals of $282 million in 2005 to net additions of
$1.112 billion in 2006, reflecting higher sales of guaranteed investment products in the institutional and retail markets.
International Insurance and Investments Division
As a U.S.-based company with significant business operations outside the U.S., we seek to mitigate the risk that future unfavorable
foreign currency exchange rate movements will reduce our U.S. dollar equivalent earnings. The operations of our International Insurance
and International Investments segments are subject to currency fluctuations that can materially affect their U.S. dollar results from period to
period even if results on a local currency basis are relatively constant. As discussed further below, we enter into forward currency
derivative contracts, as well as “dual currency” and “synthetic dual currency” investments, as part of our strategy to effectively fix the
currency exchange rates for a portion of our prospective non-U.S. dollar denominated earnings streams.
The financial results of our International Insurance segment and International Investments segment, excluding the global commodities
group, for all periods presented reflect the impact of an intercompany arrangement with Corporate and Other operations pursuant to which
the segments’ non-U.S. dollar denominated earnings in all countries are translated at fixed currency exchange rates. The fixed rates are
determined in connection with a currency income hedging program designed to mitigate the risk that unfavorable exchange rate changes
will reduce the segments’ U.S. dollar equivalent earnings. Pursuant to this program, Corporate and Other operations executes forward
currency contracts with third parties to sell the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of
these contracts correspond with the future periods in which the identified non-U.S. dollar denominated earnings are expected to be
generated. This program is primarily associated with the International Insurance segment’s businesses in Japan, Korea and Taiwan and the
International Investments segment’s businesses in Korea and Europe. The intercompany arrangement with Corporate and Other operations
increased (decreased) revenues and adjusted operating income of each segment as follows for the periods indicated:
Year ended December 31,
2007 2006 2005
(in millions)
Impact on revenues and adjusted operating income:
International Insurance ............................................................................... $88 $50 $(38)
International Investments ............................................................................. (14) (7) (6)
Total International Insurance and Investments Division ..................................................... $74 $43 $(44)
Results of Corporate and Other operations include any differences between the translation adjustments recorded by the segments and
the gains or losses recorded from the forward currency contracts. The consolidated net impact of this program recorded within the
Corporate and Other operations was a gain of $4 million, and losses of $1 million and $11 million, for the years ended December 31, 2007,
2006, and 2005, respectively.
Prudential Financial 2007 Annual Report 39