Prudential Financial, Inc. (PRU)

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Prudential Financial (PRU)

Q4 2011 Earnings Call

February 09, 2012 11:00 am ET

Executives

Eric Durant -

John Robert Strangfeld - Chairman, Chief Executive Officer, President and Member of Executive Committee

Richard J. Carbone - Chief Financial Officer, Executive Vice President and Chief Financial Officer of Prudential Insurance

Mark B. Grier - Executive Vice President of Financial Management

Charles Frederick Lowrey - Executive Vice President, Chief Operating Officer of US Businesses, Chief Executive Officer of Prudential Investment Management, President of Prudential Investment Management and Executive Vice President of Prudential Financial and Prudential Insurance

Edward P. Baird - Chief Operating Officer and Executive Vice President of International Businesses

Analysts

Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division

Nigel P. Dally - Morgan Stanley, Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Jay Gelb - Barclays Capital, Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Joanne A. Smith - Scotiabank Global Banking and Market, Research Division

Presentation

Operator

And thank you so much, ladies and gentlemen, for standing by. Welcome to the Fourth Quarter 2011 Prudential Financial Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to our host, Mr. Eric Durant. Please go ahead.

Eric Durant

Thank you, Karen, and thank you to all of you for joining our earnings call. But first, in our 11th year as a public company, participants on today's call include: John Strangfeld, CEO; Mark Grier, Vice Chairman; Rich Carbone, CFO; Ed Baird, Head of International Operations; Charlie Lowrey, Head of Domestic Operations; and Peter Sayre, Principal Accounting Officer. I'll read a quick commercial message and then we'll get started.

In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements and Non-GAAP Measures of our earnings press release for the fourth quarter of 2011, which can be found on our website at www.investor.prudential.com.

In addition, in managing our businesses, we use a non-GAAP measure we call adjusted operating income to measure the performance of our Financial Services businesses. Adjusted operating income excludes net investment gains and losses as adjusted and related charges and adjustments, as well as results from divested businesses. Adjusted operating income also excludes recorded changes in asset values that are expected to ultimately accrue to contract holders and recorded changes in contract holder liabilities resulting from changes in related asset values.

Our earnings press release contains information about our definition of adjusted operating income. The comparable GAAP presentation and the reconciliation between the 2 for the quarter and year ended December 31 are set out in our earnings press release on our website. Additional historical information relating to the company's financial performance is also located on our website.

John.

John Robert Strangfeld

Thank you, Eric. Good morning, everyone. Thank you for joining us. Now that we've closed the books on 2011, I will kick things off with some high-level comments on the year as a whole.

First, earnings. Earnings per share, based on after-tax adjusted operating income of the Financial Services businesses, were $6.41 compared to $6.17 a year ago. This modest improvement in EPS does not reflect our progress during the year. If you remove the market-driven and discrete items we've disclosed each quarter, which Rich and Mark will review with you for the fourth quarter, the EPS increase would be 22%.

Second, capital. Our capital position remains exceedingly strong. We are well positioned to pursue business opportunities, and we have capacity to remain strongly capitalized even in stressed environments. As for capital management, we will continue to seek acquisitions where we can realize attractive returns and are comfortable with the execution risk such as our acquisition of Star and Edison. At the same time, we take a balanced approach to investing in businesses and returning capital to shareholders. During the second half, we returned about $1.7 billion of capital to shareholders through our share repurchase program and increased dividend. We did this while maintaining a solid balance sheet and growing book value.

Third, commercial momentum. We are a leader in the markets we've chosen to compete in, and you can see strong commercial momentum reflected in our business drivers. Solid sales and flows drove underlying growth in our U.S. businesses, with headlines in Retirement and Asset Management. Prudential Retirement’s gross deposits and sales reached a record high of $44 billion, driven by strong sales in the Institutional stable value wrap market and including groundbreaking defined benefit risk transfer sales. Account values in Annuity and Retirement registered significant gains from a year earlier, and AUM and Asset Management exceeded the $600 billion mark for the first time.

As you know, we strengthened our International business with the Star and Edison acquisitions last February. Business integration is well on track, with the successful completion of the merger of Star and Edison into Gibraltar on January 1 being a major event. We remain confident that we will achieve planned expense savings on schedule.

In International Insurance, we're benefiting from expanding distribution and continued growth in the Life Insurance Protection and Retirement markets. Among our milestones in 2011 was more than $3 billion of annualized new business premiums, including the initial contribution from Star and Edison and a growing contribution from the bank channel in Japan.

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