Prudential [LOGO] Financial
Prudential Financial, Inc. (PRU)
- --------------------------------------------------------------------------------
Quarterly Financial Supplement
FINANCIAL SERVICES BUSINESSES
SECOND QUARTER 2002
- --------------------------------------------------------------------------------
Reference is made to Prudential Financial, Inc.'s filings with the Securities
and Exchange Commission for general information, and consolidated financial
information, regarding Prudential Financial, Inc., including its Closed Block
Business.
- --------------------------------------------------------------------------------
i August 6, 2002
Prudential [LOGO] Financial
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
CONTENTS
Page
--------
HIGHLIGHTS
Financial Highlights 1-2
Operations Highlights 3
FINANCIAL SERVICES BUSINESSES
Combined Statements of Operations 4
Combined Balance Sheets 5
Combining Statements of Operations by Division (Quarter) 6
Combining Statements of Operations by Division (Year-to-Date) 7
Combining Balance Sheets by Division 8
Short-Term Debt 9
Long-Term Debt 10
U.S. CONSUMER DIVISION
Combined Statements of Operations 11
Combining Statements of Operations (Quarter) 12
Combining Statements of Operations (Year-to-Date) 13
Life Insurance Sales and Retail Investments Segment Mutual Funds, Wrap-fee Products and
Annuity Sales and Assets Under Management 14
Life Insurance, Retail Investments Segment Mutual Funds, Wrap-fee Products and Annuity
Sales by Distribution Channel 15
Account Value Activity 16
Deferred Policy Acquisition Costs 17
Supplementary Information for Individual Life Insurance and Private Client Group 18
Supplementary Information for Property and Casualty Insurance 19
EMPLOYEE BENEFITS DIVISION
Combined Statements of Operations 20
Combining Statements of Operations 21
Sales Results and Assets Under Management 22
Supplementary Information 23
INTERNATIONAL DIVISION
Combined Statements of Operations 24
Combining Statements of Operations 25
Sales Results and Supplementary Information 26-27
ASSET MANAGEMENT DIVISION
Combined Statements of Operations 28
Combining Statements of Operations 29
Assets Under Management - Investment Management and Advisory Services Segment 30
INVESTMENT PORTFOLIO
Investment Portfolio Composition 31
Financial Services Businesses Investment Portfolio Composition - Japanese Insurance
Operations and Excluding Japanese Insurance Operations 32
Financial Services Businesses Investment Results 33
Financial Services Businesses Investment Results - Japanese Insurance Operations 34
Financial Services Businesses Investment Results - Excluding Japanese Insurance Operations 35
KEY DEFINITIONS AND FORMULAS 36-38
RATINGS AND INVESTOR INFORMATION 39
ii
Prudential [LOGO] Financial
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
FINANCIAL HIGHLIGHTS
(in millions, except per share data)
Year-to-date % 2001 2002
- ------------------ ------------------------------ ------------------
2002 2001 Change 2Q 3Q 4Q 1Q 2Q
- -------- -------- -------- ------- ------- ------- -------
Financial Services Businesses:
Pre-tax adjusted operating income by division:
288 276 4% U. S. Consumer Division 82 47 (13) 171 117
160 156 3% Employee Benefits Division 52 3 24 66 94
376 218 72% International Division 120 180 125 200 176
119 110 8% Asset Management Division 32 45 64 63 56
58 74 -22% Corporate and other operations 75 (19) (27) 23 35
- ------- -------- -------- ------- ------- ------- -------
1,001 834 20% Total pre-tax adjusted operating income 361 256 173 523 478
365 278 31% Income taxes (1) 101 153 68 191 174
- ------- -------- -------- ------- ------- ------- -------
Financial Services Businesses after-tax adjusted
636 556 14% operating income 260 103 105 332 304
- ------- -------- -------- ------- ------- ------- -------
Items excluded from adjusted operating income:
Realized investment gains (losses), net of
(439) 318 -238% related adjustments 75 (322) (132) (96) (343)
2 (82) 102% Divested businesses (60) (40) (25) (8) 10
- (162) 100% Demutualization costs and expenses (2) (117) (37) (389) - -
- ------- -------- -------- ------- ------- ------- -------
Total items excluded from adjusted
(437) 74 -690% operating income, before income taxes (102) (399) (546) (104) (333)
Income taxes, including mutual insurance
(159) (23) -591% company tax (92) (348) (22) (35) (124)
- ------- -------- -------- ------- ------- ------- -------
Total items excluded from adjusted
(278) 97 -387% operating income, after income taxes (10) (51) (524) (69) (209)
- ------- -------- -------- ------- ------- ------- -------
Income (loss) from continuing operations
358 653 -45% (after-tax) of Financial Services Businesses 250 52 (419) 263 95
Income from discontinued operations, net of
- - - taxes - - 16 - -
- ------- -------- -------- ------- ------- ------- -------
Net income (loss) of Financial Services
358 653 -45% Businesses 250 52 (403) 263 95
======= ======== ======== ======= ======= ======= =======
Earnings per share of Common Stock (diluted):
1.12 0.95 Adjusted operating income 0.45 0.18 0.18 0.58 0.54
0.65 1.12 Income (loss) from continuing operations 0.43 0.09 (0.72) 0.46 0.19
0.65 1.12 Net income (loss) 0.43 0.09 (0.69) 0.46 0.19
Weighted average number of outstanding Common
585.2 583.6 shares (diluted basis) 583.6 583.6 583.7 585.1 585.2
6.92% Operating Return on Average Equity (3) 7.17% 6.66%
Reconciliation to Consolidated Net Income of
Prudential Financial, Inc:
Net income (loss) of Financial Services
358 653 Businesses (above) 250 52 (403) 263 95
(273) (21) Net loss of Closed Block Business (4) (55) (332) (103) (110) (163)
- ------- -------- -------- ------- -------- ------- -------
85 632 Consolidated net income (loss) 195 (280) (506) 153 (68)
======= ======== ======== ======= ======== ======= =======
Direct equity adjustments for earnings per share
21 calculation 7 14
(1) Income taxes applicable to pre-tax adjusted operating income, which
excludes the mutual insurance company tax for periods prior to
demutualization.
(2) Demutualization costs and expenses for the quarter ended December 31,
2001, include demutualization consideration of $340 million paid to
former Canadian branch policyholders.
(3) As a result of the establishment of the Closed Block Business
concurrently with the demutualization on December 18, 2001, attributed
equity as of the end of periods prior to December 31, 2001 is not
comparable to attributed equity at that date and thereafter and,
therefore, Operating Return on Average Equity is not presented for
periods prior to 2002.
(4) Amounts shown for the Closed Block Business represent results of the
Traditional Participating Products segment for periods prior to effective
date of demutualization.
Page 1
Prudential [LOGO] Financial
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
FINANCIAL HIGHLIGHTS
(in millions, except per share data)
Year-to-date 2001 2002
- ------------------------ ----------------------------- -------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- -------- --------- --------- --------- --------- ---------
Financial Services Businesses Capitalization Data (1):
Short-term debt 9,440 9,720 5,405 6,515 4,221
Long-term debt 3,047 2,983 3,554 3,350 3,003
Equity Security Units (2) - - 690 690 690
Attributed Equity:
Including accumulated other comprehensive income 14,787 14,683 19,646 19,453 20,258
Excluding unrealized gains and losses on investments 13,822 13,433 18,803 19,034 19,144
Excluding accumulated other comprehensive income 13,960 13,581 19,083 19,289 19,321
Total Capitalization:
Including accumulated other comprehensive income 17,834 17,666 23,890 23,493 23,951
Excluding unrealized gains and losses on investments 16,869 16,416 23,047 23,074 22,837
Excluding accumulated other comprehensive income 17,007 16,564 23,327 23,329 23,014
Book value per share of Common Stock:
Including accumulated other comprehensive income 33.59 33.25 34.72
Excluding unrealized gains and losses on investments 32.15 32.53 32.81
Excluding accumulated other comprehensive income 32.63 32.97 33.12
Number of diluted shares at end of period 584.8 585.1 583.4
Common Stock Price Range:
35.75 High 33.19 32.09 35.75
30.05 Low 29.30 30.05 31.05
33.36 Close 33.19 31.05 33.36
Common Stock market capitalization (1) 19,369 18,143 19,448
(1) As of end of period.
(2) Guaranteed minority interest in Trust holding solely
debentures of Parent, as reported in combined balance
sheet.
Page 2
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
OPERATIONS HIGHLIGHTS
Year-to-date 2001 2002
- ------------- ------------------------ ----------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- ------ ------ ------- ------- ------- ------- --------
Assets Under Management and Administration ($ billions) (1) (2):
Assets Under Management :
Managed by Asset Management Division (3):
Retail customers 99.8 92.8 96.5 92.3 84.8
Institutional customers 90.7 84.9 89.1 86.2 83.5
General account (4) 109.3 110.1 113.8 111.7 116.0
------- ------- ------- ------- -------
Total managed by Asset Management Division (4) (5) 299.8 287.8 299.4 290.2 284.3
Managed by Retail Investments or Private Client Group segments:
Non-proprietary wrap-fee and other domestic assets under management 51.3 45.0 49.3 50.6 46.2
International (4) (6) 42.4 40.5 39.3 38.0 37.9
------- ------- ------- ------- -------
Total assets under management 393.5 373.3 388.0 378.8 368.4
Client assets under administration (7) 212.3 190.9 201.6 201.2 188.4
------- ------- ------- ------- -------
Total assets under management and administration 605.8 564.2 589.6 580.0 556.8
======= ======= ======= ======= =======
Distribution Representatives (1):
Prudential Agents 5,049 4,928 4,387 4,469 4,551
Financial Advisors (domestic and international) 6,497 6,366 6,159 5,859 5,504
International Life Planners 3,690 3,999 4,104 4,098 4,207
Gibraltar Life Advisors 7,230 6,596 6,121 5,726 5,525
Distribution Representative Productivity:
37 29 Prudential Agent productivity ($ thousands) 30 28 37 34 38
364 351 Financial Advisor Productivity (domestic; $ thousands) 338 316 327 367 363
Third Party Distribution ($ millions):
118 98 Individual Life Insurance sales (8) 43 123 31 25 93
1,510 2,019 Retail Investments gross sales (9) 1,525 494 546 467 1,043
(1) As of end of period.
(2) At fair market value.
(3) Reflects reclassification of amounts by client category as
of January 1, 2002, based on internal management criteria, which
reduced the amount attributed to retail customers by $3.3
billion and increased the amounts attributed to institutional
customers and the general account by $2.8 billion and $0.5
billion, respectively.
(4) Reflects, as of June 30, 2002, Asset Management division's
assumption of management of $3.5 billion of assets of
International Insurance operations which were previously
reflected in International assets.
(5) Includes assets of International Insurance operations and
International retail customer assets managed by Asset Management
division.
(6) Primarily general account assets of International Insurance
operations other than those managed by Asset Management
division.
(7) Includes International customer client assets.
(8) Statutory first year premiums and deposits for Individual
Life Insurance segment products by third-party channel.
(9) Gross sales of mutual funds, wrap-fee products, and
annuities by third party channel.
Page 3
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINED STATEMENTS OF OPERATIONS - FINANCIAL SERVICES BUSINESSES
(in millions)
Year-to-date % 2001 2002
- ------------------- ----------------------------- -------------------
2002 2001 Change 2Q 3Q 4Q 1Q 2Q
- -------- -------- -------- -------- --------- --------- -------
Revenues (1):
4,612 3,625 27% Premiums 2,014 2,241 2,361 2,278 2,334
846 875 -3% Policy charges and fee income 483 474 454 434 412
2,605 2,649 -2% Net investment income 1,352 1,288 1,302 1,249 1,356
Commissions, investment management
2,152 2,272 -5% fees, and other income 1,164 992 1,092 1,095 1,057
- -------- -------- -------- -------- --------- --------- -------
10,215 9,421 8% Total revenues 5,013 4,995 5,209 5,056 5,159
- -------- -------- -------- -------- --------- --------- -------
Benefits and Expenses (1):
4,523 3,684 23% Insurance and annuity benefits 2,073 2,279 2,296 2,206 2,317
Interest credited to policyholders'
829 804 3% account balances 422 432 434 414 415
106 208 -49% Interest expense 100 70 48 56 50
(698) (656) -6% Deferral of acquisition costs (343) (325) (344) (340) (358)
512 454 13% Amortization of acquisition costs 212 255 224 239 273
Securities operations non-interest
1,453 1,692 -14% expenses 875 771 816 722 731
2,489 2,401 4% General and administrative expenses 1,313 1,257 1,562 1,236 1,253
- -------- -------- -------- -------- --------- --------- -------
9,214 8,587 7% Total benefits and expenses 4,652 4,739 5,036 4,533 4,681
- -------- -------- -------- -------- --------- --------- -------
Adjusted operating income before
1,001 834 20% income taxes 361 256 173 523 478
- -------- -------- -------- -------- --------- ---------- -------
Items excluded from adjusted
operating income before income taxes:
Realized investment gains (losses), net of
(440) 329 -234% related adjustments 82 (326) (165) (101) (339)
1 (11) 109% Related charges (7) 4 33 5 (4)
- -------- -------- -------- -------- --------- --------- -------
Total realized investment gains
(439) 318 -238% (losses), net of related adjustments 75 (322) (132) (96) (343)
- -------- -------- -------- -------- --------- --------- -------
2 (82) 102% Divested businesses (60) (40) (25) (8) 10
- (162) 100% Demutualization costs and expenses (117) (37) (389) - -
- -------- -------- -------- -------- --------- --------- -------
Total items excluded from adjusted
(437) 74 -690% operating income before income taxes (102) (399) (546) (104) (333)
- -------- -------- -------- -------- --------- --------- -------
Income (loss) from continuing operations
564 908 -38% before income taxes 259 (143) (373) 419 145
206 255 -19% Income tax expense (benefit) 9 (195) 46 156 50
- -------- -------- -------- -------- --------- --------- -------
Income (loss) from continuing operations,
358 653 -45% after-tax 250 52 (419) 263 95
======== ======== ======== ======== ========= ========= =======
(1) Revenues exclude realized investment gains, net of losses and related
adjustments, and revenues of divested businesses. Benefits and expenses
exclude charges related to realized investment gains, net of losses,
benefits and expenses of divested businesses, and demutualization costs
and expenses.
Page 4
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINED BALANCE SHEETS - FINANCIAL SERVICES BUSINESSES
(in millions)
06/30/2001 09/30/2001 12/31/2001 03/31/2002 06/30/2002
---------- ---------- ---------- ---------- ----------
Assets:
Investments:
Fixed maturity securities available for sale, at fair value
(amortized cost $67,706; $66,031; $67,276; $69,840; $70,745) 68,768 68,018 68,880 70,687 72,700
Fixed maturity held to maturity, at amortized cost
(fair value $562; $555; $395; $373; $2,293) 538 532 374 354 2,268
Trading account assets, at fair value 5,752 5,199 5,043 6,286 6,038
Equity securities available for sale, at fair value
(cost $3,462; $2,072; $1,671; $1,620; $1,748) 3,634 2,026 1,688 1,687 1,868
Commercial loans 13,977 12,756 13,624 13,011 12,752
Policy loans 3,033 3,008 2,812 2,854 2,982
Securities purchased under agreements to resell 6,169 4,480 4,421 7,137 5,136
Cash collateral for borrowed securities 3,422 3,963 5,210 5,628 5,530
Other long-term investments 4,023 3,811 4,336 4,253 4,216
Short-term investments 2,960 2,773 2,972 3,095 2,848
--------- --------- --------- --------- ---------
Total investments 112,276 106,566 109,360 114,992 116,338
Cash and cash equivalents 11,555 13,209 16,900 10,282 8,344
Accrued investment income 975 977 1,059 1,027 1,069
Broker-dealer related receivables 8,773 9,119 7,802 7,017 7,091
Deferred policy acquisition costs 5,445 5,525 5,538 5,660 5,859
Other assets 11,500 13,798 13,488 15,692 16,213
Separate account assets 79,697 74,523 77,158 78,515 75,101
--------- --------- --------- --------- ---------
Total assets 230,221 223,717 231,305 233,185 230,015
========= ========= ========= ========= =========
Liabilities:
Future policy benefits 40,756 40,729 39,752 38,403 40,319
Policyholders' account balances 38,498 37,936 37,944 37,559 38,916
Unpaid claims and claim adjustment expenses 3,516 3,478 3,408 3,353 3,352
Securities sold under agreements to repurchase 10,262 9,479 9,280 11,704 10,557
Cash collateral for loaned securities 7,626 6,264 7,650 8,256 8,959
Income taxes payable 1,006 1,550 1,085 1,102 1,609
Broker-dealer related payables 5,206 6,571 6,445 5,581 6,076
Securities sold but not yet purchased 3,979 3,057 2,791 4,561 3,185
Short-term debt 9,440 9,720 5,405 6,515 4,221
Long-term debt 3,047 2,983 3,554 3,350 3,003
Other liabilities 12,401 12,744 16,497 14,143 13,769
Separate account liabilities 79,697 74,523 77,158 78,515 75,101
--------- --------- --------- --------- ---------
Total liabilities 215,434 209,034 210,969 213,042 209,067
--------- --------- --------- --------- ---------
Guaranteed minority interest in Trust holding solely debentures of Parent - - 690 690 690
Attributed Equity:
Accumulated other comprehensive income 827 1,102 563 164 937
Other attributed equity 13,960 13,581 19,083 19,289 19,321
--------- --------- --------- --------- ---------
Total attributed equity 14,787 14,683 19,646 19,453 20,258
--------- --------- --------- --------- ---------
Total liabilities and attributed equity 230,221 223,717 231,305 233,185 230,015
========= ========= ========= ========= =========
Page 5
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudentail [LOGO] Financial
FINANCIAL SERVICES BUSINESSES COMBINING STATEMENTS OF OPERATIONS - BY DIVISION
(in millions)
Quarter Ended June 30, 2002
-----------------------------------------------------------------------------
Total
Financial U.S. Employee Asset Corporate
Services Consumer Benefits International Management and Other
Businesses Division Division Division Division Operations
---------- -------- -------- ------------- ---------- ----------
Revenues (1):
Premiums 2,334 605 725 1,006 - (2)
Policy charges and fee income 412 308 61 49 - (6)
Net investment income 1,356 285 697 185 14 175
Commissions, investment management
fees, and other income 1,057 684 114 142 285 (168)
---------- -------- -------- ------------- ---------- ----------
Total revenues 5,159 1,882 1,597 1,382 299 (1)
---------- -------- -------- ------------- ---------- ----------
Benefits and Expenses (1):
Insurance and annuity benefits 2,317 570 917 799 - 31
Interest credited to policyholders'
account balances 415 96 295 24 - -
Interest expense 50 1 1 - 2 46
Deferral of acquisition costs (358) (222) (10) (147) - 21
Amortization of acquisition costs 273 246 8 44 - (25)
Securities operations non-interest expenses 731 542 - 119 71 (1)
General and administrative expenses 1,253 532 292 367 170 (108)
---------- -------- -------- ------------- ---------- ----------
Total benefits and expenses 4,681 1,765 1,503 1,206 243 (36)
---------- -------- -------- ------------- ---------- ----------
Adjusted operating income before income taxes 478 117 94 176 56 35
========== ======== ======== ============= ========== ==========
Quarter Ended June 30, 2001
-----------------------------------------------------------------------------
Total
Financial U.S. Employee Asset Corporate
Services Consumer Benefits International Management and Other
Businesses Division Division Division Division Operations
---------- -------- -------- ------------- ---------- ----------
Revenues (1):
Premiums 2,014 575 622 817 - -
Policy charges and fee income 483 321 55 111 - (4)
Net investment income 1,352 303 688 129 24 208
Commissions, investment management
fees, and other income 1,164 713 106 134 286 (75)
---------- -------- -------- ------------- ---------- ----------
Total revenues 5,013 1,912 1,471 1,191 310 129
---------- -------- -------- ------------- ---------- ----------
Benefits and Expenses (1):
Insurance and annuity benefits 2,073 527 835 702 - 9
Interest credited to policyholders'
account balances 422 99 304 18 - 1
Interest expense 100 3 4 2 4 87
Deferral of acquisition costs (343) (216) (7) (143) - 23
Amortization of acquisition costs 212 193 4 35 - (20)
Securities operations non-interest expenses 875 645 - 131 85 14
General and administrative expenses 1,313 579 279 326 189 (60)
---------- -------- -------- ------------- ---------- ----------
Total benefits and expenses 4,652 1,830 1,419 1,071 278 54
---------- -------- -------- ------------- ---------- ----------
Adjusted operating income before income taxes 361 82 52 120 32 75
========== ======== ======== ============= ========== ==========
(1) Revenues exclude realized investment gains, net of losses and related
adjustments, and revenues of divested businesses. Benefits and expenses
exclude charges related to realized investment gains, net of losses,
benefits and expenses of divested businesses, and demutualization costs and
expenses.
Page 6
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
FINANCIAL SERVICES BUSINESSES COMBINING STATEMENTS OF OPERATIONS - BY DIVISION
(in millions)
Six Months Ended June 30, 2002
-------------------------------------------------------------------------------------------
Total
Financial U.S. Employee Asset Corporate
Services Consumer Benefits International Management and Other
Businesses Division Division Division Division Operations
-------------- ------------- ------------- ------------- -------------- -------------
Revenues (1):
Premiums 4,612 1,163 1,427 2,022 - -
Policy charges and fee income 846 614 132 106 - (6)
Net investment income 2,605 574 1,342 349 30 310
Commissions, investment management
fees, and other income 2,152 1,372 220 291 560 (291)
-------------- ------------- ------------- ------------- -------------- -------------
Total revenues 10,215 3,723 3,121 2,768 590 13
-------------- ------------- ------------- ------------- -------------- -------------
Benefits and Expenses(1):
Insurance and annuity benefits 4,523 1,095 1,788 1,582 - 58
Interest credited to policyholders'
account balances 829 189 592 48 - -
Interest expense 106 1 2 - 4 99
Deferral of acquisition costs (698) (424) (16) (298) - 40
Amortization of acquisition costs 512 440 8 109 - (45)
Securities operations
non-interest expenses 1,453 1,081 - 233 134 5
General and administrative expenses 2,489 1,053 587 718 333 (202)
-------------- ------------- ------------- ------------- -------------- -------------
Total benefits and expenses 9,214 3,435 2,961 2,392 471 (45)
-------------- ------------- ------------- ------------- -------------- -------------
Adjusted operating income before
income taxes 1,001 288 160 376 119 58
============== ============= ============= ============= ============== =============
Six Months Ended June 30, 2001
-------------------------------------------------------------------------------------------
Total
Financial U.S. Employee Asset Corporate
Services Consumer Benefits International Management and Other
Businesses Division Division Division Division Operations
-------------- ------------- ------------- ------------- -------------- -------------
Revenues (1):
Premiums 3,625 1,120 1,232 1,271 - 2
Policy charges and fee income 875 636 108 135 - (4)
Net investment income 2,649 636 1,393 179 43 398
Commissions, investment management
fees, and other income 2,272 1,468 199 278 596 (269)
-------------- ------------- ------------- ------------- -------------- -------------
Total revenues 9,421 3,860 2,932 1,863 639 127
-------------- ------------- ------------- ------------- -------------- -------------
Benefits and Expenses (1):
Insurance and annuity benefits 3,684 983 1,646 1,039 - 16
Interest credited to policyholders'
account balances 804 202 583 19 - -
Interest expense 208 5 6 4 8 185
Deferral of acquisition costs (656) (435) (13) (257) - 49
Amortization of acquisition costs 454 415 7 73 - (41)
Securities operations
non-interest expenses 1,692 1,248 - 258 158 28
General and administrative expenses 2,401 1,166 547 509 363 (184)
-------------- ------------- ------------- ------------- -------------- -------------
Total benefits and expenses 8,587 3,584 2,776 1,645 529 53
-------------- ------------- ------------- ------------- -------------- -------------
Adjusted operating income before
income taxes 834 276 156 218 110 74
============== ============= ============= ============= ============== =============
(1) Revenues exclude realized investment gains, net of losses and related
adjustments, and revenues of divested businesses. Benefits and expenses
exclude charges related to realized investment gains, net of losses,
benefits and expenses of divested businesses, and demutualization costs and
expenses.
Page 7
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
FINANCIAL SERVICES BUSINESSES COMBINING BALANCE SHEETS - BY DIVISION
(in millions)
As of June 30, 2002
--------------------------------------------------------------------------------
Total
Financial U.S. Employee Asset Corporate
Services Consumer Benefits International Management and Other
Businesses Division Division Division Division Operations
------------ ---------- --------- ------------- ----------- ------------
Assets:
Total investments 116,338 26,251 39,557 34,795 6,696 9,039
Broker-dealer related receivables 7,091 5,385 - 1,144 266 296
Deferred policy acquisition costs 5,859 3,884 104 1,948 - (77)
Other assets 25,626 6,678 5,513 3,837 4,484 5,114
Separate account assets 75,101 25,880 29,762 501 19,585 (627)
------------ ---------- --------- ------------- ----------- ------------
Total assets 230,015 68,078 74,936 42,225 31,031 13,745
============ ========== ========= ============= =========== ============
Liabilities:
Future policy benefits 40,319 3,189 13,952 22,727 - 451
Policyholders' account balances 38,916 9,391 19,987 9,519 - 19
Debt 7,224 2,238 778 954 1,227 2,027
Other liabilities 47,507 20,372 7,526 5,589 9,488 4,532
Separate account liabilities 75,101 25,880 29,762 501 19,585 (627)
------------ --------- --------- ------------- ----------- ------------
Total liabilities 209,067 61,070 72,005 39,290 30,300 6,402
------------ --------- --------- ------------- ----------- ------------
Guaranteed minority interest in Trust
holding solely debentures of Parent 690 - - - - 690
Attributed Equity:
Accumulated other comprehensive
income (loss) 937 518 536 46 2 (165)
Other attributed equity 19,321 6,490 2,395 2,889 729 6,818
------------ --------- --------- ------------- ----------- ------------
Total attributed equity 20,258 7,008 2,931 2,935 731 6,653
------------ --------- --------- ------------- ----------- ------------
Total liabilities and attributed equity 230,015 68,078 74,936 42,225 31,031 13,745
============ ========= ========= ============= =========== ============
As of December 31, 2001
--------------------------------------------------------------------------------
Total
Financial U.S. Employee Asset Corporate
Services Consumer Benefits International Management and Other
Businesses Division Division Division Division Operations
------------ ---------- --------- ------------- ----------- ------------
Assets:
Total investments 109,360 26,065 38,279 29,841 5,462 9,713
Broker-dealer related receivables 7,802 6,103 - 1,069 318 312
Deferred policy acquisition costs 5,538 3,893 93 1,615 - (63)
Other assets 31,447 6,638 5,223 8,454 2,898 8,234
Separate account assets 77,158 28,532 29,172 422 19,679 (647)
------------ ---------- --------- ------------- ---------- ------------
Total assets 231,305 71,231 72,767 41,401 28,357 17,549
============ ========== ========= ============= ========== ============
Liabilities:
Future policy benefits 39,752 3,158 14,084 22,041 - 469
Policyholders' account balances 37,944 8,873 19,238 9,808 - 25
Debt 8,959 2,888 779 1,058 1,767 2,467
Other liabilities 47,156 20,910 6,732 5,429 5,966 8,119
Separate account liabilities 77,158 28,532 29,172 422 19,679 (647)
------------ ---------- --------- ------------- ----------- ------------
Total liabilities 210,969 64,361 70,005 38,758 27,412 10,433
------------ ---------- --------- ------------- ----------- ------------
Guaranteed minority interest in Trust
holding solely debentures of Parent 690 - - - - 690
Attributed Equity:
Accumulated other comprehensive
income (loss) 563 453 518 (171) 2 (239)
Other attributed equity 19,083 6,417 2,244 2,814 943 6,665
------------ ---------- --------- ------------- ----------- ------------
Total attributed equity 19,646 6,870 2,762 2,643 945 6,426
------------ ---------- --------- ------------- ----------- ------------
Total liabilities and attributed equity 231,305 71,231 72,767 41,401 28,357 17,549
============ ========== ========= ============= =========== ============
Page 8
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
SHORT TERM DEBT - FINANCIAL SERVICES BUSINESSES
(in millions)
As of June 30, 2002 As of December 31, 2001
------------------------------------------------------- ---------------------------------------------------
The Prudential The Prudential
Prudential Insurance Co. Other Prudential Insurance Co. Other
Financial, Inc. of America(a) Affiliates Total Financial, Inc. of America(a) Affiliates Total
--------------- -------------- ---------- --------- --------------- -------------- ---------- -------
Borrowings by use
of proceeds:
General corporate
purposes - 305 - 305 - 222 - 222
Investment related - 584 - 584 - 834 - 834
Securities business
related - 1,031 1,337 2,368 - 1,639 1,484 3,123
Specified other
businesses - 853 110 963 - 1,141 14 1,155
Limited recourse
and non-recourse
borrowing - - 1 1 - - 71 71
--------------- -------------- ---------- --------- --------------- ------------- ---------- -------
Total short-term
debt - 2,773 1,448 4,221 - 3,836 1,569 5,405
=============== ============== ========== ========== =============== ============= ========== =======
Borrowings by type:
Long-term debt
due within one
year - 651 - 651 - 753 - 753
Commercial paper - 2,061 - 2,061 - 3,022 - 3,022
Bank borrowings - - 837 837 - - 1,324 1,324
Other short-term
debt - 61 610 671 - 61 174 235
--------------- -------------- ---------- --------- --------------- ------------- ---------- -------
Total general
obligations - 2,773 1,447 4,220 - 3,836 1,498 5,334
Limited recourse
and non-recourse
borrowing - - 1 1 - - 71 71
--------------- -------------- ---------- --------- --------------- ------------- ---------- -------
Total short-term debt - 2,773 1,448 4,221 - 3,836 1,569 5,405
=============== ============== ========== ========= =============== ============= ========== =======
(a) Includes Prudential Funding, LLC.
Page 9
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
LONG TERM DEBT
(in millions)
As of June 30, 2002
-----------------------------------------------------------------------------------
Limited
General Securities Specified Total Recourse
Corporate Investment Business Other General and non- Total
Purposes Related Related Businesses Obligations Recourse Borrowing
--------- ---------- ---------- ---------- ----------- -------- ---------
Financial Services Businesses:
Prudential Financial, Inc.:
Long-term fixed and floating rate
notes - - - - - - -
Hybrid notes - - - - - - -
--------- ---------- ---------- ---------- ----------- -------- ---------
Total - - - - - - -
--------- ---------- ---------- ---------- ----------- -------- ---------
The Prudential Insurance Company of
America (a):
Surplus notes 690 - - - 690 - 690
Long-term fixed and floating rate
notes 600 768 485 - 1,853 - 1,853
Commercial paper backed by
long-term credit agreements - - - - - - -
--------- ---------- ---------- ---------- ----------- -------- ---------
Total 1,290 768 485 - 2,543 - 2,543
--------- ---------- ---------- ---------- ----------- -------- ---------
Long-term debt of other affiliated
companies - - - - - 460 460
--------- ---------- ---------- ---------- ----------- -------- ---------
Total long-term debt of Financial
Services Businesses 1,290 768 485 - 2,543 460 3,003
========= ========== ========== ========== =========== ======== =========
Ratio of long-term and short-term
corporate debt to capitalization 8.1%
=========
Closed Block Business:
Limited recourse notes of Prudential
Holdings, LLC - - - - - 1,750 1,750
========= ========== ========== ========== =========== ======== =========
As of December 31, 2001
-----------------------------------------------------------------------------------
Limited
General Securities Specified Total Recourse
Corporate Investment Business Other General and non- Total
Purposes Related Related Businesses Obligations Recourse Borrowing
--------- ---------- ---------- ---------- ----------- -------- ---------
Financial Services Businesses:
Prudential Financial, Inc.:
Long-term fixed and floating rate
notes - - - - - - -
Hybrid notes - - - - - - -
--------- ---------- ---------- ---------- ----------- -------- ---------
Total - - - - - - -
--------- ---------- ---------- ---------- ----------- -------- ---------
The Prudential Insurance Company of
America (a):
Surplus notes 989 - - - 989 - 989
Long-term fixed and floating rate
notes 1,456 586 - - 2,042 - 2,042
Commercial paper backed by
long-term credit agreements - - - - - - -
--------- ---------- ---------- ---------- ----------- -------- ---------
Total 2,445 586 - - 3,031 - 3,031
--------- ---------- ---------- ---------- ----------- -------- ---------
Long-term debt of other affiliated
companies - - - - - 523 523
--------- ---------- ---------- ---------- ----------- -------- ---------
Total long-term debt of Financial
Services Businesses 2,445 586 - - 3,031 523 3,554
========= ========== ========== ========== =========== ======== =========
Ratio of long-term and short-term
corporate debt to capitalization 12.7%
=========
Closed Block Business:
Limited recourse notes of Prudential
Holdings, LLC - - - - - 1,750 1,750
========= ========== ========== ========== =========== ======== =========
(a) Includes Prudential Funding, LLC.
Page 10
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINED STATEMENTS OF OPERATIONS - U. S. CONSUMER DIVISION
(in millions)
Year-to-date % 2001 2002
-------------------- ------------------------------ -------------------
2002 2001 Change 2Q 3Q 4Q 1Q 2Q
--------- --------- ------- -------- -------- ------- --------
Revenues (1):
1,163 1,120 4% Premiums 575 561 636 558 605
614 636 -3% Policy charges and fee income 321 305 318 306 308
574 636 -10% Net investment income 303 304 295 289 285
Commissions, investment management
1,372 1,468 -7% fees, and other income 713 689 676 688 684
-------- --------- ------- -------- -------- ------- --------
3,723 3,860 -4% Total revenues 1,912 1,859 1,925 1,841 1,882
-------- --------- ------- -------- -------- ------- --------
Benefits and Expenses (1):
1,095 983 11% Insurance and annuity benefits 527 555 605 525 570
Interest credited to policyholders'
189 202 -6% account balances 99 96 98 93 96
1 5 -80% Interest expense 3 2 - - 1
(424) (435) 3% Deferral of acquisition costs (216) (202) (201) (202) (222)
440 415 6% Amortization of acquisition costs 193 230 192 194 246
Securities operations non-interest
1,081 1,248 -13% expenses 645 577 595 539 542
1,053 1,166 -10% General and administrative expenses 579 554 649 521 532
-------- --------- ------- -------- -------- -------- --------
3,435 3,584 -4% Total benefits and expenses 1,830 1,812 1,938 1,670 1,765
-------- --------- ------- -------- -------- -------- --------
Adjusted operating income before
288 276 4% income taxes 82 47 (13) 171 117
======== ========= ======= ======== ======== ======= ========
(1) Revenues exclude realized investment gains, net of losses. Benefits and
expenses exclude charges related to realized investment gains, net of
losses.
Page 11
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINING STATEMENTS OF OPERATIONS - U. S. CONSUMER DIVISION
(in millions)
Quarter Ended June 30, 2002
----------------------------------------------------------------------------------
Retail Investments
Total U.S. Individual Property & --------------------
Consumer Life Private Retail Casualty Mutual
Division Insurance Client Group Investments Insurance Funds(2) Annuities
--------- ---------- ------------ ----------- ---------- -------- ---------
Revenues (1):
Premiums 605 65 - 21 519 - 21
Policy charges and fee income 308 252 - 56 - - 56
Net investment income 285 101 45 101 38 1 100
Commissions, investment management
fees, and other income 684 37 476 167 4 150 17
--------- ---------- ------------ ----------- ---------- -------- ---------
Total revenues 1,882 455 521 345 561 151 194
--------- ---------- ------------ ----------- ---------- -------- ---------
Benefits and Expenses (1):
Insurance and annuity benefits 570 128 - 37 405 - 37
Interest credited to policyholders'
account balances 96 36 - 60 - - 60
Interest expense 1 - - 1 - 1 -
Deferral of acquisition costs (222) (80) - (47) (95) (12) (35)
Amortization of acquisition costs 246 63 - 89 94 19 70
Securities operations non-interest expenses 542 - 542 - - - -
General and administrative expenses 532 178 8 207 139 129 78
--------- ---------- ------------ ----------- ---------- -------- ---------
Total benefits and expenses 1,765 325 550 347 543 137 210
--------- ---------- ------------ ----------- ---------- -------- ---------
Adjusted operating income before income taxes 117 130 (29) (2) 18 14 (16)
========= ========== ============ =========== ========== ======== =========
Quarter Ended June 30, 2001
----------------------------------------------------------------------------------
Retail Investments
Total U.S. Individual Property & --------------------
Consumer Life Private Retail Casualty Mutual
Division Insurance Client Group Investments Insurance Funds(2) Annuities
--------- ---------- ------------- ----------- ---------- -------- ---------
Revenues (1):
Premiums 575 96 - 13 466 - 13
Policy charges and fee income 321 256 - 65 - - 65
Net investment income 303 97 57 109 40 1 108
Commissions, investment management
fees, and other income 713 29 499 183 2 163 20
--------- ---------- ------------ ----------- ----------- -------- ---------
Total revenues 1,912 478 556 370 508 164 206
--------- ---------- ------------ ----------- ----------- -------- ---------
Benefits and Expenses(1):
Insurance and annuity benefits 527 173 - 25 329 - 25
Interest credited to policyholders'
account balances 99 34 - 65 - - 65
Interest expense 3 1 - 2 - 1 1
Deferral of acquisition costs (216) (77) - (37) (102) (13) (24)
Amortization of acquisition costs 193 55 - 40 98 19 21
Securities operations non-interest expenses 645 - 645 - - - -
General and administrative expenses 579 205 9 215 150 139 76
--------- ---------- ------------ ----------- ----------- -------- ---------
Total benefits and expenses 1,830 391 654 310 475 146 164
--------- ---------- ------------ ----------- ----------- -------- ---------
Adjusted operating income before income taxes 82 87 (98) 60 33 18 42
========= ========== ============ =========== =========== ======== =========
(1) Revenues exclude realized investment gains, net of losses. Benefits and
expenses exclude charges related to realized investment gains, net of
losses.
(2) Includes wrap-fee products and unit investment trusts.
Page 12
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINING STATEMENTS OF OPERATIONS - U. S. CONSUMER DIVISION
(in millions)
Six Months Ended June 30, 2002
----------------------------------------------------------------------------------
Retail Investments
Total U.S. Individual Property & --------------------
Consumer Life Private Retail Casualty Mutual
Division Insurance Client Group Investments Insurance Funds(2) Annuities
--------- ---------- ------------ ----------- ---------- -------- ---------
Revenues (1):
Premiums 1,163 121 - 30 1,012 - 30
Policy charges and fee income 614 502 - 112 - - 112
Net investment income 574 206 90 201 77 1 200
Commissions, investment management
fees, and other income 1,372 69 958 342 3 307 35
--------- ---------- ------------ ----------- ---------- -------- ---------
Total revenues 3,723 898 1,048 685 1,092 308 377
--------- ---------- ------------ ----------- ---------- -------- ---------
Benefits and Expenses (1):
Insurance and annuity benefits 1,095 257 - 65 773 - 65
Interest credited to policyholders'
account balances 189 69 - 120 - - 120
Interest expense 1 - - 1 - 1 -
Deferral of acquisition costs (424) (146) - (85) (193) (22) (63)
Amortization of acquisition costs 440 116 - 130 194 37 93
Securities operations non-interest expenses 1,081 - 1,081 - - - -
General and administrative expenses 1,053 355 15 405 278 257 148
--------- ---------- ------------ ----------- ---------- -------- ---------
Total benefits and expenses 3,435 651 1,096 636 1,052 273 363
--------- ---------- ------------ ----------- ---------- -------- ---------
Adjusted operating income before income taxes 288 247 (48) 49 40 35 14
========= ========== ============ =========== ========== ======== =========
Six Months Ended June 30, 2001
----------------------------------------------------------------------------------
Retail Investments
Total U.S. Individual Property & --------------------
Consumer Life Private Retail Casualty Mutual
Division Insurance Client Group Investments Insurance Funds(2) Annuities
--------- ---------- ------------- ----------- ---------- -------- ---------
Revenues (1):
Premiums 1,120 183 - 26 911 - 26
Policy charges and fee income 636 507 - 129 - - 129
Net investment income 636 196 127 230 83 2 228
Commissions, investment management
fees, and other income 1,468 59 1,035 371 3 331 40
--------- ---------- ------------ ----------- ---------- -------- ---------
Total revenues 3,860 945 1,162 756 997 333 423
--------- ---------- ------------ ----------- ---------- -------- ---------
Benefits and Expenses(1):
Insurance and annuity benefits 983 330 - 49 604 - 49
Interest credited to policyholders'
account balances 202 69 - 133 - - 133
Interest expense 5 1 - 4 - 2 2
Deferral of acquisition costs (435) (153) - (80) (202) (30) (50)
Amortization of acquisition costs 415 117 - 100 198 38 62
Securities operations non-interest expenses 1,248 - 1,248 - - - -
General and administrative expenses 1,166 415 18 429 304 280 149
--------- ---------- ------------ ----------- ---------- -------- ---------
Total benefits and expenses 3,584 779 1,266 635 904 290 345
--------- ---------- ------------ ----------- ---------- -------- ---------
Adjusted operating income before income taxes 276 166 (104) 121 93 43 78
========= ========== ============ =========== ========== ======== =========
(1) Revenues exclude realized investment gains, net of losses.
Benefits and expenses exclude charges related to realized
investment gains, net of losses.
(2) Includes wrap-fee products and unit investment trusts.
Page 13
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
U. S. CONSUMER DIVISION - LIFE INSURANCE SALES AND RETAIL INVESTMENTS SEGMENT
MUTUAL FUNDS, WRAP-FEE PRODUCTS AND ANNUITY SALES AND ASSETS UNDER
MANAGEMENT
(in millions)
Year-to-date 2001 2002
- ----------------- ------------------------------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- ------- -------- ------- -------- ------- -------
---------- ---------
INDIVIDUAL LIFE INSURANCE SALES (1):
112 123 Variable and universal life 58 51 54 55 57
86 65 Corporate-owned life insurance 28 117 17 10 76
28 21 Term life 11 11 11 13 15
- -------- -------- -------- -------- -------- ------- -------
226 209 Total 97 179 82 78 148
======== ======== ======== ======== ======== ======= =======
RETAIL INVESTMENTS SEGMENT MUTUAL FUNDS, WRAP-FEE PRODUCTS
AND ANNUITY SALES AND ASSETS UNDER MANAGEMENT:
Mutual Funds:
57,809 57,764 Beginning total mutual funds assets 58,168 59,618 56,951 57,809 56,743
2,374 3,430 Sales (other than money market) 2,106 907 936 914 1,460
(2,455) (2,305) Redemptions (other than money market) (1,103) (1,110) (1,282) (1,116) (1,339)
(2,418) (198) Reinvestment of distributions and change in market value 1,056 (3,840) 2,144 32 (2,450)
(2,851) 927 Net money market sales (609) 1,376 (940) (896) (1,955)
- -------- -------- -------- -------- -------- ------- -------
52,459 59,618 Ending total mutual funds assets 59,618 56,951 57,809 56,743 52,459
======== ======== ======== ======== ======== ======= =======
(81) 1,125 Net Mutual Funds sales (redemptions) other than money market 1,003 (203) (346) (202) 121
======== ======== ======== ======== ======== ======= =======
Wrap-fee Products:
17,955 19,621 Beginning total wrap-fee product assets 17,335 18,714 16,141 17,955 18,192
3,543 4,263 Sales 1,968 1,626 1,563 1,667 1,876
(2,979) (3,256) Redemptions (1,378) (1,462) (1,342) (1,361) (1,618)
(1,843) (1,914) Reinvestment of distributions and change in market value 789 (2,737) 1,593 (69) (1,774)
- -------- -------- -------- -------- -------- ------- -------
16,676 18,714 Ending total wrap-fee product assets 18,714 16,141 17,955 18,192 16,676
924 1,420 Unit investment trust assets at end of period 1,420 1,168 1,157 1,056 924
- -------- -------- -------- -------- -------- ------- -------
17,600 20,134 Total wrap-fee and unit investment trust assets at end of period 20,134 17,309 19,112 19,248 17,600
======== ======== ======== ======== ======== ======= =======
564 1,007 Net wrap-fee product sales 590 164 221 306 258
======== ======== ======== ======== ======== ======= =======
Variable Annuities:
18,689 21,059 Beginning total account value 19,118 19,523 17,190 18,689 18,435
780 667 Sales 328 274 330 374 406
(1,224) (1,256) Surrenders, withdrawals and exchange redemptions (591) (552) (548) (597) (627)
(1,443) (947) Change in market value, interest credited, and other activity (2) 668 (2,055) 1,717 (31) (1,412)
- -------- -------- -------- -------- -------- ------- --------
16,802 19,523 Ending total account value 19,523 17,190 18,689 18,435 16,802
======== ======== ======== ======== ======== ======= ========
(444) (589) Net redemptions (263) (278) (218) (223) (221)
======== ======== ======== ======== ======== ======= ========
Fixed Annuities:
2,975 2,926 Beginning total account value 2,889 2,872 2,865 2,975 2,909
218 57 Sales 27 32 31 37 181
(95) (124) Surrenders, withdrawals and exchange redemptions (55) (48) (44) (50) (45)
(50) 13 Interest credited and other activity (2) 11 9 123 (53) 3
- -------- -------- -------- -------- -------- ------- --------
3,048 2,872 Ending account value 2,872 2,865 2,975 2,909 3,048
======== ======== ======== ======== ======== ======= ========
123 (67) Net sales (redemptions) (28) (16) (13) (13) 136
======== ======== ======== ======== ======== ======= ========
---------- ---------
(1) Statutory first year premiums and deposits.
(2) The quarter ended March 31, 2002 includes decreases in policyholder account
balances of $45 million for variable annuities and $56 million for fixed
annuities due to the distribution of policy credits, subsequently paid out
in cash, as demutualization consideration in connection with the Company's
demutualization. The quarter ended December 31, 2001 includes increases in
policyholder account values of $429 million for variable annuities and $157
million for fixed annuities as a result of policyholder credits issued in
connection with the Company's demutualization, as well as a decrease in
policyholder account values of $50 million in fixed annuities transferred
to the Closed Block Business upon its establishment.
Page 14
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
U. S. CONSUMER DIVISION - LIFE INSURANCE, RETAIL INVESTMENTS SEGMENT MUTUAL
FUNDS, WRAP-FEE PRODUCTS, AND ANNUITY SALES BY DISTRIBUTION CHANNEL
(in millions)
Year-to-date 2001 2002
- ------------------------- ------------------------ --------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- ----------- ------------ ------ ------ ------ ------ --------
-------- --------
INDIVIDUAL LIFE INSURANCE SALES(1) BY
DISTRIBUTION CHANNEL
108 111 Prudential Agents 54 56 51 53 55
118 98 Third party distribution 43 123 31 25 93
- ----------- ------------ ------ ------ ----- ------ -------
226 209 Total 97 179 82 78 148
=========== ============ ====== ====== ====== ====== =======
RETAIL INVESTMENTS SEGMENT MUTUAL FUNDS, WRAP-FEE
PRODUCTS AND ANNUITY SALES BY DISTRIBUTION CHANNEL
Mutual funds, excluding wrap-fee products (2):
---------------------------------------------
314 432 Prudential Agents 199 161 150 156 158
746 1,004 Financial Advisors 429 298 300 339 407
1,277 1,915 Third-party distributors 1,470 457 479 387 890
37 79 Other 8 (9) 7 32 5
- ----------- ------------ ------ ------ ----- ------ -------
2,374 3,430 Total 2,106 907 936 914 1,460
=========== ============ ====== ====== ===== ====== =======
Wrap-fee products:
------------------
247 219 Prudential Agents 110 104 101 115 132
3,098 3,945 Financial Advisors 1,807 1,488 1,404 1,483 1,615
198 99 Third-party distributors 51 34 58 69 129
- ----------- ------------ ------ ------ ----- ------ -------
3,543 4,263 Total 1,968 1,626 1,563 1,667 1,876
=========== ============ ====== ====== ===== ====== ======
Variable and Fixed Annuities:
-----------------------------
742 589 Prudential Agents 293 257 298 337 405
221 130 Financial Advisors 58 46 54 63 158
35 5 Third-party distributors 4 3 9 11 24
- ----------- ------------ ------ ------ ----- ------ -------
998 724 Total 355 306 361 411 587
=========== ============ ====== ====== ===== ====== ======
--------- ---------
(1) Statutory first year premiums and deposits.
(2) Other than money market.
Page 15
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
U. S. CONSUMER DIVISION - ACCOUNT VALUE ACTIVITY
(in millions)
Year-to-date 2001 2002
- ---------------- ------------------------ --------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- ------- ------- -------- ------- ------- ------
INDIVIDUAL LIFE INSURANCE:
Policyholders' Account Balances:
3,826 3,526 Beginning balance 3,578 3,628 3,664 3,826 3,924
453 372 Premiums and deposits 181 194 206 227 226
43 45 Interest credited 21 20 25 20 23
(273) (346) Surrenders and withdrawals (174) (159) (201) (135) (138)
28 58 Net transfers from separate account 26 24 7 14 14
(38) (28) Policy charges (14) (17) (14) (16) (22)
(47) 1 Benefits and other 10 (26) 139 (12) (35)
- -------- ------- ------- -------- ------- ------- -------
3,992 3,628 Ending balance 3,628 3,664 3,826 3,924 3,992
======== ======= ======= ======== ======= ======= =======
Separate Account Liabilities:
13,010 13,892 Beginning balance 12,849 13,391 12,021 13,010 13,129
864 864 Premiums and deposits 417 491 419 396 468
(986) (528) Change in market value and interest credited 531 (1,418) 1,031 111 (1,097)
(256) (351) Surrenders and withdrawals (179) (117) (209) (124) (132)
(75) (1) Net transfers (to) from general account 19 (96) (10) (38) (37)
(418) (431) Policy charges (215) (210) (223) (211) (207)
(22) (54) Benefits and other (31) (20) (19) (15) (7)
- -------- ------- ------- -------- ------- ------- -------
12,117 13,391 Ending balance 13,391 12,021 13,010 13,129 12,117
======== ======= ======= ======== ======= ======= =======
INDIVIDUAL ANNUITIES:
Account Values in General Account:
6,152 5,677 Beginning balance 5,624 5,587 5,566 6,152 5,825
998 724 Premiums and deposits 355 306 361 411 587
143 157 Interest credited 79 76 77 72 71
(1,319) (1,380) Surrenders and withdrawals (646) (600) (592) (647) (672)
314 518 Net transfers (to) from separate account (1) 235 240 243 (7) 321
(3) (2) Policy charges (1) (1) (2) (1) (2)
(192) (107) Benefits and other (2) (59) (42) 499 (155) (37)
- -------- ------- ------- -------- ------- ------- -------
6,093 5,587 Ending balance 5,587 5,566 6,152 5,825 6,093
======== ======= ======= ======== ======= ======= =======
Account Values in Separate Account:
15,512 18,308 Beginning balance 16,383 16,808 14,489 15,512 15,519
398 511 Premiums and deposits 246 206 188 183 215
(1,341) (867) Change in market value and interest credited 717 (2,027) 1,316 51 (1,392)
(1,057) (1,105) Surrenders and withdrawals (536) (481) (478) (514) (543)
345 76 Net transfers from general account (1) 55 35 47 338 7
(100) (115) Policy charges (57) (52) (50) (51) (49)
- - Benefits and other - - - - -
- -------- ------- ------- -------- ------- ------- -------
13,757 16,808 Ending balance 16,808 14,489 15,512 15,519 13,757
======== ======= ======= ======== ======= ======= =======
(1) The quarter ended March 31, 2002 includes $314 million of policyholder
credits, issued in connection with the Company's demutualization, applied to
customer account balances held in the separate account.
(2) The quarter ended March 31, 2002 includes a decrease in policyholder account
balances of $101 million due to the distribution of policy credits, subsequently
paid out in cash, as demutualization consideration in connection with the
Company's demutualization. The quarter ended December 31, 2001 includes an
increase in policyholder account values of $586 million as a result of
policyholder credits issued in connection with the Company's demutualization, as
well as a decrease in policyholder account values of $50 million transferred to
the Closed Block Business upon its establishment.
Page 16
Prudential Financial, Inc.
Quarterly Financial Supplement Prudential [LOGO] Financial
Second Quarter 2002
U. S. CONSUMER DIVISION - DEFERRED POLICY ACQUISITION COSTS
(in millions)
Year-to-date 2001 2002
- ---------------- ------------------------------------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- ---------------- ------------------------------------------------
INDIVIDUAL LIFE INSURANCE:
3,133 3,090 Beginning balance 3,088 3,117 3,115 3,133 3,160
146 153 Capitalization 77 74 74 66 80
(116) (117) Amortization - operating results (55) (60) (55) (53) (63)
- - Amortization - realized investment gains and losses - - - - -
(8) (9) Impact of unrealized (gains) or losses on AFS securities 7 (16) (1) 14 (22)
- ------- ------- ------- ------- -------- -------- ---------
3,155 3,117 Ending balance 3,117 3,115 3,133 3,160 3,155
======= ======= ======= ======= ======== ======== =========
INDIVIDUAL ANNUITIES:
628 682 Beginning balance 648 655 612 628 654
63 50 Capitalization 24 24 25 28 35
(93) (62) Amortization - operating results (21) (51) (21) (23) (70)
2 (3) Amortization - realized investment gains and losses (2) 2 15 1 1
(2) (12) Impact of unrealized (gains) or losses on AFS securities 6 (18) (3) 20 (22)
- ------- ------- ------- ------- -------- -------- ---------
598 655 Ending balance 655 612 628 654 598
======= ======= ======= ======= ======== ======== =========
PROPERTY & CASUALTY INSURANCE:
132 137 Beginning balance 137 141 137 132 130
193 202 Capitalization 102 95 93 98 95
(194) (198) Amortization - operating results (98) (99) (98) (100) (94)
- - Amortization - realized investment gains and losses - - - - -
- - Impact of unrealized losses on AFS securities - - - - -
- ------- ------- ------- ------- -------- -------- ---------
131 141 Ending balance 141 137 132 130 131
======= ======= ======= ======= ======== ======== =========
TOTAL U. S. CONSUMER DIVISION:
3,893 3,909 Beginning balance 3,873 3,913 3,864 3,893 3,944
402 405 Capitalization 203 193 192 192 210
(403) (377) Amortization - operating results (174) (210) (174) (176) (227)
2 (3) Amortization - realized investment gains and losses (2) 2 15 1 1
(10) (21) Impact of unrealized (gains) or losses on AFS securities 13 (34) (4) 34 (44)
- ------- ------- ------- ------- -------- -------- ---------
3,884 3,913 Ending balance 3,913 3,864 3,893 3,944 3,884
======= ======= ======= ======= ======== ======== =========
Page 17
Prudential Financial, Inc.
Quarterly Financial Supplement Prudential [LOGO] Financial
Second Quarter 2002
U. S. CONSUMER DIVISION - SUPPLEMENTARY INFORMATION FOR INDIVIDUAL LIFE
INSURANCE AND PRIVATE CLIENT GROUP
(dollar amounts in millions)
Year-to-date 2001 2002
- ----------------- ------------------------------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- -------- ------- ------- ------- ------- -------
Individual Life Insurance:
Policy Surrender Experience:
310 329 Cash value of surrenders 149 132 176 162 148
Cash value of surrenders as a percentage of mean future
policy benefits, policyholders' account balances,
3.8% 3.8% and separate account balances 3.5% 3.2% 4.4% 3.9% 3.6%
Death claims per $1,000 of in-force: (1)
2.06 1.94 Variable and universal life 1.65 2.53 2.01 2.06 2.06
1.49 1.16 Term life 1.25 2.78 0.86 1.43 1.56
1.90 1.72 Total, Individual Life Insurance Segment 1.55 2.61 1.65 1.87 1.94
Year-to-date 2001 2002
- ----------------- ------------------------------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- -------- ------- ------- ------- ------- -------
Private Client Group:
Non-Interest Revenues:
534 616 Commissions 296 252 287 270 264
356 350 Fees 168 178 156 177 179
68 69 Other non-interest revenues 35 37 28 35 33
- -------- -------- ------- ------- ------- ------- -------
958 1,035 Total non-interest revenues 499 467 471 482 476
======== ======== ======= ======= ======= ======= =======
Recurring revenue as a percentage of total non-interest
revenue (2) 34.4% 35.5% 34.8% 35.5% 36.5%
3,180 4,800 Average customer margin lending balances 4,376 4,200 3,470 3,262 3,100
(1) Annualized, for interim reporting periods.
(2) Calculated on a trailing 12 month basis excluding Consumer Banking revenue.
Page 18
Prudential Financial, Inc.
Quarterly Financial Supplement Prudential [LOGO] Financial
Second Quarter 2002
U. S. CONSUMER DIVISION - SUPPLEMENTARY INFORMATION FOR PROPERTY AND CASUALTY
INSURANCE
(dollar amounts in millions)
Year-to-date 2001 2002
- ----------------- -----------------------------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- -------- ------- ------- ------- ------- ------
Earned premium:
766 674 Automobile 346 356 373 372 394
229 221 Homeowners' 112 113 114 113 116
17 16 Other 8 9 8 8 9
- -------- -------- -------- ------- ------- ------- -------
1,012 911 Total earned premium 466 478 495 493 519
======== ======== ======== ======= ======= ======= =======
Loss ratio(1)(2):
75.4% 65.8% Automobile 74.1% 69.1% 81.0% 75.8% 75.1%
80.0% 69.8% Homeowners' 60.2% 97.3% 69.0% 72.1% 87.8%
76.6% 66.3% Overall 70.5% 75.6% 74.5% 74.8% 78.3%
Expense ratio(1) (3):
27.9% 31.6% Automobile 31.2% 30.3% 29.5% 28.5% 27.2%
33.3% 38.4% Homeowners' 34.8% 34.3% 35.9% 35.3% 31.7%
29.0% 33.1% Overall 32.0% 31.3% 31.0% 29.8% 28.2%
Combined ratio(4):
103.3% 97.4% Automobile 105.3% 99.4% 110.5% 104.3% 102.3%
113.3% 108.2% Homeowners' 95.0% 131.6% 104.9% 107.4% 119.5%
105.6% 99.4% Overall 102.5% 106.9% 105.5% 104.6% 106.5%
12.2 25.0 Current accident year catastrophe losses (5) 24.0 12.8 4.2 4.2 8.0
1.2% 2.7% Effect of current accident year catastrophic losses on combined ratio 5.1% 2.7% 0.9% 0.9% 1.5%
Accident year combined ratio (6) 109.1% 106.9% 107.0% 105.0% 107.1%
(1) Based on statutory data.
(2) Represents ratio of incurred losses and loss adjustment expenses to net
earned premium.
(3) Represents ratio of operating expenses to net written premium.
(4) Represents the sum of loss ratio and expense ratio above.
(5) Represents losses and loss adjustment expenses attributable to catastrophes
that are included in the combined ratio. We classify catastrophes as those
events that are declared catastrophes by Property Claims Services, which is
an industry organization that declares and tracks all property-related
catastrophes causing insured property damage in the United States.
(6) Accident year combined ratios for annual periods reflect the combined ratios
for accidents that occur in the indicated calendar year, restated to reflect
subsequent changes in loss estimates for those claims based on cumulative
loss data through the most recent balance sheet date. Accident year combined
ratios for interim periods reflect the combined ratios for policies written
in those periods, based on cumulative loss data through the respective
balance sheet date of the indicated year. These ratios reflect any
recoveries from stop-loss reinsurance contracts during the indicated
periods.
Page 19
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINED STATEMENTS OF OPERATIONS - EMPLOYEE BENEFITS DIVISION
(in millions)
Year-to-date % 2001 2002
- ---------------- ---------------------- -------------
2002 2001 Change 2Q 3Q 4Q 1Q 2Q
- ------ -------- ------ ------ ------ ----- ------
Revenues (1):
--------- --------
1,427 1,232 16% Premiums 622 650 650 702 725
132 108 22% Policy charges and fee income 55 68 68 71 61
1,342 1,393 -4% Net investment income 688 671 664 645 697
220 199 11% Commissions, investment management fees, and other income 106 110 99 106 114
- ------ ------ ------ ------ ------ ----- -----
3,121 2,932 6% Total revenues 1,471 1,499 1,481 1,524 1,597
- ------ ------ ------ ------ ------ ----- -----
Benefits and Expenses (1):
1,788 1,646 9% Insurance and annuity benefits 835 919 838 871 917
592 583 2% Interest credited to policyholders' account balances 304 307 311 297 295
2 6 -67% Interest expense 4 3 2 1 1
(16) (13) -23% Deferral of acquisition costs (7) (7) (10) (6) (10)
8 7 14% Amortization of acquisition costs 4 2 5 - 8
587 547 7% General and administrative expenses 279 272 311 295 292
- ------ ------ ------ ------ ------ ----- -----
2,961 2,776 7% Total benefits and expenses 1,419 1,496 1,457 1,458 1,503
- ------ ------ ------ ------ ------ ----- -----
160 156 3% Adjusted operating income before income taxes 52 3 24 66 94
====== ====== ====== ====== ====== ===== =====
--------- --------
(1) Revenues exclude realized investment gains, net of losses. Benefits and
expenses exclude charges related to realized investment gains, net of
losses.
Page 20
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINING STATEMENTS OF OPERATIONS - EMPLOYEE BENEFITS DIVISION
(in millions)
Six Months Ended June 30, 2002 Quarter Ended June 30, 2002
---------------------------------- -------------------------------------
Total Total
Employee Other Employee Other
Benefits Group Employee Benefits Group Employee
Division Insurance Benefits Division Insurance Benefits
---------- ----------- ---------- ---------- ------------- ------------
Revenues (1):
Premiums 1,427 1,398 29 725 704 21
Policy charges and fee income 132 94 38 61 42 19
Net investment income 1,342 283 1,059 697 147 550
Commissions, investment management fees, and other income 220 14 206 114 6 108
-------- -------- ------- -------- -------- -------
Total revenues 3,121 1,789 1,332 1,597 899 698
-------- -------- ------- -------- -------- -------
Benefits and Expenses (1):
Insurance and annuity benefits 1,788 1,360 428 917 686 231
Interest credited to policyholders' account balances 592 111 481 295 57 238
Interest expense 2 (1) 3 1 (1) 2
Deferral of acquisition costs (16) (10) (6) (10) (8) (2)
Amortization of acquisition costs 8 (3) 11 8 - 8
General and administrative expenses 587 259 328 292 129 163
-------- -------- ------- -------- -------- -------
Total benefits and expenses 2,961 1,716 1,245 1,503 863 640
-------- -------- ------- -------- -------- -------
Adjusted operating income before income taxes 160 73 87 94 36 58
======== ======== ======= ======== ======== =======
Six Months Ended June 30, 2001 Quarter Ended June 30, 2001
---------------------------------- -------------------------------------
Total Total
Employee Other Employee Other
Benefits Group Employee Benefits Group Employee
Division Insurance Benefits Division Insurance Benefits
---------- ----------- ---------- ---------- ------------- ------------
Revenues (1):
Premiums 1,232 1,211 21 622 619 3
Policy charges and fee income 108 69 39 55 35 20
Net investment income 1,393 273 1,120 688 137 551
Commissions, investment management fees, and other income 199 11 188 106 5 101
-------- -------- ------- -------- -------- -------
Total revenues 2,932 1,564 1,368 1,471 796 675
-------- -------- ------- -------- -------- -------
Benefits and Expenses (1):
Insurance and annuity benefits 1,646 1,184 462 835 622 213
Interest credited to policyholders' account balances 583 106 477 304 53 251
Interest expense 6 (1) 7 4 2 2
Deferral of acquisition costs (13) (7) (6) (7) (4) (3)
Amortization of acquisition costs 7 1 6 4 1 3
General and administrative expenses 547 225 322 279 113 166
-------- -------- ------- -------- -------- -------
Total benefits and expenses 2,776 1,508 1,268 1,419 787 632
-------- -------- ------- -------- -------- -------
Adjusted operating income before income taxes 156 56 100 52 9 43
======== ======== ======= ======== ======== =======
(1) Revenues exclude realized investment gains, net of losses. Benefits and
expenses exclude charges related to realized investment gains, net of
losses.
Page 21
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
EMPLOYEE BENEFITS DIVISION - SALES RESULTS AND ASSETS UNDER MANAGEMENT
(in millions)
Year-to-date 2001 2002
- ---------------- ---------------------------- -----------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- ------- ------- --------- -------- ------- ------- --------
--------- --------
GROUP INSURANCE NEW ANNUALIZED PREMIUMS: (1)
189 321 Group life 33 64 50 162 27
86 89 Group disability (2) 20 33 17 53 33
- ------- ------- --------- -------- ------- ------- --------
275 410 Total 53 97 67 215 60
======= ======= ========= ======== ======= ======= ========
OTHER EMPLOYEE BENEFITS - SALES AND
ASSETS UNDER MANAGEMENT:
Defined Contribution:
24,640 26,046 Beginning total account value 24,473 25,319 22,710 24,640 25,337
1,914 2,178 Sales 923 729 782 1,010 904
(1,572) (2,056) Withdrawals (1,021) (728) (638) (817) (755)
(946) (849) Change in market value and interest credited (3) 944 (2,610) 1,786 504 (1,450)
- ------- ------- --------- -------- ------- ------- --------
24,036 25,319 Ending total account value 25,319 22,710 24,640 25,337 24,036
======= ======= ========= ======== ======= ======= ========
342 122 Net sales (withdrawals) (98) 1 144 193 149
======= ======= ========= ======== ======= ======= ========
Asset management of ending total account value:
Proprietary 18,287 16,501 17,665 18,107 17,075
Non-proprietary 7,032 6,209 6,975 7,230 6,961
--------- -------- ------- ------- --------
Total 25,319 22,710 24,640 25,337 24,036
========= ======== ======= ======= ========
Guaranteed Products:
39,825 41,577 Beginning total account value 40,461 39,920 39,008 39,825 39,400
765 1,581 Sales 1,181 285 433 259 506
(1,857) (2,446) Withdrawals and benefits (877) (1,123) (803) (864) (993)
750 972 Change in market value and interest income 646 388 838 355 395
(311) (1,764) Other (4) (1,491) (462) 349 (175) (136)
- ------- ------- --------- -------- ------- ------- --------
39,172 39,920 Ending total account value 39,920 39,008 39,825 39,400 39,172
======= ======= ========= ======== ======= ======= ========
(1,092) (865) Net sales (withdrawals) 304 (838) (370) (605) (487)
======= ====== ========= ======== ======= ======= ========
Product composition of ending total account value:
Spread-lending products 19,020 18,841 18,887 18,915 18,869
Fee-based products 20,900 20,167 20,938 20,485 20,303
--------- -------- ------- ------- --------
Total 39,920 39,008 39,825 39,400 39,172
========= ======== ======= ======= ========
--------- --------
(1) Sales results for periods prior to 2002 give effect to quarterly allocation
consistent with our current reporting practices.
(2) Includes long-term care products.
(3) Includes increases to account values of $348 million in the six months
ended June 30, 2002, $247 million in the quarter ended June 30, 2002 and
$101 million in the quarter ended March 31, 2002, added to customer
accounts due to common stock received as demutualization consideration. The
quarter ended March 31, 2002 also includes $448 million added to customer
accounts from inclusion of amounts not previously reflected in this
segment. The quarter ended December 31, 2001 includes an increase in
account values of $433 million as a result of policyholder credits issued
in connection with the Company's demutualization.
(4) Represents changes in asset balances for externally managed accounts. In
addition, the quarter ended December 31, 2001 includes an increase in
account values of $181 million representing cumulative conversions of
client account balances to products currently included in this division as
well as $2 million of policyholder credits issued in connection with the
Company's demutualization.
Page 22
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
EMPLOYEE BENEFITS DIVISION - SUPPLEMENTARY INFORMATION
(dollar amounts in millions)
2001 2002
-------------------------- ----------------
2Q 3Q 4Q 1Q 2Q
-------- ------- ------- ------- -------
----------- ----------
Future Policy Benefits (1):
Group life 1,452 1,623 1,664 1,617 1,609
Group disability (2) 101 98 103 137 138
Other employee benefits 12,446 12,498 12,317 12,224 12,205
-------- ------- ------- ------- -------
Total 13,999 14,219 14,084 13,978 13,952
======== ======= ======= ======= =======
Policyholder Account Balances (1):
Group life 3,664 3,764 3,805 3,928 4,238
Group disability (2) 41 57 61 58 63
Other employee benefits 15,305 15,208 15,372 15,552 15,686
-------- ------- ------- ------- -------
Total 19,010 19,029 19,238 19,538 19,987
======== ======= ======= ======= =======
Separate Account Liabilities (1):
Group life 7,156 7,246 7,634 8,097 7,745
Group disability (2) - - - - -
Other employee benefits 22,808 22,189 21,538 22,366 22,017
-------- ------- ------- ------- -------
Total separate account 29,964 29,435 29,172 30,463 29,762
======== ======= ======= ======= =======
Group Life Insurance:
Gross premiums, policy charges and fee income (3) 596 637 641 667 664
Earned premiums, policy charges and fee income 529 579 551 603 600
Benefits ratio 94.7% 96.6% 88.6% 91.8% 92.8%
Administrative operating expense ratio 9.7% 8.8% 11.2% 10.0% 10.2%
Persistency ratio 98.7% 97.9% 97.4% 97.2% 96.1%
Group Disability Insurance (2):
Gross premiums, policy charges and fee income (3) 131 141 142 150 149
Earned premiums, policy charges and fee income 125 129 137 143 146
Benefits ratio 97.8% 99.2% 94.9% 84.6% 87.7%
Administrative operating expense ratio 25.2% 22.0% 25.4% 22.7% 22.8%
Persistency ratio 91.3% 89.4% 88.8% 94.7% 93.0%
----------- ----------
(1) As of end of period.
(2) Group disability amounts include long-term care products.
(3) Before returns of premiums to participating policyholders for favorable
claims experience.
Page 23
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINED STATEMENTS OF OPERATIONS - INTERNATIONAL DIVISION
(in millions)
Year-to-date % 2001 2002
- ---------------- ----------------------- --------------
2002 2001 Change 2Q 3Q 4Q 1Q 2Q
- ------- ------- ------- ------- ------ ------ -------
Revenues (1):
--------- ---------
2,022 1,271 59% Premiums 817 1,020 1,046 1,016 1,006
106 135 -21% Policy charges and fee income 111 102 70 57 49
349 179 95% Net investment income 129 170 162 164 185
291 278 5% Commissions, investment management fees, and other income 134 118 143 149 142
- ------- ------- ------- ------- ------ ------ -------
2,768 1,863 49% Total revenues 1,191 1,410 1,421 1,386 1,382
- ------- ------- ------- ------- ------ ------ -------
Benefits and Expenses (1):
1,582 1,039 52% Insurance and annuity benefits 702 794 841 783 799
48 19 153% Interest credited to policyholders' account balances 18 28 25 24 24
- 4 -100% Interest expense 2 2 (2) - -
(298) (257) -16% Deferral of acquisition costs (143) (133) (149) (151) (147)
109 73 49% Amortization of acquisition costs 35 44 47 65 44
233 258 -10% Securities operations non-interest expenses 131 125 147 114 119
718 509 41% General and administrative expenses 326 370 387 351 367
- ------- ------- ------- ------- ------ ------ -------
2,392 1,645 45% Total benefits and expenses 1,071 1,230 1,296 1,186 1,206
- ------- ------- ------- ------- ------ ------ -------
376 218 72% Adjusted operating income before income taxes 120 180 125 200 176
======= ======= ======= ======= ====== ====== =======
--------- ---------
(1) Revenues exclude realized investment gains, net of losses. Benefits and
expenses exclude charges related to realized investment gains, net of
losses.
Page 24
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
COMBINING STATEMENTS OF OPERATIONS - INTERNATIONAL DIVISION
(in millions)
Six Months Ended June 30, 2002
--------------------------------------------------------------------
International
Total Insurance International International
International excl. Gibraltar Insurance- Securities and
Division Life Gibraltar Life(2) Investments
------------- --------------- ----------------- --------------
Revenues (1):
Premiums 2,022 981 1,041 -
Policy charges and fee income 106 50 56 -
Net investment income 349 86 235 28
Commissions, investment management
fees, and other income 291 14 34 243
------------- --------------- ----------------- --------------
Total revenues 2,768 1,131 1,366 271
------------- --------------- ----------------- --------------
Benefits and Expenses (1):
Insurance and annuity benefits 1,582 730 852 -
Interest credited to policyholders'
account balances 48 3 45 -
Interest expense - 2 (2) -
Deferral of acquisition costs (298) (224) (74) -
Amortization of acquisition costs 109 100 9 -
Securities operations non-interest
expenses 233 - - 233
General and administrative expenses 718 334 331 53
------------- --------------- ----------------- --------------
Total benefits and expenses 2,392 945 1,161 286
------------- --------------- ----------------- --------------
Adjusted operating income before income
taxes 376 186 205 (15)
============= =============== ================= ==============
Quarter Ended June 30, 2002
--------------------------------------------------------------------
International
Total Insurance International International
International excl. Gibraltar Insurance- Securities and
Division Life Gibraltar Life(2) Investments
------------- --------------- ----------------- --------------
Revenues (1):
Premiums 1,006 495 511 -
Policy charges and fee income 49 21 28 -
Net investment income 185 45 126 14
Commissions, investment management
fees, and other income 142 4 18 120
------------- --------------- ----------------- --------------
Total revenues 1,382 565 683 134
------------- --------------- ----------------- --------------
Benefits and Expenses (1):
Insurance and annuity benefits 799 374 425 -
Interest credited to policyholders'
account balances 24 2 22 -
Interest expense - 1 (1) -
Deferral of acquisition costs (147) (111) (36) -
Amortization of acquisition costs 44 48 (4) -
Securities operations non-interest
expenses 119 - - 119
General and administrative expenses 367 165 176 26
------------- --------------- ----------------- --------------
Total benefits and expenses 1,206 479 582 145
------------- --------------- ----------------- --------------
Adjusted operating income before income
taxes 176 86 101 (11)
============= =============== ================= ==============
Six Months Ended June 30, 2001
--------------------------------------------------------------------
International
Total Insurance International International
International excl. Gibraltar Insurance- Securities and
Division Life Gibraltar Life(2) Investments
------------- --------------- ----------------- --------------
Revenues (1):
Premiums 1,271 893 378 -
Policy charges and fee income 135 46 89 -
Net investment income 179 68 80 31
Commissions, investment management
fees, and other income 278 20 1 257
------------- --------------- ----------------- --------------
Total revenues 1,863 1,027 548 288
------------- --------------- ----------------- --------------
Benefits and Expenses (1):
Insurance and annuity benefits 1,039 674 365 -
Interest credited to policyholders'
account balances 19 2 17 -
Interest expense 4 4 - -
Deferral of acquisition costs (257) (233) (24) -
Amortization of acquisition costs 73 73 - -
Securities operations non-interest
expenses 258 - - 258
General and administrative expenses 509 329 131 49
------------- --------------- ----------------- --------------
Total benefits and expenses 1,645 849 489 307
------------- --------------- ----------------- --------------
Adjusted operating income before income
taxes 218 178 59 (19)
============= =============== ================= ==============
Quarter Ended June 30, 2001
--------------------------------------------------------------------
International
Total Insurance International International
International excl. Gibraltar Insurance- Securities and
Division Life Gibraltar Life(2) Investments
------------- --------------- ----------------- --------------
Revenues (1):
Premiums 817 439 378 -
Policy charges and fee income 111 22 89 -
Net investment income 129 34 80 15
Commissions, investment management
fees, and other income 134 11 1 122
------------- --------------- ----------------- --------------
Total revenues 1,191 506 548 137
------------- --------------- ----------------- --------------
Benefits and Expenses (1):
Insurance and annuity benefits 702 337 365 -
Interest credited to policyholders'
account balances 18 1 17 -
Interest expense 2 2 - -
Deferral of acquisition costs (143) (119) (24) -
Amortization of acquisition costs 35 35 - -
Securities operations non-interest
expenses 131 - - 131
General and administrative expenses 326 167 131 28
------------- --------------- ----------------- --------------
Total benefits and expenses 1,071 423 489 159
------------- --------------- ----------------- --------------
Adjusted operating income before income
taxes 120 83 59 (22)
============= =============== ================= ==============
(1) Revenues exclude realized investment gains, net of losses. Benefits and
expenses exclude charges related to realized investment gains, net of
losses.
(2) Results of Gibraltar Life are included from April 2, 2001, the date of
reorganization, through May 31, 2002.
Page 25
Prudential Financial, Inc. Prudential [LOGO] Financial
Quarterly Financial Supplement
Second Quarter 2002
INTERNATIONAL DIVISION - SALES RESULTS AND SUPPLEMENTARY INFORMATION
(dollar amounts in millions unless otherwise noted)
Year-to-date 2001 2002
- ----------------- --------------------------- ------------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- ------- ------- ------- ------- ------- ------- -------
--------- ---------
INTERNATIONAL INSURANCE OPERATING DATA:
Actual exchange rate basis (1):
Net premiums, policy charges and fee income:
769 755 Japan, excluding Gibraltar Life 361 376 395 395 374
1,097 467 Gibraltar Life (2) 467 639 604 558 539
262 184 All other countries 100 107 117 120 142
- ------- ------- ------- ------- ------- ------- -------
2,128 1,406 Total 928 1,122 1,116 1,073 1,055
======= ======= ======= ======= ======= ======= =======
Annualized new business premiums:
144 206 Japan, excluding Gibraltar Life 92 77 87 77 67
108 10 Gibraltar Life (2) 10 44 56 49 59
104 108 All other countries 60 51 53 53 51
- ------- ------- ------- ------- ------- ------- -------
356 324 Total 162 172 196 179 177
======= ======= ======= ======= ======= ======= =======
Constant exchange rate basis (3):
Net premiums, policy charges and fee income:
820 749 Japan, excluding Gibraltar Life 365 376 401 431 389
1,178 472 Gibraltar Life (2) 472 645 602 603 575
267 183 All other countries 102 106 119 124 143
- ------- ------- ------- ------- ------- ------- -------
2,265 1,404 Total 939 1,127 1,122 1,158 1,107
======= ======= ======= ======= ======= ======= =======
Annualized new business premiums:
153 204 Japan, excluding Gibraltar Life 93 77 89 84 69
116 10 Gibraltar Life (2) 10 44 56 53 63
104 108 All other countries 61 51 53 55 49
- ------- ------- ------- ------- ------- ------- -------
373 322 Total 164 172 198 192 181
======= ======= ======= ======= ======= ======= =======
Face amount of individual policies in force at end of
period (in billions):
Japan, excluding Gibraltar Life 120 124 127 130 133
Gibraltar Life (2) 265 244 232 224 217
All other countries 32 34 38 41 42
------- ------- ------- ------- -------
Total 417 402 397 395 392
======= ======= ======= ======= =======
Number of individual policies in force at end of period
(in thousands):
Japan, excluding Gibraltar Life 892 918 946 973 990
Gibraltar Life (2) 5,322 5,047 4,911 4,787 4,666
All other countries 452 492 536 571 609
------- ------- ------- ------- -------
Total 6,666 6,457 6,393 6,331 6,265
======= ======= ======= ======= =======
--------- ---------
(1) Translated based on applicable average exchange rate for the period shown.
(2) Results of Gibraltar Life are included from April 2, 2001, the date of
reorganization, through May 31,2002.
(3) Translated based on average exchange rates for the year ended December 31,
2001.
Page 26
Prudential Financial, Inc.
Quarterly Financial Supplement Prudential [LOGO] Financial
Second Quarter 2002
INTERNATIONAL DIVISION - SALES RESULTS AND SUPPLEMENTARY INFORMATION
(dollar amounts in millions unless otherwise noted)
2001 2002
---------------------------- -----------------
2Q 3Q 4Q 1Q 2Q
--------- -------- ------- ------- --------
International insurance policy persistency (1):
13 months 93.1% 93.1% 93.2% 93.4% 93.8%
25 months 88.9% 88.9% 88.1% 87.8% 86.9%
Number of Life Planners at end of period (2):
Japan 1,853 1,944 1,992 1,994 1,985
All other countries 1,837 2,055 2,112 2,104 2,222
------- ------ ------ ------ ------
Total 3,690 3,999 4,104 4,098 4,207
======= ====== ====== ====== ======
Number of International Retail Financial Advisors at end of period 632 646 633 632 634
Assets managed or administered for customers outside of the United States at
end of period 66,388 62,642 64,280 63,595 66,921
(1) Excluding Gibraltar Life.
(2) Excluding Gibraltar Life Advisors.
Page 27
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
COMBINED STATEMENTS OF OPERATIONS - ASSET MANAGEMENT DIVISION
(in millions)
Year-to-date % 2001 2002
- -------------- ---------------------- --------------
2002 2001 Change 2Q 3Q 4Q 1Q 2Q
- ------ ------ ----- ----- ----- ----- -----
Revenues (1):
30 43 -30% Net investment income 24 19 28 16 14
560 596 -6% Commissions, investment management fees, and other income 286 273 313 275 285
- ------ ------ ----- ----- ----- ----- -----
590 639 -8% Total revenues 310 292 341 291 299
- ------ ------ ----- ----- ----- ----- -----
Expenses:
4 8 -50% Interest expense 4 3 4 2 2
134 158 -15% Securities operations non-interest expenses 85 70 64 63 71
333 363 -8% General and administrative expenses 189 174 209 163 170
- ------ ------ ----- ----- ----- ----- -----
471 529 -11% Total expenses 278 247 277 228 243
- ------ ------ ----- ----- ----- ----- -----
119 110 8% Adjusted operating income before income taxes 32 45 64 63 56
====== ====== ===== ===== ===== ===== =====
Analysis of revenues by source:
Investment Management and Advisory Services segment:
97 107 -9% Retail customers 54 52 51 49 48
171 201 -15% Institutional customers 104 93 89 84 87
129 106 22% General account 51 59 77 65 64
- ------ ------ ----- ----- ----- ----- -----
397 414 -4% Subtotal 209 204 217 198 199
193 225 -14% Other Asset Management segment revenues 101 88 124 93 100
- ------ ------ ----- ----- ----- ----- -----
590 639 -8% Total revenues 310 292 341 291 299
====== ====== ===== ===== ===== ===== =====
Analysis of commissions, investment management fees and
other revenues by type:
Investment Management and Advisory Services segment:
354 371 -5% Asset-based fees 188 186 184 176 178
31 24 29% Transaction-based and other revenues 10 12 16 16 15
- ------ ------ ----- ----- ----- ----- -----
385 395 -3% Subtotal 198 198 200 192 193
175 201 -13% Other Asset Management 88 75 113 83 92
- ------ ------ ----- ----- ----- ----- -----
560 596 -6% Total 286 273 313 275 285
====== ====== ===== ===== ===== ===== =====
(1) Revenues exclude realized investment gains, net of losses.
Page 28
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
COMBINING STATEMENTS OF OPERATIONS - ASSET MANAGEMENT DIVISION
(in millions)
Six Months Ended June 30, 2002 Quarter Ended June 30, 2002
------------------------------------ -------------------------------------
Investment Investment
Total Asset Management Total Asset Management
Management & Advisory Other Asset Management & Advisory Other Asset
Division Services Management Division Services Management
----------- ---------- ----------- ----------- ---------- -----------
Revenues (1):
Net investment income 30 12 18 14 6 8
Commissions, investment management fees,
and other income 560 385 175 285 193 92
----------- ---------- ----------- ----------- ---------- ----------
Total revenues 590 397 193 299 199 100
----------- ---------- ----------- ----------- ---------- ----------
Expenses:
Interest expense 4 4 - 2 2 -
Securities operations non-interest expenses 134 - 134 71 - 71
General and administrative expenses 333 321 12 170 164 6
----------- ---------- ----------- ----------- ---------- ----------
Total expenses 471 325 146 243 166 77
----------- ---------- ----------- ----------- ---------- ----------
Adjusted operating income before income taxes 119 72 47 56 33 23
=========== ========== ========== =========== ========== ==========
Six Months Ended June 30, 2001 Quarter Ended June 30, 2001
------------------------------------ -------------------------------------
Investment Investment
Total Asset Management Total Asset Management
Management & Advisory Other Asset Management & Advisory Other Asset
Division Services Management Division Services Management
----------- ---------- ----------- ----------- ---------- ----------
Revenues (1):
Net investment income 43 19 24 24 11 13
Commissions, investment management fees,
and other income 596 395 201 286 198 88
----------- ---------- ----------- ----------- ---------- ----------
Total revenues 639 414 225 310 209 101
----------- ---------- ----------- ----------- ---------- ----------
Expenses:
Interest expense 8 8 - 4 4 -
Securities operations non-interest expenses 158 - 158 85 - 85
General and administrative expenses 363 349 14 189 182 7
----------- ---------- ----------- ----------- ---------- ----------
Total expenses 529 357 172 278 186 92
----------- ---------- ----------- ----------- ---------- ----------
Adjusted operating income before income taxes 110 57 53 32 23 9
=========== ========== =========== =========== ========== ==========
(1) Revenues exclude realized investment gains, net of losses.
Page 29
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
ASSETS UNDER MANAGEMENT - INVESTMENT MANAGEMENT AND ADVISORY SERVICES SEGMENT
(in billions)
June 30, 2002
---------------------------------------------
Fixed Real
Equity Income Estate Total
--------- ----------- ---------- ----------
Retail customers (1) 38.0 46.7 0.1 84.8
Institutional customers (1) 28.5 44.9 10.1 83.5
General account (1) 2.2 112.4 1.4 116.0
--------- ----------- ---------- ----------
Total 68.7 204.0 11.6 284.3
========= =========== ========== ==========
June 30, 2001
---------------------------------------------
Fixed Real
Equity Income Estate Total
--------- ----------- ---------- ----------
Retail customers 48.4 51.4 - 99.8
Institutional customers 42.4 38.1 10.2 90.7
General account 2.5 105.4 1.4 109.3
--------- ----------- ---------- ----------
Total 93.3 194.9 11.6 299.8
========= =========== ========== ==========
Year-to-date 2001 2002
- ------------------ -------------------------- --------------
2002 2001 2Q 3Q 4Q 1Q 2Q
- -------- -------- -------- ------- ------- ------ ------
Institutional Assets Under Management: (1)
Assets gathered by Asset Management division sales force: (2)
67.9 74.5 Beginning assets under management 70.5 70.4 65.3 67.9 62.6
5.9 7.1 Additions to managed portfolio 3.2 2.4 4.2 3.0 2.9
(10.9) (8.0) Withdrawals (5.0) (4.2) (5.6) (8.4) (2.5)
(2.3) (3.2) Change in market value 1.7 (3.3) 3.9 0.1 (2.4)
3.6 - Net money market flows - - 0.1 4.0 (0.4)
(4.0) - Other (2) - - - (4.0) -
- ------- -------- -------- ------- ------- ------ ------
60.2 70.4 Ending assets under management 70.4 65.3 67.9 62.6 60.2
23.3 20.3 Other institutional assets under management (2) 20.3 19.6 21.2 23.6 23.3
- ------- -------- -------- ------- ------- ------ ------
83.5 90.7 Total assets managed for institutional customers at end of period 90.7 84.9 89.1 86.2 83.5
======= ======== ======== ======= ======= ====== ======
(1) Reflects reclassification of amounts by client category
as of January 1, 2002, based on internal management
criteria, which reduced the amount attributed to retail
customers by $3.3 billion and increased the amounts
attributed to institutional customers and the general
account by $2.8 billion and $0.5 billion, respectively.
(2) Reflects reclassification of amounts by asset gatherer
category as of January 1, 2002, based on internal management
criteria, which reduced the amount attributed to assets
gathered by Asset Management division sales force and
increased the amount attributed to other institutional
assets under management by $4.0 billion.
Page 30
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
INVESTMENT PORTFOLIO COMPOSITION
(in millions)
June 30, 2002 December 31, 2001
----------------------------------------- -----------------------------------------
Closed Financial Services Closed Financial Services
Consolidated Block Businesses Consolidated Block Businesses
------------------ ------------------
Portfolio (1) Business Amount % of Total Portfolio (1) Business Amount % of Total
------------- -------- ------- ---------- ------------- -------- ------- ----------
Fixed maturities:
Public available for sale, at fair value 85,125 29,367 55,758 56.4% 77,807 26,634 51,173 54.5%
Public held to maturity, at amortized cost 2,218 - 2,218 2.2% 318 - 318 0.3%
Private available for sale, at fair value 31,604 14,715 16,889 17.1% 32,040 14,428 17,612 18.8%
Private held to maturity, at amortized cost 47 - 47 0.0% 53 - 53 0.1%
Trading account assets, at fair value 148 - 148 0.1% 112 - 112 0.1%
Equity securities, at fair value 3,179 1,328 1,851 1.9% 2,259 584 1,675 1.8%
Commercial loans 18,924 6,772 12,152 12.3% 19,176 6,106 13,070 13.9%
Cash collateral for borrowed securities 213 - 213 0.2% - - - 0.0%
Other long-term investments (2) 4,861 1,037 3,824 3.9% 5,095 1,082 4,013 4.3%
Policy loans, at outstanding balance 8,707 5,725 2,982 3.0% 8,570 5,758 2,812 3.0%
Short term investments, at amortized cost 5,214 2,366 2,848 2.9% 4,854 1,882 2,972 3.2%
------------- -------- ------- ---------- ------------- -------- ------- ----------
Subtotal 160,240 61,310 98,930 100.0% 150,284 56,474 93,810 100.0%
========== ==========
Invested assets of other entities and
operations (3) 17,408 - 17,408 15,550 - 15,550
------------- -------- ------- ------------- -------- -------
Total invested assets 177,648 61,310 116,338 165,834 56,474 109,360
============= ======== ======= ============= ======== =======
Fixed Maturities by Credit Quality(1):
June 30, 2002 December 31, 2001
----------------------------------- ---------------------------------
Financial Services Businesses Financial Services Businesses
----------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost % of Total Fair Value Cost % of Total Fair Value
------------- ---------- ---------- --------- ---------- ------------
Public Fixed Maturities:
NAIC Rating Rating Agency Equivalent
1 Aaa, Aa, A 42,463 74.8% 43,591 36,706 72.6% 37,502
2 Baa 11,507 20.2% 11,650 11,286 22.3% 11,484
3 Ba 1,833 3.2% 1,820 1,501 3.0% 1,518
4 B 679 1.2% 661 683 1.4% 646
5 C and lower 63 0.1% 57 112 0.2% 116
6 In or near default 269 0.5% 263 246 0.5% 241
------------- ---------- ---------- --------- ---------- ------------
Total 56,814 100.0% 58,042 50,534 100.0% 51,507
============= ========== ========== ========= ========== ============
Private Fixed Maturities:
NAIC Rating Rating Agency Equivalent
1 Aaa, Aa, A 5,314 32.8% 5,693 5,982 35.1% 6,337
2 Baa 7,718 47.7% 8,070 8,148 47.8% 8,399
3 Ba 1,633 10.1% 1,668 1,487 8.7% 1,529
4 B 831 5.1% 798 917 5.4% 883
5 C and lower 369 2.3% 369 390 2.3% 401
6 In or near default 330 2.0% 351 112 0.7% 121
------------- ---------- ---------- --------- ---------- ------------
Total 16,195 100.0% 16,949 17,036 100.0% 17,670
============= ========== ========== ========= ========== ============
(1) Excludes investments of securities brokerage, securities trading, banking
operations, assets of our asset management operations managed for third
parties, and separate account assets for which the customer assumes risks
of ownership.
(2) Other long-term investments consist of real estate and non-real estate
related investments in joint ventures and partnerships, investment real
estate held through direct ownership, our interest in separate account
investments and other miscellaneous investments.
(3) Includes invested assets of securities brokerage, securities trading, and
banking operations. Excludes assets of our asset management operations
managed for third parties, and separate account assets for which the
customer assumes risks of ownership.
Page 31
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
FINANCIAL SERVICES BUSINESSES INVESTMENT PORTFOLIO COMPOSITION
(in millions)
June 30, 2002 December 31, 2001
------------------------ -------------------------
Amount % of Total Amount % of Total
----------- ---------- ----------- -----------
Japanese Insurance Operations:
Fixed maturities:
Public available for sale, at fair value 23,684 71.6% 20,883 73.8%
Public held to maturity, at amortized cost 2,218 6.7% 318 1.1%
Private available for sale, at fair value 307 0.9% 98 0.4%
Private held to maturity, at amortized cost 47 0.2% 53 0.2%
Trading account assets, at fair value 95 0.3% 74 0.3%
Equity securities, at fair value 1,156 3.5% 1,032 3.6%
Commercial loans 3,505 10.6% 4,255 15.0%
Cash collateral for borrowed securities 213 0.6% - 0.0%
Other long-term investments (2) 1,129 3.4% 1,001 3.5%
Policy loans, at outstanding balance 636 1.9% 605 2.1%
Short term investments, at amortized cost 100 0.3% 2 0.0%
----------- ---------- ----------- -----------
Total 33,090 100.0% 28,321 100.0%
=========== ========== =========== ===========
June 30, 2002 December 31, 2001
------------------------- -------------------------
Amount % of Total Amount % of Total
----------- ----------- ----------- -----------
Financial Services Businesses excluding Japanese
Insurance Operations (1):
Fixed maturities:
Public available for sale, at fair value 32,074 48.7% 30,290 46.2%
Public held to maturity, at amortized cost - 0.0% - 0.0%
Private available for sale, at fair value 16,582 25.2% 17,514 26.7%
Private held to maturity, at amortized cost - 0.0% - 0.0%
Trading account assets, at fair value 53 0.1% 38 0.1%
Equity securities, at fair value 695 1.1% 643 1.0%
Commercial loans 8,647 13.1% 8,815 13.5%
Cash collateral for borrowed securities - 0.0% - 0.0%
Other long-term investments (2) 2,695 4.0% 3,012 4.6%
Policy loans, at outstanding balance 2,346 3.6% 2,207 3.4%
Short term investments, at amortized cost 2,748 4.2% 2,970 4.5%
----------- ---------- ----------- -----------
Total 65,840 100.0% 65,489 100.0%
=========== ========== =========== ===========
(1) Excludes investments of securities brokerage, securities
trading, banking operations, assets of our asset management
operations managed for third parties, and separate account
assets for which the customer assumes risks of ownership.
(2) Other long-term investments consist of real estate and non-real
estate related investments in joint ventures and partnerships,
investment real estate held through direct ownership, our
interest in separate account investments and other miscellaneous
investments.
Page 32
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Prudential [LOGO] Financial
FINANCIAL SERVICES BUSINESSES INVESTMENT RESULTS
(in millions)
Quarter Ended June 30
-----------------------------------------------------------------------
2002 2001
------------------------------------ -------------------------------
Investment Income Realized Investment Income Realized
------------------------ Gains / ------------------- Gains /
Yield(3) Amount (Losses) Yield(3) Amount (Losses)
----------- --------- --------- --------- ------ ---------
Financial Services Businesses (1):
Fixed maturities 5.19% 922 (86) 5.85% 952 (29)
Equity securities 1.60% 7 9 0.66% 3 22
Commercial loans 7.95% 251 17 7.66% 202 10
Policy loans 5.68% 41 - 5.46% 39 -
Short-term investments and cash equivalents 2.36% 58 (10) 4.11% 85 (8)
Other investments 8.02% 82 (243) 8.79% 74 94
----------- --------- -------- ------- ------- --------
Gross investment income before investment expenses 5.32% 1,361 (313) 5.87% 1,355 89
Investment expenses -0.20% (50) - -0.34% (79) -
----------- --------- -------- ------- ------- --------
Subtotal 5.12% 1,311 (313) 5.53% 1,276 89
=========== =======
Investment results of other entities and operations (2) 63 - 77 -
Less amount relating to divested businesses (18) - (1) -
--------- -------- ------- --------
Total 1,356 (313) 1,352 89
========= ======== ======= ========
Six Months Ended June 30
-----------------------------------------------------------------------
2002 2001
------------------------------------ -------------------------------
Investment Income Realized Investment Income Realized
------------------------ Gains / ------------------- Gains /
Yield(3) Amount (Losses) Yield(3) Amount (Losses)
----------- --------- --------- --------- ------ ---------
Financial Services Businesses (1):
Fixed maturities 5.26% 1,823 (194) 5.80% 1,971 83
Equity securities 1.52% 13 (53) 0.54% 6 68
Commercial loans 7.37% 467 18 6.25% 357 11
Policy loans 5.63% 80 - 5.51% 78 -
Short-term investments and cash equivalents 1.97% 116 7 3.16% 141 (3)
Other investments 5.68% 117 (160) 7.87% 127 181
----------- --------- -------- ------- ------- ---------
Gross investment income before investment expenses 5.10% 2,616 (382) 5.53% 2,680 340
Investment expenses -0.23% (118) - -0.40% (192) -
----------- --------- -------- ------- ------- ---------
Subtotal 4.87% 2,498 (382) 5.13% 2,488 340
=========== =======
Investment results of other entities and operations (2) 127 (1) 169 -
Less amount relating to divested businesses (20) - (8) -
--------- -------- ------- ---------
Total 2,605 (383) 2,649 340
========= ======== ======= =========
(1) Excludes investments of securities brokerage, securities trading, banking
operations, assets of our asset management operations managed for third
parties, and separate account assets for which the customer assumes risks
of ownership.
(2) Investment income of securities brokerage, securities trading, and banking
operations.
(3) Yields are annualized and based on quarterly average carrying values except
for fixed maturities, equity securities and commercial loans. Yields for
fixed maturities are based on amortized cost. Yields for equity securities
are based on cost. Yields for commercial loans are calculated gross of any
allowance for losses on commercial loans. Results for 2002 period reflect
investments of Gibraltar Life, which was acquired in April 2001.
Page 33
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002 Pudential [LOGO] Financial
FINANCIAL SERVICES BUSINESSES INVESTMENT RESULTS -
JAPANESE INSURANCE OPERATIONS
(in millions)
Quarter Ended June 30
--------------------------------------------------------------------
2002 2001
---------------------------------- ---------------------------------
Investment Income Realized Investment Income Realized
----------------------- Gains / ---------------------- Gains /
Yield(1) Amount (Losses) Yield(1) Amount (Losses)
----------- ----------- ---------- ----------- ---------- ---------
Japanese Insurance Operations:
Fixed maturities 1.77% 112 (24) 1.29% 46 (5)
Equity securities 0.23% - (17) 0.57% 1 19
Commercial loans 4.29% 42 12 7.39% 54 -
Policy loans 2.79% 4 - 1.22% 2 -
Short-term investments and cash equivalents 1.06% 1 (10) 0.03% - 1
Other investments 0.34% 2 21 6.45% 8 24
----------- ----------- ---------- ----------- ---------- ---------
Gross investment income before investment expenses 1.98% 161 (18) 2.29% 111 39
Investment expenses -0.12% (9) - -0.14% (6) -
----------- ----------- ---------- ----------- ---------- ---------
Total 1.86% 152 (18) 2.15% 105 39
=========== =========== ========== =========== ========== =========
Six Months Ended June 30
--------------------------------------------------------------------
2002 2001
---------------------------------- ---------------------------------
Investment Income Realized Investment Income Realized
----------------------- Gains / ---------------------- Gains /
Yield(1) Amount (Losses) Yield(1) Amount (Losses)
----------- ----------- ---------- ----------- ---------- ---------
Japanese Insurance Operations:
Fixed maturities 1.80% 210 (4) 0.86% 68 17
Equity securities 0.62% 3 (73) 0.36% 2 18
Commercial loans 4.31% 86 14 3.82% 54 -
Policy loans 2.66% 8 - 1.43% 5 -
Short-term investments and cash equivalents 0.59% 5 8 0.02% - 1
Other investments -0.20% (1) (54) 3.69% 9 12
----------- ----------- ---------- ----------- ---------- ---------
Gross investment income before investment expenses 1.95% 311 (109) 1.31% 138 48
Investment expenses -0.11% (17) - -0.07% (7) -
----------- ----------- ---------- ----------- ---------- ---------
Total 1.84% 294 (109) 1.24% 131 48
=========== =========== -========= =========== ========== =========
(1) Yields are annualized and based on quarterly average carrying values except
for fixed maturities, equity securities and commercial loans. Yields for
fixed maturities are based on amortized cost. Yields for equity securities
are based on cost. Yields for commercial loans are calculated gross of any
allowance for losses on commercial loans. Results for 2002 period reflect
investments of Gibraltar Life, which was acquired in April 2001.
Page 34
Prudential Financial, Inc.
Quarterly Financial Supplement Prudential [LOGO] Financial
Second Quarter 2002
FINANCIAL SERVICES BUSINESSES INVESTMENT RESULTS - EXCLUDING JAPANESE
INSURANCE OPERATIONS
(in millions)
Quarter Ended June 30
---------------------------------------------------------------------
2002 2001
---------------------------------- ----------------------------------
Investment Income Realized Investment Income Realized
----------------------- Gains / ---------------------- Gains /
Yield(2) Amount (Losses) Yield(2) Amount (Losses)
----------- ---------- -------- ----------- --------- ----------
Financial Services Businesses excluding Japanese
Insurance Operations (1):
Fixed maturities 6.98% 810 (62) 7.90% 906 (24)
Equity securities 3.64% 7 26 0.83% 2 3
Commercial loans 9.58% 209 5 7.86% 148 10
Policy loans 6.45% 37 - 6.64% 37 -
Short-term investments and cash equivalents 2.46% 57 - 7.09% 85 (9)
Other investments 11.31% 80 (264) 9.57% 66 70
---------- --------- ------- ----------- --------- ----------
Gross investment income before investment expenses 6.84% 1,200 (295) 7.74% 1,244 50
Investment expenses -0.24% (41) - -0.45% (73) -
---------- --------- ------- ----------- --------- ----------
Total 6.60% 1,159 (295) 7.29% 1,171 50
========== ========= ======= =========== ========= ==========
Six Months Ended June 30
---------------------------------------------------------------------
2002 2001
---------------------------------- ----------------------------------
Investment Income Realized Investment Income Realized
----------------------- Gains / --------------------- Gains /
Yield(2) Amount (Losses) Yield(2) Amount (Losses)
----------- ---------- -------- ---------- --------- ----------
Financial Services Businesses excluding Japanese
Insurance Operations (1):
Fixed maturities 7.02% 1,613 (190) 8.00% 1,903 66
Equity securities 2.97% 10 20 0.94% 4 50
Commercial loans 8.78% 381 4 8.06% 303 11
Policy loans 6.43% 72 - 6.67% 73 -
Short-term investments and cash equivalents 2.21% 111 (1) 5.27% 141 (4)
Other investments 8.07% 118 (106) 9.33% 118 169
----------- ------- ------ ------- ------- -------
Gross investment income before investment expenses 6.54% 2,305 (273) 7.69% 2,542 292
Investment expenses -0.30% (101) - -0.57% (185) -
----------- ------- ------ ------- ------- -------
Total 6.24% 2,204 (273) 7.12% 2,357 292
=========== ======= ====== ======= ======= =======
(1) Excludes investments of securities brokerage, securities trading, banking
operations, assets of our asset management operations managed for third
parties, and separate account assets for which the customer assumes risks
of ownership.
(2) Yields are annualized and based on quarterly average carrying values except
for fixed maturities, equity securities and commercial loans. Yields for
fixed maturities are based on amortized cost. Yields for equity securities
are based on cost. Yields for commercial loans are calculated gross of any
allowance for losses on commercial loans.
Page 35
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
KEY DEFINITIONS AND FORMULAS
1. Attributed Equity:
- ----------------------
Amount of capital assigned to each of the Company's segments for purposes of
measuring segment adjusted operating income before income taxes, established at
a level which management considers necessary to support the segment's risks.
Attributed equity for the Financial Services Businesses represents all of the
Company's equity that is not included in the Closed Block Business.
2. Adjusted operating income before income taxes:
- --------------------------------------------------
Adjusted operating income is a non-GAAP measure that excludes realized
investment gains, net of losses and related adjustments; results of divested
businesses; and demutualization costs and expenses. Revenues and benefits and
expenses shown as components of adjusted operating income, and for the
divisions of the Financial Services Businesses, are presented on the same basis
as pre-tax adjusted operating income and exclude these items as well. Adjusted
operating income should not be viewed as a substitute for net income determined
in accordance with GAAP, and our definition of adjusted operating income may
differ from that used by other companies. The excluded items are important to
an understanding of our overall results of operations. However, we believe that
the presentation of adjusted operating income as we measure it for management
purposes enhances the understanding of our results of operations by
highlighting the results from ongoing operations and the underlying
profitability factors of our businesses.
3. After-tax adjusted operating income:
- ----------------------------------------
Adjusted operating income before taxes, as defined above, less the income tax
effect applicable to adjusted operating income before taxes.
4. Assets Under Management:
- ----------------------------
Fair market value or account value of assets which Prudential manages directly
in proprietary products, such as mutual funds and variable annuities, in
separate accounts, wrap-fee products and the general account, and assets
invested in investment options included in the Company's products that are
managed by third party sub-managers (i.e., the non-proprietary investment
options in the Company's products).
5. Book value per share of Common Stock:
- -----------------------------------------
Equity attributed to Financial Services Businesses divided by number of Common
shares outstanding at end of period, on a diluted basis.
6. Borrowings - General Corporate Purposes:
- --------------------------------------------
Amounts used for corporate purposes including uses for cash flow timing
mismatches, and investments in equity and debt securities of subsidiaries
including amounts needed for regulatory capital purposes.
7. Borrowings - Investment Related:
- ------------------------------------
Debt issued to finance specific investment assets or portfolios of investment
assets, including real estate, real estate related assets held in consolidated
joint ventures, and institutional spread lending portfolios.
8. Borrowings - Securities Business Related:
- --------------------------------------------
Debt issued to finance primarily the liquidity of our broker-dealers, and our
capital markets and other securities business related operations.
9. Borrowings - Specified Other Businesses:
- --------------------------------------------
Borrowings associated with consumer banking activities, real estate franchises,
and relocation services.
10. Client Assets:
- ------------------
Fair market value of assets in client accounts of Prudential Securities and
Prudential Bank, and trust client accounts, that are not included in Assets
Under Management. Prudential does not receive a management or administrative
fee on these assets, but may receive a fee for executing trades, custody or
recordkeeping services.
Page 36
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
KEY DEFINITIONS AND FORMULAS
11. Earned Premiums:
- --------------------
The portion of a premium, net of any amount ceded, that represents coverage
already provided or that belongs to the insurer based on the part of the policy
period that has passed.
12. Earnings Per Share of Common Stock:
- ---------------------------------------
Prudential Financial, Inc.'s initial public offering and the demutualization of
The Prudential Insurance Company of America became effective on December 18,
2001. For the 2001 periods, earnings per share data are presented on a pro
forma basis that assumes that shares issued in the initial public offering,
including those issued as a result of the subsequent exercise by underwriters
of options to acquire additional shares, and shares distributed as
demutualization consideration to policyholders, were outstanding for all such
periods. Earnings used in per-share calculations for the 2001 periods have not
been adjusted to reflect the demutualization or related transactions, including
the establishment of the Closed Block Business. For periods subsequent to 2001,
earnings per share is based on the weighted average number of diluted shares
outstanding. Stock options are included in the number of diluted shares for the
periods they are outstanding based on the treasury stock method. Net income for
the Financial Services Businesses and the Closed Block Business is determined
in accordance with GAAP and includes general and administrative expenses
charged to each of the businesses based on the Company's methodology for
allocation of such expenses. For periods subsequent to the date of
demutualization, the net income of each business is modified for cash flows
between the Financial Services Businesses and the Closed Block Business related
to administrative expenses, which are determined by a policy servicing fee
arrangement that is based upon insurance in force and statutory cash premiums.
To the extent actual administrative expenses vary from these cash flow amounts,
these differences are recorded, on an after-tax basis, as direct equity
adjustments to the equity balances of each business. The direct equity
adjustments are used to adjust net income to determine the earnings available
to the Common Stock and the Class B Stock for earnings per share purposes.
13. Financial Advisors (Domestic and International):
- ----------------------------------------------------
Financial advisors and securities brokers in our securities operations.
14. Financial Advisor Productivity (Domestic):
- ----------------------------------------------
Private Client Group total non-interest revenues, excluding revenues generated
by the consumer bank and by the segment's retail trading operation divided by
the average number of domestic Financial Advisors for the period. For interim
reporting periods, the productivity measures are annualized.
15. General Account:
- --------------------
Invested assets and policyholder liabilities and reserves for which the Company
bears the investment risk. Excludes assets recognized for statutory purposes
that are specifically allocated to a separate account. General account assets
also include assets of the parent company, Prudential Financial, Inc.
16. Gibraltar Life Advisors:
- ----------------------------
Insurance representatives for Gibraltar Life.
17. Group Life Insurance and Group Disability Insurance Administrative
- ----------------------------------------------------------------------
Operating Expense Ratios:
- -------------------------
Ratio of administrative operating expenses (excluding commissions) to gross
premiums, policy charges and fee income.
18. Group Life Insurance and Group Disability Insurance Benefits Ratios:
- ------------------------------------------------------------------------
Ratio of policyholder benefits to earned premiums, policy charges and fee
income.
19. Insurance and Annuity Benefits:
- -----------------------------------
Total death benefits, annuity benefits, disability benefits, other policy
benefits, losses and loss adjustment expenses paid or incurred, under insurance
and annuity contracts, plus the change in reserves for future policy benefits,
losses and loss adjustment expenses.
20. International Life Planners:
- --------------------------------
Insurance agents in our insurance operations outside the United States,
excluding Gibraltar Life Advisors.
Page 37
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
KEY DEFINITIONS AND FORMULAS
21. New annualized premiums:
- ----------------------------
Premiums from new sales that are expected to be collected over a one year
period. Group insurance new annualized premiums exclude new premiums
resulting from rate changes on existing policies, from additional 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.
22. Non-recourse and Limited-recourse Debt:
- -------------------------------------------
Limited and non-recourse borrowing is where the holder is entitled to
collect only against the assets pledged to the debt as collateral or has only
very limited rights to collect against other assets.
23. Operating return on average equity:
- ---------------------------------------
Adjusted operating income after tax (giving effect to the direct equity
adjustment for earnings per share calculation), annualized for interim
periods, divided by average attributed equity for the Financial Services
Businesses excluding unrealized gains and losses on investments.
24. Policy Persistency - Group Insurance:
- -----------------------------------------
Percentage of the premiums in force at the end of the prior year that are
still in force at the end of the period (excluding Servicemembers' Group Life
Insurance and Prudential Employee Benefit Plan).
25. Policy Persistency - International Insurance:
- -------------------------------------------------
13 month persistency represents the percentage of policies issued that are still
in force at the beginning of their second policy year. 25 month persistency
represents the percentage of policies issued that are still in force at the
beginning of their third policy year.
26. Prudential Agents:
- ----------------------
Insurance agents in our insurance operations in the United States.
27. Prudential Agent productivity:
- ----------------------------------
Commissions on new sales of all products by Prudential Agents under contract
for the entire period, divided by the number of those Prudential Agents.
Excludes commissions on new sales by Prudential Agents hired or departed
during the period. For interim reporting periods, the productivity
measures are annualized.
28. Ratio of corporate debt to total capitalization:
- ----------------------------------------------------
For purposes of this ratio, we measure "debt" as the sum of borrowings for
general corporate purposes and 20% of the stated aggregate liquidation
amount of the Equity Security Units, and we measure "total capitalization"
as the sum of equity excluding unrealized gains and losses on
available-for-sale securities, corporate debt and the stated aggregate
liquidation amount of the Equity Security Units. The ratio is calculated
by dividing debt by total capitalization.
29. Redeemable Capital Securities:
- ----------------------------------
Capital Trust Certificates of Prudential Financial Capital Trust I (element
of Equity Security Units).
30. Separate Accounts:
- ----------------------
Assets of our insurance companies allocated under certain policies and
contracts that are segregated from the general account and other separate
accounts. The policyholder or contractholder predominantly bears the risk
of investments held in a separate account.
31. Wrap-Fee Products:
- ----------------------
Investment products generating asset-based fees in which the funds of the
customer are generally invested in other investment products such as
mutual funds.
Page 38
Prudential Financial, Inc.
Quarterly Financial Supplement
Second Quarter 2002
Prudential [LOGO] Financial
RATINGS AND INVESTOR INFORMATION
INSURANCE CLAIMS PAYING RATINGS
as of August 6, 2002
Standard & Fitch
A.M.Best Poor's Moody's Ratings
----------- ---------- ---------- ----------
The Prudential Insurance Company of America A A+ A1 AA-
PRUCO Life Insurance Company A A+ A1 NR*
PRUCO Life Insurance Company of New Jersey A A+ A1 NR
Prudential Property and Casualty Insurance Company A- A A1 NR
The Prudential Property & Casualty Insurance Company of New Jersey A- NR A1 NR
The Prudential Life Insurance Co., Ltd. (Prudential of Japan) A+ AA- NR NR
Gibraltar Life Insurance Company, Ltd. NR A A2 NR
CREDIT RATINGS:
as of August 6, 2002
Prudential Financial, Inc.:
Short-Term Borrowings AMB-1 A2 P2 F1
Long-Term Senior Debt a- A- A3 A
Redeemable Capital Securities a- A- A3 A
The Prudential Insurance Company of America :
Capital and surplus notes, due 2003-2025 a- A- A3 NR
Prudential Funding, LLC:
Commercial Paper AMB-1 A1 P1 NR
Long-Term Senior Debt a A+ A2 NR
Prudential Securities Group, Inc NR BBB NR NR
* NR indicates not rated.
INVESTOR INFORMATION:
Corporate Offices: Investor Information Hotline:
Prudential Financial, Inc. Dial 877-998-ROCK for additional printed
751 Broad Street information or inquiries.
Newark, New Jersey 07102
Web Site:
www.prudential.com
Publicly Traded Securities:
Common Stock of Prudential Financial, Inc. is traded on the New
York Stock Exchange under the symbol PRU.
Equity Security Units of Prudential Financial, Inc. are traded on the New
York Stock Exchange under the symbol PFA.
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