PRUDENTIAL FINANCIAL, INC. 2PRUDENTIAL FINANCIAL, 0 INC. 11 ANNUAL REPORT 2011 ANNUAL REPORT WHO WE ARE For more than 135 years, Prudential Financial, Inc. has helped people grow and protect their wealth. We offer individual and institutional clients a wide array of fi nancial products and services. Today, we are one of the world’s largest fi nancial services institutions. We have $901 billion in assets under management and approximately $3.6 trillion of gross life insurance in force worldwide as of December 31, 2011. We have operations in the United States, Asia, Europe and Latin America. We also have one of the most recognized and trusted brand symbols: The Rock®, an icon of strength, stability, expertise and innovation. We measure our long-term success by our ability to deliver value for shareholders, meet customer needs, attract and develop the best talent in our industry, offer an inclusive work environment where employees can develop to their full potential, and support the communities where we live and work. MESSAGE FROM THE CHAIRMAN Dear fellow shareholders: Over the past few years, dramatic events have challenged the global fi nancial system with wide-ranging repercussions, affecting businesses and individuals alike. 2011 was no exception, but I am pleased to report that in this year of continued market volatility, Prudential has distinguished itself in the markets we serve for the benefi t of our customers and our shareholders. Consistent with our commitment to provide long-term shareholder value, our company delivered solid earnings and our highest-ever dividend. Our businesses continued to demonstrate their strength through powerful sales and growth momentum. Our capital position remains strong, providing us fl exibility to act opportunistically in pursuit of profi table, sustainable growth. Each year, we underscore four main contributors to our success as a company. 1. Our strategic portfolio of businesses, which has been achieved by active design, represents a powerful blend of growth and stability. 2. Our businesses’ high quality is due to strong leadership, fundamentals, risk “We underscore four management and positioning in their respective geographic and demographic markets. contributors to our 3. Our fi nancial strength provides not only protection to meet our promises, but success as a company. freedom to grow our businesses and to innovate as we anticipate our clients’ evolving needs. Our strategic portfolio of businesses. 4. Our focus on talent and culture serves as a competitive differentiator and supports our enterprise-wide emphasis on ethics and integrity. The quality of our businesses. This year, our progress and achievement in each of these pillars has rewarded us with solid results. Our fi nancial strength. Our Financial Services Businesses reported net income for 2011 of $3.531 billion, or Our focus on talent $7.22 per share of Common Stock, compared to $2.714 billion or $5.75 per share of and culture.” Common Stock in 2010. On an after-tax adjusted operating income basis,* our Financial Services Businesses earned $3.134 billion in 2011, or $6.41 per share of Common JOHN STRANGFELD Stock, compared to $2.916 billion or $6.17 per share of Common Stock in 2010. We continue to gain ground and enhance our competitive position relative to our peers. This success refl ects the strength of our portfolio, the strength of our business, the strength of our fi nancial position, and the strength of our people. I am proud of the work we do as a company, and the way in which we do it. Achieving an Optimal Business Portfolio Under our strong, widely recognized brand, Prudential maintains a strategic mix of attractive, well-led businesses whose products, services, and risks complement one another. By diversifying our portfolio of businesses across geographic and demographic markets, we diversify our risks, mitigating the vulnerability of the company’s overall results and capital position to any particular element of risk, including interest rate levels and equity market risks. For example, as of year-end 2011, we had approximately $3.6 trillion of gross life insurance in force worldwide. The mortality risk of life insurance helps balance the risks of our other products, such as the longevity risk of variable annuities and group annuities. Our balanced mix of businesses enables Prudential to provide fi nancial growth and protection to clients at all stages of their lives. * Adjusted operating income is not calculated under U.S. generally accepted accounting principles (GAAP) and is a fi nancial measure we use to analyze the operating performance of our Financial Services Businesses. See footnote (1) on page 5 and footnote (A) on page 7 for a further description of adjusted operating income. Prudential Financial, Inc. 2011 Annual Report 1 • International Insurance, anchored in Japan, is founded high value to our customers today, but we must also on lifetime client relationships and an emphasis on life develop products and services that anticipate their needs insurance protection products, but is also successfully of tomorrow. expanding distribution and innovating retirement-related To accomplish this, we work to make certain our company products in a growing market. possesses the strength and appropriate scale to meet • Asset Management’s capabilities in multiple asset each and every promise to our customers. In addition, we classes make us a leading asset manager of institutional continually strive to deepen our relationships with both and retail funds, and also provide a competitive our existing and emerging customer base. advantage for Prudential’s other businesses. Strong net This type of commitment to customers does not fl ows are driving increasing assets under management go unnoticed. As an example, this year, Prudential leading to higher recurring asset management fees. received the highest ranking by J.D. Power Asia Pacifi c • Individual Annuities is a leader across multiple in the 2011 Japan Life Insurance Contract Customer distribution channels, with our auto-rebalancing Satisfaction Study, outranking leading domestic and products serving to balance and improve our overall foreign-owned insurers. risk profi le. Our proven and superior value proposition One of the ways that we gauge our value to customers to clients is serving an increasing need for retirement is in terms of sales, based on annualized new business income products in the market. premiums, and net fl ows. • Retirement, comprised of our full-service and institutional • International Insurance sales were a record $3.0 billion investment businesses, is a source of stable earnings, in 2011 on a constant U.S. dollar basis, including and is well positioned to act on market opportunities, $728 million attributable to the acquired Star and Edison particularly in the pension risk transfer market. operations, up 63% from a year ago. On a comparable • Individual Life and Group Insurance provide stable cash basis, excluding Star and Edison, sales were up 24%. fl ows, largely mortality-driven risks, and potentially • Asset Management segment assets under management attractive returns largely uncorrelated to the equity were more than $619 billion as of year-end 2011, up markets based on effective capital and risk management 15% from a year ago, refl ecting net institutional fl ows, and cost-effective distribution. excluding money market activity, of more than $16 We have achieved our balanced portfolio thoughtfully and billion in 2011. proactively, through strong business management, steady • Individual Annuities account values were $113.5 billion organic growth, strategic acquisitions, and deliberate as of year-end 2011, up 7% from a year ago, refl ecting divestitures over time. net fl ows of $11.7 billion in 2011. In 2011, we signifi cantly increased our presence in the • Retirement account values were $229.5 billion as of world’s second largest life insurance market, Japan, by year-end 2011, up 12% from a year ago, refl ecting net completing the purchase of AIG Star and AIG Edison. fl ows of $19.3 billion in 2011. Also, in 2011, we announced and completed the sales of Prudential Bache Global Commodities, and of Prudential • Group Insurance sales were $690 million in 2011, Real Estate and Relocation Services, the company’s real up 14% from a year ago. estate brokerage and relocation services unit. These are • Individual Life sales were $278 million in 2011, quality companies whose business activities were not up 7% from a year ago. core to our central mission. Their divestiture represents the continual fi ne-tuning of our portfolio, allowing us to We demonstrate our performance in the marketplace redeploy the capital that was supporting these businesses through earnings, which we measure for our businesses by to those more central to our mission. pre-tax adjusted operating income. Going forward, we will continue to evaluate opportunities • International Insurance reported pre-tax adjusted to enhance and complement our nucleus of businesses. operating income of $2.7 billion for the year, compared Although we expect to enhance our competitive position to $2.1 billion a year ago. through broader international growth, we do not expect a radical shift in our portfolio. Our present mix of high- • Asset Management reported pre-tax adjusted operating quality businesses refl ects our long-term strategy to income of $659 million for the year, compared to $487 capitalize on our unique combination of life insurance and million a year ago. asset management expertise that enables our individual • Individual Annuities reported pre-tax adjusted operating and institutional clients to grow and protect their wealth. income of $713 million for the year, compared to $1.0 billion a year ago. Operating High-Quality Businesses • Retirement reported pre-tax adjusted operating income At Prudential, we seek leadership positions wherever we of $598 million for the year, compared to $572 million compete. In order to perform at a market-leading level, a year ago.