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Prudential Financial, Inc. Announces Third Quarter 2012 Results

The International Insurance segment reported adjusted operating income of $783 million for the third quarter of 2012, compared to $660 million in the year-ago quarter.

Adjusted operating income of the segment’s Life Planner insurance operations was $393 million for the current quarter, compared to $331 million in the year-ago quarter. Current quarter results benefited $20 million from refinements of reserves and related items reflecting updates of actuarial assumptions based on an annual review. Excluding this item, adjusted operating income increased $42 million from the year-ago quarter. The increase reflected continued business growth and a favorable impact of $14 million in comparison to the year-ago quarter from foreign currency exchange rates including the impact of the Company’s currency hedging programs.

The segment’s Gibraltar Life and Other operations reported adjusted operating income of $390 million for the current quarter, compared to $329 million in the year-ago quarter. Current quarter results include a benefit of $60 million from the partial sale of an investment, through a consortium, in China Pacific Group. In addition, results for the current quarter reflect absorption of $34 million of integration costs related to the Star and Edison businesses acquired on February 1, 2011. Results for the year-ago quarter include a benefit of $84 million from a partial sale of the investment in China Pacific Group and charges of $43 million for integration costs related to the acquisition. Excluding these items, adjusted operating income increased $76 million from the year-ago quarter. This increase reflected continued business growth, and approximately $40 million of cost savings resulting from business integration synergies compared to approximately $5 million in the year-ago quarter. Current quarter results also benefited $13 million in comparison to the year-ago quarter from foreign currency exchange rates including the impact of the Company’s currency hedging programs.

Corporate and Other operations resulted in a loss, on an adjusted operating income basis, of $452 million in the third quarter of 2012, compared to a loss of $349 million in the year-ago quarter. Current quarter results include a charge of $78 million to strengthen reserves for obligations relating to certain pre-demutualization policyholders, reflecting the impact of an annual review of actuarial assumptions, and a charge of $16 million to write off bond issuance costs on debt securities redeemed prior to maturity. Results for the year-ago quarter included a charge of $99 million to increase reserves for estimated claims based on use of new Social Security Master Death File criteria to identify deceased policy and contract holders, and a charge of $20 million for a contribution to be made to an insurance industry solvency fund. Excluding these items, the loss from Corporate and Other operations increased $128 million, from $230 million in the year-ago quarter to $358 million in the current quarter. This increase was primarily driven by higher expenses and by higher interest expense, net of investment income, reflecting a greater level of capital debt in the current quarter.

Assets under management amounted to $1.005 trillion at September 30, 2012, compared to $901 billion at December 31, 2011, and $871 billion at September 30, 2011.

The net loss of the Financial Services Businesses attributable to Prudential Financial, Inc. amounted to $661 million for the third quarter of 2012, compared to net income of $1.562 billion in the year-ago quarter.

The current quarter net loss includes $1.303 billion of pre-tax net realized investment losses and related charges and adjustments. Net realized investment losses for the current quarter include net losses of $684 million from products that contain embedded derivatives and associated derivative portfolios that are part of a hedging program related to the risks of these products as well as mark to market of derivatives under a capital hedge program. These losses were largely driven by updates of actuarial assumptions based on an annual review. The foregoing current quarter net loss also includes pre-tax losses of $521 million representing net changes in value relating to foreign currency exchange rates and changes in market value of derivatives primarily resulting from changes in value of the Japanese yen in relation to other currencies. These currency-driven value changes were largely offset by corresponding adjustments to accumulated other comprehensive income which are not reflected in net income or loss. Net realized investment losses also reflect losses from impairments and sales of credit-impaired investments amounting to $107 million.

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