Financial Services Businesses

Prudential Financial’s Common Stock (NYSE:PRU) reflects the performance of its Financial Services Businesses, which consist of its U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, and International Insurance divisions and its Corporate and Other operations.

In the following business-level discussion, adjusted operating income refers to pre-tax results.

The U.S. Retirement Solutions and Investment Management division reported adjusted operating income of $847 million for the second quarter of 2013, compared to $306 million in the year-ago quarter.

The Individual Annuities segment reported adjusted operating income of $400 million in the current quarter, compared to $107 million in the year-ago quarter. Current quarter results benefited $75 million from a net reduction in amortization of deferred policy acquisition and other costs and net reductions in reserves for guaranteed minimum death and income benefits, reflecting an updated estimate of profitability for this business. Results for the year-ago quarter included a net charge of $124 million from adjustment of these items to reflect an update of estimated profitability. The foregoing benefit to current quarter results and charge to year-ago quarter results were largely driven by market performance relative to our assumptions during the respective periods. Excluding the effect of the foregoing items, adjusted operating income for the Individual Annuities segment increased $94 million from the year-ago quarter. The increase reflected higher asset-based fees due to growth in variable annuity account values, net of related amortization of deferred policy acquisition and other costs and asset-based commissions.

The Retirement segment reported adjusted operating income of $279 million for the current quarter, compared to $147 million in the year-ago quarter. The increase reflected a $95 million greater net contribution from investment results, including about $35 million of returns on non-coupon asset classes that we estimate to be above average expectations. Current quarter results also benefited $28 million from a greater contribution from case experience on group annuity and similar contracts, about half of which is associated with a true-up in reported deaths reflecting a change in benefits administration. These greater contributions to results were driven largely by two significant pension risk transfer transactions consummated during the fourth quarter of 2012. The remainder of the current quarter increase in Retirement segment adjusted operating income reflected higher fees associated with growth in account values.

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