Financial Services Businesses
The Financial Services Businesses is comprised of three divisions, containing
eight segments, and our Corporate and Other operations. The Insurance division
is comprised of our Individual Life and Annuities segment and our Group Insurance
segment. The Investment division is comprised of the Investment Management,
Financial Advisory, Retirement and Other Asset Management segments. The International
Insurance and Investments division is comprised of the International Insurance
and International Investments segments.
Insurance Division
The Insurance division conducts its business through the Individual Life and
Annuities and Group Insurance segments.
Individual Life and Annuities
Our Individual Life and Annuities segment manufactures and distributes individual
variable life, term life, universal life and non-participating whole life insurance,
and variable and fixed annuity products, primarily to the U.S. mass affluent
market and mass market. In general, we consider households with investable assets
or income in excess of $100,000 as mass affluent. Our life products are distributed
primarily through Prudential Agents and increasingly through third parties.
Our annuity products are distributed through a diverse group of independent
financial planners, broker-dealers and banks as well as through Prudential Agents.
Products
Variable Life Insurance
We offer a number of individual variable life insurance products that provide
a return linked to an underlying investment portfolio designated by the policyholder
while providing the policyholder with the flexibility to change both the death
benefit and premium payments. Each product provides for the deduction of charges
and expenses from the customer’s investment account. We also offer variable
life products targeted to the estate planning and corporate-owned life insurance
markets.
Term Life Insurance
We offer a variety of term life insurance products. Most term products include
a conversion feature that allows the policyholder to convert the policy into
permanent life insurance coverage. We most recently repriced our term insurance
portfolio in June 2003.
Universal Life Insurance
We offer universal life insurance products that feature a market rate fixed
interest investment account and flexible premiums. In June 2003, we updated
our universal life insurance products and began to offer survivorship universal
life, which covers two individuals on a single policy and provides for payment
of a death benefit upon the death of the second insured individual.
Non-participating Whole Life Insurance
We offer a non-participating whole life insurance product with guaranteed fixed
level premiums and guaranteed cash values.
Variable and Fixed Annuities
We offer variable annuities that provide our customers with the opportunity
to invest in proprietary and non-proprietary mutual funds and fixed-rate options.
The investments made by customers in the proprietary and non-proprietary mutual
funds represent separate accounts for which the contractholder bears the investment
risk. The investments made in the fixed rate options are credited with interest
at rates determined by us, subject to certain minimums. Additionally, our variable
annuities products offer certain minimum death benefit and living benefit guarantee
options. We also offer fixed annuities that provide a guarantee of principal
and a guaranteed interest rate to be credited to the principal amount for a
specified period of time.
Investment Division
The Investment division conducts its business through the Investment Management,
Financial Advisory, Retirement, and Other Asset Management segments.
Investment Management
The Investment Management segment provides a broad array of investment management
and advisory services, mutual funds and other structured products. These products
and services are marketed and provided to the public and private marketplace
as well as the Insurance division, the International Insurance and Investments
division, and the Retirement segment.
In addition, we provide investment management services for our institutional
customers through direct sales. As described below, within this segment we utilize
the same investment management capabilities to provide asset management and
services for institutional customers and our retail customers’ assets.
Investment Management and Advisory Services Products and Services
Public Equity and Fixed Income Asset Management
Our public equity and fixed income organizations provide discretionary and
non-discretionary asset management services to a wide range of clients. We manage
a broad array of publicly traded equity and debt asset classes using various
investment styles. In 2000, substantially all of our active public equity asset
management capabilities were consolidated into our wholly owned subsidiary,
Jennison Associates, LLC (“Jennison”). Jennison is a widely recognized manager
of institutional assets and is a leading sub-advisor for mutual fund assets.
Real Estate Asset Management
Our real estate organization provides asset management services for single-client
and commingled real estate portfolios and manufactures and manages a variety
of real estate investment vehicles, primarily for institutional clients. Our
real estate investment vehicles range from fully diversified funds to specialized
funds that invest in specific types of properties or specific geographic regions
or follow other specific investment strategies.
On December 31, 2002, we acquired TMW Immobilien AG and TMW Real Estate Group,
LLC (together “TMW”), one of the largest independent investment managers for
international real estate with $3.9 billion in net assets under management.
TMW is headquartered in Munich, Germany and Atlanta, GA, with offices throughout
Europe, and has been integrated with the rest of our institutional real estate
management activities.
Private Equity and Fixed Income Asset Management
Our private fixed income organization provides asset management services to
our clients by investing predominantly in private placement investment grade
debt securities, as well as below investment grade debt securities, and mezzanine
debt financing. These investment capabilities are utilized by our general account
and institutional clients through direct advisory accounts, separate accounts,
or private fund structures. A majority of the private placement investments
are directly originated by our investment staff.
At the end of 2001, we decided to exit our private equity asset management
business through divestiture and rationalization of the remaining activities
into our private fixed income asset management business. The remaining assets
we manage, primarily for our general account, include venture capital, leveraged
buyouts, development capital, mezzanine debt and certain special situations,
but we do not intend to sponsor new funds other than for mezzanine debt.
Commercial Mortgage Origination and Servicing
Our commercial mortgage banking business provides mortgage origination and
servicing, for our general account, institutional clients, and for government
sponsored entities such as Fannie Mae and FHA.
Mutual Funds Products and Services
We manufacture, distribute and service investment management products utilizing
proprietary and non-proprietary asset management expertise in the U.S. retail
market. Our products are designed to be sold by Prudential Agents and third
party financial professionals. We offer a family of retail investment products
consisting of 87 mutual funds and four wrap-fee products as of December 31,
2003. These products cover a wide array of investment styles and objectives
designed to attract and retain assets of individuals with varying objectives
and to accommodate investors’ changing financial needs. On May 1, 2003, we acquired
Skandia U.S. which included a mutual fund business. The operations of the acquired
mutual fund business have been combined with our existing mutual fund business.
Financial Advisory
The Financial Advisory segment consists of our 38% investment in Wachovia Securities
and our equity sales, trading and research operations.
Equity Sales, Trading and Research Operations
We engage in equity securities sales and trading primarily for our institutional
clients, executing transactions on both an agency and a principal basis in listed
and NASDAQ equities and equity options. We make a market in more than 900 NASDAQ
securities.
Our research analysts produce reports and studies on the economy; the domestic
equity markets, industries and specific companies; investment and portfolio
strategies; and regulatory, political, legislative and tax issues. We seek to
focus our research coverage on companies of greatest interest to our clients,
located both in the U.S. and abroad.
Retirement
Our Retirement segment manufactures and distributes products and provides administrative
services for qualified and non-qualified retirement plans for companies of all
sizes. We offer products across the defined contribution market including the
401(a), 401(k), 403(b), 457 and Taft-Hartley markets. We also offer products
in the non-qualified retirement market. Additionally, we offer guaranteed products
such as guaranteed investment contracts (“GICs”), funding agreements and group
annuities for defined contribution plans, defined benefit pension plans, structured
settlements and non-qualified entities.
Defined Contribution Products and Services
Our primary defined contribution product, PruArray, offers plan sponsors access
to more than 700 mutual funds, approximately 45 of which are sponsored by Prudential,
with the balance sponsored by more than 30 other mutual fund companies. PruArray
also offers stable value investment options. We tailor PruArray to the various
defined contribution product markets, as appropriate, and to suit retirement
plans of different sizes. We also offer defined contribution plan services including
participant and plan reporting, plan testing, call center services, voice response
and Internet capabilities, participant communication and educational services
and record keeping administration.
Guaranteed Investment Contracts and Funding Agreements
We offer general account GICs and funding agreements, through which customers
deposit funds with us under contracts that typically provide for a specified
rate of interest on the amount invested through the maturity of the contract.
We are obligated to pay principal and interest according to the contracts’ terms.
This obligation is backed by our general account assets, and we bear all of
the investment and asset/liability management risk on these contracts. As spread
products, general account GICs and funding agreements make a profit to the extent
that the rate of return on the investments we make with the invested funds exceeds
the promised interest rate and our expenses. We also offer credit-enhanced GICs,
which have a triple-A rating, the highest rating possible, as a result of a
guarantee from a financial insurer. In addition, we offer separate account and
synthetic GICs, through which we hold customers’ funds either in a separate
account or in trust outside of our general account for the benefit of the customer.
We pass all of the investment results through to the customer, subject to a
minimum interest rate, and we do not earn spread income. As fee-based products,
separate account and synthetic GICs are less capital intensive and produce lower
levels of income than spread products. To the extent that Prudential’s asset
management units are selected to manage client assets associated with fee-based
products, those units also earn investment management fees from those relationships.
A limited amount of our in force GIC business may be redeemed at the option
of the holder prior to the applicable termination dates.
Group Annuities
We offer group annuities primarily to defined benefit plans to provide fixed
lifetime benefits for a specified group of plan participants. These annuities
are generally single premium annuities that provide for either immediate or
deferred payments. We offer fixed payment annuities backed by our general account
(spread products) as well as separate account annuities (fee products) that
permit a plan sponsor to realize the benefit of investment and actuarial results
while receiving a general account guarantee of minimum benefits. We also offer
fixed and variable annuities, under group annuity contracts, to individuals
taking lump sum distributions from defined contribution plans.
Structured Settlement Products
We offer structured settlement products backed by our general account (spread
products), which are customized annuities used to provide ongoing periodic payments
to a claimant in malpractice or personal injury lawsuits instead of a lump sum
settlement.
International Insurance and Investments Division
The International Insurance and Investments division conducts its business
through the International Insurance and International Investments segments.
International Insurance
Our International Insurance segment manufactures and distributes individual
life insurance products to the affluent market in Japan, Korea and other foreign
markets through Life Planners. In addition, as part of the operations of Gibraltar
Life Insurance Company, Ltd. (“Gibraltar Life”), we offer similar products to
the broad middle income market across Japan through Life Advisors, a business
we operate separately from our Life Planners. We commenced sales in foreign
markets using the Life Planner model, as follows: Japan, 1988; Taiwan, 1990;
Italy, 1990; Korea, 1991; Brazil, 1998; Argentina, 1999; the Philippines, 1999;
and Poland, 2000. We also have a representative office in China.
We currently offer various traditional whole life, term life and endowment
policies, which provide for payment on the earlier of death or maturity. In
some of our operations we also offer certain health products with fixed benefits.
We also offer variable life products in Japan and Korea and offer interest-sensitive
life products in Japan, Taiwan and Argentina. Generally, our international insurance
products are non-participating and denominated in local currency, with the exception
of products in Argentina, which are mostly U.S. dollar denominated, and a limited
number of policies in Japan and Korea that are also U.S. dollar denominated.
For these dollar denominated products, both premiums and benefits are payable
in U.S. dollars.
Closed Block Business
As a mutual insurance company, we issued most of our individual life insurance
products on a “participating” basis, whereby policyholders are eligible to receive
policyholder dividends reflecting experience. These life insurance products
were historically included in our former Traditional Participating Products
segment. In connection with the demutualization, we ceased offering domestic
participating products. The liabilities for our individual in force participating
products were segregated, together with assets that will be used exclusively
for the payment of benefits and policyholder dividends, expenses and taxes with
respect to these products, in the Closed Block. We selected the amount and type
of Closed Block Assets and Closed Block Liabilities included in the Closed Block
so that the Closed Block Assets initially had a lower book value than the Closed
Block Liabilities. We expect that the Closed Block Assets will generate sufficient
cash flow, together with anticipated revenues from the Closed Block Policies,
over the life of the Closed Block to fund payments of all policyholder benefits
to be paid to, and the reasonable dividend expectations of, policyholders of
the Closed Block Policies. We also segregated for accounting purposes the Surplus
and Related Assets that we need to hold outside the Closed Block to meet capital
requirements related to the products included within the Closed Block. No policies
sold after demutualization will be added to the Closed Block and its in force
business is expected to ultimately decline as we pay policyholder benefits in
full.