Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
Wall Street Breakfast

Prudential Financial, Inc. (NYSE:PRU)

Q2 2007 Earnings Call

August 2, 2007, 11:00 AM ET

Executives

Eric Durant - Sr. VP of IR

Arthur F. Ryan - Chairman, President and CEO

Richard J. Carbone - Sr. VP and CFO

John R. Strangfeld - Vice Chairman

Mark B. Grier - Vice Chairman

Analysts

Suneet Kamath - Sanford Bernstein

Thomas Gallagher - Credit Suisse

Jeffrey Schuman - Keefe, Bruyette & Woods

Nigel Dally - Morgan Stanley

Daniel Johnson - Citadel Investment Group L.L.C.

Coline Devine - Citigroup

Andrew Kligerman - UBS Securities

Jimmy Bhullar - JP Morgan

Eric N. Berg - Lehman Brothers

Edward A. Spehar - Merrill Lynch

Joan H. Zief - Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you very much for standing by. We do appreciate your patience while the conference assembled today. And good morning, good afternoon to our global audience. Welcome to Prudential announcing their second quarter 2007 earnings release. Now at this point and during the presentation, we do have all of your phone lines muted or in a listen-only mode. However, after management's prepared remarks, there will be opportunities for your questions. [Operators Instructions ] And as a reminder, today's call is being recorded for replay purposes. That information will be announced at the conclusion of our call. So with that being said, here with opening remarks and to introduce the executive team, Head of Investor Relations Mr. Eric Durant. Good morning sir, and please go ahead.

Eric Durant - Senior Vice President of Investor Relations

Thank you Brian. Good morning. Thank you for joining us. We always welcome the opportunity to tell our stories. Today that's especially the case. Art Ryan will kick things off this morning and after that, Rich Carbone, John Strangfeld, and Mark Grier, will walk us through the quarter. Then we will welcome your questions.

In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements and non-GAAP measures of our unexpressed release for the second quarter of 2007, which can be found on our website at www.investor.prudential.com.

In addition, in managing our businesses, we use a non-GAAP measure, we call it adjusted operating income, to measure the performance of our financial services businesses. Adjusted operating income excludes net investment gains and loses, as adjusted, and related charges and adjustments, as well as results from divested businesses. Adjusted operating income also excludes recorded changes in asset values that will ultimately accrue to contract holders and recorded changes in contract holder liabilities, resulting from changes in related asset values. The comparable GAAP presentation, and the reconciliation between the two for the second quarter are set out in our earnings press release on our website. Additional historical information relating to the company's financial performance is also located on our website.

Our first speaker is Art Ryan.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

Thank you Eric. Good morning, and welcome. Prudential continues to perform well. Our annualized return on equity for the year-to-date was 16.4% based on adjusted operating income. On the same basis, earnings per share increased by 34% in the quarter, and by 38% in the first half compared to the corresponding periods of last year. Our business momentum is broadly based, and our results also reflect favorable market conditions, especially for equities and commercial real estate through mid-year.

That said, market dislocations are a fact of life for any financial institution. So recent turmoil in equity and credit markets did not shock us. We believe that the quality of our business models, the staying power of our value propositions in the marketplace, and our financial strength prepare us to weather volatile market conditions.

We also believe that stormy markets create new opportunities to serve our customers, while demonstrating our skills as risk managers. Annuities are a case in point. The decline in the equity markets in the early 2000s was painful for annuity companies and their customers, but this unhappy experiences created demand for risk management features, and guarantees that continues unabated. Companies with the skill sets and the capital strength to meet this demand have flourished. Those lacking them have exited the business, or fallen by the wayside.

More broadly, unfavorable market conditions provide a test of a company's risk management beginning with its diversification of risk. Prudential has a portfolio of businesses that I believe is unusually diverse. Our businesses serve both individual and institutional clients. We operate in the United States and abroad, and we manage a broad set of insurance and market risks that to a great extent are uncorrelated. We select the particular risks we take carefully based on our proven skill sets. For example, management of credit risk is a demonstrated core competency of Prudential of long-standing.

Prudential's balance sheet is exceptionally strong and our credit exposures are well within our risk tolerance standards, which we believe are consistent with our AA ratings aspirations. Rich Carbone will have more to say on this subject in a few moments.

Prudential's capital position remains rock solid. We estimate that excess capital, which includes untapped capacity to issue capital debt and hybrid securities, as well as equity on the books is in the range of $7 billion or more. This is a static measure. Share repurchases, common dividends, and acquisitions reduce this total. But a significant portion of our earnings, we estimate about 60% of our after-tax adjusted operating income, increases it.

In the first half of this year, we have repurchased $1.5 billion of common stock. This is in line with our Board authorization to purchase up to $3 billion this year. As I said at our last Investor Day, as a base case, we expect annual share repurchases of $3 billion through at least 2009. Prudential's election of the look-back option with respect to our investment in Wachovia Securities has not changed this expectation.

Finally, I will update earnings guidance for the full year. Earnings power in the first half is running well above our current guidance for full year 2007. Our businesses continue to perform well. We are raising our guidance for Prudential's 2007 common stock earnings per share to a range of $7.20 to $7.40 based on adjusted operating income. This guidance reflects our consideration of a wide range of circumstances, including seasonal patterns and lumpy revenues and expenses. In addition, our guidance assumes stable equity markets over the balance of the year.

Now I will ask Rich Carbone, John Strangfeld, and Mark Grier to review the quarter in some detail for you. After that, we look forward to hearing your questions. Rich?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Good morning. I'll start with an review of the second quarter results for The Financial Services Businesses. As you have seen from yesterday's release, we reported common stock earnings per share for the financial services business of $1.87 per share for the second quarter compared to $1.40 for the year ago quarter. These results are based on after-tax adjusted operating income and amount to a 34% increase in EPS. Our current quarter results benefited from business growth, improved mortality experience in our domestic protection business, favorable equity markets, and a contingent strong commercial real estate market.

Our annualized ROE based on after-tax adjusted operating income for the second quarter was 16.3% and amounted to 16.4% for the first half. The list of items in this current quarter resulting from unusual or non-recurring items is very short, and contributed only about $0.04 per share. Income from our commercial mortgage operation within the Asset Management business benefited from mark-to-market on hedging instruments that especially strong in relation to the average of the recent quarter and that added about $0.02 per share.

In Gibraltar, income from a single joint venture investment contributed another $0.02 per share. Each of our three operating divisions contributed to this EPS increase, registering double-digit increases in adjusted operating income. John and Mark will speak to our detailed business results in a moment.

Corporate and other operations reported a loss of $8 million for the quarter compared to adjusted operating income of $40 million a year ago. The swing in corporate and other results reflected, among other things, a fluctuation in deferred compensation liabilities that we mark to market as this rise in the equity markets required us to increase the liability. In addition, the contribution from our real estate and relocation businesses included in corporate and other results were down $11 million for the quarter from a year ago, reflecting lower transaction volume and a less favorable residential real estate market. Now, John Strangfeld and Mark Grier will review our business results for the quarter. I will turn over to John for the domestic businesses.

John R. Strangfeld - Vice Chairman

Thank you Rich. I will begin with the Insurance division. Adjusted operating income from our individual life insurance business was $141 million for the current quarter, up $45 million from a year ago. Current quarter results benefited from improved mortality experience compared to a year ago when claims experience was less favorable than our average expectations. We also had lower amortization of deferred policy acquisition costs and related items this quarter than a year ago. Most of our individual life DAC is amortized based on actual and expected profits. The uptick in the equity markets in the current quarter together with improved persistency, both contributed to higher expected revenues and were the major causes of the lower amortization.

Sales, excluding COLI amounted to $118 million in the current quarter, up $17 million from a year ago. The sales increase came mainly from our term insurance products and were primarily driven by our continued development of third party distribution relationships, including direct response agents who specialize in term insurance, as well as national and regional brokerage organizations.

In addition, in April this year, we find-tuned our pricing to improve our comparative position, lowering rates for term insurance cases of a million or more in selected underwriting categories, while raising rates for some smaller face amount policies. We are also beginning to register sales from a recently added return of premium term product that appeals to clients who want affordable term insurance and funds they use [ph] for other purposes after the protection period. Overall, third party sales were up 36% from a year ago and accounted for about two-thirds of our total second quarter non-COLI individual life sales.

The Prudential agent count stood at about 2,500 at the end of the second quarter, down about 330 from a year ago. We hold agents to minimum production standards on a calendar year basis and the decline mainly reflects attrition of lower producers at the end of last year, coupled with selective hiring.

Sales by Prudential agents declined by 7% from a year ago, less than the 12% decline in headcount. Our annuity business reported an adjusted operating income of $180 million in the second quarter, up 58% million from a year ago. The variable annuity business we acquired from Allstate contributed $18 million more to earning than in the year ago quarter when we reported its first month of operations following the acquisition in June of '06. The reminder of the increase came mainly from higher asset-based fees, driven by market appreciation together with strong net sales of variable annuities, which have amounted to $1.6 billion over the last year.

Our gross variable annuity sales exceeded $3 billion for the first time this quarter, up 21% from a year ago, including nearly $500 million from the new distribution that came to us with the acquisition of the Allstate business. In addition to expanded distribution, our sales are benefiting from the popularity of our Highest Daily or HD Lifetime Five feature that we introduced last November. Over $600 million of our current quarter sales included this feature. And our overall take rate for living benefits in the quarter was over 80%.

As clients increasingly think of variable annuities with living benefits as a retirement income solution, our product innovation and risk management skills are a significant advantage in the advisor sold market. I should mention that we just received Insurance Department approval for sales of HD Lifetime Five in New York in late July, and expect to roll out the feature in that market shortly.

Lifetime Five account values on the books, including the original version introduced in early '05, the Spousal product introduced early last year, and the new HD product reached $12.4 billion at the end of the quarter, an increase of more than $2 billion from the first quarter, and $7 billion from a year ago.

Gross variable annuity sales in our largest channel, independent financial planners, were a record $2 billion this quarter, up 13% from a year ago. Sales by insurance agents were $660 million for the quarter, including nearly $300 million from Allstate proprietary channel where we introduced our products last August. Sales in the wirehouse channel, including the relationships that came to us with the Allstate business, are up $110 million, or 41% from a year ago.

The Group Insurance business reported adjusted operating income of $69 million in the current quarter, up $40 million from a year ago. The increase came mainly from improved life claims experiences in the current quarter compared to a year ago when group life mortality was less favorable than our average expectations. Group disability expense is also more favorable than a year with higher expenses a partial offset. Group insurance sales were $52 million in the current quarter compared to $43 million a year ago. Most of our Group Insurance sales are registered in the first quarter based on effective dates that the business sold.

Turning to the Investments division, the Retirement segment reported adjusted operating income of $138 million for the current quarter compared to $142 million a year ago. Results for the year ago quarter benefited from $10 million of mortgage prepayment income and $9 million of reserve releases, while the current quarter benefited only $5 million from similar items. Stripping these items out of comparison, results were up $10 million from a year ago, mainly as a result of greater investment income, net of interest costs, reflecting a growth of balances for institutional investment products.

In our Full Service business, we are continuing to invest in our product and service capabilities, including those that address the retail rollover and income product markets. Higher expenses essentially offset the growth in fees for full service retirement where account values have increased $12.5 billion or about 14% over the past year.

Gross deposits and sales of the full service business were $3.2 billion for the current quarter compared to $4.1 billion a year ago, which included about $1 billion from two large cases.

Withdrawals and other outflows in the current quarter were $3.2 billion or 3% of beginning values compared $3.4 billion or 4% of beginning values a year ago.

Our net flows in full service retirement were disappointing in the current quarter. Our persistency remained strong and the shortfall as a function of sales softer than what we are targeting. Our main focus is on the mid to large case market. We typically sell several large cases per year and in the first half of this year, we have not registered these large case sales. However, we see nothing of systematic concern and we remain confident that the long-term prospects for this business are favorable.

The Asset Management segment had adjusted operating income of $190 million in the current quarter, up $53 million from a year ago. The increase reflected greater performance-based fees, mainly related to real estate investment management and growth in Asset Management fees.

Roughly one-quarter of this segment's revenues come from incentives, transaction, principal investing, and capital markets activities, but we would estimate that the earnings contribution to these activities is closer to half of the segment's reported results for both the current quarter and the first half of the year. Results from these activities reflect market conditions as well as the success of investment strategies we implemented for our third party clients, and our own co-investments in proprietary investments.

We continue to benefit in the current quarter from a strong commercial real estate market, as well as favorable performance in our proprietary fixed income fund investment.

Current quarter results also benefited from growth in Asset Management fees, reflecting a $47 billion or 13% increase in assets under management over the past year, driven by market appreciation and positive net flows.

The Financial Advisory segment had an adjusted operative income of $72 million this quarter compared to $30 million a year ago. The $42 million increase came mainly from $33 million greater income from our share of the retail brokerage joint venture with Wachovia, which benefited from growth in commissions and fees. In addition, this segment's expenses for retained obligations in the current quarter were $9 million lower than a year ago.

Now I will turn it over to Mark for the International Businesses.

Mark B. Grier - Vice Chairman

Thank you John and Rich. The International Insurance segment reported adjustment operating income of $412 million for the current quarter compared to $324 million a year ago. The segment's results include adjusted operating income of $159 million from Gibraltar Life in the current quarter, up $57 million from a year ago. Gibraltar's current quarter results include $14 million of investment income from a single joint venture, reflecting the sale of real estate within the venture. Results for the year ago quarter included charges of $17 million to true up policy liabilities. Stripping out these items, Gibraltar's adjusted operating income increased by $26 million from a year ago. This increase came mainly from improved investment income margins, reflecting a continuation of our portfolio of strategies to lengthen maturities and increase US dollar investing, as well as growth of Gibraltar's US dollar fixed annuity business where account values stood at $2.3 billion at the end of the second quarter, approximately twice the level of a year ago.

Sales from Gibraltar Life based on annualized premiums in constant dollars were $105 million in the current quarter compared to $121 million a year ago. The decrease came entirely from lower sales of our US dollar fixed annuity product, which represents substantially all of the sales reported for Gibraltar's bank channel and contributed $30 million to current quarter life advisor sales compared to $41 million a year ago.

Sales of this product in the year ago quarter benefited from initial customer demand following the product introduction and yen-dollar exchange rates that were more attractive for Japanese consumers than the recent exchange rates. Gibraltar had about 5800 life advisors at the end of the second quarter, up about 130 from a year earlier, but below the count at the end of the first quarter.

We continue to focus on quality of the field force, which drives both productivity and the persistency of business sold, and earlier this year, we reinforced our selection standards in hiring based on our observations about critical success factors. In addition, we hold our life advisors to minimum production standards based on semiannual evaluation periods, and we experienced some attrition of lower producers.

Our Life Planner business, the International Insurance operations other than Gibraltar Life, contributed $253 million of adjusted operating income in the current quarter, up $31 million from a year ago. The increase came mainly from continued business growth. In addition, our Life Planner results benefited by $8 million from more favorable foreign currency translation, mainly related to our Korean operation.

Sales from our Life Planner operations based on annualized premiums in constant dollars were $186 million in the current quarter compared to $192 million a year ago. Sales in Japan are $121 million for the current quarter compared to $123 million a year ago. In April of this year, we increased pricing for the income feature of our U.S. dollar denominated retirement income product, and this accelerated some sales that might have taken place during the second quarter into the first quarter, as customers purchased policies in advance of the repricing. For the first half, sales in Japan are up 5% compared to a year ago, roughly in line with the 6% increase in Life Planner count.

For our operations outside of Japan, which mainly reflects our Korean Life Planner business, sales were $65 million in the current quarter compared to $69 million a year ago. The Life Planner count in Korea stood at just over 1600 at the end of the second quarter. The count has essentially returned to the level of a year ago, after declining through most of last year, as we experienced difficult competitive conditions and poaching of Life Planners.

We recently implemented some fine-tuning of our compensation structure in Korea, including features to encourage sales of life insurance to the new customers. While it's still early to draw a conclusion, the initial results were positive in terms of improved Life Planner retention, which contributed to the net increases in Life Planners during both the first and second quarters of this year.

In our insurance business, which always have things going on quarter-to-quarter. The fundamentals of the business are sound and I believe that we remain on track to deliver our expected business growth and return results over time.

The International Investment segment reported adjusted operating income of $43 million for the current quarter compared to $34 million a year ago. The increase came from more favorable results from our International Asset Management businesses, mainly in Korea.

Now I'll turn it back to Rich

Richard J. Carbone - Senior Vice President and Chief Financial Officer

I am going to comment on net income and the investment portfolio with some detail on a specific asset class. Net income for the Financial Services business was $835 million for the second quarter compared to $424 million for the year ago quarter. Current quarter results include pre-tax realized investment gains of $32 million, net of related charges and adjustments. These realized gains came mainly from the sales of equity securities and our Japanese and Korean insurance operations.

Credit-related losses and impairments were $17 million in the current quarter. Our gross unrealized losses on fixed income maturities in our general account stood at $1.3 billion at the end of the second quarter, with the vast majority related to interest rate movements on investment grade securities. Only $92 million of the gross unrealized losses related to non-investment grade securities. Substantially all of the increase from the first quarter when gross unrealized losses were $551 million is interest rate-related.

Non investment grade fixed income maturities comprise about 6.5% of the Financial Services business fixed maturity portfolio at the end of the second quarter, essentially unchanged from the year ago quarter. Our exposure to residential mortgages is through the mortgage-backed and asset-backed securities included in our fixed maturity portfolio, and is virtually all investment grade.

Mortgage-backed securities amounted to $8 billion at the end of the second quarter and this portfolio accounted for $125 million of our total $1.3 billion gross unrealized loss. About 98% of the mortgage-backed securities are publicly traded agency pass throughs. These securities are issued by Fannie Mae, Ginnie Mae, and Freddie Mac, and supported by implicit or explicit government guarantees. As a result, the securities are rated AA or AAA.

Asset-backed securities amounted to $15 billion at the end of the second quarter and had gross unrealized losses of only $66 million as of June 30th. We independently evaluate the underlying collateral, which primarily comprises residential mortgages, credit card receivables, and auto loans. We had a total of $8.5 billion of securities collateralized by subprime mortgages in the Financial Services business, included in this ABS total.

$7 billion are 2005 to 2007 vintage. $6.8 billion of the '05 to '07 vintage is rated AAA or AA and about 60% of that has an average expected life of less than one year. We have no CDOs collateralized by these instruments. All subprime collateral are first mortgages. We price at the bid or if the bid is stale at last trade or collateral settlement values. We do not mark to model. I am comfortable with the mark-to-market methods. The gross unrealized loss as of July 31st is not significantly different, although up from June 30th. But obviously, we cannot predict the future.

Lastly, our worst case estimate of the credit loss on the subprime holdings is approximately $150 million after-tax in total over a five-year period, less than 1% of our current equity. Let me reiterate. This is the total... the $150 million is the total over the 5 years and would result from a 40% decline in housing prices underlying these securities.

Now, briefly our Closed Block Business. The results of the Closed Block Business are associated with our class B stock. Closed Block Business reported net income of $11 million for the current quarter compared to $29 million a year ago. Current quarter results include a charge to increase liability for future policyholder dividends based on cumulative results of the Closed Block. We measure results of the Closed Block only on a GAAP basis.

Now turning back to the Financial Services business and summing up our results. Insurance division is benefiting from continued growth of our annuity business, including a contribution of the variable annuity business we acquired from Allstate. Favorable equity market conditions and improved equity in our protection business has also contributed to the growth in earnings for the quarter.

The Investment division benefited from strong results from our asset management business, driven by performance-based fees, and growth in assets under management, as well as higher earnings from our retail brokerage joint venture with Wachovia. Our international business reported a significant earnings increase for the quarter with business growth in our Life Planner operations, complemented by increased investment margins at Gibraltar Life, and an uptick in the results from our International Investments business.

Thank you for your interest in Prudential and we look forward to hearing your questions.

Question And Answer

Operator

: Indeed. Well thank you very much Mr. Ryan, Mr. Carbone, and our host panel. We do appreciate that second quarter update. [Operator Instructions]. Representing Stanford Bernstein, our first participant in queue is Suneet Kamath. Please go ahead sir.

Suneet Kamath - Sanford Bernstein

Thanks very much. May be two quick ones. One on the subprime, and one on the FSA... sorry, full service business. On the subprime, you had mentioned and I think half of the 8.5 is rolling off in the next 12 months, and that's all AAA, but I understand that's also in the '06, '07, vintage. Can you just talk about why stuff that was sort of originated so recently would be rolling off in 12 months? And then second on the FSA, the large cases that you mentioned, John, that you are not just closing... you are not getting the new case wins, is it just a lack of RFPs, or are you getting the RFPs and you are just not able to close them? Thanks.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

Let me have Rich answer the first and then John will answer the second.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Yes, the tranches are of both as to credit rating and cash flow positioning. So despite the fact they were issued in '06 or '07, when they were structured, those cash flows that we purchased had those maturity dates or those durations.

John R. Strangfeld - Vice Chairman

Suneet, vis-à-vis the full service, we are seeing the business hit rates were jut lower than we planned. We came in second more often than we would like.

Suneet Kamath - Sanford Bernstein

And just a quick follow-up. Is there anything that you would attribute that to?

John R. Strangfeld - Vice Chairman

No not really. Each case has got an individual attributes to it, I didn't... there is nothing systematic in that.

Suneet Kamath - Sanford Bernstein

Okay, thanks

Operator

Okay, and thank you very much Mr. Kamath. Representing Credit Suisse, the question from Tom Gallagher now. Please go ahead, sir.

Thomas Gallagher - Credit Suisse

Good morning. First, a question on subprime. Rich, just wanted to get a little bit behind what you were looking at as the most vulnerable when you were doing you loss estimates? I presume it's the A rated and below paper. And when I look at about $850 million or so of exposure there, can you talk a little bit about... we can see that the pricing on the much more recent vintage paper '07, in some cases it is trading at $1.60, but it looks to me like most of your exposure is pre-'05. Can you talk a little bit about how that paper is currently trading, is it substantially higher, and also a little bit more about which part of your portfolio you think is more vulnerable right now?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Let me quantify some of the buckets. I can't speak to current pricing at this discrete a level, but we have about $600 million rated A with vintages of 2004 and earlier. And we have about $100 million of BBB with vintages of 2004 and earlier. And we don't... again, I can't comment as to the daily mark-to-market on those securities. But in the A and in the BB classes of vintages 2005 and later, we have about $150 million in the A category and about $20 million in BBB category, and again, some of that is current. And as far as the current pricing versus what's in our $66 million as of June 30th, it's is tough to tell mid-quarter, intra-quarter.

Thomas Gallagher - Credit Suisse

Okay. And is it fair to say though when you look at... when you have done kind of a worst case scenario, were most of the losses coming from the '06 and '07 bonds in terms of when you had done your impairment tester?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Yes.

Thomas Gallagher - Credit Suisse

Okay, got it. And so, in other words, the pre-'04 vintage, even for the paper that's, lets say, A, BBB at this stage in the game is much less of an issue. Is that fair to say?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Yes.

Thomas Gallagher - Credit Suisse

Okay, thanks. The other question I had was if you look at the international business, you had very strong growth in NII this quarter. Overall premium growth was not as strong. Can you comment about is there anything unusual going on slowing the premium growth there for this quarter, and also is there any more opportunity for NII expansion in the Asian business? Thanks.

Mark B. Grier - Vice Chairman

On the second question first. There are still some opportunities. As you know, though, we got a big lift on the investment income side when we restructured the Gibraltar portfolio initially after we got a lot more comfortable with liquidity and lapse issues in that business after bankruptcy. So there is not as much upside as we realized over the past few years. But there is still an opportunity to do better in both of the big portfolios, meaning Gibraltar and Prudential of Japan.

Eric Durant - Senior Vice President of Investor Relations

Tom, this is Eric. Let me take your question on premium growth. If you look on page 27 of the QFS and you look at the constant exchange rate basis schedule for net premiums, policy charges, and fee income, Prudential of Japan is up 9.5%, which I think is pretty indicative of what one would expect. All other Life Planner countries are up about 6%, which is a little bit light, and I think that reflects more than anything else our recent experience in Korea. Gibraltar on a reported basis is down from 626 to 611, but you may remember that a year ago we had $23 million of upside sharing dividend. If you strip that out, which is clearly an unusual item, then we have a modest increase of about 1.3%. That really isn't very different from what we would expect Gibraltar to produce.

Thomas Gallagher - Credit Suisse

Okay, got it. So it was really the dividend.

Mark B. Grier - Vice Chairman

Yes

Eric Durant - Senior Vice President of Investor Relations

Yes.

Thomas Gallagher - Credit Suisse

Okay, thanks

Operator

And thank you very much, Mr. Gallagher. And next in queue, we go to the line of Jeff Schuman with Kleinwort Benson and Wasserstein, please go ahead sir

Jeffrey Schuman - Keefe, Bruyette & Woods

Actually Keefe, Bruyette & Woods. But, thank you, good morning. A couple of questions for Rich. Fascinated by your worst case loss estimate of $150 million comparing that to the $7 billion lost market cap over the last few weeks. Obviously, your earnings performance, your earnings outlook continues to improve. So it would seem that we have to attribute most of that lost market value to just the market concerns over subprime. A couple of questions, first of all, any thoughts about additional share repurchase to take advantage of the weaker share price? And secondly, would you be willing to consider maybe some more frequent supplemental updates on the development of the ABS portfolio over the next few months so that we can get some more comfortable and see a little more transparency about how this develops. I am thinking particular of this issue of all this paper with the short expected life. If we could actually see hundreds of millions of the stuff rolling off over the next few months at or close to par, I think it might go a long ways towards enhancing comfort with it.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

This is Art. Let me try and answer share repurchase. When we put that program in place, the strategy really reflected the fact that we would like to put our excess capital to work that is on the best interest of shareholders. I think ideally when we can find attractive acquisitions that what we want to do.

In buying back shares, I think it reflects the market conditions we have seen over the last few years, which said that we were better served by giving the money back to our shareholders than simply holding it. We look at that every quarter to determine whether or not it makes sense to do something a little bit differently. We have under present conditions the ability to continue that, not only for this year, but also for 2008 and 2009. So, we will look at, plus my expectation is we will stay on the current course of about $3 billion per year. I think it can get a bit dangerous to reflect on increasing it if stock price happen to go down versus decreasing it if the stock price happens to go up. We are naïve, which is why I will say we look at it every quarter. But I think the base case of $3 billion per year is a pretty solid number at this point in time.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Jeff, it's Rich. Our disclosures are going to track SEC filing dates. We will look at the Qs... we will look at the disclosures in the Qs and if we can make this more transparent of how this unfolds, but we will do it in accordance with the typical SEC filing schedule.

Jeffrey Schuman - Keefe, Bruyette & Woods

Okay. I am just thinking given the volatility in this market, I mean, three months seems like a long time out, but, okay. Thank you.

Operator

And representing Morgan Stanley, a question from Nigel Dally. Please go ahead sir.

Nigel Dally - Morgan Stanley

Great, thank you. Rich, I just wanted to circle back on how you value the subprime securities. If I heard you right, it's based on actionable bids from third parties, not internal models. Is that correct?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

That's correct.

Nigel Dally - Morgan Stanley

Okay, that was easy. Second, are you still buyers of subprime backed paper, or should we expect the exposure to significantly decline reflecting the expected maturities that you mentioned?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

We are still buying.

Nigel Dally - Morgan Stanley

Okay. And with regard to the buying given the turmoil in the market, I guess, how con we be comfortable, or how can you be comfortable in the quality of purchases you are making? It seems like there is a lot turmoil in the market, and a lot of the metrics, which people traditionally looked at and no longer is relevant?

John R. Strangfeld - Vice Chairman

Nigel, this is John Strangfeld, just to speak to that. I think one of the things we recognize is that this is not one market. You have got different levels of collaterals, seasoning, subordination, and alike. And so not surprisingly, we have different points of view regarding different phases of the capital structures in these securities. So, what I mean by that is we believe the credit problems are in the subprime securitizations, even excluding the CDOs are largely related to securities below the AA level. We think there are liquidity issues in the higher grade securities. I am referring to there the AAs and the AAAs, and that in turn can create investment opportunities.

Nigel Dally - Morgan Stanley

Okay. And then the last question on Japan. I understand the distortion caused by the new mortality table. But for the first six months, sales growth in Japan was still relatively modest. Seems like the growth in the number of Life Planners is a major factor driving that. So I hope if you can discuss why growth in Life Planners seems to be getting incrementally more difficult for you and your expectations for Life Planner growth looking forward.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

So, on the last point I would reiterate the aspirational goal of 10% growth in life planners total around the world. Japan, gets tougher partly because the denominator gets bigger at that force growth. We also in terms of the shorter term impact have been a little lighter on sales managers this year than we planned and that has the direct impact on life planner recruiting and life planner retention. But we don't see any fundamental structural type problems. So I do expect that the drivers of the business will be consistent with supporting both earnings outcome and the return outcomes that we've talked to you about before. Now we pass around quarter-to-quarter, but broadly overtime we aspire a 10% growth in life planners, we don't always get there, but we've generally getting pretty close.

Nigel Dally - Morgan Stanley

That's great, thank you.

Operator

And thank you very much Mr. Dally, and representing Citadel Investments, a question from Dan Johnson. Please go ahead sir.

Daniel Johnson - Citadel Investment Group L.L.C.

Great. Two please... the annuity distribution in the wirehouses, can you talk a little bit about how we are progressing there and sort of how far along we are in getting to where you would like to be and then I have got a follow up.

John R. Strangfeld - Vice Chairman

Sure, okay. Dan, it's John Strangfeld here. Let's see that the primary channels here. IFS is our largest market, it is the largest market and it's where our strongest market position is and we think we are doing well there and continue to progress nicely. The wirehouse channel is something that's also progressing well along, we are in all the major wirehouses with the exception of A.G. Edwards and that's of course A.G. Edwards going through change. You can see that's up significantly over the prior quarter, but this is early days. So we think it's a lot of upside there.

With regard to the bank channel, that's even earlier for us. We see opportunities there as well over time and then of course the other sector with the insurance agents that's proven allstate. And there is more opportunities there as well, particularly relative to the allstate channel. So it's a balanced portfolio of multiple channels, but with different stages of maturity.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

I think the total in the brokerage channel this time was about 12% to 13% of our total sale. I think for the market, its closer to 20% and I think that's the incremental range that we would hope to achieve over time to reflect our fair share of that market.

Daniel Johnson - Citadel Investment Group L.L.C.

Great. And then a follow up on a question you answered a minute ago about still buying sub-prime paper, I think that would surprise few people early, it's probably worthy of wanting to maybe go in a little deeper to explain what that still makes sense from where you are sitting, and that will be my last question. Thank you.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Well, Dan, we think there are significant potential loses for BBB rated particularly '06 and '07 sub-prime and also particularly in this CDOs they are not collateralable item. That's not an area where we have any intension to go [ph] in this category because of the nature of the concern. Having said that, what we also see is in the very high ended, the AAAs and the AAs some of the set up communities that we see disproportionate to the underlying risks and we think are primarily liquidity driven. And as a consequence, we see selective opportunities to take advantage of that. We have a very dedicated team in the asset fact area that has been just assets of since 1991 and we quite confident in our view line there.

John R. Strangfeld - Vice Chairman

Just about Dan, let me just add to that though that I think its important that you look at this from a net point of view, you wouldn't except to see much of an increase. What we are talking about is the fact that we believe that there are segments in this market where we can be opportunistic in the short term, but we also recognize that this is a market going through turmoil and therefore you would not expect to see a significant net increase in our outstandings in this category. I think that clarifies it in the way in which I think you are asking the question.

Operator

And representing Citigroup, we have a question now from the line of Coline Devine. Please go ahead sir.

Coline Devine - Citigroup

Okay. A couple of questions; first, with respect to the 401K operations, I think you gave us some sense of when we should expect to see the not just the gross sales but the net borrow is improving. If there is some sort of target that you are driving at to. The second question, I noticed a couple of days ago the former Chairman of Prudential Securities, Mike Rice reached settlement, where I guess he's going to hang on to a $1000 fine and is banned from the securities industry for a year relating to market timing issues that your former brokerage operations. I was wondering if you could confirm for us one way or the other, since it is obviously still open with the regulatory authorities. John Strangfeld was also the Chairman of Prudential Securities when the market timing went on and is John the subject of any regulatory investigation relating to Prudential Securities or for that matter Art, are you?

John R. Strangfeld - Vice Chairman

Okay this John, while I take the first one, with regard to your 401K question Coline.

Coline Devine - Citigroup

Thanks

John R. Strangfeld - Vice Chairman

We think the trend is right meaning, we had negative flows in '05, we had... basically a portion of '06 and we expect positive flows in '07 so the trend is on track. Secondly, lapse experience were more... putting more affirmatively our consistency has been exceedingly good, right away on 96% and given what we've gone through with regard to integration of life, we are feeling very, very good about that kind of experience. So we see more upside in this, we are not content as I mentioned earlier with our sales level, but we think we are on the right track trend wise and we also think we are in solid shape vis-à-vis the consistency of the client growth.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

This is Art, Coline. As I mentioned, I think in the past year there are no regulatory investigations of any individuals or of the company related to the market timing settlement a while ago.

Coline Devine - Citigroup

Okay. Then I guess the follow up with respect to the leadership change of Prudential, is there any update you can give us on that since I believe you said you are retiring at the end of the year.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

No, what I said is that the Board would be making a decision on my successor probably around the end of the year, and then it would be a transition period and there is no change to that to all. No, we expect that... I expect that to be the Board's intentions and I expect them to do that around the end of the year.

Coline Devine - Citigroup

Thank you.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

You are welcome.

Operator

Okay and thank you very much Mr. Devine. Our next participant, we go to the line of Andrew Kligerman with UBS. Please go ahead sir.

Andrew Kligerman - UBS Securities

Hey good morning. Three questions; first, hedging on variable annuities. We had a pretty interesting shock to the equity market in last few weeks. Could you give a little color on your hedging program and how that's working right now and then I will follow up?

Arthur F. Ryan - Chairman, President and Chief Executive Officer

Yes great, Richard?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

We've been pretty successful in our hedges, the volatility has been regardless of the markets going up or down, our volatility has been modest in every quarter, in most every quarter but one we had small gains and we actually looked at the marks last week and the hedges and the bases risk performed perfectly or as best as you could in hedge like this.

Andrew Kligerman - UBS Securities

That's great, Rich. And then actually while you were out talking about you did... you mentioned earlier worst case guestimate of credit losses on those CDOs exposed to sub-prime of $150 million or five years. That seems really right. Could you give a little color on how that calculation was made?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

I don't have the precise details, but the calculation remember it's a credit loss. So those are actual defaults on the loans, not the spread widening that we are seeing now in the mark-to-market.

Andrew Kligerman - UBS Securities

And so, alright, well, may be I could follow up, and just get a little bit on the math later on. And then just lastly, I know Rich, I am sorry, Mark mentioned a little bit earlier that Q over Q the, I guest the performance in Korea had improved, but if you look at year-over-year sales were down 6% for all other countries on the planner basis. Mark, what do you think is the likelihood that Korea will start seeing sales increases over the next 12 months, and increases in planners. Could you give us the look out maybe a year or two, as to what you might expect in Korea?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

I think to hit the headline answer, the likelihood is high that we will see improvement in Korea. As I said, looking year-over-year, we are now just about flat, but if you look at the first six months, we've actually had a respectable growth rate in life planners in Korea. And we do anticipate that sales will track that overtime. And I believe that Korea has turned the corner in terms of the challenges they have had with life planners, and I expect them to be very much on track with the broader set of objectives that we have talked to you about for international insurance.

Andrew Kligerman - UBS Securities

Great, have a good afternoon.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Thanks.

Operator

Okay and thank you very much Mr. Kligerman. Our next participant in queue, we go to the line of Jimmy Bhullar with J. P. Morgan. Please go ahead.

Jimmy Bhullar - JP Morgan

Thank you. I just have a couple of questions. The first one on Prudential Japan, on the life planner count, I think Mark you mentioned 10% of your aspirations. You haven't done 10%, since the first quarter of '05, I think. So what's the more realistic target given that the base is a lot higher that you have to grow now... grow up. And then secondly, on individual life, if you can just talk about competitive environment in individual life in the U.S., whether you are seeing only table sharing coming back or declining your sales especially in the UL business have been relatively modest about several quarters, but those are the ones I have.

Mark B. Grier - Vice Chairman

Right, on the life planners, the 10% target is for life planners globally, understanding that a larger country like Japan may not achieve 10% growth, but smaller countries should achieve growth in excess of 10%, So that's what we aspire to in total.

You're right, we don't always get there and if you look at the average over the last 5 years its more like 8% or 9%, but 10% is still our target. Again, there will be mix issues there with probably somewhat slower growth in Japan, but faster growth in countries that have smaller bases. Taiwan for example, has been very strong. So when I talk about the 10% number, its total life planner business, again understanding that may a little slower in Japan and faster in other countries.

Jimmy Bhullar - JP Morgan

Thanks.

Mark B. Grier - Vice Chairman

I do expect that we will be on track for that over time.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

In terms of the second question on the investor-owned life insurance or stranger-owned life insurance, as you can see in our own UL sales that has not been a very important part of our business and not an area of the business that we want to participate in. I think broadly the industry has seen a slowdown, but I don't think it's a 100% slowdown. I still think there are individual companies that appear to have stronger growth rates in some of those categories then the market overall, but we continue to work through the associations that we are members of to try and influence regulators to demonstrate how dangerous and how bad that it for the industry as a whole. But from our own perspective, we are reasonably comfortable that we don't have issues in that direction.

Jimmy Bhullar - JP Morgan

And your sales being weak, is that a function of market, the market environment, the lack of good products, what you attribute your sales to?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Our sales are not weak. I mean if you looked at what has happened, our life sales are substantially.

Jimmy Bhullar - JP Morgan

UL, I mean UL.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

UL, no, I think that's just more of a function of the market at this point in time. I mean we are going to see changes in product mix obviously, we have focused a lot as we grown our third party channel on the term product. On the other hand, I think in the first quarter, we saw a number of rather large cases that we were able to do to our particular distribution case... category that was in the UL outline, so I don't think quarter-to-quarter that's necessarily any lack of competitiveness or substantial changes, which is like everyone else go up to the best opportunities available at that point in time.

Jimmy Bhullar - JP Morgan

Okay, thank you.

Operator

And sorry, did you have any follow up Mr. Bhullar.

Jimmy Bhullar - JP Morgan

No, that's it, thank you.

Operator

Alright, you are very welcome sir. Thank you. And next in queue is Eric Berg with Lehman Brothers, please go a head sir

Eric N. Berg - Lehman Brothers

Thanks very much and good afternoon.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Good afternoon.

Eric N. Berg - Lehman Brothers

Thank you. Good afternoon to every one. Rich, just a couple of questions, if you follow up through regarding the investment portfolio, with respect to this I think it is the $150 million figure that a number of people have been focusing in on and the size of it. One, can you repeat to which portfolio does that, sort of tied to? Is that the entire... is that the CDO portfolio, the AVS portfolio, remind us please.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

It's the 8.5 billion sub-prime.

Eric N. Berg - Lehman Brothers

The entire sub-prime?

John R. Strangfeld - Vice Chairman

That's included in the AVS portfolio.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Yes, that's the entire sub-prime.

Eric N. Berg - Lehman Brothers

Right, so my question was going to be, you talked about 5 years, most other companies have not only not talked about maximum losses in which the very helpful disclosure here, but I am just curious why you chose five years over which these losses would be experienced, why not three yeas, why not seven years. How did you arrive at 5 years?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

I guess first of all, we are looking at credit losses emerging over a period of time and we can pick one year, we can pick three years, we could pick 5 years. I guess we felt given the weighted average of our portfolio, 5 years would be the best representation to view or estimate those credit loses.

Eric N. Berg - Lehman Brothers

Okay. The other question I had is a broader one, and it's actually that I have asked to other management teams, but I would like to ask it you. A number of companies Prudential included have highlighted the high credit ratings of their portfolios that you have today, the AA status, AAA status and so forward. But I am just wondering whether you feel its really fair to mix... whether it's really fair to sort of say or think that these ratings are... I mean, obviously they are entirely different from lower ratings, but whether the two sort of groupings of investments are not connected to each other in the sense that because John has acknowledged that they are all going to be losses in the lower rate tranches, doesn't this mean that as the protection afforded to your tranches is eroded that inevitably the ratings for these high rated tranches will come under pressure even if you are going to get paid back in full?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Well, they may come under pressure, but when those lower rate tranches get hit, there are triggers inside them. So as they default, the cash gets redirected from the lower level tranches to the higher level tranches that would add had all things being no defaults, that would have unfolded to the lowest and the highest. Let me say that again. The lower tranches get hurt as defaults increase, because the cash gets redirected to the higher level tranches.

John R. Strangfeld - Vice Chairman

I think the other thing I would add is in the worse case scenario you are not... we are not really focused on the credit ratings, we are focused on the recovery rate.

Eric N. Berg - Lehman Brothers

Are you saying Rich, in other words that in many of these instances, the level of protection and defense gets replenished or rebuild after a loss?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Again, I would say it gets strengthened after a loss at the lower tranches.

Eric N. Berg - Lehman Brothers

Thank you

Mark B. Grier - Vice Chairman

Eric, one more point on that. We do complete independent credit evaluation of these securities. We talk about these ratings almost as a short hand way to characterize this portfolio for you. But we have our own internal ratings and we have independent credit analysis of these portfolios in depth with expensive resources. So we are not looking at an office shelf AAA and say, okay its AAA lets buy it. We will have a thorough independent review of the underlying collateral and structure and draw our own conclusion. So the credit ratings are convenient language to use to portray this portfolio to you, but you should not assume that that's the end of the game in terms of the work we do to understand what we own.

Eric N. Berg - Lehman Brothers

Thank you Mark.

Operator

Okay and thank you Mr. Berg. And next representing Merrill Lynch, a question from Ed Spehar. Please go ahead sir.

Edward A. Spehar - Merrill Lynch

Thank you. Good afternoon.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

Good afternoon.

Edward A. Spehar - Merrill Lynch

I think a couple of questions on the asset management segments. First, in the asset management business, in the DUSPs, or let's call it asset management. If I look at the real estate related income that you are talking about, or the... the stuff that's 25% of revenue and of course of the 50% of earnings, I believe most of its commercial real estate related. Could you give us some sense of what do you think of as a normalized level of earnings and revenues in earnings for that category and maybe some sense of a trough level. So how much risk is there to that earning stream which has been particularly good. And also how much of visibility you have on the types of deals that lead to the type of income you've been recognizing in recent quarters. And then finally, on the international side, I am wondering if you could tell us, is the level of earnings we saw in the international investment business sustainable at the 2Q level assuming no major equity market changes. Thanks?

John R. Strangfeld - Vice Chairman

This is John, responding to a couple of your questions. On the equity real estate front, you are right. That's been a significant contributor, and what underlies that is the strong performance you've seen in the equity real estate market now for a number of years, where it is up 20%, it is used nacre for a broad-based core measurement, it was up 20% in '05, up 16% '06. We have been expecting to see that moderate, frankly more than it had. If you look at year-to-date, it's up about 10%, or our expectation, and what we create for our clients is in the 12%, and the 12% type of range. So we are benefiting from that. This is a strong marketplace, but it's not the only thing we do. Having said that, I don't think we are prepared to speak specifically to the normalization or events.

Arthur F. Ryan - Chairman, President and Chief Executive Officer

I think the key that was what John spoke of in the separation of how the fees are accumulative at 25% of our incentive. That would mean 75% of them are asset based and therefore would have a higher level of predictability going forward relative to normal market conditions. That doesn't mean that you can extrapolate, because prices go up, and down. The second is the reason that we do so well at this is not because again we take deals off the shelf. It's that we do have our own staff that's been dedicated to this for many decades in dealing, and managing first with the company's own general account, and now for institutional real estate investors, and that's why we believe it's a core, and an ongoing capability notwithstanding the highs and lows of the market.

Richard J. Carbone - Senior Vice President and Chief Financial Officer

On the international investment business, we are on a solid uptrend there, but the business is market sensitive. We benefited from a high level of activity in package product particularly in Korea. The third quarter is always slower in those kind of businesses, because things really gland to a halt in August in lot of the markets, but I think over time we are on a strong uptrend, I guess the best way to say it is that it is market sensitive, it will depend on market conditions and our product flows but we are on the right track.

Edward A. Spehar - Merrill Lynch

And if I can, again one quick follow up, if you look at the source of revenue that is in the asset management that has a whole bunch of things in it that you need acronym for which I can't remember is yes, is over $600 million level right now. I think if you go back a few years ago that may be was more, maybe more than a few years ago, but it was down in the sort of the 200 million maybe level. I mean, is this something that could in a tough environment go down or is this something that in a tough environment just stays sort of stable?

Richard J. Carbone - Senior Vice President and Chief Financial Officer

I think it's fair to say that in tough environment its essentially go down, it's an element of this is market sensitive.

Mark B. Grier - Vice Chairman

Yes Eric, in a tough environment it could go down.

Edward A. Spehar - Merrill Lynch

Okay thank you.

Operator

And thank you very much Mr. Spehar. And ladies gentlemen, thank you very much for the interest in today's call. Now our final question, we go to the line of Joan Zief with Goldman Sachs. Please go ahead ma'am.

Joan H. Zief - Goldman Sachs

Thank you very much. I have a question on the international front, thinking about Japan, you have this strong life planner network and you have this Gibraltar platform, which seems to be focused a lot on the life insurance side, but the real growth in the Japan market, it seems to me will... is in annuities and may be even in the medical market. So my first question is do you have any plans to explore getting into the faster growing markets in Japan rather than just staying with the life insurance. And then my other question is, there's always the possibility sometime in the future of some of these domestic companies in Japan and in Korea to go public, and I was wondering if you were seeing any acceleration of that trends or have you heard of accelerations of those trends and if you think that in the long run that will impact your growth prospect?

John R. Strangfeld - Vice Chairman

Alright. I guess the starting point on retirement question and I would extend its beyond Japan to focus on our skill sets and competitive advantages and the answer to your question is we will be looking at opportunities not just in the annuity business, but broadly in the retirement business in our international markets. I think those are important opportunities for us. As I said, they play to our advantages in terms of our skill sets and our strong brands. Having said that, we would not conflict with the life planner business in terms of either brand issues or distribution issues. The life planner business is a genuine gem for us, so we will be doing this in ways that are as directly supportive and in little conflict as possible with the way our life planners spend their time in the profitability of those operations as a result.

In Japan, now our activity with the teachers and our bank channel are both generating annuity sales, we don't have the life variable annuities in Japan for reasons that we've talked about before but we are making inroads in the fixed annuity markets through both the bank channel and through our teachers association relationship and I expect that would be an effort that we would continue and maybe even broaden the ramps on some other aspects of retirement businesses there. So the answer to your question is yes, we will be looking not just at annuities but more generally at retirement opportunities for us in international, but we are going to do it in a way that's very careful, not to upset the core franchise in the life planner business, but to take advantage of our other skills.

Joan H. Zief - Goldman Sachs

Yes, I am sorry, just before you go on to the other question, does that imply that you are going to build something organically slowly or does that imply that you will look for an acquisition?

John R. Strangfeld - Vice Chairman

Well, I will use one of our favorite words, which is opportunistic. If we can find the right deal, we would love to do it, but frankly it's a little bit early to make a declaration about either possible direction at this point. On the new public company front, as you know in Korea there is action and the regulators are trying to facilitate companies that want to go public in the life insurance business. It's been pretty competitive in Korea already, and I would not expect that that would significantly impact the competitive environment for us. In fact if anything the discipline of a public company tends to be more in our favor.

Joan H. Zief - Goldman Sachs

Does the possibility of those companies going public give you more opportunities for an acquisition?

John R. Strangfeld - Vice Chairman

Well, I will go back to that word again, opportunistic. If we find something we like that works that we can do at the price, we would love to look at it. As Art said earlier, we would like to be putting this excess capital into our businesses. It's early to see how these valuations are going to come out.

Joan H. Zief - Goldman Sachs

Okay. Thank you.

John R. Strangfeld - Vice Chairman

Thank you.

Operator

And thank you, Ms. Zief. And ladies and gentlemen, Mr. Ryan is making today's conference available for digitized replay is for one full week starting at 2:30 PM Eastern Daylight Time August 2, all the way through 11:59 PM August 9th. You may access AT&T's executive replay service by dialing toll free 800-475-6701 and at the voice prompt enter today's conference ID of 860619. Internationally please dial 320-365-3844, again with the conference ID 869619. On behalf of Mr. Ryan and the executive team, we would like to thank you very much for your interest in Prudential today, as always for using AT&T's executive teleconference service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Prudential Financial Q2 2007 Earnings Call Transcript
This Transcript
All Transcripts