Ladies and gentlemen, thank you for standing by and welcome to the Prudential third quarter 2009 earnings call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Instructions will be given to you at that time. (Operator’s instructions) And as a reminder today’s conference call is being recorded. I would now like to turn the conference over to Mr. Eric Durant. Please go ahead.

Thank you, Cynthia. Good morning or I guess I should say, good morning, good afternoon, good evening depending upon where you are and where you’re listening to us. Thank you for joining us. 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 measure of our earning’s press release for the third quarter of 2009 which could be found on our website at www.investor.prudential.com. In addition, in managing our businesses we use a non-GAAP measure we call adjusted operating income to measure the performance of our financial services businesses. Adjusted operating income excludes (inaudible) gains and losses, 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 resulted from changes in related asset values. The comparable GAAP presentation and the reconciliation between the two for the third quarter are set out in our earnings press release on our website. Additional historical information related to the company’s financial performance is also located on our website. Okay. Our speakers today are John Strangfeld, CEO, Rich Carbone, Chief Financial Officer, and Mark Grier, Vice Chairman. After our formal remarks, we’ll welcome your questions and in the Q&A John and Rich and Mark will be joined by Bernard Winograd, the CEO of our Domestic Businesses, Ed Baird the CEO of our International Businesses and Peter Sayard (ph) our Controller. John?

Thank you, Eric and good morning or afternoon everyone. Thank you for joining us. As Eric mentioned I will kick things off with some high level comments and then Rich and Mark will walk you through the quarter in detail. Let me start, very macro. Commence of the drama and mayhem of the financial crisis, the Prudential management team has kept two thematic top of mind. One is an expectation, the second is an aspiration. The expectation is for ourselves to weather the storm better than most. And we believe we have. The aspiration has been to gain ground. We have done that as well. In fact, it is not an aspiration it’s a reality. As evidenced by quarterly results in each sequential quarter, but most visible in Q3. Our ability to achieve both our expectation and our aspiration is a product of the quality of our businesses, the skill and cohesiveness of our management team and the confidence our customers place in our brands and our financial strength. We’re not declaring victory but we do think that with the benefit of hindsight we struck the right balance between taking short term actions to reduce risks while maintaining our long term strategic trajectory. Furthermore we have not simply hunkered down. We have been focused on being well positioned to benefit from the flight to quality, both in new business and in talent. As we pull through the other side of this crisis we look to make the most of it. I would characterize our mindset as confident but not cocky. Now, moving more specifically to the third quarter, our results show solid underlying performance and also reflect better market conditions. Our businesses with relatively modest exposure to US financial markets, namely individual group insurance, retirement and international insurance, show few…

Thanks John and good morning everyone. As you’ve seen from yesterday’s release, we reported common stock earnings per share of $1.59 for the third quarter. And that’s up 56% from the $1.02 that we reported in the year ago quarter. And that’s based, of course, on adjusted operating income for the financial services business. Let me start with some high level comments on the current quarter. We’re benefiting from good performance in our major businesses both in adjusted operating income results and in sales and net flows. Continued improvement in the financial markets are driving recovery of account values, which contribute to favorable and locking adjustments as well as base earnings for several of our businesses. But, please, keep in mind that most of our earnings are in businesses that are not market sensitive and they have turned in record to very strong results for the quarter. On the other hand, the cost of holding excess liquidity which is showing up at the negative spread mostly incorporated another was a drag on our results for the quarter. In addition, we expanded the hedging program in our annuity business to help protect our capital from adverse swings in the financial markets. We include the changes in market value of derivatives we use in this hedging program in adjusted operating income. This partially offset the benefit of rising equity markets. Our earnings per share for the current quarter also reflected dilution of about $0.14 from the 37 million shares we issued in June. Operating results of some of our businesses are effective by discreet items, including the impact of our annual review of experience and actuarially assumptions that we typically complete for our insurance and retirement businesses in the third quarter. And I’ll go through the major items now. In our annuity…

Thanks, Rich and John. Hello everyone thanks for joining us today. I’m going to start of comments on the investment portfolio. The narrowing of credit spreads that began earlier this year has continued through the third quarter driving substantial recovery of values in our investment portfolio. While the market values the many classes of assets have fluctuated due to volatile financial market conditions, and we may not have seen the last of this volatility, we manage our investment portfolio primarily with a focus on its cash flow prospects since our general account investments are mainly supporting long term insurance liabilities. I’ll start with our fixed maturity portfolio. The continuing narrowing of credit spreads coupled with the modest decrease in base interest rates during the quarter has returned our general account fixed maturity portfolio to a net unrealized gain position, roughly $1 billion for the first time since a year ago. Gross unrealized losses on fixed maturities in our general accounts stood at $4.8 billion at the end of the third quarter. This represents a recovery of $3 billion from the second quarter and $6.5 billion from last year end. Roughly $1.5 billion of total gross unrealized losses at the end of the third quarter relate to subprime holdings. This compares to $2.1 billion at the end of the second quarter. Total subprime holdings were roughly $4.5 billion at the end of the third quarter based on amortized costs. This represents a decrease of over $400 million from the second quarter, reflecting just under $300 million of pay downs during the quarter and the $150 million of impairments that Rich mentioned. At September 30th, the general account fixed maturity portfolio included $7.8 billion of commercial mortgage backed securities at amortized costs, 93% of these holdings have AAA ratings. Super senior AAA…

(Operator's Instructions) Our first question goes to Suneet Kamath with Sanford Bernstein. Please go ahead.

Thanks and good morning. I had a question about the variable annuity business and the changes in the product that you talked about. What I'm wondering is how have the changes that you've made changed the return profile for that product, particularly given different market scenarios as you run them through in terms of the new versus the old, thanks.

I think Bernard Winograd will take that.

Good morning. I think the overall scene here is that we are watching the evolution of this market with the benefit of being the low-cost provider of living-benefit guarantees at the moment. And the reason for that is embedded in the auto rebalancing design which by definition gives us less to hedge than the people we are competing with and because hedging has become in the past year the most expensive newly expensive part of the product offering, we find ourselves in the enviable position of having a cost advantage. And the way we've chosen to take advantage of that gets to the answer to your question which is we are taking market share, but also raising prices to remain competitive and what we've done in the design or in the changes between HD7 and HD6 is, as we indicated before, taking down the rollup rate from seven to six, raising the C from 75 to 85 basis points, and making some other changes that all have the effect of giving us more revenue for what we sell and leaving us with a benefit that is still highly competitive in the marketplace. So what we've also observed overall is that because of the cost advantage we've been able to do all that and see the expected return of all upwards as the marketplace evolves which means that currently our expectation for the margins or the return on equity involved in supporting HD6 are in the high teens which is up a bit form the mid teens kind of expectation we had for HD7 before.

That's helpful. And I'm assuming that the high and mid teen numbers sort of assume a stable equity market environment. I guess my question was really around what happens if we go back to something that we saw over the past 18 months or so. How low could those returns go or what would be the ROE differential between the new product and the old product?

I think it's safe to say that returns will compress, but less than the returns will compress from competitive products in the marketplace. Again, became of the auto-rebalancing we'll have lesser drops in asset values in that kind of scenario going forward. We are, at this point, at 41% of total book and over 65% of the living benefit book now in the auto-rebalance format as a result of the sales that we've driven. And as a consequence the portfolio as a whole would be more resistant to a downturn than the old one was. We are roughly at 95% of what our peak AUM was back in the third quarter of '07 in the annuity business, but with a very different risk profile. Probably the best way to think about that is that the auto-rebalancing products, despite their increasing share of the portfolio, still now represent only about 9% of the net of the at risk on the death benefit, for example. And so there’s a very different profile we'd expect going forward.

Thanks. Just one quick followup on the auto rebalance, when things are in the fixed income portion I'm assuming that's bond funds, and you run your market stresses, I mean, I'm going to go ahead and assume that you’re stressing the bond piece also because clearly bond funds can lose money just like equity funds, is that correct?

We are and we're doing a stochastic model of that that reflects the distribution of the risks, if you will, of correlation changes in a tail event as well.

Great. Thank you very much.

Thank you. Our next question comes from the line of Nigel Dally of Morgan Stanley. Nigel Dally – Morgan Stanley: Great. Thanks and good morning everyone. First, can we get an update on the outlook for asset management? You continue to have a loss of some proprietary investments and commercial mortgage lines which continue to dampen the result; from your perspective where are we in this cycle? Is it reasonably to believe that offers will dissipate from here or do you continue to see challenges in commercial real estate remaining a headwind as we look to 2010? Then the second question I had was on acquisition opportunity. Recently we got news that AIG is no longer planning on disposing certain assets that I think many of us thought would be a good strategic bet for you. So I would just be interested in your views, are you still seeing an attractive pipeline or potential consolidation opportunity or has it become more difficult to find opportunities that will be a strong strategic fit at this point? Thanks.

So, Nigel, Bernard will take part A and I'll take part B, and this is John.

Let me try to separate the market and the losses questions that you asked with regards to commercial real estate. We've been expecting for some time now that the market would be down 45% or so from peak to trough and we're down about 35 as of the end of the third quarter. So we clearly have some distance to go yet, but there's a limit as to how much further down we think it can go and we clearly have also the lion's share of that behind us at this point. From the market's point of view 2010 should be a better year in terms of the marketplace in general than 2009. The way that manifests itself in our reported results is a little bit mediated by the accounting principles that don't allow us to recognize losses until they actually appear in a debt portfolio and we're marking to market in the equity portfolio. The equity portfolio mark to market means that it's done on an appraisal basis so there's a little bit of a wag but we would expect that the equity environment would be better in 2010 than in 2009, which is not to say good, but better. And with regard to the mortgage market, the more equity like mortgages that we have, that is the inter-loan portfolio, for example, we hope to have — we do not yet know whether this will happen because it's constrained by the actual events that are beyond our control, but we hope to have ourselves in a position by the end of 2009 where the reserves that remain to be taken will be less in 2010 than 2009. And finally with regard to the high quality mortgages that are staple of the general account, there's still very little indication that our portfolio is going to face any substantial losses, but whatever we have will probably materialize late in the cycle.

Now taking the second part of your question about M&A pipeline outlook, let me hit that in a broader sense and then a little more specific to pipeline without obviously returning to any specific set of circumstances. Our historical characterization of M&A being like to do versus have to do still holds and there are really two reasons for that. One is the one we've always used in the past and the second or most recently have used in the past and the second is one new observation. And that is, for now, the last three years or so we've found ourselves not being in a position of having subscale businesses that needed M&A to make them upscale. In fact these businesses are now each individually performing very well. The second is that some of the market share progress that we're seeing in several lines of our business is of a scale and nature that you would normally associate with M&A without all the execution risk. So as a consequence of that, the opportunity cost in a sense of doing something is higher than it would be in more normal times. Obviously there's a prospect for things in motion and it's hard to define the specifics. If you do look at the supply side of divestitures over the next 36 months, both what is visible and what is likely, it's very extensive and some of it may be potentially attractive and we think we're better positioned than most as a counterparty if there is a trade sale because of our size, our scope, our scale, our management depth, and our financial strength and having said that, activities and specific outcomes are very hard to predict. So, our view on this is there could be some interesting opportunities there yet we're going to be patient, careful, thoughtful, and disciplined, in recognizing that there's a long-term pipeline involved here in terms of activity levels not just of current events. So that's how I would characterize M&A. Nigel Dally – Morgan Stanley: That's great. Thank you.

Thank you. Our next question comes from the line of Thomas Gallagher with Credit Suisse.

Good morning, a few questions. First for Rich, can you talk a bit about the excess liquidity drag? So if I understand correctly, you essentially termed your short term into longer-term debt. If you have that much excess liquidity, why bother doing that? Why not just repurchase it instead of taking the negative spread? That's question number one. The second question is related to the comment about credit and statutory surplus and the comment that you didn’t' inject anything into the sub. Wasn't the $500 million surplus note that you issued to Nippon sort of a backdoor capital injection, or am I not reading that correctly? Thanks.

Paul, let me take the second question first. I think in my remarks I said other than the $500 million Nippon note, none of the proceeds, that were raised by PFI were injected into PICA. So I thought I was clear that indeed the surplus note is issued at PICA's level so that PICA did benefit I guess about 25 RBC points from the Nippon note. But to be fair and make sure everybody knows this, earlier in the year when we brought up some retail notes out of PICA, PICA did book a gain of $300 million on those retail notes that were paid back to PFI. So to complete the picture, PICA benefited from the $500 million in surplus notes that it issued to Nippon, and then it benefited from a gain of 300 as we extracted the retail notes, but no proceeds have been downstream to PICA from any of our issuances.

Got it, okay.

Okay. Now on your first question that I reversed the order of let me talk about liquidity from the holding company's perspective. It is our intent to maintain, and I said this in my opening remarks, to maintain a liquidity cushion. And I'm differentiating between a cushion and excess. So a cushion is something that we're going to hold onto for the foreseeable future and that's about 18-24 months of cash at the holding company that the holding company needs in the next 18-24 months including maturities. We've got more than that on the balance sheet today. We will deploy that piece over time into our assets that will eliminate a piece of that negative spread. So the capital that was available, the debt was available out there in the markets at very attractive rates, we brought them on the balance sheet, some is going to be maintained in the liquidity cushion and some will be invested over the course of 2010 at rates that will eliminate a portion of the negative spread.

Okay, thanks. And then just one follow up, on the variable annuity side in hedging, can you just comment on, I believe you're hedging some of your capital now, can you comment on what the structure of it is and how large it is? And then are you still making on the GMDB or should we think about at least part of that being hedged now?

Well, to answer the second part of it first, the hedge that we have discussed today should be considered to cover exposures to capital in the annuity business and some of those exposures may arise from fluctuations in GMDB reserves. So you can think of that relationship, but you ought to think of it on a fairly general level, but the short economic answer to your question is probably yes. With respect to what we've done it's a derivative based short and the impact of this on earnings in this quarter was $140 million so I think you can probably do some work and scale it if you want to think about how much the market moved relative to the $140 million that we printed.

Okay fair enough, thanks.

Thank you. Our next question comes from the line of Andrew Kligerman from UBS.

Great, good morning. Just Rich, on that excess liquidity or just liquidity in general, can you clarify what it is that 18-24 month cushion you want to have there? And then in general what is that liquidity level at the holding company? I believe you mentioned some numbers earlier, but I want to make sure I have them right.

Sure. What we're covering is fixed-charge coverages, monthly interest —

No, no, I got that. I just want to know the exact numbers.

Oh, its $1.5 billion which is where we're targeting today as the amount that we are holding at the holding company.

Do you have that amount and you're targeting that amount?

We have more than that amount and the amount above that amount is the piece that we will release and invest longer term, over time.

Right. And what is above that right now?

We're at $3.4 billion now as we measure and that excludes our commercial paper outstanding as well as the intercompany liquidity facility that Rich mentioned. So the difference between 3.4 and 1.5 is the number that you're looking for.

Got it, perfect; and then just one more clarification, Mark, derivative based short, can you just give me a little clarity around that one? What is it exactly that caused the $140 million loss? This is a new program. This is something different than what you've done in the past, what exactly is this derivative based short?

The answer is yes this is new; it' something that was done during the quarter reflective of you on our part that we wanted more protection for statutory capital in market fluctuations. What I mean by derivative short is that it's a total return swap and we would be paying the return on the market. So when the market goes up we pay more money and when the market goes down we pay less money and that's how we benefit inversely from the market moves.

Got it. Okay, and then the really important question that I have is I took a look at the — I was very upbeat about this quarter, I took a look at the 540-560 guidance last night, that's part one, and I got a number of $1 as the midpoint of your guidance for next year. Now, if you took all the unusuals out — Rich had mentioned, I think $0.34 of unusuals, you get $1.25 normalized and it's that $1.25 with some growth factors meshed in that would get you to something north of an 11% ROE. But if you're looking at $1 of earnings next year based on this new guidance, it's very concerning because then you're looking at an ROE maybe of 9%, maybe less. And in talking with Neil Stern last night and trying to get a little color about what might be in that guidance, I would still sense that $1.25 is a more normal number so that gets me to the question what is your ROE goal looking into '10 and beyond? And the second part of it is, is that dollar the run rate that we should be thinking about as we look to '10?

Okay, Andrew. This is John. Let me start with that and ask Mark to speak to it as well. While you may think the guidance is a little light as it relates to the fourth quarter, I would say it is, maybe only a little. You should not infer that we see or anticipate any weakness in our fundamental momentum. The earnings do fluctuate quarter to quarter and we are giving you a reasonable view of the impact of some season-ability and some other known items that will show up in the fourth quarter, none of which is individually very large nor problematic. So the message on our burins remains very, very positive.

Yeah. Let me extend some of your points a little bit, but first of all, you should not be extrapolating this fourth quarter expectation into 2010. You ought to be thinking about it in the context of exactly what John just said. And if you're thinking about the emerging ROE of the company you should be thinking about the performance of our businesses that are not sensitive to the markets and how well they’re doing and where they might be. You should be thinking about the market sensitive businesses and how they are recovering as the market improves. You should be thinking about the excess liquidity that Rich talked about and the capital cushion and you should be thinking about the redeployment of proceeds from the settlement of Wells Fargo. Those will be the drivers of the ROE of the company going forward. We'll go into this in more detail on investor day, but I want to steer you away from extrapolating the inference of fourth quarter numbers into 2010 or beyond. In this guidance we're essentially giving guidance for one quarter just because of where we are in the calendar and that means of necessity, we're going to include seasonal influences and we're going to include the consideration of things that we know. We also in this guidance have made a more conservative assumption about the market, namely that it's flat, then we would make as we look out over longer periods of time. So again I would caution you about extrapolating the fourth quarter number that you have inferred from our guidance and again as I said we're sort of in a box here giving one quarter guidance, but we are by no means giving 2010 guidance and we'll talk about that more in detail on investor day.

Yeah. And just quickly to followup on that comment you just made, Mark, about flat market; usually I think you're assuming something close to 3% equity appreciation per quarter, right? And if I am right then what kind of a negative DAC impact might that have on the quarter? That's an interesting data point.

Andrew, the 3% is the DAC assumption. The market assumption that we typically make is 8% a year.

So maybe 3% a quarter, but that could have maybe — I mean, would that have a negative impact in the fourth quarter if the market did end flat with where it was as of yesterday when you reported?

Yes. It would. If we don't have market anticipation that keeps up with what we've anticipated then we would have adapt from that.

That's what you're assuming based on what you just said before you're assuming some drag, right?

Yeah. So again, the very short-term nature of this number makes it different from the emerging outlook for ROE that I think you're trying to focus on and that would be one element of that equation.

Yeah. Rich, this is very help and I think too many people are just extrapolating that number in what was just what I think was a phenomenal quarter, so thanks very much into that insight.

Well, we should share your view that we had a very good quarter and we would caution you about extrapolating that inferred number for the fourth quarter. That's not what's going on around here.

Thank you. Our next question comes from the line of Edward Spehar with Banc of America.

Thank you. Just two questions; I guess the first Mark, when you suggest the drag from excess liquidity being about half of the negative variance year over year in corporate and other, I think that's about $80 million negative in the quarter or about $320 million on an annual basis. So that would suggest, I guess, we could do some math, that maybe you'll look at $6 billion plus as the number of potential redeployment. So I guess what I'm wondering, if my math is even close, that forgetting about the holding company, it seems like there's a few billion dollars that you could invest at the subs and I'm wondering how quickly do you think you'll do than, and then I have one followup.

I'm going to let Rich answer that.

I'm not tracking all of your numbers, particularly the $6 billion. Eric spoke before about how we're going to hold the cushion at $1.5 billion and we have $3.4 billion now. Some of that 3.4 is going to be used to pay fixed charges between now and the end of the year. So we're going to have about $1 billion coming out of the corporate account to reinvest at long-term rates and that will eliminate a part of the negative spread. Mark mentioned that Wachovia proceeds. They will come in early next year and that will be additional monies that we can invest. So I might have a number if you use $5 billion for Wachovia and $1 billion to be squeezed out of the corporate account of $5 billion. There may be some excess liquidity in PICA, but I'd rather talk about that on investor day when we have a clearer view of the future.

Okay. And then the followup, Rich, is on RBC. At the end of the second quarter you said the same thing that you said at the end of this quarter and I guess if I combine the benefit from the Nippon notes plus the VA reserver lease, I think you had just those two items are probably 40-45 RBC points, plus I'm assuming you got some capital benefit from — I'm assuming that the equity portfolio and the closed block was up in the quarter. So when we talk about comfortably above 400, are we comfortable this quarter versus comfortable last quarter?

We're comfortably above 400 this quarter. Eric doesn't want me to do a very simple walk (laughter) —

Our RBC ratios are very strong.

Are we going to get anything more specific, do you think, on investor day?

No. Not in terms of parsing details of where we are today. We will continue to talk about managing our RBC to the levels that we believe are consistent with our ratings aspiration and that's factored into our capital planning and stress-test picture, but we’re in very good shape.

And then just one point I want to make sure everybody understands on the Wachovia money. We’re earning zero on that investment today so it's the entire $5 billion that gets redeployed at an earnings rate. There's some friction there for taxes and we'll pay a little tax in there, but that's about it.

Got it, thanks.

Thank you. Our next question comes from the line of Jimmy Bhullar with JP Morgan.

Hi, thank you. I have a couple of questions. They're both on your international business. The first one's just on Gibraltar. Your sales were up 25% and I think a huge portion of that was just the pick up in the bank channel. Just wanted you to talk about the opportunity you see in the bank channel and to the extent you can quantify any numbers in terms of distribution agreements you have already and how much you think you can potentially ad? The second question is on the Korean business; your other life planner business outside of Japan had pretty good sales so I'm assuming that was primarily by Prudential of Korea. But in the past you have suffered because of aggressive competition in terms of agent retention, just if you can comment on trends in that market?

Sure, Jimmy. Let me start with the bank channel. And what we're seeing there is the emergence of what could become a very substantial third distribution for us in addition to POJ in Gibraltar. The bank channel opened up as a result of deregulation. It was limited to the annuity business at first, but starting last year they were allowed to sell insurance products and in the first quarter in which we sold which I was about five quarters ago, we sold just $1 million. But the big driver of the increase in this quarter was the growth in the sale of pure debt protection insurance. So that grew from virtually $1 million to $23 million in this most recent quarter. And what's particularly unusual and valuable about it is it's not what you might assume with the single premium insurance, but rather its recurring premium, both for retirement income and for whole life. As far as where that's going to go it's hard to say because this is still a very young distribution system. But your point about the distribution, we have continued to grow that quarter by quarter. So, for example at the beginning of this year we had 10 banks within our distribution. We're now up to 19 banks. So that alone should contribute to the growth in the channel beyond what we're already getting from our in-force relationships. As far as Korea, you're right, it appears, at least in the last few quarters, most noticeably in this quarter, that we may have turned a corner in what headband a multiyear cycle of very aggressive poaching by the competitors. As a result we've seen an increase in the number of life plans almost to a new historic level and an increase of over 30% in the sales…

Okay. And could you also address just your outlook for growth in life planners for Prudential of Japan? You've aspired, I think in the past, to a high single digit rate. You haven’t had for several quarters, and maybe a few years, and it doesn't seem reasonable anymore given the size of the agency force, but what's your view on what a more realistic growth target would be for the life planner account at POJ?

Yeah. Let me give you some numbers for life planner in general and then we can focus on POJ. Life plans in general I think have been growing this cycle if you adjust for the 4% in total by putting back the transfers out of POJ that have gone into the bank channel and help fuel that growth, that numbers get up to a little over 6%. I think it's 6.2%. Now that's probably a more realistic number. Now, in POJ even with the adjustment for the transfers it's somewhat less than that, and I think it has to do with a couple of factors. One you've mentioned which is the difficulty in continuing the thigh level of growth in a more mature large-scale organization, but I think somewhere in that range is a realistic number for us to be targeting for POJ.

Thank you.

Thank you. And ladies and gentlemen, today's conference call will be available for replay after 1:30 PM today until midnight November 12th. You may access the AT&T teleconference replay system by dialing 800-475-6701 and entering the access code of 986906. International participants dial 320-365-3844 and those numbers once again, 1-800-475-6701 or 320-365-3844, and enter the access code of 986906. That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.