Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2012 earnings teleconference. [Operator 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 very much, and thanks to all of you for joining our call. 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 cause such a difference appears in the section titled Forward-Looking Statements on Non-GAAP Measures of our earnings press release for the first quarter of 2012, 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 adjusted operating income to measure the performance of our Financial Services businesses. Adjusted operating income excludes net investment 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 are expected to ultimately accrue to contract holders and recorded changes in contract holder liabilities, resulting from changes in related asset values. Our earnings per share press release contains information -- our earnings press release contains information about our definition of adjusted operating income. The comparable GAAP presentation and the reconciliation between the 2 for the 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. Representing Prudential on today's call are John Strangfeld, CEO; Mark Grier, Vice Chairman; Rich Carbone, Chief Financial Officer; Charlie Lowrey, Head of Domestic Businesses; Ed Baird, Head of International Businesses; and Peter Sayre, Controller and Principal Accounting Officer. We'll begin with prepared comments and then we'll take your questions. John?

Thank you, Eric. Good morning, everyone. Thank you for joining us. Rich and Mark will review our financial results with you in detail in a few minutes. I'd like to begin with some high-level comments on the quarter and on our outlook. Our earnings this quarter reflected our poor results in Group Insurance. With that important exception, underlying performance of our businesses and the company overall continues to be favorable. As you know, Group Insurance includes life and disability operations. In Group Disability, we have clear performance issues, and we are moving aggressively to address and correct them. On the other hand, Group Life has generally been performing reasonably well. Although we had an unfavorable underwriting result this quarter, we believe this resulted in adverse fluctuation not an indication of fundamental deterioration in the business. You may have seen the Group Insurance is under new leadership effective last month. Steve Pelletier, a proven executive who most recently ran our annuities business is now at the helm reporting to Charlie Lowrey. Bob O'Donnell has succeeded Steve as head of the Prudential Annuities. Bob is intimately familiar with our annuities business and is ideally suited to his new role. Under Steve's leadership, you can be sure that we will be comprehensively reviewing all facets of Group Insurance and will make all needed changes. Our other businesses are doing well. In Annuities, sales for the quarter amounted to just under $5 billion, essentially in line with their levels since last year second quarter. Stripping out the benefit of favorable unlockings, earnings increased from last year's strong first quarter. In Retirement, flows in institutional investment products remain strong marginally because of growth in our investment-only wrap products. Our sales, again, included a meaningful longevity reinsurance case as we continue to pursue attractive pension risk transfer businesses. In full service retirement, we again experienced net outflows from case activities as we are maintaining pricing discipline in a highly competitive environment. Asset management, once again, recorded excellent institutional and retail flows. Although variable sources of earnings were relatively unfavorable this quarter, this business continues to perform well. Individual Life also delivered solid earnings this quarter and a healthy increase in sales as our competitors have raised prices making our products more competitive. Finally, International Insurance is benefiting from business growth and cost savings from the Star and Edison integration. Sales are strong in all distribution channels: captive agents, banks and independent agencies. All in all, Prudential is performing well with the exception of Group Insurance, which we are addressing. In addition, our balance sheet and capital position remain significant sources of strength and flexibility, and it's still early days in 2012. As for our 2013, ROE goal 13% to 14%, we never said it would be easy and we still believe it's achievable. We look forward to seeing you May 22 at our New York Investor Day. And with that, I'd like to turn it over to Rich Carbone. Rich?

Thanks, John, and good morning, everyone. We reported common stock earnings per share of $1.56 in the first quarter based on adjusted operating income, and of course, that's for the financial services business. This compares to $1.62 per share in the year-ago quarter, and both periods give effect to the new accounting standard for debt. We have only 2 items, 2 market-driven discrete items affecting this quarter. In the annuities business, the equity market increase in the quarter caused us to release a portion of our reserve for guaranteed minimum debt and income benefits and led to a favorable DAC unlocking resulting in a benefit totaling $0.30 per share. Going the other way, in International Insurance, Gibraltar Life absorbed integration costs of $0.08 per share relating to the Star and Edison acquisition. In total, the items I just mentioned had a net favorable impact of about $0.22 per share on results. Year-ago quarter benefited about $0.23 per share from the impact of favorable unlockings and reserve releases, and a gain on the partial sale of our indirect investment in China Pacific Group. These were partially offset by transaction and integration costs of $0.08 per share related to the Star and Edison acquisition and costs from the earthquake and tsunami disaster in Japan. Taking these items out of both quarters, EPS comparison would be $1.34 for the current quarter versus $1.39 for the quarter a year ago. This comparison, as John mentioned, is adversely affected by Group Insurance primarily from adverse claims experience and from asset management related to what we call ITSICOM [ph], that's incentive, transaction, strategic investing and commercial mortgage activities. These 2 businesses had a negative impact of about $0.17 per share in comparison to the year-ago quarter. And Mark will cover this in more detail in his…

Thank you, Rich and John, and good morning, good afternoon or good evening. I'll start with our U.S. businesses. Our Annuity business reported adjusted operating income of $421 million for the first quarter compared to $274 million a year ago. The reserve true-ups and DAC unlocking that Rich mentioned had a net favorable impact of $196 million on current quarter results. This includes the benefit of $136 million from the release of a portion of our reserves for guaranteed minimum death and income benefits and a further benefit of $60 million from reduced amortization of deferred policy acquisition and other costs, in both cases, reflecting favorable market performance. Results for the year-ago quarter included a net benefit of $58 million from a favorable DAC unlocking and reserve true-ups, also largely driven by favorable markets. Stripping out the unlockings and true-ups, annuity results were $225 million for the current quarter compared to $216 million a year ago for an increase of $9 million. This increase represents the net effect of growth in our fees currently offset by a higher level of base DAC amortization and by higher expenses in the current quarter. Policy charges and fee income for the quarter increased $51 million or 12% from a year ago, reflecting an increase of $10 billion in average variable annuity separate account values, driven by $11.6 billion in net sales over the past year. The benefit of higher fees in the current quarter was partly offset by a higher base level of DAC amortization. While favorable markets have driven improvements in our amortization factors since our negative unlocking in the third quarter of last year, we are still amortizing DAC at a more rapid pace than a year ago. In addition, current quarter expenses were higher than a year ago, partly as…

[Operator Instructions] Our first question will come from the line of Chris Giovanni with Goldman Sachs.

I wanted to see, I guess, firstly, about regulations. So in particular, curious on the status of deregistering as your savings and loan to automatically -- or to not automatically qualify for Volcker sort of what are your learning from the processes we're seeing around net in terms of the challenges in dealing with some of the regulators? And then lastly, how are you positioning around potential for nonbank SIFI?

This is Mark. Quickly on the first one, we're absolutely on-track with respect to the transactions and processes associated with de-thrifting, which isn't actually a word. But we anticipate the completion of that process on schedule this summer. In terms of the lessons from watching what's happened to Met, I don't want to comment specifically on line items, and there's been a lot of discussions picking at the different parts of the framework and the way questions get asked. But I'd just emphasize that our view all along has been that the basic banking-type approach to balance sheet and stress tests will not be appropriate to apply to an insurance business for a variety of reasons related to the nature of assets and liabilities and the way in which risk is actually realized. And also I'd add the long-duration nature of both sides of the balance sheet. And I think if we're learning a lesson, it's that, that hypothesis is right. That basic framework doesn't work very well. You wind up with the need to make a lot of exceptions and explain a lot of things that just don't make sense because there's an application of basic rules of the road that just don't fit very well with respect to the insurance business model versus the bank business model. We have filed comments in response to the Fed's NPRs consistent with that statement and consistent with what we've said all along, which is it's more important that we get this right and that we fight over the labels that get put on one company or another. And I continue to believe that, that's true. And we've provided pretty thoughtful discussion of the way in which we think the right framework differs from the pure cookie-cutter banking-type framework and looking at businesses like ours. And again, I would say if anything, we're learning that it really is true that it doesn't work very well. And then finally on the question of nonbank SIFI, we're part of the process. With respect to commenting on the latter, we continue to attempt to engage with respect to opportunities to educate and discuss our business models and the way in which risk comes through for us, and as a result of that, how we think we should be looking at solvency and stress test-type questions. And I expect that we'll have the opportunity as we go through the process to discuss both issue around whether or not we should be designated as a SIFI, and within that context, how we should be approached in terms of understanding the solvency measures and criteria.

Okay. And then just quickly on variable annuities. In the past, you've had an appetite and I guess some success around acquiring certain blocks of business from AllState and Skandia. So it seems like every month, someone wants to get out of this business. So curious if you would be willing to acquire something in the VA space?

I would say that with our highest daily value strategy that we are very comfortable with that and would not be, especially domestically, interested in acquiring any other VA block of business.

We certainly wouldn't be looking for standalone books, this is Mark. Just elaborate a little bit. I guess, if there were something in it incidental to a very compelling story, we'd have to think about it. But we're certainly not in the market to buy variable annuity books.

Our next question comes from the line of Mark Finkelstein with Evercore Partners.

On capital management, maybe I'll ask the question this way. John, in your opening remarks, you reiterated the 13% to 14% ROE target as achievable in 2013 within that with obviously a contribution from capital deployment. And I guess my question is has there been any change in the pace or quantity of capital deployment in relation to those original expectations?

Mark, let me answer that question more broadly, and then I'll come to the capital piece of it because I think it is important to elaborate on how -- why and how we have the conviction we do about our ROE aspirations, and capital's certainly one of the elements. When we talked about this in the past, we've been very consistent in saying there's really 3 things that are going to enable us to achieve our goals for ROE expansion. One is the superior business mix and the strong performance of our high ROE businesses. Second is the deal-related synergies in Star/Edison, and the third is the capital management. So let me -- by expanding slightly, let me just hit each of those 3 briefly, particularly in the context of where we are in this quarter. Superior business mix thesis holds. If you look at our international businesses, which now represent nearly 50% of our earnings, we had strong performance and exceptional fundamentals. If you think about our asset management businesses, we're feeling very, very good about that business as well. The variable component of revenue was less strong this quarter than it sometimes been and that will fluctuate. But in terms of the overall vital signs, investment performance, asset flows and revenue growth of base level fees, that business is doing very well and we have no different change in our thinking regarding the prospects for the return potential in that business. Annuities life, retirement, they're strong as well. So Group clearly has been unhelpful in its performance in recent times, and we recognize that. But we have to keep in mind, that business is the smallest of our reporting segments, which represents in a good year, 5% to 7% of our earnings. So that while we're very intent on fixing it, and I don't mean to minimize it at all. It's not driving our overall business mix element of the achievement of our ROE. The second piece, which I'll hit much more briefly is Star/Edison, you've heard from our comments that that's an important part of our retaining our ROE aspiration, and that holds absolutely true as well. And then the third piece that you specifically surfaced, Mark, was the capital management fees, and that's a combination of investing in our businesses, opportunistic M&A, returning -- also opportunistic divestitures, which you've seen us do as well, as well as returning shares to our -- returning cash to our shareholders as well. And it's a blend, and we continue to view it that way. So when I think of the overall picture and then taking expansive approach to your questions between the business mix and deal-related synergies on Star/Edison and the strong capital management, all 3 of those remain essential elements to what we aspire to do, and we're holding the course of our expectations and aspirations.

Okay. Maybe just one quick follow-up for Rich. Rich, I was a little surprised that the readily deployable capital component didn't increase. And I thought you did a transaction earlier in the quarter -- first quarter around RMBS that may have moved some money from capital capacity to readily deployable. Am I wrong about that? Or why didn't readily deployable capital go up?

That wasn't -- the REMI [ph] transaction only added to operating debt and it's going to be used to fund the operating needs throughout the year. It didn't add to capital debt. It was operating debt.

Our next question comes from the line of Tom Gallagher with Crédit Suisse. Thomas G. Gallagher - Crédit Suisse AG, Research Division: First question I had was on Gibraltar. And John, I know you had mentioned the benefit ratio went up on a year-over-year basis. But even when I look at the last several quarters, the benefit ratio relative to total revenues in Gibraltar was fairly elevated. Just curious, is there anything unusual in that number that we should think about? Is there seasonality at all, product mix shift? Anything you can elaborate just in terms of that one particular metric. Because I know DAC amortization was higher but this is not DAC amortization I'm referring to.

Yes, Tom, this is Ed. This is an element of all of the above as you would imagine. As always seasonality is a factor, yes, you're right. Product mix, that's a factor, and there's probably more of that going on now than usual because you have the Star/Edison life consultants moving away from their old company products to the Gibraltar products, so you have a lot of that. And then you have the normal fluctuation that takes place on a book this size. So when we filter through all of those moving factors, we don't see anything going on there that's of the slightest concern to us, frankly. It's a very steady book of business, very consistent profitability, very comfortable with what's going on, particularly in light of the magnitude of change that's taking place, this is actually very minor. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Got it. And just as a follow-up, are all of the bank sales done through Gibraltar or do some of those come through POJ?

They're all done through Gibraltar, Tom. So POJ is not involved at all. And the way it works, just to take you inside the structure of it. We actually have a third company, which you're probably familiar with, we call it Prudential Gibraltar Financial, but it's part of the Gibraltar segment. So it operates as a separate company. All of our new business on banks is being done through that company, but it's all reported through Gibraltar; the Gibraltar subsidiary. POJ never has done any bank business. The reason that it may even be a question in your mind is that we have taken and consistently have taken life planners out of the POJ organization and have transferred them over to Gibraltar to be seconded to the banks. But that's the only connection between POJ and any of the bank business. Thomas G. Gallagher - Crédit Suisse AG, Research Division: Got it. And then just looking at the supplement, it looks like sales are now half bank, half Gibraltar. So that would be the split. And I guess, just on a related note, is there any meaningful mix shift going on in terms of more retirement-oriented products versus mortality within that -- within Gibraltar?

Not so much within Gibraltar. There is -- that is a steady trend kind of across-the-board that you're referencing. And it's one of the reasons you see the average premium going up. I would say it's more a phenomenon driving details inside POJ, which as you see have, for several years now, in particular in this quarter, grown very steadily. It's not so much the growth in headcount, which as you see remains relatively small and yet you hit double-digit growth in sales. That's coming from the double-digit growth in the average premium. But in the Gibraltar side of it, it tends to be more on the traditional protection side, particularly over in the teachers association, which represents about half of it. And then inside the bank channel, you get a mix of both protection and retirement. You get a combination of the 2. The bank channel does remain, oh, about 80% insurance, very small portion of other products either A&H or annuity.

Our next question comes from the line of Randy Binner with FBR. Randy Binner - FBR Capital Markets & Co., Research Division: I'd like to talk about the losses in disability, and hoping you can share with us kind of some sense of what is driving the higher loss results in the last couple of quarters, if it's frequency, severity, case, size just to give some sense of kind of what's gone wrong in the underwriting there?

Sure, we're happy to do that. Let me provide some overall context to the disability as well, and I'll talk little bit about life because I think they're very different issues. But over the past couple of years, the disability ratio has been moving up. But let me give you some context to previous years because the disability ratio was 86%, 87% and 89% in 2007, '08 and '09, respectively. In 2010, it did jump to 95%. We started to look at it then. We thought that in part, it was due to the economy. By the beginning of 2010, this was clearly on people's radar screen -- or by '11, excuse me, by the beginning of 2011. So by June of 2011, we had hired a consultant to review the pricing, the processes, the procedures, and in fact, are raising pricing. So the first point want make because I don't want people to think that we woke up yesterday and were surprised by the benefit ratio. We have had our eye on this for a while. Now we do think we can contribute part of this to the economy. That explanation is obviously getting a little bit long in the tooth. So again as part of your question, we're continuing to experience some of the same issues we've described before, especially on the long-term disability side, which is higher severity, higher incidence and lower terminations. And terminations -- the terminations that are occurring are for lower amounts resulting in smaller reserve releases. So what we've concluded is that we can't expect these results to self-correct totally on an improving economy. So we have been and remain in the process of repricing a book. Obviously, that won't happen overnight as cases are into 2 to 3 years. So it will…

Well, the price increases have been in the low-double digits on average. I mean, you have some that are less than that, some that have more than that. And I think from the market's perspective, I think you're seeing a lot of people increase prices, so I think this is par for the course.

Our next question comes from the line of Jimmy Bhullar with JPMorgan. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: Some of my questions were answered, but I had one on the -- the ITSICOM [ph] revenues in your asset management business, they were a little light this quarter. So if you could just talk about what were some of the factors that caused that rather by-product or geography? And then also, what you your expectations are for that business if you've in fact had some losses in Europe given what's going on in the European economy and Asia?

Sure, happy to do that. Basically it was a tough quarter-over-quarter comparison, right, on ITSICOM, because last year, we had a boost from gains on foreclosed real estate assets in the interim portfolio, which provide a significant amount of gains. And this year, we had a drag from valuation declines on certain properties in funds, especially in Europe and Asia, that was the main cause, and specific properties in a few funds. But I'd say, looking forward to the economic conditions in Europe are affecting valuations of property, which may continue to affect ITSICOM [ph] going forward. As John and Mark both have said, this is a volatile segment, and it will go up and down. We've reduced the size of the proprietary investing significantly, or strategic investing significantly over the past few years, but there's still inherent volatility. We still have some legacy investments that will go up and down. Having said that, the other thing I would mention is what John touched on originally, which is the quality of flows within the Asset Management segment. We experienced significant positive flows of $8.6 billion, $4.5 billion of which were Institutional. And $3.2 billion which were retail. The interesting thing about the retail said was about 50-50, fixed income and equity. I think what that reflects is, one, it's very good investment performance, but 2, our investment over the past few years in the retail business. So that's led us to 12 consecutive quarters of record AUM and record asset management fees going forward. So I think for the business, as a whole, it's doing reasonably well. But I think it's fair to say that we will experience and continue to experience a certain amount of volatility in ITSICOM. And part of that could be because of what's going on with Europe. We'll just wait and see. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: Okay. And then on the 401-K and the full-service or retirement business, your flows have not been that great for the last several quarters, actually, and I think you mentioned in the call that you're seeing high competition in that market. Could you elaborate a little bit on what you're seeing there and what your views are for that business?

Sure. Absolutely. On the full-service side, we're not seeing a lot of turnover -- plan turnover. So there's not a plan -- a lot of plans out there and we're still seeing a fair amount of price checking in the marketplace. So we're starting to see a few more RFPs, but we're not sure whether those are price checking or real. We'll wait and see on that. But you can really categorize the negative net flows of 4 different categories, and we look at this every single quarter and analyze it in detail what the negative flows have been. So let me give you some categories and some percentages. The first one would be M&A or bankruptcy, right? And 50% of our outflows were because of M&A and bankruptcy where we're just on the side of the acquiree not the acquirer, and so you lose the plan. The second would be relationship changes, and this is a smaller percentage, but we're a plan sponsor. If there's somebody new that comes in or a new consultant comes in, and they just want to make change of some sort. The third is interesting. The third is pricing and we talked about that. And 60% of the cases we lost were below our target range or our target return that we would like. Now obviously 60% and 50% that of the more than 110%. So some of the M&A cases we lost puts us in the guise better be lucky than smart. Some of those cases were below our target rate of return. But we really do look at that very, very carefully. And the fourth is frankly, there are a few cases and these were less than a handful of cases and a small percentage both in terms of number of cases and in terms of dollar amount, but there were a few cases we lost we would rather have kept. But at the end of the day, we ended up with a record AUM of $146 billion on the full-service side. Now part of that was due to market obviously, but we still feel pretty good about that. The other interesting point about the business in general is the change in business mix. So we also had record AUM on the Institutional investment side with almost $94 billion. So if you look at the mix, the IIT business went from 32% of the total of AUM a year ago to about 39% of the total AUM at the end of the first quarter. The IIT, the growth came from investment only stable value business, as well as our pension risk transfer both of which we think are growth businesses with good rates of return, going forward or target rates of return. So we're quite pleased about the business. We're keeping the discipline on the full-service side, and we think the mix, the change in mix of business is not all bad.

Our next question comes from the line of Sean Dargan with Macquarie.

I'd like to ask about your life sales specifically universal life what kind of target returns you're getting there? We're hearing some other carriers talk about pulling back because of the market is commoditized and too competitive?

I don't think we gave target returns on any specific product. But don't forget that twice in 2009, we raised prices significantly. And as a result, our sales and I'll get the percentage a little bit wrong but our in 2010 by about 30% or so. As a result of that, we haven't really changed our pricing. And so competitors have come back to us, if you will, in terms of pricing, which makes us relatively more competitive in terms of sales. So we feel good about the returns we're getting. But it's not because we've had any recent price decreases in order to boost sales.

And we have time for one final question and that will be from the line of Jay Gelb with Barclays.

I had 2 questions. The first is on the run rate annualized results in the first quarter relative to guidance. So if I take the $1.34, annualize that and then add in the annualized impact of the $0.17 impact of the ITSICOM [ph], I get to around $6. And I realize there's some additional drag in the corporate line, but that still seems below sort of the 2012 guidance range. So am I missing anything else there, that's my first question and I have a follow-up?

Jay, this is John. Let me offer a couple of observations. One is, we made a decision back in 2009 to issue guidance once a year and then to neither affirm it or to update it. And we're going to stay the course of that approach. But having said that, while not putting a specific number on it. I would say that we think that the current quarter is not fully reflective of either our earnings power our business momentum. And just picking 3 things off of that. One is the group life experience that Charlie talked about. The second is the asset management variable revenue component. In the third is corporate and other and a couple of things that Rich mentioned. And just looked 3 specifically. I think it validates this concept of the current quarter is not reflective of earnings power of momentum.

Okay. My second question has to do with variable annuity sales. It appears that you're comfortable remaining in that quarterly sales range of $4.5 billion to $5 billion. And my sense was that to come down over time because you didn't want it to be too large a percentage of the business. So maybe you can just clarify that?

Yes, I think what we look for in this business as in other businesses is sustainable, profitable growth. And that the level of sales comes out of that. And we don't target necessarily a level of sales. If we think we need to raise prices and the sales comes downs a little bit, we will do that. But what we look for is an acceptable rate of profitability and the amount of sales comes out of that function.

Understood. So is that run rate $4.5 billion, $5 billion something we should keep in mind?

I would say, again that, we'll look at the profitability of the product, and the sales will come out of that. So I don't want to predict any particular level of sales going forward one way or the other.

And ladies and gentlemen, today's conference call will be available for replay after 1:30 p.m. Eastern today until midnight, May 10. You may access the AT&T TeleConference replay system by dialing (800) 475-6701 and entering the access code of 225936. International participants may dial (320) 365-3844. That concludes your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.