保德信金融集團 (PRU) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the third-quarter 2011 earnings teleconference. 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 Instructions) As a reminder, today's teleconference is being recorded. I would now like to turn the conference over to Mr. Eric Durant. Please go ahead.

Good morning. Welcome to Prudential's expanded third-quarter call to cover third quarter results and our financial outlook for 2012 and beyond.

Representing Prudential today are the usual suspects. 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. Slides supporting the financial outlook presentation are available now at our Investor Relations website, www.investor.prudential.com.

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 earnings press release for the third quarter of 2011, 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 reported changes in asset values that are expected to ultimately accrue to contract-holders and reported changes in contract-holder liabilities resulting from changes in relating asset values. 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 and 9-month periods ended September 30, 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. John?

This is John Strangfeld. Good morning, everyone. We appreciate you joining us. I will make some overview comments while leaving plenty of room for Rich, Mark, and for your questions. Although our results in the third quarter reflected the highly-unsettled market environment, underlying performance of our businesses continued to be quite favorable. Our international insurance operations, which are largely insulated from changing financial markets, continued to produce very solid growth in earnings and strong fundamentals. The life planner business achieved an 11% increase in earnings as they continue to successfully execute their time-tested business model. Sales in the life planner businesses increased by 13% in comparison to the third quarter of last year, based in constant dollars.

In Gibraltar, adjusted operating income increased 82%, including the contributions of the former Star and Edison businesses we acquired earlier this year, as well as a gain on sale of a portion of our indirect investment in China Pacific. If we back these items out of this quarter's results to get a same-store type comparison, earnings would exceed those of last year's third quarter by 26%.

Gibraltar sales more than doubled, exceeding $0.5 a billion for the third quarter for the first time. And excluding the contribution of Star and Edison, sales were up 37%, led by the bank channel. The Star/Edison integration is going well. The legal entity merger of Star and Edison into Gibraltar continues on pace for a first quarter close, as planned. After that we will begin to achieve the significant expense savings that will drive much of the earnings growth we expected from this transaction.

In the US, reported results were less favorable, but business fundamentals continued strong. For example, in our annuities business, our distinctive HD products continued to enjoy excellent traction with both consumers and distributors. We are very comfortable with our current annuities product and our level of sales. The loss that annuities reported from DAC and reserve unlocking this quarter should not obscure the strong underlying performance of this business. Excluding the impact of unlocking from both the third quarter this year and last, AOI increased 39%.

Similarly, our asset management business continues to produce healthy net flows and AUM is up substantially year-over-year. Over time, the ability to generate positive flows in AUM, a function we believe of investment performance more than any other factor, will drive earnings performance in this business. But variances in inherently volatile revenue sources, such as performance fees and proprietary investing, are unavoidable and our lower earnings this quarter resulted from declines in these sources.

Our individual life insurance business also recorded a sales increase this quarter, and retirements account values are up 10% from a year earlier after another quarter of solid flows in our institutional stand-alone business. In short, our business momentum continues to build and our underlying performance this quarter was solid.

We've expanded our call today to give you our outlook for 2012 as well as our longer-term goals for ROE. Although I don't want to front-run much of what Rich and Mark will be telling you, I would like to offer a few comments to provide context to their remarks.

First, business mix. We have a balanced portfolio of businesses and risks that support our ability to achieve our long-term objectives over a variety of market conditions. Our businesses operate in attractive markets, they are highly competitive, they are well-led, and collectively they offer attractive growth and return prospects. Our mix of businesses didn't just happen; it's by design. We have the business mix we want to have.

Second, balance sheet strength and capital management. Our strong capital position, liquidity, and sound asset quality continue to serve us well, supporting the opportunity to toggle between offense and defense. Capital management remains an essential lever and an integral part of managing Prudential.

We continue to invest in our businesses as they grow, and we have an attractive record of opportunistic acquisitions. We will continue to seek attractive deals where we can realize attractive terms and successfully integrate acquired properties. But we are disciplined in managing capital, and we recognize the importance of balancing share repurchases, dividends and investments in our businesses to ensure an appropriate capital structure and attractive returns. I'm sure you've noticed that we repurchased $750 million of our common stock last quarter under our current Board authorization.

Third, our return on equity objectives. We have been consistent in our focus on maintaining an attractive mix of very good businesses with the earnings power to produce superior returns with above-average consistency and in a variety of market conditions. As Rich will walk through with you in a few minutes, we continue to believe that our stated return on equity objective for 2013 of 13% to 14% is achievable, even with some headwinds in the markets. With that, I'll stop. I'll thank you for your interest, and I'll turn it over to Rich. Rich, over to you.

Good morning, everyone. As you've just heard from John, we continue to build business momentum, even in these adverse markets. And while common stock earnings per share was $1.07 for the third quarter based on adjusted operating income, compared to $2.12 per share in the year-ago quarter, market-driven and discrete items, including the impact of our annual update of experience and actuarial assumptions, had a significant impact on our reported results, as they did in the third quarter of last year. In the annuities business, the market dropped in the quarter caused us to increase reserves, the guaranteed minimum debt-to-income benefits and amortization of DAC, resulting in charges totaling $0.68 per share. In retirement, unlocking, based on the annual update of experience and assumptions resulted in a charge of $0.04 per share.

In the individual life business it benefited from $0.12 per share from the reduction of net amortization of DAC and related items as a result of the annual update of actuarial assumptions. This benefit was partially offset by increased net amortization of charges of $0.05 per share, driven by the equity market decline in the quarter for a benefit of $0.07 per share. Group insurance results benefited $0.04 per share for reserve refinements, driven by the annual assumption update.

In international insurance, Gibraltar Life benefited by $0.13 per share from the partial sale of our indirect investment in China Pacific Life. This benefit was partially offset by integration costs of $0.06 per share relating to the Star/Edison acquisition and corporate and other results absorbed charges of $0.15 per share to increase reserves for estimated death claims based on new matching criteria used with Social Security death benefit death files, and $0.03 per share for a contribution to be made to New York insurance industry insolvency fund for a total of $0.18 per share. In total, the items I just mentioned had a net unfavorable impact of $0.72 per share, on our third-quarter earnings. Adding back the net charges of $0.72 per share to our reported results would bring EPS in the quarter to $1.79.

Our year-ago quarter results included $0.74 per share of net favorable impacts from unlockings and reserve releases, mainly reflecting the 11% increase in the S&P 500 in that quarter. Taking these items out of both the current and year-ago quarters would produce an EPS increase of about 30%, driven largely by organic business growth and the initial contribution of the Star/Edison earnings.

Moving on to the GAAP results for the financial services businesses, we reported net income of $1.5 billion, or $3.06 per share for the third quarter, compared to $1.2 billion, or $2.46 per share, a year ago.

Now, GAAP net income for the current quarter includes amounts characterized as net realized investment gains of $1.6 billion. This compares to $284 billion of pre-tax net realized investment gains in the year-ago quarter. The $1.6 billion of current quarter gains includes $2 billion of asset and liability value changes driven by the strengthening of the yen, and by marks on derivatives primarily related to duration of management activities. These gains are partially offset by impairments and credit losses amounting to $150 million, and net losses of $94 million, primarily related to hedging activities.

GAAP book value per share amounted to $74.52 at the end of the third quarter. This compares to $67.81 a year ago. Gross unrealized losses on general account fixed maturities were $4.2 billion at the end of the quarter, up $1 billion from a quarter earlier, mainly as a result of foreign currency movements. And we were in a net unrealized gain position of $9.8 billion at September 30.

Book value per share, excluding unrealized investment gains and losses, and pension and post-retirement benefits, increased $6.39 from a year ago, reaching $66.79, at the end of the quarter.

I will discuss our capital and liquidity in some detail later on as part of our guidance discussion where you will see estimated projections of both GAAP and stat capital as of 12/31. Our estimate of stat capital as of 9/30 is about where we would expect it to be or are expecting it to be at year-end, and is around a 500 RBC ratio, actually a little better. Now to Mark.

Good morning, good afternoon, or good evening. I will start with our US businesses. Our annuity business reported a loss of $191 million for the third quarter, compared to adjusted operating income of $588 million a year ago. Results for the current quarter reflect the unfavorable reserve adjustments and unlocking that Rich mentioned. Strengthening of our reserves for guaranteed minimum death and income benefits resulted in a charge of $241 million to current-quarter results. This charge was largely driven by the equity market decline in the quarter, with a partial offset from our annual update of actuarial assumptions to reflect a more favorable experience pattern on contract features than our earlier estimates. The DAC unlocking resulted in a further charge of $194 million to current-quarter results, also largely driven by the equity market decline.

The items I mentioned sum up to a net unfavorable impact of $435 million on current-quarter results. Results for the year-ago quarter included a net benefit of $412 million from a favorable DAC unlocking and the release of a portion of our reserves for guaranteed minimum death and income benefits, largely driven by the 11% increase in the S&P 500 in that quarter, together with our annual update of actuarial assumptions which reflected strengthening persistency.

Stripping out these items, annuity results were $244 million for the current quarter, compared to $176 million a year ago, for an increase of $68 million. These results translate to a return of 87 basis points on average account values for the current quarter, compared to 76 basis points a year ago.

While our quarter-to-quarter reported results reflect market volatility, since we are required to adjust reserves in DAC essentially by projecting the impact of current-market movements out over contract periods that are measured in decades, our underlying results are benefiting from higher returns on a growing base, as we are continuing to add profitable business supported by our auto-rebalancing mechanism that helps us to manage the economic risk of these market fluctuations.

Our gross variable annuity sales for the quarter amounted to $4.5 billion, in line with the second quarter. This compares to $5.4 billion a year ago. Our sales results in earlier periods benefited from dislocations in the marketplace, as some competitors trimmed features or exited the business following the financial crisis. More recently, we have seen some competitors revamp their products, leading in some instances to surges of sales due to product introductions, or in anticipation of retrenchment of features or repricing.

While our quarterly sales comparison reflects these market developments, we are continuing to benefit from the strong value proposition of our highest daily protected value feature, which clearly differentiates our products. All of the variable annuity living benefit features we now offer come packaged with the auto-rebalancing feature. While a number of our mainstream competitors have recently introduced some form of account value protection embedded in product design, our products are differentiated on that front as well.

In contrast to the fund level approach used by many of the new products, which require investment in a very limited set of funds, our contract-level approach is tailored to each client's account composition and guaranteed profile. This allows us to offer a broader choice of investments within the asset allocation programs that are required for our living benefit features, and to return each client's funds to equity market participation as soon as appropriate on a contract-by-contract basis.

As of September 30, more than 80% of our account values with living benefits, and nearly two-thirds of our entire book of variable annuities has our auto-rebalancing feature. We strongly believe that our consistent approach to product design and commitment to the marketplace, with a track record of 5 years now since the introduction of our highest daily products coupled with auto rebalancing, provides us with a solid competitive advantage in a market that is very much driven by advisors and third-party gatekeepers and distributors.

The retirement segment reported adjusted operating income of $111 million for the current quarter, compared to $119 million a year ago. Current-quarter results reflect the charge of $26 million from updating of DAC and other amortization items based on our annual review, while assumptions for the year-ago quarter included charges of $15 million, reflecting the results of a similar review. Stripping these items out of the comparison, results for the retirement business are up $3 million from a year ago.

Current-quarter results benefited from higher fees and from more favorable case experience on traditional retirement business. However these benefits were largely offset in the quarterly comparison by a lower contribution from investment results, mainly driven by non-coupon asset classes.

Total retirement gross deposits and sales were $9.5 billion for the quarter, compared to $8.3 billion a year ago. The increase was driven by sales of stable value wrap products sold to plan sponsors on a stand-alone basis, which amounted to $5.1 billion in the quarter, up from $2.3 billion a year ago. Full service retirement gross deposits and sales were $4 billion in the current quarter, compared to $5.3 billion a year ago. We are continuing to see slow case turnover in the mid- to large-case market, which is our primary focus. On the other hand, we've done well in retaining existing business in this environment, with full service persistency continuing at a solid 96%.

Overall net additions for the retirement business were $3.9 billion for the quarter, compared to $3.5 billion a year ago. Account values stood at $215 billion at the end of the quarter, up 10% from a year ago.

The asset management segment reported adjusted operating income of $123 million for the current quarter, compared to $148 million a year ago. While most of the segment's earnings come from asset management fees, the decline in results from a year ago was driven by a lower contribution from performance-based fees and proprietary investing activities. The contribution from performance-based fees was down about $20 million from a year ago, reflecting current-quarter declines in value of several properties and institutional real estate funds we manage. And the contribution from proprietary investing activities was down $12 million from a year ago.

The lower contribution from these items was partly offset by higher asset management fees, driven by growth in assets under management net of expenses. The segment's assets under management increased about $80 billion from a year ago, including $15 billion of primarily US dollar general account assets from the Star and Edison acquisitions. The rest of the increase in assets under management was driven by cumulative market appreciation, and about $26 billion of positive net flows in institutional and retail business over the past year.

Adjusted operating income for our individual life insurance business was $145 million for the current quarter, compared to $190 million a year ago. Current-quarter results benefited by $75 million from a favorable unlocking of DAC, and other items resulting from our annual actuarial review and related mainly to more favorable persistency and mortality assumptions. Going the other way, current-quarter results include charges of about $30 million to accelerate amortization of DAC and other items, driven by unfavorable separate account performance linked to the 14% decline in the S&P 500. Results for the year-ago quarter benefited by $52 million from a favorable unlocking based on the annual actuarial review, and from $25 million of reduced amortization of DAC and other items based on favorable market performance.

Stripping these items from the comparison, results from individual life were down $13 million from a year ago, mainly as a result of higher expenses and less-favorable mortality experience in the current quarter. Sales based on annualized new business premiums amounted to $70 million for the current quarter, up from $64 million a year ago. The increase came mainly from third-party sales with our relative competitive position improved for term and universal life products.

The group insurance business reported adjusted operating income of $64 million in the current quarter, compared to $61 million a year ago. Current quarter results benefited by $26 million from refinements in group life and disability reserve as a result of our annual review, while results for the year-ago quarter benefited by $28 million reflecting a similar review.

Stripping the reserve refinement out of the comparison, group insurance results are up $5 million from a year ago. This increase was driven by more favorable group life underwriting results, partly offset by higher expenses and a lower contribution from investment results. Group insurance sales for the quarter were $52 million, compared to $110 million a year ago. Most of our group insurance sales are reported in the first quarter based on the effective date of the business.

Turning to our international businesses. Gibraltar Life's adjusted operating income was $394 million in the current quarter, compared to $217 million a year ago. As Rich mentioned, Gibraltar's results for the current quarter include income of $84 million from the partial sale of our investment in China Pacific Group by the Carlisle Consortium. As of the end of the quarter, our remaining investment in China Pacific has a cost of about $30 million, with market appreciation of roughly $100 million, which is included in the $9.8 billion of net unrealized gains on our balance sheet. Going the other way, Gibraltar's results for the quarter absorbed $43 million of integration costs for the Star and Edison acquisitions.

We continue to expect about $500 million of integration costs over a 5-year period, including roughly $120 million over the remainder of 2011, and $215 million in 2012 to achieve targeted annual cost savings of $250 million after the business integration is completed. The integration continues on track, and we expect to merge the Star and Edison stand-alone entities into Gibraltar in early 2012. Excluding the China Pacific gain and the integration costs, Gibraltar's adjusted operating income was up $136 million from a year ago. This increase includes a $79 million contribution from the operations of the acquired Star and Edison businesses.

The current-quarter contribution includes $16 million of negative refinement to amounts reported earlier in the year. So I think of the average of the second and third quarter contributions, just under $100 million per quarter as more indicative of the initial operating results before realization of any significant expense synergies. We expect to begin to realize the targeted cost saves after the merger of the legal entities is completed. The remainder of the increase in Gibraltar's results from a year ago, or $57 million, came mainly from business growth driven by protection products, reflecting our expanding bank channel distribution and a greater contribution from investment results.

Sales from Gibraltar Life based on annualized premiums in constant dollars were $517 million in the current quarter. This represents an increase of $289 million from a year ago, including $85 million of organic growth, driven largely by the bank channel, and $204 million from production through the distribution that came to us in the Star and Edison acquisition, including about $80 million from independent agents. This $80 million includes about $35 million from a Star/Edison term product for which we are implementing changes as part of the integration of the product portfolios with Gibraltar.

Late in the third quarter, Gibraltar signed a distribution agreement with Mizuho, Japan's third largest bank, expanding our distribution to now include 2 of the country's 3 largest banks. The quarter also marked the first sales of a Gibraltar product, our popular US dollar retirement policy, by the Star/Edison life advisors. We are encouraged by the strong reception of this product by these agents and their clients, with about 40% of Star/Edison agents selling at least 1 of these policies during the quarter.

Our life planner business reported adjusted operating income of $357 million for the current quarter, up $34 million from $323 million a year ago. The increase was driven by continued business growth, mainly in Japan, together with favorable mortality. Sales from our life planner operations based on annualized premiums and constant dollars were $263 million in the current quarter, up $30 million, or 13% from a year ago. The increase was driven mainly by strong sales in Japan where we are benefiting from increased demand for retirement income products, and in Korea.

Corporate and other operations reported a loss of $327 million for the current quarter, compared to a $265 million loss a year ago. As Rich mentioned, current quarter results include a $99 million charge to increase reserves for estimated death claims based on applying new matching criteria to the Social Security death files, and an additional $20 million charge for a contribution to be made to an insurance industry insolvency fund. Excluding those charges, the loss from corporate and other results was reduced by $57 million from a year ago. This is mainly the result of lower expenses, including some items that are non-linear or driven by liabilities that move inversely with the equity markets, and more favorable results from hedging activities retained at corporate and other.

I want to turn now to some comments on the impact on Prudential of the current interest rate environment. And the framework will include a discussion of the GAAP income statement and the statutory balance sheet, the 2 basic places in which we live. We've factored the current interest rate environment into our earnings guidance and ROE targets that Rich will address in a few minutes. Let me make a few comments now about how we are thinking about interest rate sensitively and how we're managing interest rate risk. The headline is, this is a manageable exposure for us, working through earnings over time, and having little incremental balance sheet impact.

First, I would draw distinction between our international and US businesses. We now derive roughly half of our earnings from international insurance. The vast majority of this business is Japanese-yen-based, and has been priced with the very low interest rates that have prevailed in Japan throughout our history there. With our emphasis on protection products, most of our returns are driven by mortality and expense margins, with limited exposure to financial market conditions.

In our US businesses, our risks are well balanced among mortality, longevity, equity markets, interest rates and credit exposures, and are diversified across retirement, asset management and insurance. We believe this diversification limits our overall sensitivity to any particular type of risk. Within our US insurance businesses, we have relatively little exposure to products which tend to be the most interest-rate-sensitive, such as fixed annuities, universal life and long-term care. To put a fence around our exposure to a continuation of the low interest rate environment in the US, I would start with the expected roll-off per year of our general account fixed-income portfolio, including bonds, structured securities and commercial mortgages, and size the amount of investment income decline we would face for each 100 basis points, by which the average yield on investments rolling off exceeds reinvestment rates.

As of September 30, this US fixed-income portfolio amounted to about $125 billion, and we would expect about $12 billion per year on average to roll off in each of the next 3 years. The yield of these investments rolling off in each of those years is expected to be in the low 5% range. For each 100 basis points of decline in the reinvestment rate, as compared to the roll-off yield, that would represent a $120 million decline in annual run rate of top-line investment income over 12 months. For example, if our time horizon is calendar year 2012, by the end of that year the annual run rate of investment income would be $120 million lower than at the end of 2011. You should think of this as an unmanaged pretax number.

Assuming no change in investment strategies and no improvement in interest rates, this would compound to an annualized impact of $240 million at the end of year 2, and $360 million at the end of year 3, or in this case, 2014. However, we would not expect all of this hypothetical loss of investment income to fall to the bottom line, considering a number of significant mitigating factors. Since the assets and liabilities of our US businesses are closely duration-matched, we would expect that as higher-yielding assets roll off, a portion of the corresponding liabilities would roll off or be repriced at the same time, limiting our exposure to declining or negative spreads.

Given low contractual crediting rate floors and experienced rating provisions on significant portions of our business, mainly in retirement, we have the ability to implement crediting rate reductions in response to a continuing low interest rate environment. As of September 30, roughly $25 billion of our liabilities subject to crediting rate floors have significant contractual room to reduce rates, 100 basis points or more on average. In addition, with our asset management capabilities across broad asset classes, including private placements and commercial mortgages, we are also able to consider changes in investment strategy to help manage exposure to the loss of top line investment income over time.

The exposure of the statutory capital position of our US insurance companies to a continued low interest rate environment is also manageable. Statutory base reserves for most products are formulaic and prescribed, and generally not affected by periods of low interest rates. However, we perform asset adequacy tests on our statutory reserves annually under a range of scenarios, including several with prolonged low interest rates. As of the end of 2010, Prudential Insurance had about $900 million in additional asset adequacy testing reserves over the statutory base level, reflecting a shock-down scenario from the low interest rates prevailing at that time, and an assumption that interest rates would not recover over the lives of the contracts. This is a very robust low interest rate scenario.

This robust statutory interest rate shock scenario is subject to floors. In last year's testing, the floor in the most stressful scenario was based on declines of about 100 basis points from existing rates, based on 50% of the then-prevailing 5-year treasury rate. At recent interest rate levels, the reductions would be about 50 basis points. Since the additional stress beyond the prior-year floor is somewhat limited, we estimate that our exposure to further asset adequacy testing reserves for year-end 2011 is measured in the low hundreds of millions. To sum up, we believe that our exposure to a continued low interest rate environment is manageable, both from the perspective of reported GAAP income and statutory capital. Now I will turn it back over to Rich.

As always, we like to lay out the assumptions and then get into the numbers. I'm on slide 6. It should say assumptions for 2012 outlook. First we estimate 2011 baseline FSD earnings, where we exclude unusual and nonrecurring items that we've identified throughout the year, and some items that we know are going to occur in the fourth quarter.

Next we need to input some S&P assumptions. We assume the 2011 ending S&P of 1250, a 2012 average S&P of 1300, and an ending 2012 S&P of 1350. 2012 is fully hedged with the yen at JPY85 to the dollar, and the won at KRW1181 to the dollar. In 2012 the effective tax rate will be back up to around 27%. Our guidance assumes we maintain leverage at around 25%, and that we deploy excess capital generated during 2012. Lastly, we have assumed 2012 rates will track the forward curve. So for example, the 10-year treasury rises to [2.12%] at the end of the year 2011, and to [2.50%] at the end of the year 2012.

Now I'm on slide 7. It's a bit complicated, there's a lot of columns, there's restatements, there's a whole bunch of stuff going on. So I'm going go slow, hopefully, and start on the left-hand side there. So you see 2010 baseline excluding DAC, it should be yellow on your slide. It says $5.50 to $5.60 in that first column. I think, given it's November of 2011, we can narrow that range a bit and call it $5.56, since that's what we actually reported.

The next column, 2011 projected earnings, shows AOI without taking out the unusual items and before the restatement to DAC of $6.25 to $6.35. On the next column, baseline estimate for 2011 after 1-time charges and unusual items are removed is $6.50 to $6.60, and that's up 18%, from 2010 and it's 6% better than our original guidance for 2011.

Now, normally we could stop here and go onto 2012, but then there is DAC. So as we disclosed in our 8-K last night, we expect to adopt the new GAAP accounting standards for deferred policy acquisition costs retrospectively, effective January 1, 2012. As a result we will reduce the DAC asset on our balance sheet. While we are still finalizing the numbers, we estimate that upon adoption of the new rules, the DAC asset for the financial services business will be reduced by approximately $3.8 billion to $2.7 billion, with a corresponding reduction in after-tax equity, equity most of the time is after-tax of approximately $2.7 billion to $3.2 billion.

Looking at the impact on earnings, in general, application of the new rules will produce a decline in our reported adjusted operating income because the lower level of costs qualifying for deferral, and accordingly, expensed in the period, will be only partially offset by the lower level of amortization of deferred costs resulting from the write-down of the DAC asset. For the full year 2010, we estimate that the impact of the new rules would have been a reduction in earnings per share of about $0.35 to $0.45.

Looking forward, we estimate the full year 2011 and 2012 earnings per share would be reduced by between $0.40 and $0.50 per share for 2011, and $0.45 to $0.55 per share in 2012. Last night you had an 8-K in front of you; that 8-K quoted 9-month effects, so make sure that you are using full-year effects that I gave you just now when you forecast and you stick this stuff in your models.

Most of the decline in 2011 and 2012 relates to our international insurance business, the large cap-to-distribution system, and our annuity business, the very large independent financial advisor system.

Let's get back to the slide, that brings to us the column labeled 2011 baseline estimate including DAC. So that line, that column is restated for the DAC. We add business growth for 2012, corporate and other is going to have a higher loss by about -- I don't know what the higher loss is; I'm not going to give you that. But pension income is down $60 million because we reduced the discount rate for which we present value the liabilities and we reduced the yield on the investments in the trust.

We are going to add Star/Edison; Star/Edison picks up an additional 2 months worth of earnings, realizes some synergies and also has business growth. We expect capital deployment to also add to EPS appreciation. So the net result of all of that is we expect 2012 baseline AOI EPS to be between $6.50 and $6.90, a 10% increase from 2011 and an 11.4% return on equity. Lastly, we take out, or I should say we add in, I guess, the Star/Edison 1-time charges, and that brings reported AOI down to $6.20 to $6.60 on a reported AOI basis.

I'm on slide 8. Since we are retrospectively adopting the DAC accounting change, all prior periods will be restated. Slide 8 shows a 3-year AOI trend restated for DAC. It shows that from 2010 to 2011, AOI is up 18%, from 2011 to 2012 AOI is up 10%, which is the same number on the previous slide.

Moving onto capital, I'm on slide 9 now. Our estimate today is that we will generate about $3.5 billion of capital in 2011. We need $2 billion to fund the capital needs of the businesses resulting from their 2011 growth. You see that need reflected in the required capital line going from $35.5 billion to $37.5 billion, 2010 to 2011, which tracks the change in actual equity. We had to back-fill or we had to hold that equity to suffice the needs in the required equity. That went as I just mentioned I think from $29.2 billion to $31.2 billion.

That suggests that by year-end we anticipate returning roughly the remaining $1.5 billion, that's the $3.5 billion we generated less the $2 billion that we need and we're keeping in retained earnings and in equity, and now that gets to the $1.5 billion we expect to return to shareholders by year-end. The net result of what was created, the $3.5 billion versus what was used, the entire $3.5 billion in returning to the shareholder and the needs of the business is that our excess capital position stays the same as it was on 12/31/2010. On balance sheet, available capital is $4 billion to $4.5 billion, redeployable capital, $2.2 billion to $2.7 billion, PFI cash will come in at around $3.2 billion, and our RBC insolvency ratios are above their targeted needs.

Now, the next slide we will go into the long-term ROE expectation projection goals. Slide 10 lists the major drivers of long-term ROE as well as drivers of shareholder value. We know how critical capital deployment is to creating value, whether it's in funding organic growth, making acquisitions, or used for share repurchases and dividends. Organic growth also plays a major role in ROE improvement, and a little help from a more stable S&P would be greatly appreciated. We have assumed the JPY78 and KRW1110 in these numbers or in the translation of earnings in the numbers that you see on the next slide. Today, we are actually hedging the yen at better rates than JPY78 to the dollar because of the interest rate differential between US rates and yen rates, so they're lower than JPY78, which is a good guide.

Successful integration of Star/Edison goes without saying. We made a change to the treatment of AOCI to be consistent with our peers in how we treat it in calculating ROE. We are now going to exclude the CTA component of AOCI from the denominator in the ROE calculation. Again, this is consistent with our peers, but I think more importantly, this reflects the reality of a stronger yen to the Company's value. So just to repeat going forward, all of AOCI is going to be excluded from the ROE calculation. The debt-to-capital ratio we are holding at 25%.

Slide 7 brings that story together and shows we are maintaining our 2013 ROE goal of being between 13% and 14%. We expect to achieve that through business growth, more effective legal entity structures, capital-friendly product design and continued efficient use of capital resources. I think that concludes all of our prepared remarks. We are going to take questions.

(Operator Instructions) Nigel Dally, Morgan Stanley.

I want to focus on your ROE goal for 2013. For 2012, your guidance implies an ROE of roughly 11%. So, to hit the 13% to 14%, you imply a pretty massive increase in EPS. Couple of questions on that.

First, should we view that as a stretch goal or a target you expect to achieve? Second, you've provided some of the building blocks; can you place some dimensions around the relative contribution? And third, what do we need to see with interest rates to hit that goal?

Nigel, this is John. Just to take that in terms of the primary building blocks. They are the same building blocks we have been talking about before, which is the principal things that are going to get us there are continuing strong performance of our IROE businesses, particularly international insurance, asset management and annuities.

Number 2 is the successful integration of Star and Edison, and Number 3 is appropriate capital management in a variety of different ways. Those are going to drive it. It's not predicated on some change in interest rate assumptions and these sorts of things. It's those 3 elements, are the primary drivers of our outcomes.

Just going into those in more detail, though, the relative contribution of each, are they roughly equal in size, or are there any particularly areas like capital management providing more of a boost to your ROE outlook?

Actually they are relatively equal in size, a third, a third, and a third.

On one of your other questions, that forecast uses continued low rates. There is not a rate scenario, other than as Rich described, the forward curve.

So, it's all based on the 2013 forward curve, as we currently stand?

Yes. Also we believe this is an achievable target. This isn't pie in the sky. So to your question about how confident we are, we are pretty confident.

Mark Finkelstein, Evercore Partners.

I guess a few questions on the progression that you are talking about. Can you elaborate at all on the capital management assumptions that are being baked into the 2012 estimates?

Two things. One is, I think I mentioned earlier on, that we expect capital that is generated during 2012 will be deployed. We've got $1.5 billion buyback program in place.

You saw we used $750 million so far, so it was our expectation we will complete that buyback. New capital will be generated next year and we will have to make sure we deploy that effectively.

I just wanted to mention one thing that may lead back to Nigel's question but it also addresses yours. Keep in mind that when Star/Edison comes fully online and all of the synergies are realized, we had contemplated between a 60- to 70-basis-point, if my memory serves me correctly, in an ROE lift.

So, that's coming on. In 2013, we are not going to be fully there, but a big chunk of that is chipping in. Right now we are not getting a lot of help from that. (inaudible) a zero sign, but it's not a lot of help.

Maybe I'll ask it slightly differently. If I look at the ratio of deployable capital versus the $3.5 billion that you used, it's a free cash flow ratio of about 43%. Would you expect that ratio to radically change in 2012?

That moves around. It depends upon the capital needs of the businesses. And the one thing that that ratio is missing, I would remiss not to point it out, that we -- that's the pure income ratio. What we have is, our businesses do throw off capital as we change the business mix.

So, for example, we are exiting the interim loan business and winding down that portfolio. We expect capital to be freed up from there. That's not in the 43% of free cash flow ratio that you just calculated, and we've got more of that built in to the plan going forward.

Finally, your ratios in Japan, 700POJ over 650 in Gibraltar, what is the plan on how much capital you are going to keep overseas? Those feel like very high numbers. I know there is a trend upward historically, but they just seem very high, and what is the strategy around that?

This is Ed Baird answering with a slight cold. The ratios there are being monitored on a couple of bases. One, as you know, we always look to maintain a top-tier ratio there, consistent with the competitors and what the rating agencies are looking for.

Given the fact that next year will be a change in the official calculation of the solvency margins, I think at this stage it's a little too early to pick a specific number there, but the sense is, that somewhere between 600 and 700 will probably be the range that will be looked at as competitive and as deemed to be consistent with a AA rating.

Andrew Kligerman, UBS.

Couple of quick clarifications. Just on the buyback, so when you are talking about capital redeployment of $1.5 billion next year, that assumes that the $1.5 billion authorization for buybacks is completed. In other words, you will finish that up and then you will have another $1.5 billion next year to deploy; is that correct?

There is an assumption of the redeployment of the capital that we generate. It wasn't, in Rich's presentation, divided between organic growth, acquisitions, or disposition in other ways, including share repurchases or dividends. So, that will be part of the judgment that we exercise next year as we go through the year, and will depend on the business opportunities that are in front of us.

Right now we are operating under an authorization to repurchase $1.5 billion, which ends in June. And I think I've said in the past that we reconsider this often. Capital management is something that's in front of us regularly, not a discreet item that we take a look at when our authorization expires, and it's an ongoing process. So, there is not reflected in Rich's comments, or this guidance, a specific implication of another $1.5 billion or not.

Okay. It seems, Mark, that you really like your stock here. You did half the authorization in 1 quarter. How do you feel going forward? Do you feel pretty excited about buying back your stock?

We exercised judgment in the recent quarter. I'm glad you are pleased with that outcome. It's a dynamic process, and we will continue to consider all of our choices in the context of the environment.

Open-ended answer there. Let me move on to your interest rate scenario. By year-end 2014, you lose income of $360 million, and then you mentioned, Mark, a number of mitigating factors. Could you give a range or quantification of what those mitigating factors would do to the $360 million in lost income should interest rates remain where they are now?

I described that 2014 cumulative number as an unmanaged pretax number, which is how you ought to think about it, and the immediate levers in front of us are the opportunities to further reduce crediting rates as market conditions allow. As I indicated, we've got about $25 billion of liability products with substantial room to reduce crediting rates, meaning 100 basis points or more.

So, you can do the arithmetic on that opportunity. We also have opportunities to change our investment mix without compromising credit quality, if we decided that's a path we want to go down and the market was there for us in private placements and in commercial mortgages in particular.

We also have opportunities to extend duration, particularly in some of our overseas portfolios, where we don't necessarily have the rate risk, but where we would get the consolidated benefit. I don't want to scale it in the abstract.

But you should think of that 2014 cumulative number again as unmanaged and pre-tax, and there are some significant things that we can do to mitigate that impact. By the way the rest of the Company, in terms of a number of core contributing items will be growing around this potential stress from the gradual decline of the yield and the general account.

Right. I had just wanted you to quantify those factors. But my math, and it's hard to do in this short period of time, would at least slice out half of that $360 million; is that fair?

I've given you a road map.

You've given parameters, I will work with it. And then just real quickly, lastly, Gibraltar, saw the reps go from 13,400 to 12,900. I know there is a lot of Star/Edison integration going on that is going to have some fallout. Where does that finally settle?

We don't have a forecast, but I can give you a context for thinking about it going forward. I think what you will see unfold on the Star and Edison will be very similar to what unfolded when we acquired Kyoei, not necessarily numerically, but certainly directionally.

So, for example, when we took over Kyoei they had about 7,000 salespeople. We put in place our performance standards that are more consistent with the higher performance that we expect out of our traditional Gibraltar organization, and that led to a reduction ultimately down to about 4500, which you will notice has grown up to over 6,000 in the years since then.

I would expect without knowing what the degree would be that the direction will be similar, so that what you have seen here is a reduction. I would not expect this to be the last such reduction. It will depend on how successful we are in providing products and training that allows them to perform at the higher level that we expect.

Thomas Gallagher, Credit Suisse.

First I had one on the free cash flow and then another one on capital. Rich, I just want to make sure I understand the numbers, and ask you maybe to give a little more granularity in terms of what is behind them. I start with the $3.5 billion annual capital generation number, the $1.5 billion that you are talking about as being free cash flow, I should think about that as being used for either 1 of 3 things, one being buyback, 2 being common dividends, 3 being M&A; is that -- am I starting -- and then $2 billion is to support business growth?

Yes. Specifically for 2011, you are exactly right, Tom.

Just to be clear, that was getting to the end of this year; that was going to the December 31 position. So, that reflects the reality of our expectation of generating about $3.5 billion, deploying about $2 billion of it in our businesses, and about $1.5 billion though repurchases and dividends.

Okay. So if I think of a sustainable number, a reasonable mix might be a 5 -- this is my words. I'm just curious if you care to comment, $1 billion buyback, a $500 million common dividend. If we had to think about splitting it up between at least what you've done historically, as we think about going forward. Is that a reasonable mix to think about?

No, Tom. I think the way you got to think about it is, in the percentages, moving away to dollars, right? So, maybe, and I forget, it might have been Mark earlier who computed the 43% free cash flow coming from operations. So earnings throws off 43%.

We pick up a few percentage points coming out of capital, freeing up of capital that's in the businesses, so we are looking at maybe like 50%; and that's a very hard number to get to, because the capital number that gets freed up each year from more efficient use of capital by the businesses is not that predictable. The free cash flow coming up is a little bit more predictable, and maybe 43% is a little low this year, maybe it's 45%. But that's the way you have to look at it.

One other thing I'd mention -- this is John -- is we barbell this as though it's either normal organic growth, M&A, or return to shareholders. That's a reasonable way to think about it in broad sense. But our other thought, hope and expectation is, there could be some other outside organic opportunities that maybe very attractive ways for us to put capital to work.

The most noticeable example that's in the hopper but very difficult to time quantify, is in the area of pension risk transfer, which is a really natural place for us to compete in. We are about to begin to materialize in a more visible way, could be a highly attractive way for our capital go to work.

So, when Rich comments, it's using a more normalized organic patterns and things, but please appreciate, we are thinking well beyond that in terms of potential capital applications that would be very attractive fits for us in our business.

Don't narrow your thinking to a dollar number of $1.5 billion as a redeployable every year forever.

Just a reminders on 2 things. One is, when we talk about this relationship between earnings and available cash, that's over time. Remember that net income versus AOI matters, and we tend to talk in the earnings world about AOI, but the real capital accounts are impacted by net income.

So, when we talk about this, it's an over time concept and it's based on the broad relationship between net income and AOI being in line. The second point to make, though, is don't lose sight of the strength of our current balance sheet as you are thinking about projecting earnings. We have finished this quarter, in spite of turbulence, in very good shape with respect to capital liquidity and asset quality.

As Rich rolled forward and talked about the end of 2011, we'll go into next year with just about the same amount of excess capital that we came into this year with, in spite of substantial investments in the business and in spite of what we are doing with respect to share buybacks and dividends. So, keep the static picture in minds as well. The balance sheet is very strong.

That balance sheet resource is what funds the capital free-up in the future over and above the free cash flow coming out of earnings.

That's clear. Then any quantification on the $2 billion or so that you think needs to be replowed or kept in the business to support growth? Can you give any sense for where exactly most of that is being held, or what is that to support? I don't know if you can bracket it between international, variable annuities and then non-US variable annuities, or however you can quantify that would be helpful.

Don't forget, this is an actual number. This is not a projection. We actually absorbed $2 billion of additional capital in 2011. More than half of that is annuities in international, and the rest is sprinkled amongst other businesses.

Just to remind you, we don't have international variable annuities. I think you used that phrase.

Yes, no, understood. But could you quantify how much was VA? Just out of curiosity?

No.

That's just in the half-bucket, or more than half-bucket between international. More than half. The other question I had was just on the mark-to-market impact from the quarter, thinking abut how it affected GAAP. I'm talking specifically about variable annuity mark-to-market, reserving versus hedging, how that looked on GAAP and how that translated to stat.

I guess what stood out to me, Rich, was there was very large hedge breakage, if I strip out the benefit of the MPR. There was north of $2 billion of hedge breakage on a GAAP basis. I appreciate there is some uneconomic effects there, but can you comment on how that affected your capital and statutory, and how we should be thinking about that?

On a statutory basis, there was an offset. We had the duration hedges, the derivative duration hedges, which offset the negative impact, not entirely, it offset partially the negative impact of the hedge breakage in one of our subs. But all of that is taken in to consideration in the 500 RBC-plus that I laid out at 930 earlier in my remarks.

Tom it's mark. I'm not going to call it hedge breakage because there are hedge differences that we accept and actually actively manage to. There is some breakage in these numbers in the sense that some things didn't line up as tightly as we might have liked, but there also are numbers in there that reflect the general way in which we've positioned in the context of offsets that happen in other places. As Rich mentioned, the marks on the duration hedges go the other way from some of the exposures in the calculation of our living benefit liability.

Just to cut to the bottom line with respect to statutory capital, there is very little impact overall, and that's reflected in the RBC numbers that Rich quoted. Some direct product-related items one way and some other items going another way.

And you see in GAAP, I understand the question about taking out MPR, at the end of the day we don't get to take out MPR. All-in, the effect on the GAAP net income statement was pretty small from the annuity picture.

We are going to in out 10-Q disclose a lot about this. Rather than go through the line items today, I would like to talk at the macro level like we just did, but you will see a lot of transparency around the annuity results in the 10-Q.

Eric Berg, RBC Capital Markets.

You mentioned, repeatedly now, the 500 RBC. My first question is, is that going to be a new placeholder, or a place where you plan to capitalize your flagship Company to maintain your A rating. It seems high relative not only to where you've been, but to others. How should I think effectively about that 500% number?

That's kind of easy. What happens is, that the RBC builds throughout the year in PICA. We take the dividend out in the first quarter, if approved, of the next year. So, towards year-end, you are always going to see that buildup of RBC naturally, and then we take it down in the first quarter of next year, and it rebuilds by the end of the next year, and so on, and so on.

Eric, this is Mark. We believe that at 400%, which is the benchmark that we have used as the threshold above which we define capital capacity. We are targeting capital levels that are consistent with AA ratings, not A. In fact, I think the standard in the industry is more like 350% in terms of targeting RBC levels. So, we are conservative at our 400% target and you should not think of 500% as an operating target. The threshold above which we define capital capacity is still 400%.

My second and final question relates to the future, and perhaps I'm not sure who best to answer this question, maybe John, but my second and final question relates to the future of interest-rate-sensitivity of the Company as it relates to the business mix.

In particular, if we assume that your Asian businesses, your Japan and Korean businesses will continue to be your fastest growing businesses, and also that there will be an evolution of the business over time, away from traditional mortality business on which you grew up with POJ, and more towards what you are calling retirement businesses, although through the vehicle of retirement-oriented life insurance, what will all that change in business mix mean that I predicated or that I premised, for the interest-rate-sensitivity of the Company?

That's the question. How will the change in business mix that I have posited, what will all that mean for the interest-rate-sensitivity of the Company.

Eric, this is Ed again, the bottom line is answer is not much of anything. Let me explain why I say that. We describe certain products in Japan as retirement versus traditional protection. But the underlying products are essentially the same, they are traditional whole life products, it's simply a matter of some of those being characterized as retirement, because they have much higher cash value accumulation focus, as opposed to let's say term insurance, which we would put into the debt projection bucket.

That would be point one. Point 2, I would remind you, as I know that you are very aware of, that with the one exception of Gibraltar, we have never looked, and continue not to look at investment spread as a source of earnings in Japan. We make our money there off of the mortality and expense margins. That's the reason that you see the remarkable consistency in the earnings regardless of interest rate environment, economic conditions, equity markets, et cetera.

It's only in Gibraltar where we do have a good return on investment spread as a result of our having reset the crediting rates and the in-force book once we took it through the bankruptcy courts. So, the nomenclature we're using here maybe misleading you a little in thinking about retirement products as somehow investment products, as opposed to insurance products.

The fact is the vast majority of these products, with 1 exception of some fixed-annuities, and even the fixed annuities are MVAs to a large extent, so you don't even have the risk there. So, we are getting our earnings out of MNE and we continue to do that going forward.

Chris Giovanni, Goldman Sachs.

Wanted to come back to capital management and reconcile some of the numbers we are talking about. Putting into context the methodical share repurchases you have historically done, where you have been pretty consistent on a quarterly basis in the past. Should we be thinking about $750 million as the run rate?

The reason I ask, if we think the $1.5 billion that you guys have available to deploy for 2011, after we think about your annual dividend, it doesn't leave a lot of room for share repurchases in the fourth quarter. Also trying to reconcile the $1.5 billion versus $2.2 billion to $2.7 billion that you say is readily deployable.

It's Mark. Let me start with the first couple parts of it then maybe let Rich answer the last. We are currently operating under a total share repurchase authorization to buyback up to $1.5 billion worth of stock by the end of June of next year. We've said since the time that we announced this authorization that we may revisit it in the interim.

You shouldn't read anything into what we did in the third quarter, other than the context that I mentioned earlier, which is that we exercised judgment. Right now the authorization is for $1.5 billion by the end of June, but we will be reconsidering the whole question of capital deployment on an ongoing basis.

Chris, the second part of your question ties to the answer I gave a little bit earlier. The excess capital you see now, it was $2.2 billion to $2.7 billion is sitting in the regulated entities in cash. Over the early part of next year, that will be dividend up to the holding Company, not all of it but a lot of it, and that's how it becomes usable in our capital deployment.

And that's going to happen every year. Every year you are going to see the capital spent and capital build and next year spent again. But by the end of the year, it's sitting in the regulated entities. The dividend approval in the early part of the next year.

For 2012, you had mentioned the capital that you generate you are going to deploy. So, we should be thinking about the upstreaming of dividends of that $2.2 billion to $2.7 billion capacity plus the free cash flow you generate next year?

No. Because that free cash flow, it is a rolling free cash flow. So, that $2.7 billion comes up, or the $2.2 billion comes up, and the one that was generated last year stays down until the next year. It's sequential. That's the assumption that underpins the guidance. So, that's how you want to think about it.

You guys had mentioned adjusting the AOCIs for the ROE calculation to be consistent with your peers, and wondering in terms of the DAC unlocks that you guys take. Certainly within annuities it's been pretty volatile, as you include everything in adjusted operating income, while many of your peers include some in the unlocks below the line. Have you given any thought to changing that practice to maybe reduce some of the volatility consistent with peers?

We are giving more thought to it, leaving the DAC below the line.

We are trying to be very transparent. And portraying operating earnings in a business like annuities that has a lot of mark-to-market type numbers, and what we believe are some numbers that don't necessarily reflect economics, going through operating earnings every quarter is a little frustrating.

As I said, we've tried to be very transparent and we've been consistent with what we are doing. But we appreciate the fact that we are not necessarily aligned with the industry, and it's something we ought to consider.

Randy Binner, Friedman, Billings, Ramsey.

Somehow we made it through the whole conversation without mentioning the federal government, and it doesn't seem that your capital management decisions on a forward basis have any pause or hesitation because of potential non-bank CIFI status. I just wanted to confirm that, that's the case, and see if you've felt any shift in the vibe out of Washington. Obviously the banks in MET have seen a more conservative shift there.

This is Mark. We have had a view all along that the most important thing for us, as we enter the world of regulation from someone at the Federal level, whether it's the Federal Reserve or someone else, that the most important issue for us is that our business models be understood and that we not be pounded into a bank framework that really doesn't reflect the dynamics of our financial structure or the business models that we are managing. That's more important than whether or not we have a label of CIFI or not. I still think that's more important.

In that respect, I would say that we are having a sense that the environment is pretty constructive. I believe we will have a good faith opportunity to engage on that topic, to think about what we look like, to think about setting and calibrating metrics, and to understand the differences between the Prudential as it looks and banks as they look. The general tone of things, in that respect, I think, is favorable in the sense of the opportunity to engage and think about it the right way.

Remember that financial strength is part of our value proposition. So, transparent high-quality regulation can be very important for us. We want to be a constructive part of that process. The opportunity to have a good outcome is important for us in our business, and important for us in our business models.

With respect to the potential to be a CIFI, there are couple of different issues there. 1 is the broad question of oversight, as it would relate to, particularly, the Holding Company and the unregulated subs, which is a hot topic in light of the experience with AIG and the financial crisis. And then other questions relate to setting and calibrating metrics.

You've heard us talk about how far over regulatory minimums we generally run, and our view is that we want to be strong from a capital perspective, and I would be surprised if there is a disagreement that results in a punitive-type capital structure for Prudential.

We already operate at literally multiples of the regulatory standards. So, the context there really isn't, what kind of penalty in quotes might we have imposed above the current level of capital, it's really what might the standard look like versus current standards. And we are very strong versus current standards just about no matter who how you measure it.

We are not currently in the same category as a bank holding company. In that respect we don't have the same kinds of issues that some other companies have. But, I think we have the opportunity to work constructively on this, and we would be surprised if it turns out to be something that really in the end of the day is a problem for us.

Just 1 quick follow up to bottom line it, if you do quite likely become a non-bank CIFI, then you would keep the current risk-based capital format and not have to use a Tier 1 format. That would be the key difference, right?

We don't know. That whole question of setting and calibrating metrics is very much an open issue, but having said that, I have the sense that there is respect for the functional regulators, meaning the state regulators, as it relates to our insurance companies, and I hope we wouldn't throw that out. The RBC system has withstood the test of time and served the industry very well.

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