Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") addresses the consolidated financial condition of Prudential Financial as of March 31, 2009, compared with December 31, 2008, and its consolidated results of operations for the three months ended March 31, 2009 and 2008. You should read the following analysis of our consolidated financial condition and results of operations in conjunction with the MD&A and the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, as well as the "Risk Factors" section, the statements under "Forward-Looking Statements" and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Prudential Financial has two classes of common stock outstanding. The Common Stock, which is publicly traded (NYSE:PRU), reflects the performance of the Financial Services Businesses, while the Class B Stock, which was issued through a private placement and does not trade on any exchange, reflects the performance of the Closed Block Business. The Financial Services Businesses and the Closed Block Business are discussed below.

Financial Services Businesses

Our Financial Services Businesses consist of three operating divisions, which together encompass seven segments, and our Corporate and Other operations. The U.S. Retirement Solutions and Investment Management division consists of our Individual Annuities, Retirement and Asset Management segments. The U.S. Individual Life and Group Insurance division consists of our Individual Life and Group Insurance segments. The International Insurance and Investments division consists of our International Insurance and International Investments segments. Our Corporate and Other operations include our real estate and relocation services business, as well as corporate items and initiatives that are not allocated to business segments. Corporate and Other operations also include businesses that have been or will be divested, including our investment in the retail brokerage joint venture with Wachovia Securities, and businesses that we have placed in wind-down status.

We attribute financing costs to each segment based on the amount of financing used by each segment, excluding financing costs associated with corporate debt which costs are reflected in Corporate and Other operations. The net investment income of each segment includes earnings on the amount of capital that management believes is necessary to support the risks of that segment.

We seek growth internally and through acquisitions, joint ventures or other forms of business combinations or investments. Our principal acquisition focus is in our current business lines, both domestic and international.

Closed Block Business

In connection with the demutualization, we ceased offering domestic participating products. The liabilities for our traditional domestic in force participating products were segregated, together with assets, in a regulatory mechanism referred to as the "Closed Block." The Closed Block is designed generally to provide for the reasonable expectations for future policy dividends after demutualization of holders of participating individual life insurance policies and annuities included in the Closed Block by allocating assets that will be used exclusively for payment of benefits, including policyholder dividends, expenses and taxes with respect to these products. See Note 5 to the Consolidated Financial Statements for more information on the Closed Block. At the time of demutualization, we determined the amount of Closed Block assets so that the Closed Block assets initially had a lower book value than the Closed Block liabilities. We expect that the Closed Block assets will generate sufficient cash flow, together with anticipated revenues from the Closed Block policies, over the life of

Concurrently with our demutualization, Prudential Holdings, LLC, a wholly owned subsidiary of Prudential Financial that owns the capital stock of Prudential Insurance, issued $1.75 billion in senior secured notes, which we refer to as the IHC debt. The net proceeds from the issuances of the Class B Stock and IHC debt, except for $72 million used to purchase a guaranteed investment contract to fund a portion of the bond insurance cost associated with that debt, were allocated to the Financial Services Businesses. However, we expect that the IHC debt will be serviced by the net cash flows of the Closed Block Business over time, and we include interest expenses associated with the IHC debt when we report results of the Closed Block Business.

The Closed Block Business consists principally of the Closed Block, assets that we must hold outside the Closed Block to meet capital requirements related to the Closed Block policies, invested assets held outside the Closed Block that represent the difference between the Closed Block assets and Closed Block liabilities and the interest maintenance reserve, deferred policy acquisition costs related to Closed Block policies, the principal amount of the IHC debt and related hedging activities, and certain other related assets and liabilities.

The Closed Block Business is not a separate legal entity from the Financial Services Businesses; however, they are operated as separate entities and are separated for financial reporting purposes. The Financial Services Businesses are not obligated to pay dividends on Closed Block policies. Dividends on Closed Block policies reflect the experience of the Closed Block over time and are subject to adjustment by Prudential Insurance's Board of Directors. Further, our plan of demutualization provides that we are not required to pay dividends on policies within the Closed Block from assets that are not within the Closed Block and that the establishment of the Closed Block does not represent a guarantee that any certain level of dividends will be maintained.

Prudential Financial, a financial services leader with approximately $542 billion of assets under management as of March 31, 2009, has operations in the United States, Asia, Europe and Latin America. Through our subsidiaries and affiliates, we offer a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. We offer these products and services to individual and institutional customers through one of the largest distribution networks in the financial services industry.

Current Developments

Financial Markets. The stress experienced by global financial markets that began in the second half of 2007, has continued and substantially increased since then. The volatility and disruption in the global financial markets have reached unprecedented levels in the post World War II period. The availability and cost of credit has been materially affected. These factors, combined with economic conditions in the U.S., including depressed home and commercial real estate prices and increasing foreclosures, falling equity market values, declining business and consumer confidence, and rising unemployment, have precipitated a severe economic recession and concerns of prolonged adverse economic conditions.

Due to the economic environment, the global fixed-income markets are experiencing a period of both extreme volatility and limited market liquidity conditions, which has affected a broad range of asset classes and sectors. As a result, the market for fixed income instruments has experienced decreased liquidity, increased price

As further discussed in "-Liquidity and Capital Resources," the U.S. federal government has taken numerous actions to address financial market conditions. These actions include the U.S. Treasury's Capital Purchase Program, which is part of the Troubled Asset Relief Program, or TARP, as well as the Term Asset-Backed Securities Loan Facility, or TALF. The TARP Capital Purchase Program involves the issuance by qualifying institutions of preferred stock and warrants to purchase common stock to the U.S. Treasury. TALF is designed to provide secured financing for certain types of asset-backed securities.

We have applied to participate in the Capital Purchase Program, although no determination with respect to our participation has been made. If we do participate in the Capital Purchase Program, we will become subject to additional requirements and restrictions on our business. See Item 1A, "Risk Factors" for additional information. In the first quarter of 2009, we participated in TALF as an eligible borrower. We continue to evaluate other government sponsored programs for which we may be eligible.

As a result of the volatility and disruption in the global financial markets, we undertook certain actions during 2008 as described in more detail in our 2008 Annual Report on Form 10-K. Due to the continuation of the financial markets dislocations into 2009 and in order to manage our liquidity and capital resources, we undertook certain additional actions in the first quarter of 2009, including the following:

• Made capital contributions and capital loans to our international insurance operations in Japan totaling $366 million.

• Borrowed $1.5 billion in the form of collateralized funding agreements from the Federal Home Loan Bank of New York, or FHLBNY.

• Replaced certain inter-company funding agreements between Prudential Insurance and Prudential Financial, previously funded through proceeds from the sale of Prudential Financial's retail medium-term notes, with a portion of the funding agreements issued to FHLBNY making the corresponding proceeds available for general corporate purposes.

• Reduced exposure to short-term financing markets, primarily through planned runoff of commercial paper borrowings.

• Undertook sales of assets held by some of our affiliates to reduce their borrowing needs.

• Realized gains from derivative positions related to our Japanese insurance operations.

For additional information on our liquidity and capital resources, and the actions we undertook in the first quarter of 2009, see "-Liquidity and Capital Resources."

We continue to monitor the liquidity and capital needs of Prudential Financial and its subsidiaries. If the disruption in the credit and capital markets continues or worsens, we will need to take additional capital management actions to maintain capital consistent with our rating objectives, which may include additional internal actions or, if internal resources are insufficient or market conditions continue to deteriorate, access to external sources of capital, if available.

During the first quarter of 2009, rating agencies downgraded certain ratings of Prudential Financial and its subsidiaries. Downgrades in our claims-paying or credit ratings could potentially, among other things, limit our ability to market products, reduce our competitiveness, increase the number or value of policy surrenders and withdrawals, increase our borrowing costs and potentially make it more difficult to borrow funds, adversely affect the availability of financial guarantees, such as letters of credit, cause additional collateral requirements or

Our financial condition and results of operations for the first quarter of 2009 reflect the following:

• Net loss of our Financial Services Businesses attributable to Prudential Financial, Inc. was $5 million as the continuation of unfavorable financial market conditions into 2009 had a negative effect on our investment portfolio, resulting in net realized investment losses and related adjustments, and on reported results of certain of our domestic businesses that are more market sensitive.

• Pre-tax net realized investment losses and related adjustments of the Financial Services Businesses were $710 million, primarily reflecting other-than-temporary impairments of fixed maturity and equity securities of $677 million.

• We continued to have positive net flows in our domestic annuity, retirement and asset management businesses, as well as solid sales in our domestic and international insurance businesses.

• Full Service Retirement gross deposits and sales were $10.5 billion and net additions were $6.3 billion, an increase from gross deposits and sales of $4.6 billion and net additions of $653 million during the first quarter of 2008.

• Net unrealized losses on general account fixed maturity investments of the Financial Services Businesses amounted to $7.514 billion as of March 31, 2009, compared to $6.567 billion as of December 31, 2008. Gross unrealized gains decreased from $4.684 billion as of December 31, 2008 to $3.734 billion as of March 31, 2009 and gross unrealized losses decreased slightly from $11.251 billion to $11.248 billion for the same periods. Net unrealized losses on general account fixed maturity investments of the Closed Block Business amounted to $4.971 billion as of March 31, 2009, compared to $4.035 billion as of December 31, 2008.

• As of March 31, 2009, Prudential Financial, the parent holding company, had cash and short-term investments of $4.745 billion after repurchases during the first quarter of 2009 of $245 million original principal amount of Prudential Financial convertible debt securities; however, adverse capital market conditions have affected and may continue to affect the availability and cost of borrowed funds and could impact our ability to refinance existing borrowings.

We analyze performance of the segments and Corporate and Other operations of the Financial Services Businesses using a measure called adjusted operating income. See "-Consolidated Results of Operations" for a definition of adjusted operating income and a discussion of its use as a measure of segment operating performance.

Shown below are the contributions of each segment and Corporate and Other operations to our adjusted operating income for the three months ended March 31, 2009 and 2008 and a reconciliation of adjusted operating income of our segments and Corporate and Other operations to income from continuing operations before income taxes and equity in earnings of operating joint ventures.

                                                                 Three Months Ended
                                                                      March 31,
                                                              2009                2008
                                                                    (in millions)
Adjusted operating income before income taxes for
segments of the Financial Services Businesses:
Individual Annuities                                        $      17          $      115
Retirement                                                        159                 124
Asset Management                                                   (1 )               119
Individual Life                                                    40                  96
Group Insurance                                                    93                  90
International Insurance                                           425                 413
International Investments                                          10                  26
Corporate and Other                                              (166 )               (51 )
Reconciling Items:
Realized investment gains (losses), net, and related
adjustments                                                      (710 )              (665 )
Charges related to realized investment gains
(losses), net                                                      44                 (13 )
Investment gains (losses) on trading account assets
supporting insurance liabilities, net                             145                (262 )
Change in experience-rated contractholder
liabilities due to asset value changes                            (45 )               200
Divested businesses                                               (32 )               (67 )
Equity in earnings of operating joint ventures and
earnings attributable to noncontrolling interests                   3                 (36 )

Income (loss) from continuing operations before
income taxes and equity in earnings of operating
joint ventures for Financial Services Businesses                  (18 )                89
Income (loss) from continuing operations before
income taxes for Closed Block Business                             30                 (26 )

Consolidated income from continuing operations
before income taxes and equity in earnings of
operating joint ventures                                    $      12          $       63

Results for the three months ended March 31, 2009 presented above reflect the following:

• Individual Annuities segment results for the first quarter of 2009 declined in comparison to the first quarter of 2008, primarily reflecting the impact of unfavorable market conditions. Results for the first quarter of 2009 included a $1,358 million favorable variance in the mark-to-market of embedded derivatives and related hedge positions associated with our living benefit features, primarily driven by a market-perceived increase in our own risk of non-performance. This favorable variance was largely offset by a corresponding $1,080 million increase in the amortization of deferred policy acquisition and other costs. Results for the first quarter of 2009 also included a $304 million charge for the market

• Retirement segment results for the first quarter of 2009 increased in comparison to the first quarter of 2008, primarily driven by improved investment results in both our full service and institutional investment products businesses. Results also included a favorable variance in the mark-to-market of embedded derivatives and derivative hedge positions related to the guaranteed minimum withdrawal benefits associated with certain defined contribution accounts, driven by a market-perceived increase in our own risk of non-performance. Partially offsetting these items was a decline in asset management fees, driven by a decrease in average full service fee-based retirement account values, primarily resulting from equity market depreciation.

• Asset Management segment results for the first quarter of 2009 decreased from the first quarter of 2008 largely due to a decline in performance based incentive fees primarily related to institutional real estate funds, as well as lower asset management fees. In addition, results from the segment's real estate proprietary investing business decreased primarily from co-investments.

• Individual Life segment results for the first quarter of 2009 declined from the first quarter of 2008 primarily due to a net increase in amortization of deferred policy acquisition costs, net of related amortization of unearned revenue reserves, related to market induced lower persistency on variable products. Results also include a decrease in asset based fees due to unfavorable equity market performance as well as unfavorable mortality experience, net of reinsurance.

• Group Insurance segment results increased slightly, as the benefit from more favorable claims experience in our group life and group disability businesses in the first quarter of 2009, was mostly offset by the benefit in the first quarter of 2008 from a $20 million premium adjustment for updated data on a large group life insurance case.

• The International Insurance segment is comprised of its Life Planner and Gibraltar Life operations. Results from the segment's Life Planner operations increased primarily reflecting improved investment income margins and the continued growth of our Japanese Life Planner operations, which were partially offset by higher amortization of deferred policy acquisition costs and higher general and administrative expenses. Results from the segment's Gibraltar Life operation increased slightly, as improved investment income margins and more favorable mortality were offset by higher general and administrative expenses.

• International Investments segment results for the first quarter of 2009 declined from the prior year quarter reflecting lower results from the segment's Korean asset management operation primarily due to a decline in asset based fees.

• Corporate and Other results for the first quarter of 2009 declined from the first quarter of 2008 primarily due to lower investment earnings, increased interest expense on capital debt and losses in our real estate and relocation services business.

• Realized investment gains (losses), net, and related adjustments for the Financial Services Businesses in the first quarter of 2009 amounted to a loss of $710 million, primarily reflecting other-than-temporary impairments of fixed maturity and equity securities of $677 million.

• Income from continuing operations before income taxes in the Closed Block Business increased $56 million in the first quarter of 2009 compared to the first quarter of 2008. The decrease in net realized gains and net investment income compared to the prior period was more than offset by the resulting decrease in the cumulative earnings policyholder dividend obligation expense.

Application of Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, results of operations and financial position as reported in the Consolidated Financial Statements could change significantly.

Management believes the accounting policies relating to the following areas are most dependent on the application of estimates and assumptions:

• Valuation of investments, including the recognition of other-than-temporary impairments;

• Policyholder liabilities;

• Deferred policy acquisition costs;

• Goodwill;

• Pension and other postretirement benefits;

• Taxes on income; and

• Reserves for contingencies, including reserves for losses in connection with unresolved legal matters.

See below for an updated discussion of the application of estimates and assumptions around Goodwill. For an updated discussion of the application of estimates and assumptions around the valuation of investments, see "-Valuation of Assets and Liabilities-Fair Value of Assets and Liabilities." For an updated discussion of the application of estimates and assumptions around the recognition of other-than-temporary impairments, see "Realized Investment Gains and Losses and General Account Investments-General Account Investments-Fixed Maturity Securities-Other-than-Temporary Impairments of Fixed Maturity Securities."

A discussion of each of the remaining critical accounting estimates may be found in our Annual Report on Form 10-K for the year ended December 31, 2008, under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Accounting Policies and Pronouncements-Application of Critical Accounting Estimates."

Goodwill

Goodwill is tested for impairment on an annual basis as of December 31 of each year and more frequently if events occur or circumstances change that would indicate a potential for impairment. The test is performed at the reporting unit level which is equal to or one level below our operating segments. Reporting units that have goodwill subject to testing are the Asset Management segment, the International Insurance segment's Life Planners business, and the Retirement segment's full service business. After a review of current market conditions, it was determined that the $444 million of goodwill associated with the Retirement Full Service reporting unit would be tested for impairment as of the valuation date of March 31, 2009.

As required by accounting guidance, the impairment testing process consists of two steps. Step 1 requires that the fair value of the reporting unit be calculated and compared to the reporting unit's carrying value. If the fair value is greater than the carrying value, it is concluded there is no impairment and the analysis is complete. If the fair value is less than the carrying value, Step 2 of the process is completed to determine the amount of impairment, if any.

Accounting Pronouncements Adopted

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