PRICOA Global Funding I. $15,000,000,000 Global Medium Term Note Program

Transcription

1 Supplemental Offering Circular PRICOA Global Funding I $15,000,000,000 Global Medium Term Note Program This supplemental offering circular, including Annex 1 attached hereto (this "Supplemental Offering Circular") supplements and must be read in conjunction with (1) the Offering Circular dated May 19, 2008 (the "Offering Circular") prepared by PRICOA Global Funding I (the "Issuer"), a Delaware statutory trust organized in series under the laws of the State of Delaware, under the Program (as defined in the Offering Circular) and (2) the supplements to the Offering Circular dated June 13, 2008, June 25, 2008, August 18, 2008, September 12, 2008, November 19, 2008 and December 23, (the Prior Supplements ). This document constitutes a supplement to the Base Prospectus for the purposes of Article 16 of Directive 2003/71/EC (the "Prospectus Directive"). The supplement to the Base Prospectus has been approved by the Irish Financial Services Regulatory Authority, as competent authority under the Prospectus Directive 2003/71/EC. The Irish Financial Services Regulatory Authority only approves this supplement to the Base Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive 2003/71/EC. Annex 1 of this Supplemental Offering Circular includes recent developments and unaudited financial statements of The Prudential Insurance Company of America ( PICA ), a New Jersey, United States stock life insurance company for and as of the 12 months ended December 31, 2008 (including any notes thereto, the December 31, 2008 Financial Statements ) prepared on the basis of statutory accounting principles). Copies of the December 31, 2008 Financial Statements will also be made available for inspection at the offices of the Irish Listing Agent of the Issuer at A&L Listing Limited, International Financial Services Centre, North Wall Quay, Dublin 1, Ireland. Except as disclosed in this Supplemental Offering Circular and the Prior Supplements, there are no significant new factors, material mistakes or inaccuracies relating to the information included in the Offering Circular affecting the assessment of the Notes to be offered under the Offering Circular, as supplemented, that have arisen since the publication of the Offering Circular. Each of the Issuer and PICA accepts responsibility that, having taken all reasonable care to ensure that such is the case, the information contained in this Supplemental Offering Circular is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect the import of such information. To the extent that there is any inconsistency between any statement in this Supplemental Offering Circular and any other statement in or incorporated by reference in the Offering Circular or the Prior Supplements, the statements in this Supplemental Offering Circular will prevail. The Issuer is not a subsidiary of PICA or of any affiliate of PICA. The obligations of the Issuer evidenced by the Notes will not be obligations of, and will not be guaranteed by, any person, including, but not limited to, PICA, Prudential Holdings, LLC ( PH ), or Prudential Financial, Inc. ( PFI ), or any of their respective subsidiaries or affiliates. PICA, PH and PFI of the United States are not affiliated with Prudential plc, which is headquartered in the United Kingdom. THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE OR FOREIGN SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT TO (1) PERSONS REASONABLY BELIEVED TO BE QUALIFIED INSTITUTIONAL BUYERS (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (2) PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ( REGULATION S )) OUTSIDE THE UNITED STATES. All transfers of the Notes in the United States, whether in the initial distribution or in secondary trading, will be limited to transferees who are Qualified Institutional Buyers. The Notes are not transferable except as described in the Offering Circular, as supplemented, and in the relevant Terms and Conditions of each Series of the Notes. Supplement dated March 6, 2009

2 Annex I Recent Developments: Ratings Provided below is a discussion of the significant changes in PICA s ratings or rating outlooks that occurred from September of 2008 through February 26, In late September and early October 2008, A.M. Best, Fitch, Moody s, and S&P each revised their outlook for PICA to negative from stable, citing, among other things, the significant deterioration and volatility in the credit and equity markets, economic and political uncertainty, and the expected impact of realized and unrealized investment losses on life insurers capital levels and profitability. On November 21, 2008, Moody s affirmed the financial strength ratings of PICA at Aa3. Moody s also revised its outlook on PICA s ratings to negative from stable. On February 10, 2009 Moody s placed the long-term ratings of PICA on review for possible downgrade. On December 2, 2008, Fitch lowered the financial strength ratings of PICA to AA- from AA, with ratings outlook revised from stable to negative. On February 19, 2009, Fitch downgraded the financial strength ratings of PICA to A+ from AA-. The outlook for ratings remains negative. On December 11, 2008, A.M. Best affirmed the financial strength rating of A+ for PICA. The outlook for the financial strength ratings remained stable. On February 17, 2009, S&P affirmed the AA ratings for PICA. The long-term ratings outlook was revised from stable to negative. On February 26, 2009, S&P lowered the financial strength ratings for PICA to AA- from AA. The outlook was revised from negative to stable. Federal Home Loan Bank of New York In June 2008, PICA became a member of the Federal Home Loan Bank of New York, or FHLBNY. Membership allows PICA to participate in FHLBNY s product line of financial services, including funding agreements, general asset/liability management, and collateralized advances that can be used for liquidity management. The fair value of qualifying mortgage-related assets and U.S. Treasury securities that can be pledged as collateral by PICA to FHLBNY is limited to 5% of the prior year s admitted assets of PICA on a statutory basis, exclusive of separate account assets, which equates to $7.7 billion based on admitted assets as of December 31, Based on this permitted amount, the qualifying fair value of assets available at PICA, and net of the 4.5% activity based stock PICA would be obligated to purchase from FHLBNY based on maximum borrowings, the estimated total borrowing capacity with the FHLBNY was $6.3 billion as of December 31, Between October 8, 2008 and February 13, 2009, funds advanced by FHLBNY to PICA totaled $4.0 billion, with maturities ranging from six months to four years and at fixed interest rates or floating rates based on LIBOR, of which $3.0 billion was outstanding as of December 31, As of February 13, 2009, of the $4.0 billion total funds advanced, $1.9 billion is invested in cash and short term investments at PICA and $2.1 billion was used to support our businesses and for purchases of the requisite FHLB activity based stock. Litigation Update In November 2008, a purported nationwide class action, Garcia v. Prudential Insurance Company of America, was filed in the United States District Court for the District of New Jersey. The complaint, which was brought on behalf of beneficiaries of PICA policies whose death benefits were placed in retained asset accounts, alleges that by investing the death benefits in these accounts, PICA wrongfully delayed payment and improperly retained undisclosed profits. It alleges claims of breach of the contract of insurance, breach of contract with regard to the retained asset accounts, breach of fiduciary duty and unjust enrichment, and seeks an accounting, disgorgement, injunctive relieve, attorney s fees, and prejudgment and post-judgment interest. A-1

3 STATUTORY STATEMENTS OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS December 31, (In Millions) ASSETS Bonds... $ 98,027 $ 104,084 Preferred stocks Common stocks... 6,673 8,299 Mortgage loans on real estate... 20,173 18,276 Real estate Contract loans... 6,777 6,870 Cash and short-term investments... 7,883 5,591 Other invested assets... 4,481 4,594 Total cash and invested assets , , , ,428 Premiums due and deferred... 1, , Accrued investment income... 1,3341,359 1,366 1,567 Net deferred tax asset... 1, , Other assets , ,502 Separate account assets... 87,871 63,305 99,307 67,057 TOTAL ASSETS... $ 237,498 $ 184,194 $ 252, ,011 LIABILITIES AND SURPLUS Liabilities Policy liabilities and insurance reserves: Future policy benefits and claims... $ $ 98,239 82,676 $ 94,099 82,040 Advanced premiums Policy dividends... 2,2102,520 2,551 2,633 Policyholders account balances... 21,3399,787 21,579 7,592 Notes payable and other borrowings... 5, ,157 2,635 Asset valuation reserve... 1,2472,347 2,409 3,069 Federal income tax payable ,041 1,882 Interest maintenance reserve... 1,0751,322 1,038 1,823 Transfers to separate accounts due or accrued (229) (154) (289) (290) Cash collateral held for loaned securities ,850 11,563 15,425 Other liabilities... 3,2474,893 3,566 7,184 Separate account liabilities... 87,763,103 99,169 66,872 Total liabilities , , , ,372 Capital and Surplus Common capital stock and gross paid in and contributed surplus... 2, Surplus notes Special surplus fund ,467 1, Unassigned surplus... 2, ,021 6,447 Total capital and surplus... 6,432 6,420 6,981 8,639 TOTAL LIABILITIES, CAPITAL AND SURPLUS... $ 237,498 $ 184,194 $ $ 252, ,011 See Notes to Statutory Financial Statements A-2

4 STATUTORY STATEMENTS OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS REVENUE Years Ended December 31, (In Millions) Premiums and annuity considerations... $ 16,140 $ 16,207 Net investment income... 7,423 7,646 Other (loss)... (281) (1,228) Total Revenue... 23,282 22,625 BENEFITS AND EXPENSES Death benefits... 3, ,838 3, ,428 Annuity benefits... 4, ,838 4, ,428 Disability benefits Other benefits Surrenders, benefits and fund withdrawals... 9,796 12,209 Net increase (decrease) in reserves... 4,162 (105) Commissions Net transfer (from) to separate accounts... (2,261) (1,696) Other expenses Total Benefits and Expenses... 21,677 20,379 Operating income before dividends and income taxes... 1,605 2,246 Dividends to policyholders... 1, Operating income before income taxes ,476 Income tax (benefit) provision... (23) 452 Income from Operations ,024 Net Realized Capital (Losses) Gains... (1,306) 250 NET (LOSS) INCOME... $ (808) $ 1,274 CAPITAL AND SURPLUS Capital and Surplus, beginning of year... $ 6,981 $ 5,973 Change in common capital stock and gross paid in and contributed surplus... 1,992 (1,156) Change in surplus notes... - (250) Net (Loss) income... (808) 1,274 Change in net unrealized capital (losses) gains... (1,298) 301 Change in non-admitted assets... (994) 721 Change in asset valuation reserve... 1,162 (118) Dividends to stockholders... (950) (97) Change in net deferred taxes Change in accounting principles... (63) - Other changes, net... (33) 85 CAPITAL AND SURPLUS, END OF PERIOD... $ 6,432 $ 6,981 See Notes to Statutory Financial Statements A-3

5 STATUTORY STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Years Ended December 31, (In Millions) Premiums and annuity considerations... $ 16,030 $ 16,073 Net investment income... 7,572 7,901 Other income... 1,426 1,688 Separate account transfers... 2,397 1,837 Benefits and claims paid... (21,459) (25,284) Policyholders dividends paid... (1,471) (578) Federal income taxes... (364) (383) Other operating expenses... (258) (242) Net cash provided by operating activities... 3,873 1,012 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from investments sold, matured, or repaid Bonds... 58,953 78,008 Stocks... 2,813 5,216 Mortgage loans on real estate... 1,865 3,089 Real estate Miscellaneous proceeds... 3, Payments for investments acquired Bonds... (54,378) (77,545) Stocks... (3,553) (3,360) Mortgage loans on real estate... (3,816) (5,002) Real estate... (21) (52) Miscellaneous applications... (1,997) (1,373) Net cash (used in) investing activities... 3,332 (322) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (payments) on borrowed money (1,723) Proceeds from surplus paid in... 1,992 (1,156) Dividends paid to stockholders... (950) (97) Other financing activities... (6,198) 1,241 Net cash (used in) provided by financing activities... (4,913) (1,735) Net change in cash and short-term investment... s 2,292 (1,045) Cash and short-term investments, beginning of year... 5,591 6,636 CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD... $ 7,883 $ 5,591 See Notes to Statutory Financial Statements A-4

6 NOTES TO UNAUDITED INTERIM STATUTORY FINANCIAL STATEMENTS December 31, 2008 and December 31, BUSINESS The Prudential Insurance Company of America (the Company or Prudential Insurance ) is a wholly-owned subsidiary of Prudential Holdings, LLC ( Prudential Holdings ), which in turn is a wholly-owned subsidiary of Prudential Financial, Inc. ( Prudential Financial ). The principal products and services of the Company include individual life insurance, annuities, group insurance and retirement services. 2. SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES The Company, domiciled in the state of New Jersey, prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the New Jersey Department of Banking and Insurance (the Department ). Prescribed statutory accounting practices ( SAP ) include publications of the National Association of Insurance Commissioners ( NAIC ), state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. NAIC SAP reporting differs from generally accepted accounting principles ( GAAP ). NAIC SAP is designed to address the concerns of regulators. GAAP is designed to meet the varying needs of the different users of financial statements. NAIC SAP is considered to be more conservative than GAAP in certain respects and attempts to determine at the financial statement date an insurer s ability to pay claims in the future. GAAP, on the other hand, stresses measurement of emerging earnings of a business from period to period, by matching revenue to expense. Effective January 1, 2008, the Company, for its statutory reporting will follow the policy as outlined in the Manual for evaluating whether an interest related bond impairment is other-thantemporary. Under statutory accounting, the term "interest related" includes a declining value due to both increases in the risk free interest rate and general credit spread widening. Previously, for its statutory accounting and reporting, the Company followed its GAAP other-than-temporary impairment policy in evaluating bond other- than-temporary impairments, under which impairments are generally not differentiated between interest related and non-interest related. Effective January 1, 2008, the Company early adopted SSAP #98 Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, an Amendment to SSAP #43" ("SSAP #98"). SSAP #98 established statutory accounting principles for impairment analysis and subsequent valuation of loan-backed and structured securities. If it is determined that an other than temporary impairment has occurred, the cost basis of the security shall be written down to fair value. An interest-related impairment should be deemed other-than-temporary when an investor has the intent to sell an investment, at the reporting date, before recovery of the cost of the investment. SSAP #98 also clarified that credit related other than temporary losses should be recorded through the AVR while interest related other than temporary losses should be recorded through the IMR. Previously, statutory accounting required that loan backed and structured securities subject to an other than temporary impairments be written down to undiscounted cash flows and there was no provision for recording interest related other than temporary impairments to the IMR. As of December 31, 2008, the Company transferred $65,102,143 of after tax interest related other than temporary impairments to the IMR. Effective January 1, 2008, the Company early adopted SSAP #99 Accounting for Certain Securities Subsequent to an Other-Than-Temporary- Impairment ( SSAP #99 ). SSAP #99 established statutory accounting principles for the treatment of premium or discount applicable to certain securities subsequent to the recognition of an other-than-temporary impairment. Previously, statutory accounting did not allow accretion of a premium or discount on all types of A-5

7 securities. As of December 31, 2008, the Company reported $3,235,960 via Net investment income in the Summary of Operations attributable to SSAP #99. Effective January 1, 2008, the Company adopted FSP 13-2 Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction ("FSP 13-2 ). FSP 13-2 indicates that when a change occurs in the timing or amount of estimated tax deductions associated with a leveraged lease transaction, the lessor must perform a recalculation of the leveraged lease and any cumulative after-tax impact be recorded. As of January 1, 2008, the Company reported a change of accounting principle due to the adoption of FSP 13-2 as an adjustment of $63,289,742 net of tax, that decreased unassigned funds via "Cumulative effect of changes in accounting principles" in the Summary of Operations. A-6