Prudential 2002 Annual Report Download - page 26
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Please find page 26 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Revenues and Expenses
We earn our revenues principally from insurance premiums; mortality, expense, and asset management fees
from insurance and investment products; commissions and other revenues from securities brokerage transactions;
and investment of general account and other funds. We earn premiums primarily from the sale of individual life
insurance, group life and disability insurance and automobile and homeowners insurance. We earn mortality,
expense, and asset management fees from the sale and servicing of separate account products including variable
life insurance and variable annuities. We also earn asset management and administrative fees from the sale,
servicing and management of mutual funds, retirement products and other asset management products and
services. Our operating expenses principally consist of insurance benefits provided, general business expenses,
dividends to policyholders, commissions and other costs of selling and servicing the various products we sell and
interest credited on general account liabilities.
Profitability
Our profitability depends principally on our ability to price and manage risk on insurance products, our
ability to attract and retain customer assets, and our ability to manage expenses. Specific drivers of our
profitability include:
• our ability to manufacture and distribute products and services and to introduce new products gaining
market acceptance on a timely basis;
• our ability to price our insurance products at a level that enables us to earn a margin over the cost of
providing benefits and the expense of acquiring customers and administering those products;
• our mortality and morbidity experience on individual and group life insurance, annuity and group
disability insurance products;
• our persistency experience, which affects our ability to recover the cost of acquiring new business over the
lives of the contracts;
• our management of our exposure to catastrophic and other losses on our property and casualty insurance
products;
• our cost of administering insurance contracts and providing asset management products and services;
• our returns on invested assets, net of the amounts we credit to policyholders’ accounts;
• our ability to earn commissions and fees from the sale and servicing of mutual funds, annuities, defined
contribution and other investment products at a level that enables us to earn a margin over the expense of
providing such services;
• the amount of our assets under management and changes in their fair value, which affect the amount of
asset management fees we receive;
• our ability to generate commissions and fees from securities activities at a level that enables us to earn a
margin over the expenses of providing such services; and
• our ability to generate favorable investment results through asset-liability management and strategic and
tactical asset allocation.
In addition, factors such as regulation, competition, interest rates, taxes, foreign exchange rates, securities
market conditions and general economic conditions affect our profitability. In some of our product lines,
particularly those in the Closed Block Business, we share experience on mortality, morbidity, persistency and
investment results with our customers, which can offset the impact of these factors on our profitability from those
products.
Historically, the participating products included in the Closed Block have yielded lower returns on capital
invested than many of our other businesses. With the completion of the demutualization, we expect that the
proportion of the traditional participating products in our in force business will gradually diminish as these older
policies age, and we grow other businesses. However, the relatively lower returns to us on this existing block of
business will continue to affect our consolidated results of operations for many years. Our Common Stock reflects
the performance of our Financial Services Businesses, but there can be no assurance that the market value of the
Common Stock will reflect solely the performance of these businesses. The Financial Services Businesses include
Prudential Financial 2002 Annual Report 25