Prudential 2002 Annual Report Download - page 35
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Please find page 35 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.related sales were $785 million for 2001 and $542 million for 2000. Realized losses in 2001 were offset in part by
realized gains from sales of fixed income securities in a declining rate environment and from prepayment gains on
private bonds. Realized losses in 2000 were offset in part by realized gains from sales of equities during more
favorable equity market conditions in connection with a portfolio rebalancing program. Realized gains from
derivatives were $236 million for 2001, compared to gains of $70 million for 2000. These amounts include $34
million and $22 million of realized investment gains for 2001 and 2000, respectively, that are included as part of
adjusted operating income. Derivative gains recorded for 2001 were primarily attributable to the impact of the
strengthening dollar on currency hedges of non-U.S. dollar investments, as well as gains on Japanese equity
futures contracts held in anticipation of sales of equity securities.
For the Closed Block Business, net realized investment losses for 2001 were $543 million compared to
realized investment gains of $91 million for 2000. Net losses on derivatives were $10 million for 2001 compared
to gains of $117 million for 2000. Derivative gains in 2000 were largely attributable to gains on treasury futures
contracts used to manage the duration of the fixed maturity investment portfolio. Realized losses from non-
derivative activity were $533 million for 2001 compared to $26 million for 2000. Realized losses in 2001
included $659 million of impairments and credit related losses, which were offset in part by realized gains on
sales of fixed income securities and prepayment premiums. Realized losses in 2000 include impairments and
credit related losses aggregating $454 million, offset by net realized gains from sales of equities during more
favorable equity market conditions in connection with a portfolio rebalancing program, and from gains in joint
venture real estate sales.
Sales Practices Remedies and Costs
Our income from continuing operations before income taxes for the year ended December 31, 2002 includes
a pre-tax charge of $20 million of additional sales practices costs including related administrative costs, litigation
costs and settlements. See Note 22 to the Consolidated Financial Statements for a description of the insurance
sales practices litigation.
Divested Businesses
Our income from continuing operations before income taxes includes results from several businesses that we
have divested but did not qualify for “discontinued operations” treatment in our income statement under GAAP.
Results of divested businesses reflect losses of $80 million, $147 million and $636 million for 2002, 2001 and
2000, respectively. Our results from divested businesses for 2002 primarily relate to Gibraltar Casualty Company,
a commercial property and casualty insurer that we sold in September 2000, to Everest Re Group, Ltd.
(“Everest”). Pursuant to the sale we entered into a stop-loss reinsurance agreement whereby if and when
aggregate post-sale claim and claim-related payments exceed Gibraltar Casualty’s reserves recorded at the time of
sale, we will pay Everest for 80% of the first $200 million of such excess. Through December 31, 2002 Everest
had recorded reserve additions of $99 million. In the fourth quarter of 2002, we recorded a liability of $79 million
representing our 80% share of such development, generally related to asbestos and environmental exposures. The
losses from divested business for 2001 and 2000 relate primarily to the former lead-managed equity underwriting
for corporate issuers and institutional fixed income businesses of Prudential Securities, which recorded pre-tax
losses of $159 million in 2001 and $620 million in 2000. The loss in 2001 came primarily from deterioration in
the value of collateralized receivables, which we are in the process of liquidating, coupled with wind-down costs,
while the losses from these operations in 2000 came primarily from charges of $476 million associated with our
termination and wind-down of these activities. The remainder of our divested businesses are attributable to our
remaining obligations with respect to our divested residential mortgage banking business, a benefits plan
administrator we sold in 1998, and a Canadian life insurance company that we sold in May 2000.
Demutualization Costs and Expenses
We incurred costs and expenses related to demutualization totaling $588 million and $143 million in the
years ended December 31, 2001 and 2000, respectively. Demutualization costs in 2001 included $340 million of
demutualization consideration paid to our former Canadian branch policyholders. Demutualization costs and
Growing and Protecting Your Wealth34