Prudential 2002 Annual Report Download - page 42
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Please find page 42 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.customers who previously had lapsing variable life insurance with us. Policy charges and fees amounted to $1.017
billion in 2001, essentially unchanged from $1.023 billion in 2000. Net investment income increased $17 million,
from $374 million in 2000 to $391 million in 2001, primarily from an increase in the base of general account
invested assets. Commissions and other income decreased $37 million, from $161 million in 2000 to $124 million
in 2001, primarily as a result of a decline in sales of non-Prudential products by our agents.
Revenues from our individual annuity business declined $112 million, from $913 million in 2000 to $801
million in 2001. Policy charges and fees and asset management fees decreased $55 million, from $370 million in
2000 to $315 million in 2001, primarily from our variable annuity products reflecting a decline in the average
market value of customer accounts on which our fees are based. Net investment income declined $31 million,
from $471 million in 2000 to $440 million in 2001, primarily due to lower yields on our investment portfolio.
Premiums declined $26 million, from $72 million in 2000 to $46 million in 2001, primarily due to a decline in
premiums we recognized on conversion by customers of deferred annuities to income-paying status.
Benefits and Expenses
2002 to 2001 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating
Results,” decreased $26 million, or 1%, from 2001 to 2002. The decrease reflects a decrease of $115 million from
individual life insurance and an $89 million increase from individual annuities.
Benefits and expenses of our individual life insurance business decreased $115 million, or 7%, from $1.646
billion in 2001 to $1.531 billion in 2002. Operating expenses, including distribution costs that we charge to
expense, decreased $159 million, from $578 million in 2001 to $419 million in 2002, reflecting savings from our
program to restructure our field management and agency structure, for which expenses in 2001 included $90
million of implementation costs. Policyholder benefits and related changes in reserves decreased $12 million,
from $688 million in 2001 to $676 million in 2002, as the impact of claims arising from the September 11, 2001
terrorist attacks on the U.S. on 2001 benefits and expenses was partially offset by less favorable mortality
experience in 2002 than that of 2001, other than the impact of those claims. A $47 million increase in
amortization of deferred acquisition costs, primarily due to the market impact of declines in variable life
insurance account values, was a partial offset to the aforementioned decreases in benefits and expenses.
The segment’s individual annuity business reported benefits and expenses of $783 million in 2002, compared
to $694 million in 2001, an increase of $89 million, or 13%. The increase reflects an increase in amortization of
deferred policy acquisition costs of $87 million, which primarily includes charges for additional amortization of
$137 million in 2002 and $30 million in 2001 resulting from decreases in expected future gross profits on our
annuity products as discussed above. Guaranteed minimum death benefit payments increased $23 million, from
$14 million in 2001 to $37 million in 2002. The guaranteed minimum death benefit feature provides annuity
contract holders with a guarantee that the benefit received at death will be no less than a prescribed minimum
amount. This minimum amount is based on the net deposits paid into the contract, the net deposits accumulated at
a specified rate, the highest historical account value on a contract anniversary, or more typically, the greatest of
these values, depending on features offered in various contracts and elected by the contract holders. These
contracts generally require payment of additional charges for guarantees other than those based on net deposits
paid into the contract. To the extent that the guaranteed minimum death benefit is higher than the current account
value at the time of death, we incur a cost. This results in increased annuity policy benefits in periods of declining
financial markets and in periods of stable financial markets following a decline. Current accounting literature does
not prescribe advance recognition of the expected future net costs associated with these guarantees, and
accordingly, we currently do not record a liability corresponding to these projected future obligations for death
benefits in excess of annuity account values. However, we consider the expected net costs associated with these
guarantees in our calculations of expected gross profits on variable annuity business, on which our periodic
evaluations of unamortized deferred policy acquisition costs are based. A proposed AICPA Statement of Position,
“Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate Accounts” (the “Proposed SOP”), would require the recording of a liability for the expected net costs
associated with these guarantees under certain circumstances, if adopted as proposed. We are currently evaluating
the impact of the Proposed SOP. As of December 31, 2002, the death benefit coverage in force (representing the
amount that we would have to pay if all annuitants had died on that date) was approximately $3.4 billion. The
Prudential Financial 2002 Annual Report 41