Prudential 2002 Annual Report Download - page 46
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Please find page 46 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.Group Insurance
Operating Results
The following table sets forth the Group Insurance segment’s operating results for the periods indicated.
Year Ended December 31,
2002 2001 2000
(in millions)
Operating results:
Revenues(1) .......................................................................... $3,582 $3,248 $2,801
Benefits and expenses ................................................................... 3,427 3,178 2,643
Adjusted operating income ............................................................... 155 70 158
Realized investment losses, net ......................................................... (129) (72) (2)
Income (loss) from continuing operations before income taxes ................................... $ 26 $ (2) $ 156
(1) Revenues exclude realized investment losses, net, of $129 million, $72 million and $2 million for the years ended December 31, 2002,
2001 and 2000, respectively.
Income From Continuing Operations Before Income Taxes
2002 to 2001 Annual Comparison. Income from continuing operations before income taxes increased $28
million, from a loss of $2 million in 2001 to income of $26 million in 2002. The increase includes an increase in
adjusted operating income of $85 million, to $155 million in 2002, as discussed below. Partially offsetting this was
an increase in realized investment losses, net, of $57 million, to losses of $129 million in 2002. For a discussion of
realized investment losses, net, see “—Consolidated Results of Operations—Realized Investment Gains.”
2001 to 2000 Annual Comparison. Income from continuing operations before income taxes decreased $158
million, from $156 million in 2000 to a loss of $2 million in 2001. The decrease includes a decrease in adjusted
operating income of $88 million, to $70 million in 2001, as discussed below, and an increase in realized
investment losses, net, of $70 million, to losses of $72 million in 2001.
Adjusted Operating Income
2002 to 2001 Annual Comparison. Adjusted operating income increased $85 million from 2001 to 2002.
Adjusted operating income for 2001 included a charge of approximately $36 million reflecting an increase in our
estimate of group life insurance incurred but not reported claims. Adjusted operating income for 2002 benefited
$19 million from refinements in reserve estimates recorded in the third quarter of 2002 relating to our group long-
term disability product. Excluding these items, adjusted operating income increased $30 million, or 28%, from
2001 due primarily to growth in both group life and disability earned premiums and a lower benefits ratio on
group disability products.
2001 to 2000 Annual Comparison. Adjusted operating income decreased $88 million, or 56%, from 2000
to 2001. The decrease came primarily from less favorable mortality experience on group life insurance in 2001,
which included an increase in our estimate of incurred but not reported claims. This increase in estimate had a
negative impact of approximately $36 million on our adjusted operating income for 2001. The mortality
experience on group life insurance was partially offset by earned premium growth and improved morbidity on
group disability products. In addition, adjusted operating income benefited $32 million in 2000 from refinements
in our calculations of reserves and return premiums for waiver of premium features. However, about half of this
benefit was offset during 2000, primarily by a charge to increase the allowance for receivables. An increase in
operating expenses, including $12 million of consulting costs in 2001, also contributed to the decrease in adjusted
operating income.
Revenues
2002 to 2001 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,”
increased by $334 million, or 10%, from 2001 to 2002. Group life insurance premiums increased by $217 million,
or 11%, to $2.222 billion primarily due to growth in business in force resulting from new sales, as described
below, and continued strong persistency, which decreased from 97% in 2001 to 95% in 2002. We believe the
decrease in persistency, which is primarily a result of the pricing adjustments implemented in 2002 discussed
below, will likely continue in this highly competitive market. Group disability premiums, which include long-
Prudential Financial 2002 Annual Report 45