Prudential 2002 Annual Report Download - page 47
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Please find page 47 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.term care products, increased by $67 million, or 13%, also reflecting the growth in business in force. Persistency
decreased slightly from 89% in 2001 to 87% in 2002. Net investment income increased $31 million, or 6%,
primarily due to a larger base of invested assets. The remainder of the increase in revenues came primarily from
higher fees on products sold to employers for funding of employee benefit programs and retirement arrangements,
reflecting growth in this business.
2001 to 2000 Annual Comparison. Revenues increased by $447 million, or 16%, from 2000 to 2001. Group
life insurance premiums increased by $350 million, or 21%, to $2.005 billion primarily due to growth in business
in force resulting from new sales and continued strong persistency, which increased from 95% in 2000 to 97% in
2001. Group disability premiums, which include long-term care products, increased by $43 million, also
reflecting the growth in business in force. Persistency decreased from 91% in 2000 to 89% in 2001, primarily due
to the cancellation of a large case. Net investment income increased $62 million, or 13%, primarily due to a larger
base of invested assets.
Benefits and Expenses
The following table sets forth the Group Insurance segment’s benefits and administrative operating expense
ratios for the periods indicated.
Year Ended December 31,
2002 2001 2000
Benefits ratio(1):
Group life .............................................................................. 91.7% 92.6% 85.8%
Group disability ......................................................................... 87.9 95.2 101.9
Administrative operating expense ratio(2):
Group life .............................................................................. 10.0 10.0 11.6
Group disability ......................................................................... 22.0 23.6 21.0
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income. Group disability ratios include long-term care
products.
(2) Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income.
2002 to 2001 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating
Results,” increased by $249 million, or 8%, from 2001 to 2002. The increase resulted in large part from an
increase of $213 million, or 9%, in policyholders’ benefits, including the change in policy reserves. Excluding the
reserve refinements noted above, policyholders’ benefits increased $268 million, or 11%, reflecting the growth of
business in force. Based on our evaluation of mortality experience during 2001, we reviewed our pricing policies
to determine whether our pricing structure provides for adequate margins and returns on all of our group
insurance products. As a result of this review, in the fourth quarter of 2001 we commenced pricing adjustments,
when contractually permitted, which consider the deterioration of the benefits ratio on our group life insurance
products since 2000. During 2002, we reviewed about 44% of our 2001 group life insurance business premiums in
force and, where appropriate, implemented pricing adjustments. While there can be no assurance, we expect these
actions, as well as pricing discipline in writing new business, will allow us to achieve gradual improvements in
our loss ratios, although the impact has so far been limited by a highly competitive market. The implementation of
these actions resulted in a modest decline in persistency on our group life insurance business in force and,
consistent with our expectations, some slowing of our sales. An increase of $25 million, or 5%, in operating
expenses, including amortization of deferred acquisition costs, also contributed to the increase in benefits and
expenses. The increase in operating expenses, from $466 million in 2001 to $491 million in 2002, resulted
primarily from the growth in business in force and related sales-based compensation costs.
The group life benefits ratio for 2002 improved 0.9 percentage points from 2001. Absent the negative impact
to 2001 from the reserve refinements, the 2002 group life benefits ratio increased 0.8 percentage points reflecting
higher claim incidence, primarily early in the year. The group disability benefits ratio improved by 7.3 percentage
points from 2001 to 2002. The reserve refinements recorded in the third quarter of 2002 relating to our group
long-term disability product represented 3.2 percentage points of the improvement. The remainder of the
improvement reflects improved case resolution and our ongoing efforts to improve the quality of our underwriting
Growing and Protecting Your Wealth46