Prudential 2002 Annual Report Download - page 48
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Please find page 48 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.and claims management processes. The group life administrative operating expense ratio remained flat from 2001
to 2002. The group disability administrative operating expense ratio improved from 2001 to 2002 reflecting the
impact of our efforts to improve operational efficiencies.
2001 to 2000 Annual Comparison. Benefits and expenses increased by $535 million, or 20%, from 2000 to
2001. The increase resulted in large part from an increase of $448 million, or 22%, in policyholders’ benefits,
including the change in policy reserves. This increase reflected less favorable group life insurance claims
experience in 2001, which included an increase in our estimate of incurred but not reported claims, as well as the
growth of business in force. As a result of our reinsurance coverages, insurance losses resulting from the
September 11, 2001 terrorist attacks on the U.S. did not have a material impact on our results. An increase of $64
million, or 16%, in operating expenses also contributed to the increase in benefits and expenses. The increase in
operating expenses, from $402 million in 2000 to $466 million in 2001, resulted primarily from sales-based
compensation costs driven by the increase in group life insurance sales. Additionally, expenses in 2001 included
$12 million of consulting costs to enhance our underwriting and other business processes.
The group life benefits ratio for 2001 increased 6.8 percentage points from 2000 primarily as a result of the
less favorable claims experience on our group life insurance business in 2001. About 4 percentage points of the
increase in the group life benefits ratio came from the increase in estimate of incurred but not reported claims and
the net impact of the refinements in reserve calculations and charge to increase the allowance for receivables in
2000. The group disability benefits ratio improved by 6.7 percentage points from 2000 to 2001 reflecting better
morbidity experience, which we attribute to accelerated case resolution and our ongoing efforts to improve the
quality of our underwriting and claims management processes as well as the impact of our increase in the
allowance for receivables, which contributed about 2 percentage points to the 2000 ratio. The group life
administrative operating expense ratio improved 1.6 percentage points, reflecting the impact of our efforts to
improve operational efficiencies. The group disability insurance administrative operating expense ratio increased
2.6 percentage points, reflecting the favorable impact, in 2000, of changes in our estimate of the administrative
costs associated with settlement of pending claims.
Sales Results
The following table sets forth the Group Insurance segment’s new annualized premiums for the periods
indicated. In managing our group insurance business, we analyze new annualized premiums, which do not
correspond to revenues under GAAP, as well as revenues, because new annualized premiums measure the current
sales performance of the business unit, while revenues reflect the renewal persistency and aging of in force
policies written in prior years and net investment income in addition to current sales.
Year Ended December 31,
2002 2001 2000
(in millions)
New annualized premiums:(1)
Group life ............................................................................. $269 $435 $321
Group disability(2) ...................................................................... 160 139 154
Total ............................................................................. $429 $574 $475
(1) Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage issued under our
Servicemembers’ Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do
not purchase face amounts.
(2) Includes long-term care products.
2002 to 2001 Annual Comparison. Total new annualized premiums decreased $145 million, or 25%, from
2001 to 2002 due to a decrease in group life sales. The group life sales decrease came from a decrease in sales to
new customers reflecting a sale of $99 million to one large customer in 2001 and the expected slowing of our
sales due to the implementation of pricing adjustments in 2002, partially offset by increased sales to existing
customers. Group disability sales increased in 2002 due primarily to one large fourth quarter sale.
2001 to 2000 Annual Comparison. Total new annualized premiums increased $99 million, or 21%, from
2000 to 2001, with an increase of $114 million in group life sales partially offset by a $15 million decline in
Prudential Financial 2002 Annual Report 47