Prudential 2002 Annual Report Download - page 52
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Please find page 52 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.2002 to 2001 Annual Comparison. Our automobile loss ratio, as shown in the table immediately above,
increased from 2001 to 2002 primarily due to the lower net benefit from prior accident-year reserve development
in 2002, of $72 million, and $22 million of lesser benefits from stop-loss reinsurance recoveries. During 2002, we
released $68 million of reserves related to our New Jersey auto business due to continued favorable development
in claim cost trends, but strengthened reserves for our non-New Jersey business by $44 million because our
claims experience was less favorable than we previously estimated in establishing reserves for prior accident
years. In 2001, we released $94 million of reserves related to our New Jersey business, while the results of the
non-New Jersey business were not impacted significantly by changes in estimates of prior accident year loss
reserves.
Based on an evaluation conducted in 2001 of the quality of the new business produced through distribution
channels we implemented in 1999 and 2000, we discontinued our mailing solicitations for the direct distribution
channel and limited the growth of business from some of our other distribution channels, commencing in the third
quarter of 2001. In October 2001, we announced that we would no longer write business through our property and
casualty insurance career agency channel except in a few selected markets. We have been in the process of re-
underwriting and non-renewing business that has produced adverse loss experience to the extent permitted
contractually and by state insurance regulations, and pursuing rate increases across our business. These efforts
have not yet affected the loss ratio significantly, as the business produced prior to their implementation will
continue to affect the accident year results until the associated premiums are fully earned. Our ability to
implement re-underwriting and non-renewal measures has been limited by regulatory requirements in various
jurisdictions. Consistent with our geographic market segmentation strategy, we have ceased writing new
homeowners’ business in a number of states to further reduce our exposure to catastrophes consistent with our
profitability objectives.
The 3.7-point increase in the homeowners’ loss ratio from 2001 to 2002 is due to a $16 million higher
unfavorable development on prior accident year losses and a reduction of $11 million in stop-loss reinsurance
recoveries, partially offset by $4 million lower catastrophe losses in 2002 on this business and the impact of rate
increases implemented on homeowners policies.
Total calendar year catastrophe losses amounted to $31 million for 2002 compared to $42 million in 2001.
Losses that we ceded through reinsurance, including stop-loss reinsurance, resulted in decreases in the total
combined ratio of 3.8 percentage points for 2002 and 7.3 percentage points for 2001.
Our overall expense ratio has continued to improve, by 3.1 percentage points from 2001 to 2002, as we
benefited in 2002 from staff reductions and the favorable impact of the increased premium base.
The decrease in the accident year combined ratio resulted from the decline in the expense ratio. Recoveries
from stop-loss reinsurance resulted in decreases in the accident year combined ratio of 2.0 percentage points in
2002 and 4.3 percentage points in 2001.
2001 to 2000 Annual Comparison. Our automobile loss ratio increased from 2000 to 2001 primarily due to
the lower net benefit from prior accident-year reserve development in 2001. We released reserves of $106 million
in 2001 and $165 million in 2000 primarily because our automobile casualty claims experience for prior years
was more favorable than we previously estimated in establishing reserves for these accident years. The impact of
experience on new automobile business also contributed to the increase in this ratio, since the experience on our
seasoned automobile business was relatively consistent. We added significant new automobile business during
2001, primarily in the first half of the year.
The increase in the homeowners’ loss ratio came from a 16% increase in claim severity and a 3% increase in
claim frequency. Our stop-loss reinsurance recoveries resulted in decreases in the homeowners’ combined ratio of
5.4 percentage points in 2001 and had no impact in 2000.
Our calendar year catastrophe losses, net of reinsurance, amounted to $42 million for 2001 compared to $45
million for 2000.
Prudential Financial 2002 Annual Report 51