Prudential 2002 Annual Report Download - page 63
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Please find page 63 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.Income from Continuing Operations Before Income Taxes
2002 to 2001 Annual Comparison. Income from continuing operations before income taxes increased $30
million, from $554 million in 2001 to $584 million in 2002. This increase reflects a $146 million increase in
adjusted operating income, from $611 million in 2001 to $757 million in 2002, as discussed below, partially
offset by a $116 million increase in realized investment losses, net, and related charges, from $57 million in 2001
to $173 million in 2002. For a discussion of realized investment losses, net, and related charges see
“—Consolidated Results of Operations—Realized Investment Gains.”
2001 to 2000 Annual Comparison. Income continuing operations before income taxes increased $273
million, from $281 million in 2000 to $554 million in 2001. This increase reflects a $315 million increase in
adjusted operating income, from $296 million in 2000 to $611 million in 2001, as discussed below, partially
offset by a $42 million increase in realized investment losses, net, and related charges, from $15 million in 2000
to $57 million in 2001.
Adjusted Operating Income
2002 to 2001 Annual Comparison. Adjusted operating income increased $146 million from 2001 to 2002,
including a $116 million greater contribution from Gibraltar Life for which the year 2001 includes only its initial
eight months of reported results, from the April 2, 2001 date of its reorganization through November 30, 2001.
Adjusted operating income for Gibraltar Life increased $116 million from $262 million for the initial eight
months of operations in 2001, which included a $56 million gain from policy surrenders associated with the initial
period of operations after restructuring, to $378 million for 2002. Gibraltar Life’s adjusted operating income of
$378 million for 2002 reflects charges from refinements of estimates, primarily of amounts due to policyholders,
and lower surrender gains due to more favorable persistency. The impact of these items was offset primarily by
favorable mortality experience and a decrease in the estimated liability for guaranty fund assessments.
Gibraltar Life’s $378 million adjusted operating income reported for 2002 reflected revenues of $2.694
billion and benefits and expenses of $2.316 billion, which included expenses of approximately $25 million related
to the refinements of estimates noted above, which considered Gibraltar Life’s first full year of operations
following its reorganization. Gibraltar Life’s revenues were comprised primarily of $2.150 billion of premiums
and policy charges and fees, and $500 million of net investment income. Benefits and expenses were comprised
of $1.629 billion of policyholders’ benefits, including changes in reserves, $89 million in interest credited to
policyholders’ account balances, $101 million in dividends to policyholders and $497 million of general and
administrative expenses, including distribution costs. As a result of Gibraltar Life’s emergence from
reorganization proceedings in April of 2001 and the reduction in benefits for in force policies, when we
established Gibraltar Life’s initial liability for future policy benefits, we assumed a higher than normal level of
policy surrenders for the near term. Our surrender rate assumptions commencing at the date of reorganization
were 6% in the first year and 4% thereafter for paid-up policies and range from 2% to 38% in the first year, 3% to
14% in the second year, and 6% to 10% thereafter for premium paying policies. Gibraltar Life’s adjusted
operating income included in our results for 2002 was reduced by $21 million from the deviation of policy
surrenders from our initial assumptions. In addition, Gibraltar Life’s results for 2002 reflect favorable mortality,
as well as improved investment results reflecting the transition from short-term investments held during the initial
period following the reorganization due to anticipated surrender activity to longer-term investments consistent
with our asset-liability management strategies.
Adjusted operating income, excluding the impact of the Gibraltar Life acquisition discussed above, increased
$30 million from $349 million in 2001 to $379 million in 2002. The increase came from improved results both
from our Japanese insurance operation and our operations in countries other than Japan. Adjusted operating
income from our Japanese insurance operation increased $7 million, from $335 million in 2001 to $342 million in
2002. The contribution from continued growth of our existing Japanese insurance operation was partially offset in
2002 by a $19 million negative impact of currency fluctuations, including the impact of our currency hedging, and
a loss from the termination of a large case that provided individual life insurance coverage to multiple employees
of an organization. Our adjusted operating income from operations in countries other than Japan increased $23
million, from $14 million in 2001 to $37 million in 2002, as increased profits from our operation in Korea,
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