Prudential 2002 Annual Report Download - page 66
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Please find page 66 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.products. Sales in Japan during 2001 were particularly strong due to anticipated premium rate increases that took
effect on April 1, 2001 and October 1, 2001. Sales in all other countries, also on a constant exchange rate basis,
decreased $9 million as a result of a decrease from our operations in Taiwan and Korea, where 2002 sales were
affected by premium rate increases in 2001.
2001 to 2000 Annual Comparison. New annualized premiums increased $183 million, or 36%, from $509
million in 2000 to $692 million in 2001, including $110 million from Gibraltar Life and reflecting the unfavorable
impact of currency exchange rate fluctuations. On a constant exchange rate basis, new annualized premiums
increased $237 million, or 54%, from 2000 to 2001, including $107 million from Gibraltar Life. On that basis,
new annualized premiums from our operations other than Gibraltar Life increased $130 million, or 29%. The
$130 million increase included $51 million from our existing operation in Japan, reflecting an increase in the
number of Life Planners from 1,811 at December 31, 2000 to 1,992 at December 31, 2001 as well as $25 million
of new annualized premiums sold by the Gibraltar Life sales force for our existing operation prior to the
acquisition date. After that date, the Gibraltar Life sales force has distributed only Gibraltar products. For all
countries other than Japan, also on a constant exchange rate basis, new annualized premiums increased $79
million, or 59%, with $78 million of the increase coming from our operations in Korea and Taiwan. The increase
in countries other than Japan reflects an increase in the number of Life Planners, from 1,684 at December 31,
2000 to 2,112 at December 31, 2001, as well as an increase in Life Planner productivity.
Investment Margins and Other Profitability Factors
Many of our insurance products sold in international markets provide for the buildup of cash values for the
policyholder at mandated guaranteed interest rates. The spread between the actual investment returns and these
guaranteed rates of return to the policyholder is an element of the profit or loss that we will experience on these
products. Interest rates guaranteed in our Japanese insurance contracts are regulated by Japanese authorities.
Between July 1, 1996 and April 1, 1999, we guaranteed premium rates using an interest rate of 3.1% on most of
the products we sold even though the yield on Japanese government and high-quality corporate bonds was less
than that much of this time. This resulted in some negative investment spreads over this period. As a consequence,
our profitability with respect to these products in Japan during that period resulted primarily from margins on
mortality, morbidity and expense charges. In response to the low interest rate environment, Japanese regulators
approved a reduction in the required rates for most of the products we sell to 2.35% in April 1999, which results
in our charging higher premiums on new business for the same amount of insurance. While this has also resulted
in an improvement in investment spreads, these spreads had a negative impact on adjusted operating income from
our Japanese insurance operation other than Gibraltar Life in 2002 and 2001, and the profitability of these
products in Japan continues to result primarily from margins on mortality, morbidity, and expense charges. In
2001, Japanese regulators approved further reductions in the required interest rates applicable to most of the
products we sell. As a result, we increased premium rates on most of our products sold in Japan when the new
rates were implemented, in April 2001 for some products and in October 2001 for other products. Additionally,
interest rates on our guaranteed products sold in Korea are regulated by Korean authorities, who approved, in
April 2001, a reduction in the required rates for most of the products we sell, allowing us to charge higher
premiums on new business for the same amount of insurance. While these actions enhance our ability to set rates
commensurate with available investment returns, the major sources of profitability on our products in Korea, as in
Japan, are margins on mortality and expense charges rather than investment spreads.
We base premiums and cash values in most countries in which we operate on mandated mortality tables. Our
mortality experience in the International Insurance segment on an overall basis for 2002 and 2001 was well within
our pricing assumptions and below the guaranteed levels reflected in the premiums we charge.
International Investments
Operating Results
The following table sets forth the International Investments segment’s operating results for the periods
indicated. For the years ended December 31, 2002, 2001 and 2000, there was no activity that resulted in items
Prudential Financial 2002 Annual Report 65