Prudential 2002 Annual Report Download - page 97
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Please find page 97 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.PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
other business of the Company. Investment risks associated with market value changes are borne by the
customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts.
The investment income and gains or losses for separate accounts generally accrue to the policyholders and are not
included in the Consolidated Statements of Operations. Mortality, policy administration and surrender charges on
the accounts are included in “Policy charges and fee income.” Asset management fees charged to the accounts are
included in “Commissions and other income.”
Other Assets and Other Liabilities
Other assets consist primarily of prepaid benefit costs, reinsurance recoverables, certain restricted assets,
trade receivables, goodwill and other intangible assets, mortgage securitization inventory, property and
equipment, and receivables resulting from sales of securities that had not yet settled at the balance sheet date.
Commercial mortgage loans and other securities sold by the Company in securitization transactions were $615
million, $1,409 million and $1,874 million during 2002, 2001 and 2000, respectively. In commercial loan
securitizations, the Company retains servicing responsibilities. The Company did not retain any material
ownership interest in the financial assets that were transferred. The Company recognized pre-tax gains (losses) of
$4 million, $42 million and $(6) million for the years ended December 31, 2002, 2001 and 2000, respectively, in
connection with securitization and related hedging activity which are recorded in “Commissions and other
income.” Property and equipment are stated at cost less accumulated depreciation. Depreciation is determined
using the straight-line method over the estimated useful lives of the related assets which generally range from 3 to
40 years. Other liabilities consist primarily of trade payables, employee benefit liabilities, demutualization
consideration not yet paid to policyholders, and payables resulting from purchases of securities that had not yet
settled at the balance sheet date.
Contingencies
Amounts related to contingencies are accrued if it is probable that a liability has been incurred and an
amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly
associated with the ultimate resolution of the matter that are reasonably estimable and, if so, they are included in
the accrual.
Policyholders’ Dividends
The amount of the dividends to be paid to policyholders of Prudential Insurance is determined annually by its
Board of Directors. The aggregate amount of policyholders’ dividends is based on the statutory results and past
experience of Prudential Insurance, including investment income, net realized investment gains or losses over a
number of years, mortality experience and other factors. See Note 10 for further discussion of the impact of
policyholders’ dividends on earnings.
Insurance Revenue and Expense Recognition
Premiums from life insurance policies, excluding interest-sensitive life contracts, are recognized when due.
Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when
premiums are recognized using the net level premium method.
Premiums from non-participating group annuities with life contingencies are recognized and earned over the
life of the contracts. For single premium immediate annuities and structured settlements with life contingencies,
premiums are recognized when earned in a constant relationship to the amount of expected future benefit
payments.
Growing and Protecting Your Wealth96