Prudential 2011 Annual Report Download - page 195

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
10. POLICYHOLDERS’ LIABILITIES (continued)
Unpaid claims and claim adjustment expenses primarily reflect the Company’s estimate of future disability claim payments and
expenses as well as estimates of claims incurred but not yet reported as of the balance sheet dates related to group disability products.
Unpaid claim liabilities are discounted using interest rates ranging from 0% to 6.4%.
Policyholders’ Account Balances
Policyholders’ account balances at December 31, are as follows:
2011 2010
(in millions)
Individual annuities ............................................................................. $ 41,717 $ 24,387
Group annuities ................................................................................ 27,408 23,808
Guaranteed investment contracts and guaranteed interest accounts ........................................ 17,441 17,454
Funding agreements ............................................................................. 4,795 5,162
Interest-sensitive life contracts ..................................................................... 23,336 18,065
Dividend accumulation and other .................................................................. 19,855 17,565
Total policyholders’ account balances ........................................................... $134,552 $106,441
Policyholders’ account balances represent an accumulation of account deposits plus credited interest less withdrawals, expenses and
mortality charges, if applicable. These policyholders’ account balances also include provisions for benefits under non-life contingent
payout annuities. Included in “Funding agreements” at December 31, 2011 and 2010, are $3,244 million and $3,592 million, respectively,
related to the Company’s FANIP product which is carried at amortized cost, adjusted for the effective portion of changes in fair value of
qualifying derivative financial instruments. For additional details on the FANIP product see Note 5. The interest rates associated with such
notes range from 0.5% to 5.5%. Interest crediting rates range from 0% to 10.0% for interest-sensitive life contracts and from 0% to 13.4%
for contracts other than interest-sensitive life. Less than 1% of policyholders’ account balances have interest crediting rates in excess of
8%.
11. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
The Company issues traditional variable annuity contracts through its separate accounts for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues variable annuity contracts
with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than
(1) total deposits made to the contract less any partial withdrawals (“return of net deposits”), (2) total deposits made to the contract less any
partial withdrawals plus a minimum return (“minimum return”), or (3) the highest contract value on a specified date minus any withdrawals
(“contract value”). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the
accumulation period and withdrawal and income benefits payable during specified periods. The Company also issues annuity contracts
with market value adjusted investment options (“MVAs”), which provide for a return of principal plus a fixed rate of return if
held-to-maturity, or, alternatively, a “market adjusted value” if surrendered prior to maturity or if funds are reallocated to other investment
options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at
surrender, as applicable.
In addition, the Company issues variable life, variable universal life and universal life contracts where the Company contractually
guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and expense charges,
whereas otherwise the contract would typically lapse (“no lapse guarantee”). Variable life and variable universal life contracts are offered
with general and separate account options.
The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are
carried at fair value and reported as “Separate account assets” with an equivalent amount reported as “Separate account liabilities.”
Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in “Policy
charges and fee income” and changes in liabilities for minimum guarantees are generally included in “Policyholders’ benefits.” In 2011,
2010, and 2009 there were no gains or losses on transfers of assets from the general account to a separate account.
For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current
guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Company’s primary risk
exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products,
including equity market returns, contract lapses and contractholder mortality.
For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the
minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of
the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the
assumptions used in the original pricing of these products, including equity market returns, timing of annuitization, contract lapses and
contractholder mortality.
Prudential Financial, Inc. 2011 Annual Report 193