Prudential 2011 Annual Report Download - page 41

income and asset management fees and other income increased $131 million, primarily driven by an increase in asset-based fees due to an
increase in average full service fee-based retirement account values and an increase in fee-based investment-only stable value account
values in our institutional investment products business, as well as increased income from net settlements on interest rate swaps, as
discussed above.
Partially offsetting these increases was a $71 million decrease in net investment income, primarily reflecting a smaller base of invested
assets resulting from scheduled withdrawals of our general account guaranteed investment products in our institutional investment products
business, and lower portfolio yields, including lower interest rates on floating rate investments due to rate resets. Partially offsetting these
declines were increases in net investment income from an increase in income on equity method alternative investments as discussed above.
Benefits and Expenses
2011 to 2010 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” decreased $338
million, from $4,611 million in 2010 to $4,273 million in 2011. Absent the impact of the annual reviews and other adjustments to the
amortization of deferred policy acquisition costs and value of business acquired discussed above, which account for a $17 million increase,
benefits and expenses decreased $355 million. Policyholders’ benefits, including the change in policy reserves, decreased $254 million,
primarily reflecting a decrease in change in policy reserves associated with the decrease in premiums as discussed above. Interest credited
to policyholders’ account balances decreased $119 million including a refinement to the methodology applied in calculating reserves for
certain structured settlement contracts, with an equally offsetting impact to amortization of deferred policy acquisition costs. Also
contributing to the decrease were lower crediting rates on full service general account stable value account values due to rate resets and the
impact of scheduled withdrawals on account values of our general account guaranteed investment products in our institutional investment
products business, partially offset by the impact of higher account values from our full service general account stable value products and
our structured settlement products. The amortization of deferred policy acquisition costs increased $24 million primarily driven by a
refinement to the methodology applied in calculating the amortization of deferred policy acquisition costs for certain structured settlement
contracts, as mentioned above. Also, general and administrative expenses, net of capitalization, decreased $3 million, driven by lower
commission expenses due to a decline in life contingent structured settlement sales and lower charges related to certain cost reduction
initiatives, partially offset by higher costs related to legal matters and strategic initiatives. In addition, interest expense decreased $3
million, reflecting lower interest rates.
2010 to 2009 Annual Comparison. Benefits and expenses increased $446 million, from $4,165 million in 2009 to $4,611 million in
2010. Policyholders’ benefits, including the change in policy reserves, increased $468 million, primarily reflecting an increase in change in
policy reserves associated with the increase in premiums and a less favorable benefit from reserve refinements, as discussed above. Also,
general and administrative expenses, net of capitalization, increased $67 million primarily driven by higher commission expenses, net of
capitalization, higher asset management costs due to an increase in average full service fee-based retirement account values, and expenses
incurred in 2010 related to certain cost reduction initiatives. These increases were partially offset by a decrease in interest credited to
policyholders’ account balances of $73 million, primarily reflecting a smaller base of account values resulting from scheduled withdrawals
of our general account guaranteed investment products in our institutional investment products business, lower crediting rates on floating
rate guaranteed investment products, and lower crediting rates on full service stable value account values due to rate resets. In addition,
interest expense decreased $12 million reflecting lower interest rates and lower borrowings used to support investments.
Sales Results and Account Values
The following table shows the changes in the account values and net additions (withdrawals) of Retirement segment products for the
periods indicated. Net additions (withdrawals) are deposits and sales or additions, as applicable, minus withdrawals and benefits. These
concepts do not correspond to revenues under U.S. GAAP, but are used as a relevant measure of business activity.
Year ended December 31,
2011 2010 2009
(in millions)
Full Service(1):
Beginning total account value ........................................................................ $141,313 $126,345 $ 99,738
Deposits and sales ................................................................................. 16,821 19,266 23,188
Withdrawals and benefits ........................................................................... (19,160) (16,804) (14,438)
Change in market value, interest credited, interest income and other activity(2) ................................. 456 12,506 17,857
Ending total account value ...................................................................... $139,430 $141,313 $126,345
Net additions (withdrawals) ......................................................................... $ (2,339) $ 2,462 $ 8,750
Institutional Investment Products(3):
Beginning total account value ........................................................................ $ 64,183 $ 51,908 $ 50,491
Additions(4) ..................................................................................... 27,773 15,298 7,786
Withdrawals and benefits(5) ......................................................................... (6,150) (6,958) (7,817)
Change in market value, interest credited and interest income ............................................... 4,581 3,370 2,287
Other(6) ......................................................................................... (298) 565 (839)
Ending total account value(7) .................................................................... $ 90,089 $ 64,183 $ 51,908
Net additions (withdrawals)(7) ....................................................................... $ 21,623 $ 8,340 $ (31)
(1) Ending total account value for the full service business includes assets of Prudential’s retirement plan of $5.8 billion, $5.8 billion and $5.4 billion as of
December 31, 2011, 2010 and 2009, respectively.
Prudential Financial, Inc. 2011 Annual Report 39