Prudential 2011 Annual Report Download - page 50

the decrease in adjusted operating income reflects higher operating expenses in 2011 resulting from business growth and strategic
initiatives as well as a decrease in investment results in 2011 due to less favorable results from alternative investments and the impact of
the current low interest rate environment on portfolio yields. These decreases were partially offset by more favorable underwriting results
in 2011 in our group life business related to favorable claims experience and growth in our non-retrospectively experience-rated business.
In addition, 2011 included a $14 million benefit from cumulative premium adjustments relating to prior periods on two large group life
non-retrospectively experience-rated cases.
2010 to 2009 Annual Comparison. Adjusted operating income decreased $116 million, from $331 million in 2009 to $215 million in
2010. Results reflected a net benefit of $28 million in 2010, from reserve refinements in both the group life and group disability businesses,
including the impact of annual reviews, compared to a net benefit of zero in 2009. Excluding this item, adjusted operating income
decreased $144 million primarily reflecting less favorable underwriting results in 2010 on group life non-retrospectively experience-rated
business largely due to the lapse of certain business and repricing of other business up for renewal with favorable claims experience in
2009, reflecting the competitive market, as well as less favorable claims experience due to an increase in the number and severity of claims.
In addition, underwriting results reflect less favorable long-term disability claims experience in 2010 consistent with the economic
downturn. Also contributing to the decrease in adjusted operating income were higher operating expenses primarily to support disability
operations and expansion into the group dental market, and an unfavorable impact from the refinement of a premium tax estimate.
Revenues
2011 to 2010 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $610 million, from
$5,458 million in 2010 to $6,068 million in 2011. Group life premiums and policy charges and fee income increased $526 million, from
$3,539 million in 2010 to $4,065 million in 2011. This increase primarily reflects higher premiums from non-retrospectively experience-
rated contracts reflecting growth in the business from new sales and continued strong persistency of 95.8% in 2011 compared to 92.1% in
2010, as well as higher premiums from retrospectively experience-rated contracts resulting from the increase in policyholder benefits on
these contracts, as discussed below. 2011 also includes an increase of $14 million from premium adjustments on two large group life
non-retrospectively experience-rated cases, as discussed above. In addition, group disability premiums and policy charges and fee income,
which include long-term care and dental products, increased by $71 million, from $1,146 million in 2010 to $1,217 million in 2011
primarily reflecting growth of business in force and from new sales partially offset by higher premiums in 2010 associated with the
assumption of existing liabilities from third parties, which is offset in policyholders’ benefits, as discussed below. Also, contributing to the
increase in revenue is higher investment income in 2011 primarily from higher invested assets due to growth in the businesses offset by
lower portfolio yields and lower income on alternative investments in 2011.
2010 to 2009 Annual Comparison. Revenues increased by $173 million, from $5,285 million in 2009 to $5,458 million in 2010.
Group life premiums and policy charges and fee income increased by $125 million, from $3,414 million in 2009 to $3,539 million in 2010,
primarily reflecting higher premiums from retrospectively experience-rated group life business resulting from the increase in policyholder
benefits on these contracts as discussed below. Also contributing to the increase were higher premiums from non-retrospectively
experience-rated group life business primarily reflecting growth of business in force resulting from new sales, partially offset by a decrease
in premiums associated with the assumption of existing liabilities from third parties, which is offset in policyholders’ benefits, as discussed
below, as well as the lapse of certain business and repricing of other business up for renewal, as discussed above. Group disability
premiums and policy charges and fee income, which include long-term care and dental products, increased by $25 million, from $1,121
million in 2009 to $1,146 million in 2010. This increase primarily reflects higher premiums due to growth of business in force resulting
from new sales, and continued strong persistency of 92.1% in 2010 compared to 90.9% in 2009, partially offset by a decrease in premiums
associated with the assumption of existing liabilities from third parties, which is offset in policyholders’ benefits, as discussed below.
Benefits and Expenses
The following table sets forth the Group Insurance segment’s benefits and administrative operating expense ratios for the periods
indicated.
Year ended December 31,
2011 2010 2009
Benefits ratio(1):
Group life ......................................................................................... 89.5% 89.7% 88.4%
Group disability .................................................................................... 97.5% 94.7% 88.9%
Administrative operating expense ratio(2):
Group life ......................................................................................... 8.3% 8.8% 9.0%
Group disability .................................................................................... 21.4% 21.3% 18.3%
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income. Group disability ratios include long-term care and dental products.
(2) Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income. Group disability ratios include
long-term care and dental products.
2011 to 2010 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased $617
million, from $5,243 million in 2010 to $5,860 million in 2011. This increase reflects a $566 million increase in policyholders’ benefits,
including the change in policy reserves, from $4,259 million in 2010 to $4,825 million in 2011. Our group life business reflected an
increase in policyholders’ benefits primarily from growth in the business, including an increase in benefits on retrospectively experience-
rated business that resulted in increased premiums, as discussed above. Our group disability business reflected an increase in policyholders’
benefits primarily from an increase in the number and severity of disability claims, as well as growth in the business, partially offset by the
effect of the assumption of existing liabilities from third parties in 2010, which is offset in premiums, as discussed above. Also contributing
to the increase in benefits and expenses were higher operating expenses primarily related to business growth and strategic initiatives.
48 Prudential Financial, Inc. 2011 Annual Report