Prudential 2011 Annual Report Download - page 57

The Gibraltar Life operations, including the Star and Edison Businesses, use a November 30 fiscal year end for purposes of inclusion
in the Company’s Consolidated Financial Statements. Therefore, operating results presented in the table above includes results for Gibraltar
Life for the twelve months ended November 30, 2011, 2010 and 2009, and include earnings for the Star and Edison Businesses from the
February 1, 2011 acquisition date through November 30, 2011.
Acquisition of Yamato Life
On May 1, 2009, our Gibraltar Life operations acquired Yamato Life, a Japanese life insurance company that declared bankruptcy in
October 2008. Gibraltar Life served as the reorganization sponsor for Yamato and under the reorganization agreement acquired Yamato by
contributing $72 million of capital to Yamato. Concurrent with our acquisition, substantially all of Yamato’s insurance liabilities were
restructured under a plan of reorganization to include special surrender penalties on existing policies. These surrender charges were 20% in
the first year and decline by 2% each year thereafter. Subsequent to the acquisition, we renamed the acquired company The Prudential
Gibraltar Financial Life Insurance Company, Ltd., or Prudential Gibraltar.
Adjusted Operating Income
2011 to 2010 Annual Comparison. Adjusted operating income from Life Planner operations increased $100 million, from $1,269
million in 2010 to $1,369 million in 2011, including a net favorable impact of $6 million from currency fluctuations. Excluding the impact
of currency fluctuations, adjusted operating income increased $94 million primarily reflecting the growth of business in force driven by
sales and continued strong persistency in our Japanese Life Planner operations and, to a lesser extent, lower administrative expenses due in
part to the absence of certain costs incurred in 2010. Partially offsetting these favorable variances were charges of $12 million associated
with claims and expenses arising from the March 2011 earthquake and tsunami in Japan, and less favorable mortality experience in Japan
and Korea.
Adjusted operating income from our Gibraltar Life and Other operations increased $520 million, from $816 million in 2010 to $1,336
million in 2011, including a favorable impact of $29 million from currency fluctuations. Results for 2011 benefited from $354 million of
earnings from the acquired Star and Edison Businesses, excluding the impact of estimated claims associated with the earthquake and
tsunami in Japan. Adjusted operating income for both 2011 and 2010 reflect the impact of partial sales of our investment, through a
consortium, in China Pacific Group, which contributed a $237 million benefit to 2011 results compared to a $66 million benefit to 2010
results. Also contributing to the increase in adjusted income was a $96 million gain on sale of our investment in an operating joint venture,
Afore XXI, a private pension fund manager in Mexico. These favorable items were partially offset by transaction and integration costs of
$213 million in 2011 relating to the Star and Edison acquisition and $49 million of charges associated with claims and expenses arising
from the March 2011 earthquake and tsunami in Japan.
Excluding the effect of the items discussed above, adjusted operating income from our Gibraltar Life and Other operations increased
$132 million, reflecting business growth, including expanding sales of protection products, and improved investment results, including a
greater contribution from our fixed annuity products reflecting growth of that business and lower amortization of deferred policy
acquisition costs. The lower amortization of deferred policy acquisition costs associated with our fixed annuity products was primarily
driven by lower amortization rates reflecting an increase in prior period investment results included in total gross profits used as a basis for
determining amortization rates. Partially offsetting these favorable variances were higher development costs supporting bank and agency
distribution channel growth and unfavorable results from our insurance joint venture in India and our asset management-related joint
venture in China.
2010 to 2009 Annual Comparison. Adjusted operating income from our Life Planner operations increased $48 million, from $1,221
million in 2009 to $1,269 million in 2010, including a net favorable impact of $11 million from currency fluctuations. Excluding the impact
of currency fluctuations, adjusted operating income increased $37 million primarily reflecting the growth of business in force and
continued strong persistency in our Japanese Life Planner operation, partially offset by an unfavorable variance of $27 million, reflecting
the impact of a $6 million net charge in 2010 and a $21 million net benefit in 2009 from reserve refinements related to the implementation
of a new policy valuation system. Also impacting adjusted operating income is a $6 million lower benefit in 2010 from a reduction in
amortization of deferred policy acquisition costs primarily reflecting improved mortality assumptions, which benefited both periods,
associated with our annual review of estimated gross profits used to amortize deferred policy acquisition costs.
Adjusted operating income from our Gibraltar Life and Other operations increased $169 million, from $647 million in 2009 to $816
million in 2010, including a favorable impact of $22 million from currency fluctuations. In December 2010, a consortium of investors
including Prudential that holds a minority interest in China Pacific Insurance (Group) Co., Ltd sold approximately 16% of its holdings,
which contributed a pre-tax benefit of $66 million to results. Absent the effect of this item and the impact of currency fluctuations, adjusted
operating income increased $81 million, primarily reflecting the continued growth in our fixed annuity products, which are primarily
denominated in U.S. dollars, and growth in protection products driven by expanding bank channel distribution, as well as a higher
contribution from non-coupon investments. Results for 2010 also include $11 million of expenses associated with the acquisition of the
Star and Edison Businesses which were more than offset by a lower level of benefits and expenses including the absence of net charges of
$5 million related to a 2009 guaranty fund assessment and net charges of $8 million in 2009 from unfavorable reserve refinements related
to the implementation of a new policy valuation system.
Revenues
2011 to 2010 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $7,568 million,
from $12,220 million in 2010 to $19,788 million in 2011, including a net favorable impact of $1,024 million relating to currency
fluctuations. Excluding the impact of currency fluctuations, revenues increased $6,544 million, from $12,633 million in 2010 to $19,177
million in 2011.
Prudential Financial, Inc. 2011 Annual Report 55