Prudential 2012 Annual Report Download - page 151

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
10. POLICYHOLDERS’ LIABILITIES
Future Policy Benefits
Future policy benefits at December 31, are as follows:
2012 2011
(in millions)
Life insurance .................................................................................. $141,486 $131,390
Individual and group annuities and supplementary contracts ............................................. 57,785 24,840
Other contract liabilities .......................................................................... 13,859 11,697
Subtotal future policy benefits excluding unpaid claims and claim adjustment expenses .................... 213,130 167,927
Unpaid claims and claim adjustment expenses ........................................................ 2,920 2,744
Total future policy benefits ................................................................... $216,050 $170,671
Life insurance liabilities include reserves for death and endowment policy benefits, terminal dividends and certain health benefits.
Individual and group annuities and supplementary contracts liabilities include reserves for life contingent immediate annuities and life
contingent group annuities. Other contract liabilities include unearned revenue and certain other reserves for group, annuities and
individual life and health products.
Future policy benefits for individual participating traditional life insurance are based on the net level premium method, calculated
using the guaranteed mortality and nonforfeiture interest rates which range from 2.5% to 7.5%. Participating insurance represented 5% and
5% of direct individual life insurance in force at December 31, 2012 and 2011, respectively, and 11%, 17% and 24% of direct individual
life insurance premiums for 2012, 2011 and 2010, respectively.
Future policy benefits for individual non-participating traditional life insurance policies, group and individual long-term care policies
and individual health insurance policies are generally equal to the aggregate of (1) the present value of future benefit payments and related
expenses, less the present value of future net premiums, and (2) any premium deficiency reserves. Assumptions as to mortality, morbidity
and persistency are based on the Company’s experience, and in certain instances, industry experience, when the basis of the reserve is
established. Interest rates used in the determination of the present values range from 1.0% to 14.0%; less than 1% of the reserves are based
on an interest rate in excess of 8%.
Future policy benefits for individual and group annuities and supplementary contracts are generally equal to the aggregate of (1) the
present value of expected future payments, and (2) any premium deficiency reserves. Assumptions as to mortality are based on the
Company’s experience, and in certain instances, industry experience, when the basis of the reserve is established. The interest rates used in
the determination of the present values range from 0.8% to 11.7%; less than 1% of the reserves are based on an interest rate in excess of 8%.
Future policy benefits for other contract liabilities are generally equal to the present value of expected future payments based on the
Company’s experience, except for example, certain group insurance coverages for which future policy benefits are equal to gross unearned
premium reserves. The interest rates used in the determination of the present values range from 0.1% to 6.7%.
Premium deficiency reserves are established, if necessary, when the liability for future policy benefits plus the present value of
expected future gross premiums are determined to be insufficient to provide for expected future policy benefits and expenses and to recover
any unamortized policy acquisition costs. Premium deficiency reserves have been recorded for the group single premium annuity business,
which consists of limited-payment, long duration traditional, non-participating annuities; structured settlements; single premium immediate
annuities with life contingencies; long term care, and for certain individual health policies. These reserves are included in “Future policy
benefits”, and include amounts relating to net unrealized gains on securities classified as available-for-sale, that is also reported within
AOCI on the Consolidated Statements of Financial Position.
The Company’s liability for future policy benefits is also inclusive of liabilities for guarantee benefits related to certain nontraditional
long-duration life and annuity contracts, which are discussed more fully in Note 11 and are primarily reflected in other contract liabilities in
the table above.
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 that are discounted use interest rates ranging from 3.5% to 6.4%.
Policyholders’ Account Balances
Policyholders’ account balances at December 31, are as follows:
2012 2011
(in millions)
Individual annuities ............................................................................. $ 41,026 $ 41,717
Group annuities ................................................................................ 27,782 27,408
Guaranteed investment contracts and guaranteed interest accounts ........................................ 16,255 17,441
Funding agreements ............................................................................. 3,793 4,795
Interest-sensitive life contracts ..................................................................... 23,962 23,342
Dividend accumulation and other .................................................................. 21,595 19,855
Total policyholders’ account balances ........................................................... $134,413 $134,558
Prudential Financial, Inc. 2012 Annual Report 149