Prudential 2012 Annual Report Download - page 41

2012 to 2011 Annual Comparison. Annualized new business premiums increased $134 million primarily driven by increased sales
of universal life insurance products in the third party distribution channel due to a change in the competitive position of our products.
2011 to 2010 Annual Comparison. Annualized new business premiums increased $18 million primarily driven by increased sales in
the third party distribution channel. This increase was attributable to higher sales of universal life insurance products driven by a change in
the competitive position of our products.
Group Insurance
Operating Results
The following table sets forth the Group Insurance segment’s operating results for the periods indicated.
Year ended December 31,
2012 2011 2010
(in millions)
Operating results:
Revenues ....................................................................................... $5,601 $5,606 $5,040
Benefits and expenses ............................................................................. 5,585 5,443 4,866
Adjusted operating income ......................................................................... 16 163 174
Realized investment gains (losses), net, and related adjustments ........................................ (8) 11 (42)
Related charges .............................................................................. 0 (2) (1)
Income from continuing operations before income taxes and equity in earnings of operating joint ventures .......... $ 8 $ 172 $ 131
Adjusted Operating Income
2012 to 2011 Annual Comparison. Adjusted operating income decreased $147 million reflecting higher operating expenses in 2012
primarily from an increase in legal reserves, updates to premium tax estimates, and costs for strategic initiatives. Group life underwriting
results were less favorable in 2012, primarily driven by unfavorable claims experience on non-retrospectively experience-rated contracts
resulting from an increase in severity partially offset by lower claims incidence. The unfavorable underwriting results for group life also
reflect the absence of a benefit from cumulative premium adjustments in 2011, as discussed below. Group disability underwriting results
were less favorable in 2012. New long term disability claims outpaced an increase in claim terminations as the economy slowly improves.
We are investing in our claims management process which, over time, should drive improvements in this area. Also, reserve refinements in
both group life and group disability businesses, including the impact of annual actuarial assumption updates, contributed a $7 million
benefit to adjusted operating income in 2012 compared to a benefit of $22 million in 2011. Partially offsetting these unfavorable items was
improved investment income in 2012 primarily from alternative investments.
2011 to 2010 Annual Comparison. Adjusted operating income decreased $11 million. Reserve refinements in both group life and
group disability businesses, including the impact of annual actuarial assumption updates, contributed a $22 million benefit to adjusted
operating income in 2011 compared to a benefit of $35 million in 2010. Excluding these reserve refinements, adjusted operating income
increased $2 million primarily from more favorable underwriting results in 2011 in our group life business related to favorable claims
experience, growth in our non-retrospectively experience-rated business and a benefit of $14 million from cumulative premium
adjustments relating to prior periods on two large non-retrospectively experience-rated cases. These increases were partially offset by less
favorable group disability underwriting results in 2011 primarily related to an increase in the number and severity of long-term disability
claims reflecting the continued economic downturn. In addition, results in 2011 reflect higher operating expenses due to business growth
and strategic initiatives as well as a decrease in investment results due to less favorable results from alternative investments and lower
reinvestment rates.
Revenues, Benefits and Expenses
2012 to 2011 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” decreased $5 million.
Group life premiums and policy charges and fee income decreased $82 million primarily reflecting lower premiums from retrospectively
experience-rated contracts, largely resulting from a decrease in policyholder benefits. Partially offsetting this decrease are higher premiums
from non-retrospectively experience-rated contracts reflecting growth in the business, partially offset by the benefit from cumulative
premium adjustments in 2011. Group disability premiums and policy charges and fee income increased $42 million primarily reflecting
growth of business in force and from new sales. Investment income also increased in 2012 primarily from income on alternative
investments, partially offset by a decline in reinvestment rates.
Benefits and expenses, as shown in the table above under “—Operating Results,” increased $142 million reflecting higher operating
expenses primarily from an increase in legal reserves, updates to premium tax estimates and costs of strategic initiatives. This increase also
reflects a $54 million increase in policyholders’ benefits, including the change in policy reserves. Our group disability business reflects an
increase in policyholders’ benefits primarily from an increase in the number and severity of long-term disability claims and growth in the
business. Our group life business reflects a decrease in benefits costs on retrospectively experience-rated business that resulted in decreased
premiums, as discussed above. This is partially offset by unfavorable claims experience from an increase in severity resulting in an increase
in benefits from growth in the non-retrospectively experience-rated business, as well as the unfavorable variance from reserve refinements,
as discussed above.
2011 to 2010 Annual Comparison. Revenues increased $566 million. Group life premiums and policy charges and fee income
increased $526 million. 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 the benefit from cumulative premium adjustments, as discussed above. In addition, group disability
premiums and policy charges and fee income increased $45 million primarily reflecting growth of business in force and from new sales.
Prudential Financial, Inc. 2012 Annual Report 39