Prudential 2012 Annual Report Download - page 42

Benefits and expenses increased $577 million. This increase reflects a $536 million increased in policyholders’ benefits, including the
change in policy reserves. 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. Also contributing to the increase in benefits and expenses were higher operating expenses
primarily related to business growth and strategic initiatives.
Benefits and Expense Ratios
The following table sets forth the Group Insurance segment’s benefits and administrative operating expense ratios for the periods
indicated.
Year ended December 31,
2012 2011 2010
Benefits ratio(1):
Group life ......................................................................................... 90.9% 89.5% 89.7%
Group disability .................................................................................... 98.1% 94.7% 91.2%
Administrative operating expense ratio(2):
Group life ......................................................................................... 10.0% 8.5% 9.0%
Group disability .................................................................................... 25.3% 24.8% 24.2%
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income. Group disability ratios include dental products.
(2) Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income. Group disability ratios include
dental products.
2012 to 2011 Annual Comparison. The group life benefits ratio deteriorated 1.4 percentage points primarily due to less favorable
claims experience in the non-retrospectively experience-rated business as well as the unfavorable impact of the reserve refinements and the
cumulative premium adjustment in 2011, as discussed above. The group disability benefits ratio deteriorated 3.4 percentage points
primarily due to an increase in the number and severity of long-term disability claims experience. The group life administrative operating
expense ratio deteriorated 1.5 percentage points primarily due to an increase in operating costs, legal reserves and the unfavorable
comparative impact of updates to premium tax estimates, as discussed above. The group disability administrative operating expense ratio
deteriorated 0.5 due to an increase in operating costs, as discussed above.
2011 to 2010 Annual Comparison. The group life benefits ratio improved 0.2 percentage points, primarily due to favorable claims
experience, partially offset by an unfavorable variance from the impact of reserve refinements, as discussed above. The group disability
benefits ratio deteriorated 3.5 percentage points primarily due to an increase in the number and severity of long-term disability claims
experience. The group life administrative operating expense ratio improved 0.5 percentage points due to business growth without a
commensurate increase in expenses and a favorable comparative impact from the refinement of a premium tax estimate. The group
disability administrative operating expense ratio deteriorated 0.6 percentage points reflecting higher expenses in 2011 primarily from
business growth and strategic initiatives.
Sales Results
The following table sets forth the Group Insurance segment’s annualized new business premiums for the periods indicated.
Year ended December 31,
2012 2011 2010
(in millions)
Annualized new business premiums(1):
Group life ......................................................................................... $304 $486 $446
Group disability(2) .................................................................................. 135 149 122
Total ......................................................................................... $439 $635 $568
(1) Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life
Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts, and include
premiums from the takeover of claim liabilities.
(2) Includes dental products.
2012 to 2011 Annual Comparison. Total annualized new business premiums decreased $196 million reflecting the impact of a large
market case sale to a new customer in 2011 in group life, as well as a decrease in sales of long-term disability to existing clients.
2011 to 2010 Annual Comparison. Total annualized new business premiums increased $67 million reflecting the impact of the group
life large market case sale discussed above as well as increased sales across all disability products.
International Insurance Division
Foreign Currency Exchange Rate Movements and Related Hedging Strategies
As a U.S.-based company with significant business operations outside the U.S., particularly in Japan, we are subject to foreign
currency exchange rate movements that could impact our U.S. dollar-equivalent shareholder return on equity. We seek to mitigate this
impact through various hedging strategies, including the use of derivative contracts and through holding U.S. dollar-denominated assets in
certain of our foreign subsidiaries.
40 Prudential Financial, Inc. 2012 Annual Report