Prudential 2012 Annual Report Download - page 46

Adjusted Operating Income
2012 to 2011 Annual Comparison. Adjusted operating income from Life Planner operations increased $235 million including a net
favorable impact of $54 million from currency fluctuations. The current year benefited $20 million from a reduction in the amortization of
deferred policy acquisition costs and lower reserves, reflecting the impact of our annual review and update of assumptions used in
estimating the profitability of the business. In addition, the increase in adjusted operating income reflects the comparative impact of a $12
million charge associated with estimated claims and expenses arising from the 2011 earthquake in Japan, and a $6 million benefit in 2012
resulting from a cash distribution received from the Japan Financial Stability Fund. Excluding the impact of these items, adjusted operating
income for our Life Planner operations increased $143 million, primarily reflecting the growth of business in force driven by sales results
and continued strong persistency in our Japanese Life Planner operation, partly offset by the impact of lower reinvestment rates.
Adjusted operating income from our Gibraltar Life and Other operations increased $206 million including a favorable impact of $51
million from currency fluctuations and the absence of a $49 million charge associated with claims and expenses arising from the 2011
earthquake in Japan. Additionally, results for 2012 include $138 million of integration costs relating to the acquisition of the Star and
Edison Businesses compared to $213 million of integration and transaction costs in 2011. Partly offsetting these favorable variances is a
$15 million net charge in the current year reflecting the impact of certain charges related to our life insurance joint venture in India offset
by a cash distribution received from the Japan Financial Stability Fund. Both periods benefited from the impact of partial sales of our
investment, through a consortium, in China Pacific Group, which contributed a $60 million benefit to 2012 results compared to a $237
million benefit in 2011.
Excluding the effect of the items discussed above, adjusted operating income from our Gibraltar Life and Other operations increased
$223 million, primarily reflecting cost savings of $165 million resulting from Star and Edison integration synergies, compared to $21
million of cost savings in 2011, as well as business growth, particularly in the bank distribution channel, and the impact of including two
additional months of earnings from the former Star and Edison Businesses. These favorable items were partly offset by higher benefits and
expenses, including costs supporting distribution channel growth, less favorable mortality in comparison to the prior year and the impact of
lower reinvestment rates.
2011 to 2010 Annual Comparison. Adjusted operating income from our Life Planner operations increased $97 million including a
net favorable impact of $11 million from currency fluctuations. Excluding currency fluctuations, adjusted operating income increased $86
million primarily reflecting the growth of business in force driven by sales and continued strong persistency in our Japanese Life Planner
operation 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 in Japan and less favorable mortality experience in Japan and Korea.
Adjusted operating income from our Gibraltar Life and Other operations increased $279 million including a favorable impact of $25
million from currency fluctuations. Excluding currency fluctuations, adjusted operating income increased $254 million. Results for 2011
benefitted from $224 million of earnings from the acquired Star and Edison Businesses, excluding the impact of estimated claims associated
with the earthquake 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. 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 in Japan.
Excluding the effect of the items discussed above, adjusted operating income from our Gibraltar Life and Other operations increased
$121 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. 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.
Revenues, Benefits and Expenses
2012 to 2011 Annual Comparison. Revenues from our Life Planner operations, as shown in the table above under “—Operating
Results,” increased $800 million including a net unfavorable impact of $2 million from currency fluctuations. Excluding currency
fluctuations, revenues increased $802 million primarily reflecting increases in premiums and policy charges and fee income of $616
million driven by growth of business in force and continued strong persistency in our Japanese Life Planner operation. Net investment
income increased $158 million reflecting investment portfolio growth, partially offset by the impact of lower reinvestment rates.
Benefits and expenses from our Life Planner operations, as shown in the table above under “—Operating Results,” increased $565
million including a net favorable impact of $56 million from currency fluctuations. Excluding currency fluctuations, benefits and expenses
increased $621 million. Benefits and expenses of our Japanese Life Planner operation increased $513 million, primarily reflecting an
increase in policyholder benefits due to changes in reserves driven by the growth in business in force, partially offset by the absence of
charges recognized in the prior year period associated with claims from the 2011 earthquake in Japan. Additionally, 2012 includes a $20
million benefit from a reduction in the amortization of deferred policy acquisition costs and lower reserves, reflecting the impact of our
annual review and update of assumptions used in estimating the profitability of the business.
Revenues from our Gibraltar Life and Other operations increased $9,219 million, including a net favorable impact of $159 million
from currency fluctuations. Excluding currency fluctuations, revenues increased $9,060 million. This increase is driven by an $8,884
million increase in premiums and policy charges and fee income reflecting growth in the bank distribution channel, including $7,619
million of higher premiums from sales of yen-denominated single premium reduced death benefit whole life policies, as well as higher
premiums of $1,074 million in the Life Consultant distribution channel driven by increased sales of cancer whole life and
U.S. dollar-denominated retirement income products. Also contributing to the increase in revenues is higher net investment income of $353
million primarily reflecting investment portfolio growth, partially offset by the impact of lower reinvestment rates. Asset management fees
and other income declined driven by the comparative impact of partial sales of our indirect investment in China Pacific Group, as discussed
above, resulting in a $60 million gain in 2012 compared to a $237 million gain in 2011, partially offset by the distribution received in 2012
from the Japan Financial Stability Fund.
44 Prudential Financial, Inc. 2012 Annual Report