Prudential 2012 Annual Report Download - page 47

Benefits and expenses of our Gibraltar Life and Other operations increased $9,013 million, including an unfavorable impact of $108
million from currency fluctuations. Excluding currency fluctuations, benefits and expenses increased $8,905 million. Policyholder benefits,
including changes in reserves, increased $8,461 million primarily driven by higher sales of yen-denominated single premium reduced death
benefit whole life, cancer whole life and U.S. dollar-denominated retirement income products in 2012, partially offset by the absence of
charges recognized in the prior year associated with claims from the 2011 earthquake in Japan. General and administrative expenses, net of
capitalization, and DAC amortization increased primarily due to increased costs supporting business growth and charges associated with
our life insurance joint venture in India, partially offset by additional synergies and lower integration costs associated with the Star and
Edison acquisition.
2011 to 2010 Annual Comparison. Revenues from our Life Planner operations increased $950 million including a net favorable
impact of $398 million from currency fluctuations. Excluding currency fluctuations, revenues increased $552 million primarily reflecting
higher premiums and policy charges and fee income of $392 million driven by a $341 million increase from our Japanese Life Planner
operation reflecting growth of business in force and continued strong persistency. Net investment income increased $118 million primarily
due to investment portfolio growth, partially offset by lower yields in our investment portfolio.
Benefits and expenses of our Life Planner operations increased $853 million including a net unfavorable impact of $387 million from
currency fluctuations. Excluding currency fluctuations, benefits and expenses increased $466 million primarily reflecting $396 million of
higher benefits and expenses in our Japanese Life Planner operation which was primarily driven by higher policyholder benefits due to
changes in reserves reflecting growth in business in force and to a lesser extent, the impact of the charges associated with claims resulting
from the Japanese earthquake and less favorable mortality experience.
Revenues from our Gibraltar Life and Other operations increased $6,546 million including a favorable impact of $331 million from
currency fluctuations. Excluding currency fluctuations, revenues increased $6,215 million. Premiums and policy charges and fee income
increased $4,933 million, of which $2,920 million was associated with the acquired Star and Edison Businesses. Excluding Star and
Edison, the increase in premiums and policy charges and fee income was primarily driven by growth within the bank distribution channel
including $1,062 million higher sales of single premium reduced death benefit whole life policies. Net investment income increased $1,028
million primarily reflecting income on the acquired assets from Star and Edison and to a lesser extent, continued growth of our fixed
annuity products. Also contributing to the increase in revenues is higher other income, primarily reflecting the impact of the partial sales of
our indirect investment in China Pacific Group as discussed above.
Benefits and expenses of our Gibraltar Life and Other operations increased $6,267 million, including an unfavorable impact of $306
million from currency fluctuations. Excluding currency fluctuations, benefits and expenses increased $5,961 million. Policyholder benefits,
including changes in reserves, increased $3,866 million and was primarily driven by the acquisition of the Star and Edison Businesses,
higher single premium reduced death benefit whole life sales in 2011 and $37 million of charges associated with claims resulting from the
March 2011 earthquake in Japan. General and administrative expenses, net of capitalization, increased $1,350 million primarily driven by
the impact of the Star and Edison acquisition including $213 million of transaction and integration costs related to the acquisition, higher
development costs supporting bank and agency distribution channel growth and $12 million of expenses resulting from the earthquake in
Japan. Also contributing to the increase in benefits and expenses is higher amortization of deferred policy acquisition costs and interest
credited to policyholders’ account balances primarily reflecting the impact of the Star and Edison acquisition.
Sales Results
The following table sets forth annualized new business premiums on an actual and constant exchange rate basis for the periods
indicated.
Year ended December 31,
2012 2011 2010
(in millions)
Annualized new business premiums:
On an actual exchange rate basis:
Life Planner operations ............................................................................ $1,354 $1,150 $ 964
Gibraltar Life ................................................................................... 2,724 2,042 874
Total ...................................................................................... $4,078 $3,192 $1,838
On a constant exchange rate basis:
Life Planner operations ............................................................................ $1,347 $1,126 $1,001
Gibraltar Life ................................................................................... 2,704 2,031 928
Total ...................................................................................... $4,051 $3,157 $1,929
Historically, growth in annualized new business premiums was closely correlated to growth of our Life Planner and Gibraltar Life
Consultant distribution force. Recently, growth in annualized new business premiums is being driven by increased average premium per
new policy resulting in part from the growing demand for retirement-oriented products, as well as expanded distribution through third party
channels, especially banks. As noted in the table below, bank channel sales contain a disproportionate number of single pay or limited pay
contracts which tend to be larger policies and therefore have higher average premiums per policy.
The amount of annualized new business premiums for any given period can be significantly impacted by several factors, including but
not limited to, changes in credited interest rates for certain products and other product modifications, changes in tax laws, changes in life
insurance regulations or changes in the competitive environment. Sales volume may increase or decrease prior to such changes becoming
effective, and then fluctuate in the other direction following such changes.
Prudential Financial, Inc. 2012 Annual Report 45