Prudential 2015 Annual Report Download - page 42

Group Insurance
Operating Results
The following table sets forth the Group Insurance segment’s operating results and benefits and administrative operating expense
ratios for the periods indicated.
Year ended December 31,
2015 2014 2013
(in millions)
Operating results:
Revenues ........................................................................................ $5,143 $5,357 $5,518
Benefits and expenses .............................................................................. 4,967 5,334 5,361
Adjusted operating income .......................................................................... 176 23 157
Realized investment gains (losses), net, and related adjustments ......................................... (1) 66 (24)
Related charges ............................................................................... (4) (5) (5)
Income from continuing operations before income taxes and equity in earnings of operating joint ventures ........... $ 171 $ 84 $ 128
Benefits ratio(1):
Group life(2) ..................................................................................... 88.7% 89.3% 88.5%
Group disability(2) ................................................................................. 75.7% 99.8% 92.8%
Total group insurance(2) ........................................................................ 86.6% 91.1% 89.3%
Administrative operating expense ratio(3):
Group life ........................................................................................ 11.0% 11.1% 10.1%
Group disability ................................................................................... 34.1% 30.2% 26.6%
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income.
(2) Benefits ratios reflect the impacts of our annual reviews and updates of assumptions and other refinements. Excluding these impacts, the group life,
group disability and total group insurance benefits ratios were 89.2%, 79.2% and 87.5% for 2015, respectively, 89.2%, 87.0% and 88.8% for 2014,
respectively, and 89.5%, 93.9% and 90.3% for 2013, respectively.
(3) Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.
Adjusted Operating Income
2015 to 2014 Annual Comparison. Adjusted operating income increased $153 million, primarily reflecting favorable comparative
net impacts from our annual reviews and updates of assumptions and other refinements. Results for 2015 included a $28 million net benefit
from these updates related to actuarial assumptions used in calculating both group disability and group life reserves and other refinements,
while results for 2014 included a $107 million net charge from these updates. Excluding the effect of these items, adjusted operating
income increased $18 million primarily driven by more favorable underwriting results in our group disability business and lower expenses,
partially offset by a lower contribution from net investment spread results and less favorable underwriting results in our group life business.
The favorable underwriting results for our group disability business reflected the impact of higher claim resolutions and fewer new claims
for long-term contracts, while the less favorable underwriting results for our group life business reflected lower premiums due to lapsed
business.
2014 to 2013 Annual Comparison. Adjusted operating income decreased $134 million, primarily reflecting unfavorable comparative
net impacts from our annual reviews and updates of assumptions and other refinements. Results for 2014 included a $107 million net
charge from these updates, which included a $48 million net charge for certain group disability reserves related to prior periods. See Note 1
to the Consolidated Financial Statements for additional information. Results for 2013 included a $45 million net benefit from these updates.
Excluding the effect of these items, adjusted operating income increased $18 million primarily driven by more favorable underwriting
results in our group disability business and a higher contribution from net investment spread results, partially offset by higher expenses and
less favorable underwriting results in our group life business. The more favorable underwriting results for our group disability business
reflected the impact of higher claim resolutions and fewer new claims, partially offset by higher claim severity for long-term contracts. The
less favorable underwriting results for the group life business reflected higher claim severity for non-experience-rated contracts, partially
offset by more favorable results for experience-rated contracts.
Revenues, Benefits and Expenses
2015 to 2014 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” decreased $214 million.
Excluding a favorable impact of $2 million resulting from our annual reviews and updates of assumptions and other refinements, as
discussed above, revenues decreased $216 million. The decrease reflected $160 million lower premiums and policy charges and fee income
in both our group life and group disability businesses primarily driven by lapses resulting from continued pricing discipline on contract
renewals and improved claim experience for experience-rated contracts. Net investment income decreased $27 million driven by lower
income from non-coupon investments.
Benefits and expenses, as shown in the table above under “—Operating Results,” decreased $367 million. Excluding a favorable
impact of $133 million resulting from our annual review and update of assumptions and other refinements, as discussed above, benefits and
expenses decreased $234 million. Policyholders’ benefits, including the change in reserves, decreased $198 million, driven by declines in
both our group disability and group life businesses, reflecting fewer claims as a result of lapses. The decline in our group disability business
also reflected the impact of higher claim resolutions for long-term contracts. The decline in our group life business also reflected improved
claim experience for experience-rated contracts.
40 Prudential Financial, Inc. 2015 Annual Report