Prudential 2001 Annual Report Download - page 112

Prudential Financial, Inc.
Notes to Consolidated Financial Statements
3. Discontinued Operations (continued)
and taking into consideration other costs incurred compared with those estimated in 1998 and 1999, the Company
reduced the loss on disposal by $77 million, net of taxes. In 2001, upon the final settlement of the MLR Agreement,
the Company reduced the loss on disposal by an additional $16 million, net of taxes.
Pursuant to a coinsurance agreement with Aetna, the Company was required to issue additional policies for new
customers in response to proposals made to brokers or customers within six months after the closing date and to renew
insurance policies until two years after the closing date. All such additional new and renewal policies were 100%
coinsured by Aetna. The purpose of the agreement was to provide for the uninterrupted operation and growth,
including renewals of existing policies and issuance of new policies, of the healthcare business that Aetna acquired
from Prudential. The operation of the business and the attendant risks, except for the existence of the MLR Agreement,
were assumed entirely by Aetna. Consequently, the following amounts pertaining to the agreement had no effect on the
Company’s results of operations. The Company ceded premiums and benefits of $966 million and $827 million,
respectively for the year ended December 31, 2001. Premium and benefits ceded for the year ended December 31,
2000 were $1,872 million and $1,418 million, respectively, and for the period from August 6, 1999 through December
31, 1999 were $896 million and $757 million, respectively. Reinsurance recoverable under this agreement, included in
“Other assets,” was $202 million at December 31, 2001 and $355 million at December 31, 2000.
4. Capital Markets Restructuring
In the fourth quarter of 2000, Prudential Securities Group Inc. exited the lead-managed equity underwriting for
corporate issuers and institutional fixed income businesses. Exiting these businesses resulted in staff reductions of
approximately 700 positions, 350 of which were eliminated in 2000 and the remainder in 2001. The positions
eliminated included investment bankers, traders, analysts and other professional and support staff. Results for 2000
include a pretax charge of $476 million in connection with the restructuring, which is presented as “Capital markets
restructuring.” The charge includes $213 million for employee related costs, consisting largely of severance and
termination benefits. The charge also includes the write-off of $140 million of goodwill previously recorded in
connection with investment banking acquisitions. Remaining charges of $123 million consist of lease termination
payments and other facility exit costs, including office equipment and leasehold improvements write-downs, and
other related costs. As of December 31, 2001, remaining reserves for capital markets restructuring costs were $28
million. See Note 20 for information pertaining to the operating results of these exited businesses.
5. Acquisition of Kyoei Life Insurance Company, Ltd.
In April 2001, the Company completed the acquisition of Kyoei Life Insurance Co., Ltd. (“Kyoei”), a stock life
insurance company located in Japan, which has been accounted for as a purchase. Kyoei was renamed Gibraltar Life
Insurance Company, Ltd. (“Gibraltar Life”) by the Company concurrent with the acquisition. Gibraltar Life
provides financial services throughout Japan. Gibraltar Life primarily offers four types of insurance products:
individual insurance, including life and indemnity health coverage; individual annuities; group life insurance; and
group annuities. It distributes these products through an agency force and large employer groups. Gibraltar Life also
has domestic and foreign subsidiaries, including non-insurance businesses, which are not material to its financial
position or results of operations.
On October 20, 2000, Gibraltar Life filed for reorganization under the Reorganization Law of Japan. The
Reorganization Law, similar to Chapter 11 of the U.S. Bankruptcy Code, is intended to provide a mechanism for
restructuring financially troubled companies by permitting the adjustment of the interests of creditors, shareholders
and other interested parties. On October 20, 2000, the Tokyo District Court issued an order generally freezing
Gibraltar Life’s assets and appointed an interim Trustee who, on October 23, 2000, was appointed as sole Trustee.
On April 2, 2001, the Tokyo District Court issued its official recognition order approving the Reorganization Plan,
which was submitted by the Trustee and approved by Gibraltar Life’s creditors. The Reorganization Plan became
effective immediately upon the issuance of the recognition order, and is binding upon Gibraltar Life, its creditors,
including policyholders, its shareholders and other interested parties, whether or not they submitted claims or voted
for or against the plan. The Reorganization Plan included the extinguishment of all existing stock for no consideration
and the issuance of 1.0 million new shares of common stock. Pursuant to the Reorganization Plan, on April 19, 2001
Growing and Protecting Your Wealth110