Prudential 2001 Annual Report Download - page 52

Prudential Financial, Inc.
Adjusted Operating Income
2001 to 2000 Annual Comparison. Adjusted operating income increased $159 million in 2001 from 2000. The
increase came primarily from a $183 million decrease in operating expenses. The decrease in operating expenses
came primarily from savings that we have begun to realize from our field management and agency restructuring
program as described above and lower program implementation costs, which amounted to $90 million in 2001 and
$107 million in 2000. Implementation costs for this program were substantially completed in 2001. Additionally, in
2000 we recorded a $23 million one-time increase in reserves related to a portion of our variable life insurance
business in force. However, amortization of deferred policy acquisition costs increased $60 million in 2001 from
2000, and we recorded net losses of $25 million from insurance claims arising from the September 11, 2001 terrorist
attacks on the United States.
2000 to 1999 Annual Comparison. Adjusted operating income was essentially unchanged in 2000 from 1999.
Growth in our base of term products in force resulted in an increase in premium revenues, and investment income
increased due to the larger base of general account assets and an increased investment yield. However, these
increases were essentially offset by a one-time increase in reserves related to a portion of our variable life insurance
business in force.
Revenues
2001 to 2000 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased
$91 million, or 5%, in 2001 from 2000.
Premiums increased $117 million, or 43%, from $270 million in 2000 to $387 million in 2001, due to increased
premiums on term insurance we issued, under policy provisions, to customers who previously had lapsing variable
life insurance with us.
Policy charges and fees amounted to $1.017 billion in 2001, essentially unchanged from $1.023 billion in 2000.
Net investment income increased $17 million, or 5%, from $374 million in 2000 to $391 million in 2001, primarily
from an increase in the base of general account invested assets.
Other income decreased $37 million, or 23%, from $161 million in 2000 to $124 million in 2001, primarily as a
result of a decline in sales of non-Prudential products by our agents.
2000 to 1999 Annual Comparison. Revenues increased $125 million, or 7%, in 2000 from 1999. The increase
came primarily from a $58 million increase in net investment income and a $28 million increase in premiums.
Premiums increased $28 million, or 12%, from $242 million in 1999 to $270 million in 2000. The increase came
primarily from an increase in renewal premiums for our term products, reflecting the increased base of business in
force.
Policy charges and fees amounted to $1.023 billion for 2000, relatively unchanged from $1.030 billion in 1999.
Net investment income increased $58 million, or 18%, from $316 million in 1999 to $374 million in 2000. The increase
resulted from an increase in the base of general account invested assets and a slight increase in investment yield.
Benefits and Expenses
2001 to 2000 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating
Results,” decreased $68 million, or 4%, in 2001 from 2000. A decrease of $183 million in operating expenses,
including distribution costs that we charge to expense, was partially offset by a $60 million increase in amortization
of deferred policy acquisition costs and a $60 million increase in policyholder benefits and related changes in
reserves.
Operating expenses decreased $183 million, from $761 million in 2000 to $578 million in 2001, primarily as a
result of savings we began to realize from our program to restructure our field management and agency structure as
described above and lower program implementation costs which amounted to $90 million in 2001 and $107 million
in 2000. The implementation costs for this program were substantially completed in 2001. While there can be no
assurance, based on our evaluation of results through 2001 we believe that these initiatives will reduce operating
expenses below 2000 levels by approximately $120 million on an annual basis in 2002, including a reduction of
about $30 million below the level of 2001, and that reduced expenses resulting from these initiatives will benefit
results thereafter. In addition, we expect these initiatives to eliminate approximately $50 million of costs that would
have been capitalized.
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