Prudential 2001 Annual Report Download - page 53

Prudential Financial, Inc.
Amortization of deferred policy acquisition costs increased $60 million, from $172 million in 2000 to $232 million
in 2001, primarily due to declines in market values of the underlying assets on which our fees are based.
Policyholder benefits and related changes in reserves increased $60 million, from $628 million in 2000 to $688
million in 2001, primarily as a result of term insurance we issued under policy provisions to customers who
previously had lapsing variable life insurance with us and insurance claims arising from the September 11, 2001
terrorist attacks on the United States. In 2000, policyholder benefits and the related changes in reserves included a
reserve increase related to a portion of our variable life insurance business as noted above amounting to $23 million.
2000 to 1999 Annual Comparison. Benefits and expenses increased $128 million, or 8%, in 2000 from 1999. The
increase came primarily from an increase in policyholder benefits and related changes in reserves of $121 million,
from $507 million in 1999 to $628 million in 2000, as a result of growth in the base of term insurance in force and
aging of policies in force as well as the reserve increase related to a portion of our variable life insurance business as
noted above amounting to $23 million. Operating expenses, including distribution costs that we charge to expense,
were essentially unchanged in 2000 from 1999.
Operating expenses included severance, termination benefits, facilities closure and other costs that we incurred
largely in connection with the implementation of the program to restructure our field management and agency
structure described above. The expenses related to this program amounted to $107 million in 2000 and $116 million
in 1999.
Sales Results
The following table sets forth the Individual Life Insurance segment’s sales, as measured by statutory first year
premiums and deposits for the periods indicated. These amounts do not correspond to revenues under GAAP. In
managing our individual life insurance business, we analyze statutory first year premiums and deposits as well as
revenues because statutory first year premiums and deposits measure the current sales performance of the business
unit, while revenues reflect, predominantly in our case, the renewal persistency and aging of in force policies
written in prior years and net investment income, as well as current sales.
Year Ended December 31,
2001 2000 1999
(in millions)
Sales(1):
Variable life(2) ........................................................................... $427 $328 $301
Term life ................................................................................ 43 59 74
Total ............................................................................... $470 $387 $375
Sales by distribution channel(1):
Prudential Agents ......................................................................... $218 $259 $287
Third-party and other distributors ............................................................. 252 128 88
Total ............................................................................... $470 $387 $375
(1) Statutory first year premiums and deposits.
(2) Includes universal life insurance products.
2001 to 2000 Annual Comparison. Sales of new life insurance, as measured by statutory first year premiums,
increased $83 million, or 21%, in 2001 from 2000. The increase came from a $157 million increase in the segment’s
sales of corporate-owned life insurance products, substantially all of which is sold by the PruSelect third-party
distribution channel. Inclusive of these corporate-owned life insurance sales, which totaled $199 million for 2001
including a single $100 million sale, PruSelect accounted for 54% of the Individual Life Insurance segment’s sales
in 2001, compared to 33% in 2000. Sales by the PruSelect channel, other than corporate-owned life insurance,
decreased $33 million, or 38%, in 2001 from 2000. We have begun to expand the focus of PruSelect, which has
historically served intermediaries who provide insurance solutions in support of estate and wealth transfer planning
for affluent individuals and corporate-owned life insurance for businesses, toward the mass affluent market. We
believe the 2001 sales results for the PruSelect channel for products other than corporate-owned life insurance
reflected both a reduced level of market demand for individual variable life insurance products during 2001 and our
transition to the new focus, which included changes in our underwriting classifications and a reduction in our
maximum insurance coverage on a single life. Additionally, we repriced certain term insurance products and
introduced two new universal life insurance products in late 2001 to be offered by both the PruSelect distribution
Prudential Financial 2001 Annual Report 51