Prudential 2003 Annual Report Download - page 107

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
traditional insurance contracts, VOBA is amortized in proportion to gross premiums or in proportion to the face
amount of insurance in force, as applicable. For acquired annuity contracts VOBA is amortized in proportion to
estimated gross profits arising from the contracts and anticipated future experience, which is evaluated regularly. The
effect of changes in estimated gross profits on unamortized VOBA is reflected in “General and administrative
expenses” in the period such estimates of expected future profits are revised.
Contingencies
Amounts related to contingencies are accrued if it is probable that a liability has been incurred and an amount is
reasonably estimable.
Insurance Revenue and Expense Recognition
Premiums from life insurance policies, excluding interest-sensitive life contracts, are recognized when due.
Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when
premiums are recognized using the net level premium method.
Premiums from non-participating group annuities with life contingencies, structured settlements with life
contingencies and single premium immediate annuities with life contingencies are recognized when received. Benefits
are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are
recognized, based on the present value of future benefits and expenses.
Certain annuity contracts provide the holder a guarantee that the benefit received upon death will be no less than a
minimum prescribed amount that is based upon a combination of net deposits to the contract, net deposits to the
contract accumulated at a specified rate or the highest historical account value on a contract anniversary. To the extent
the guaranteed minimum death benefit exceeds the current account value at the time of death, the Company incurs a
cost that is recorded as “Policyholders’ benefits” for the period in which death occurs.
Amounts received as payment for interest-sensitive life contracts, deferred annuities, structured settlements and
other contracts without life contingencies, and participating group annuities are reported as deposits to “Policyholders’
account balances.” Revenues from these contracts are reflected in “Policy charges and fee income,” or as a reduction of
“Interest credited to policyholders’ account balances,” and consist primarily of fees assessed during the period against
the policyholders’ account balances for mortality charges, policy administration charges and surrender charges.
Benefits and expenses for these products include claims in excess of related account balances, expenses of contract
administration, interest credited and amortization of DAC.
For group life and disability insurance, and property and casualty insurance, premiums are recognized over the
period to which the premiums relate in proportion to the amount of insurance protection provided. Claim and claim
adjustment expenses are recognized when incurred.
Premiums, benefits and expenses are stated net of reinsurance ceded to other companies. Estimated reinsurance
recoverables and the cost of reinsurance are recognized over the life of the reinsured policies using assumptions
consistent with those used to account for the underlying policies.
Foreign Currency Translation Adjustments
Assets and liabilities of foreign operations and subsidiaries reported in other than U.S. dollars are translated at the
exchange rate in effect at the end of the period. Revenues, benefits and other expenses are translated at the average rate
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