Prudential 2003 Annual Report Download - page 130

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
7. POLICYHOLDERS’ LIABILITIES (continued)
Unpaid Claims and Claim Adjustment Expenses
The following table provides a reconciliation of the activity in the liability for unpaid claims and claim adjustment
expenses for property and casualty insurance and accident and health insurance at December 31:
2003 2002 2001
Accident
and
Health
Property
and
Casualty
Accident
and
Health
Property
and
Casualty
Accident
and
Health
Property
and
Casualty
(in millions)
Balance at January 1 ......................... $1,567 $ 1,861 $1,655 $1,753 $1,701 $1,848
Less reinsurance recoverables, net .............. 24 598 129 671 246 608
Net balance at January 1 ...................... 1,543 1,263 1,526 1,082 1,455 1,240
Incurred related to:
Current year ........................... 634 1,184 627 1,615 632 1,440
Prior years ............................. 33 (22) (32) (15) (45) (113)
Total incurred .............................. 667 1,162 595 1,600 587 1,327
Paid related to:
Current year ........................... 237 706 237 967 219 932
Prior years ............................. 361 297 341 452 312 553
Total paid ................................. 598 1,003 578 1,419 531 1,485
Acquisitions (dispositions) .................... — (1,364) — — 15 —
Net balance at December 31 ................... 1,612 58 1,543 1,263 1,526 1,082
Plus reinsurance recoverables, net .............. 17 — 24 598 129 671
Balance at December 31 ...................... $1,629 $ 58 $1,567 $1,861 $1,655 $1,753
The property and casualty reinsurance recoverable balance related to unpaid claims at December 31, 2003, 2002
and 2001 includes $0 million, $151 million and $165 million, respectively, attributable to the Company’s discontinued
property and casualty businesses. The accident and health reinsurance recoverable balance related to unpaid claims at
December 31, 2003, 2002 and 2001 includes $1 million, $9 million and $117 million, respectively, attributable to the
Company’s discontinued healthcare business.
The unpaid claims and claim adjustment expenses presented above include estimates for liabilities associated with
reported claims and for incurred but not reported claims based, in part, on the Company’s experience. Changes in the
estimated cost to settle unpaid claims are charged or credited to the Consolidated Statements of Operations periodically
as the estimates are revised. Accident and health unpaid claims liabilities are discounted using interest rates ranging
from 3.5% to 7.5%.
The amounts incurred for claims and claim adjustment expenses for property and casualty that related to prior
years were primarily driven by lower than anticipated losses for the auto line of business and prior period reserve
releases related to mold claims in 2003 and group personal catastrophe coverage in 2002. The amounts incurred for
claims and claim adjustment expenses for accident and health in 2003 that related to prior years were primarily due to
required interest somewhat offset by long-term disability claim termination experience, and long-term disability claim
termination experience for 2002 and 2001.
8. CLOSED BLOCK
On the date of demutualization, Prudential Insurance established a Closed Block for certain individual life
insurance policies and annuities issued by Prudential Insurance in the United States. The Closed Block forms the
principal component of the Closed Block Business. For a discussion of the Closed Block Business see Note 19. The
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