Prudential 2003 Annual Report Download - page 34

Results of the segment’s individual annuity business for 2003 included adjusted operating income of $167 million
from the initial eight months of operations of American Skandia, which consisted of revenues of $416 million and total
benefits and expenses of $249 million. American Skandia’s revenues consisted primarily of policy charges and fee
income of $242 million and asset management and service fees of $126 million. Benefits and expenses consisted
primarily of general and administrative expenses of $200 million, including $38 million of amortization of the value of
business acquired asset (“VOBA”) established in purchase accounting, which amounted to $440 million as of the date
of acquisition, and guaranteed minimum death benefit payments of $35 million.
Adjusted operating income of the segment’s individual annuity business, excluding American Skandia, increased
$137 million, from a loss, on an adjusted operating income basis, of $42 million in 2002 to income of $95 million in
2003. Adjusted operating income for 2003 included a $39 million reduction in amortization of deferred policy
acquisition costs due to our increased estimate of future gross profits on variable annuities reflecting market value
increases in underlying assets. This benefit to adjusted operating income was largely offset by a $36 million charge to
strengthen reserves for our periodic income annuities. Results for 2002 included charges totaling $137 million for
additional amortization of deferred policy acquisition costs, reflecting our lower estimates of future gross profits
resulting from greater expected costs from minimum death benefit guarantees and lower expected fees under individual
annuity contracts due to declines in asset values.
2002 to 2001 Annual Comparison. Results for the segment’s individual life insurance business for 2002
benefited from a decline in operating expenses, reflecting savings that we continue to realize from our field
management and agency restructuring program implemented in 2001, for which that year’s expenses included $90
million of implementation costs. Additionally, results of our individual life insurance business for 2002 benefited from
increased investment income, primarily from an increase in the level of invested assets. However, these items were
partially offset by less favorable mortality experience in 2002, as well as a $47 million increase in amortization of
deferred policy acquisition costs, primarily due to a market decline and related policy lapses associated with declines in
variable life insurance account values. Results for 2001 included $25 million of net losses from insurance claims
arising out of the September 11, 2001, terrorist attacks on the U.S.
Results of our annuity business in 2002 included charges totaling $137 million for additional amortization of
deferred policy acquisition costs discussed above. Results for 2001 included similar charges for additional amortization
of deferred policy acquisition costs totaling $30 million. A decline in fee revenues in 2002 from our variable annuity
products due to a decrease in average account values was partially offset by a decrease in operating expenses resulting
from our expense management efforts.
Revenues
2003 to 2002 Annual Comparison. The segment’s individual life insurance business reported revenues, as shown
in the table above under “—Operating Results,” of $1.936 billion in 2003 compared to $1.952 billion 2002, a $16
million decrease. Premiums decreased $43 million, from $395 million in 2002 to $352 million in 2003, reflecting
approximately $80 million in decreased premiums on term insurance we issued under policy provisions to customers
who previously had lapsing variable life insurance policies with us, partially offset by increased sales and growth of
our in force block of term insurance products.
Revenues from the segment’s individual annuity business increased $402 million, from $744 million in 2002 to
$1.146 billion in 2003, which included revenues of $416 million from American Skandia. Revenues of the segment’s
existing individual annuity business declined $14 million, from $744 million in 2002 to $730 million in 2003, due
primarily to an $18 million decrease in policy charges and fees as, despite a year to year increase, the average market
value of variable annuity customer accounts declined in 2003 from 2002.
2002 to 2001 Annual Comparison. The segment’s individual life insurance business reported revenues of $1.952
billion in 2002, compared to $1.907 billion in 2001, a $45 million increase. Net investment income increased $28
million from $391 million in 2001 to $419 million in 2002, primarily from an increase in the level of invested assets.
Commissions and other income increased $12 million, from $112 million in 2001 to $124 million in 2002, primarily
due to an increased level of reinsurance activity. Premiums amounted to $395 million in 2002, essentially unchanged
from the prior year.
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