Prudential 2003 Annual Report Download - page 39

Revenues
2003 to 2002 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,”
increased by $104 million, or 3%, from 2002 to 2003. Group life insurance premiums increased by $81 million, or 4%,
to $2.176 billion primarily due to growth in business in force resulting from new sales and continued strong
persistency, which declined slightly from 95% in 2002 to 93% in 2003. Group disability premiums, which include
long-term care products, increased by $56 million, or 10%, to $630 million reflecting the growth in business in force
resulting from new sales and continued strong persistency, which decreased slightly from 87% in 2002 to 85% in 2003.
We expect persistency for both group life and disability to decrease from the current levels as a result of the pricing
adjustments we implemented in 2002, as discussed below, and a highly competitive market. These increases in
premiums were partially offset by a $9 million increase in our estimate of amounts due policyholders on experience
rated cases, as discussed above. Policy charges and fee income declined by $42 million primarily as a result of a $17
million increase in our estimate of amounts due policyholders on experience rated cases, as discussed above, and lower
fees on experience rated contracts sold to employers for funding of employee benefit programs and retirement
arrangements. Although net investment income was relatively unchanged in 2003 from 2002, the portion of this
income from policyholder loans declined, with a corresponding decline in interest credited to policyholders’ account
balances, which resulted in a greater contribution from investment results to adjusted operating income in 2003, as the
remaining base of invested assets increased.
2002 to 2001 Annual Comparison. Revenues increased by $338 million, or 10%, from 2001 to 2002. Group life
insurance premiums increased by $314 million, or 18%, to $2.095 billion primarily due to growth in business in force
resulting from new sales and continued strong persistency, which decreased slightly from 97% in 2001 to 95% in 2002,
as well as a change in coverage for one large client from group universal life to group basic life. Group disability
premiums, which include long-term care products, increased by $67 million, or 13%, to $574 million reflecting the
growth in business in force resulting from new sales and continued strong persistency, which decreased slightly from
89% in 2001 to 87% in 2002. The decreases in persistency are primarily a result of the pricing adjustments
implemented in 2002, discussed below, and a highly competitive market. Net investment income increased $35 million,
or 6%, primarily due to a larger base of invested assets. These increases in revenue were partially offset by an $84
million decrease in policy charges and fee income primarily due to the change, discussed above, in coverage for one
large client from group universal life to group basic life.
Benefits and Expenses
The following table sets forth the Group Insurance segment’s benefits and administrative operating expense ratios
for the periods indicated.
Year ended December 31,
2003 2002 2001
Benefits ratio(1):
Group life .................................................................................. 90.9% 91.7% 92.6%
Group disability ............................................................................. 92.4 87.9 95.2
Administrative operating expense ratio(2):
Group life .................................................................................. 9.7 10.0 10.0
Group disability ............................................................................. 22.5 22.0 23.6
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income. Group disability ratios include long-term care products.
(2) Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income. Group disability ratios
include long-term care products.
2003 to 2002 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating
Results,” increased by $90 million from 2002 to 2003. Current year benefits were reduced $34 million as a result of the
refinements in group life reserves for waiver of premium features discussed above, while the prior year benefited $19
million from reduction in benefits due to the refinement in reserves relating to our group long-term disability product.
Prudential Financial 2003 Annual Report 37