Prudential 2003 Annual Report Download - page 40

Excluding these items, benefits and expenses increased $105 million. This increase resulted principally from an
increase of $94 million in policyholders’ benefits, including change in policy reserves, reflecting the growth of
business in force.
Beginning in 2002, we refocused group life and disability on improved risk selection and reduced benefits ratios.
We continuously make pricing adjustments, when contractually permitted, which consider the emerging experience on
our group insurance products. While there can be no assurance, we expect these actions, as well as pricing discipline in
writing new business, will allow us to maintain or improve our benefits ratios.
The group life benefits ratio for 2003 improved 0.8 percentage points from 2002 reflecting lower claims
incidence. The group disability benefits ratio increased by 4.5 percentage points, of which 3.2 percentage points
resulted from the reserve refinement in 2002 discussed above. The remaining 1.3 percentage point increase in the group
disability benefits ratio is primarily due to a decrease in net claim resolutions on our long-term disability products,
partially offset by favorable morbidity experience on our other disability products. The group life and disability
administrative operating expense ratios remained relatively unchanged from 2002 to 2003.
2002 to 2001 Annual Comparison. Benefits and expenses increased by $253 million, or 8%, from 2001 to 2002.
The increase resulted in large part from an increase of $213 million, or 9%, in policyholders’ benefits, including the
change in policy reserves. Excluding the reserve refinements noted above, policyholders’ benefits increased $268
million, or 11%, reflecting the growth of business in force. An increase of $25 million, or 5%, in operating expenses,
including amortization of deferred acquisition costs, also contributed to the increase in benefits and expenses. The
increase in operating expenses, from $466 million in 2001 to $491 million in 2002, resulted primarily from the growth
in business in force and related sales-based compensation costs.
The group life benefits ratio for 2002 improved 0.9 percentage points from 2001. Absent the negative impact to
2001 from the $36 million reserve refinement, the 2002 group life benefits ratio increased 0.8 percentage points
reflecting higher claim incidence, primarily early in the year. The group disability benefits ratio improved by 7.3
percentage points from 2001 to 2002. The benefit from the $19 million reserve refinement recorded in 2002
represented 3.2 percentage points of the improvement. The remainder of the improvement reflects improved case
resolution and our ongoing efforts to improve the quality of our underwriting and claims management processes. The
group life administrative operating expense ratio remained flat from 2001 to 2002. The group disability administrative
operating expense ratio improved from 2001 to 2002 reflecting the impact of our efforts to improve operational
efficiencies.
Sales Results
The following table sets forth the Group Insurance segment’s new annualized premiums for the periods indicated.
In managing our group insurance business, we analyze new annualized premiums, which do not correspond to revenues
under GAAP because new annualized premiums measure the current sales performance of the business unit, while
revenues primarily reflect the renewal persistency and aging of in force policies written in prior years and net
investment income in addition to current sales.
Year ended December 31,
2003 2002 2001
(in millions)
New annualized premiums(1):
Group life .................................................................................. $225 $269 $435
Group disability(2) ........................................................................... 144 160 139
Total .................................................................................. $369 $429 $574
(1) Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group
Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts and
include premiums from the takeover of claim liabilities.
(2) Includes long-term care products.
Growing and Protecting Your Wealth38