Prudential 2003 Annual Report Download - page 48

insurance operation other than Gibraltar Life and the more favorable level of policyholder benefits in 2003 was
partially offset by a less favorable level of expenses which include costs of relocating to a new home office in Tokyo
during the first quarter of 2003 and an $18 million negative impact of currency fluctuations.
The segment’s increase in adjusted operating income includes the effect of year over year fluctuations in currency
exchange rates as well as the impact of our hedging at expected exchange rates. On a constant exchange rate basis,
excluding the impact of currency hedging, adjusted operating income, including results of Gibraltar Life, increased
11%.
2002 to 2001 Annual Comparison. Adjusted operating income for Gibraltar Life increased $116 million from
$262 million for the initial eight months of operations in 2001, which included a $56 million gain from policy
surrenders associated with the initial period of operations after restructuring, to $378 million for 2002. Gibraltar Life’s
adjusted operating income for 2002 reflects charges from refinements of estimates, primarily of amounts due to
policyholders, and lower surrender gains due to more favorable persistency. The impact of these items was offset
primarily by favorable mortality experience and a decrease in the estimated liability for guaranty fund assessments.
Gibraltar Life’s $378 million adjusted operating income reported for 2002 included expenses of approximately
$25 million related to the refinements of estimates which considered Gibraltar Life’s first full year of operations
following its reorganization, favorable mortality and improved investment results reflecting the transition from short-
term investments to longer-term investments consistent with our asset-liability management strategies. As a result of
Gibraltar Life’s emergence from reorganization proceedings in April of 2001 and the reduction in benefits for in force
policies, when we established Gibraltar Life’s initial liability for future policy benefits, we assumed a higher than
normal level of policy surrenders for the near term. Our surrender rate assumptions commencing at the date of
reorganization were 6% in the first year and 4% thereafter for paid-up policies and range from 2% to 38% in the first
year, 3% to 14% in the second year, and 6% to 10% thereafter for premium paying policies. Gibraltar Life’s adjusted
operating income included in our results for 2002 was reduced by $21 million because of the deviation of policy
surrenders from our initial assumptions.
Adjusted operating income, excluding Gibraltar Life, increased $30 million from $349 million in 2001 to $379
million in 2002. Adjusted operating income from our Japanese insurance operation increased $7 million, from $335
million in 2001 to $342 million in 2002. The contribution from continued growth of our existing Japanese insurance
operation was partially offset in 2002 by a $19 million negative impact of currency fluctuations and a loss from the
termination of a large case that provided individual life insurance coverage to multiple employees of an organization.
Our adjusted operating income from operations in countries other than Japan increased $23 million, from $14 million
in 2001 to $37 million in 2002, as increased profits from our operation in Korea, reflecting strong sales and continued
favorable persistency, offset continued costs of expansion into other countries and the $8 million benefit to results of
the year-ago period from a refinement in the methodology used to calculate reserves in our Korean operation.
Excluding the impact of the currency fluctuations, our international insurance operations other than Gibraltar Life
would have had a 20% increase in adjusted operating income over the prior year.
The segment’s increase in adjusted operating income includes the effect of year-over-year fluctuations in currency
exchange rates as well as the impact of our hedging at expected exchange rates. On a constant exchange rate basis and
excluding the impact of currency hedging, adjusted operating income, including results of Gibraltar Life, increased
$175 million.
Revenues
2003 to 2002 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,”
increased $582 million from 2002 to 2003, which include a net favorable impact of $291 million relating to currency
fluctuations. Excluding the impact of currency fluctuations, revenues increased $291 million, from $5.436 billion in
2002 to $5.727 billion in 2003. Revenues on this basis from our international insurance operations, other than Gibraltar
Life, increased $419 million, or 17%. This increase in revenues came primarily from an increase in premiums and
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