Prudential 2003 Annual Report Download - page 50

Sales Results
In managing our international insurance business, we analyze new annualized premiums, which do not correspond
to revenues under GAAP, as well as revenues, because new annualized premiums measure the current sales
performance of the segment, while revenues reflect the renewal persistency and aging of in force policies written in
prior years and net investment income, in addition to current sales. New annualized premiums on an actual and
constant exchange rate basis are as follows for the periods indicated.
Year ended December 31,
2003 2002 2001
(in millions)
New annualized premiums:
On an actual exchange rate basis:
International Insurance, excluding Gibraltar Life ................................................... $608 $510 $582
Gibraltar Life .............................................................................. 296 233 110
Total ..................................................................................... $904 $743 $692
On a constant exchange rate basis:
International Insurance, excluding Gibraltar Life ................................................... $608 $540 $608
Gibraltar Life .............................................................................. 299 253 116
Total ..................................................................................... $907 $793 $724
2003 to 2002 Annual Comparison. On a constant exchange rate basis, new annualized premiums increased $114
million, or 14%, from 2002 to 2003, reflecting a $46 million increase from Gibraltar Life. On the same basis, new
annualized premiums from our Japanese insurance operation other than Gibraltar Life increased $66 million, or 20%,
to $398 million in 2003, which benefited from the conclusion of an agent conference qualification period. There was
no similar benefit to 2002. An increase in the Life Planner count also contributed to the growth in sales. Sales in all
other countries, also on a constant exchange rate basis were essentially unchanged, primarily as a result of the benefit
to sales in 2002 in our operation in Korea, from sales activity in anticipation of a premium rate increase in April 2002.
2002 to 2001 Annual Comparison. On a constant exchange rate basis, new annualized premiums increased $69
million from 2001 to 2002, including an increase of $137 million from Gibraltar Life. On that basis, new annualized
premiums from our operations in Japan were $584 million in 2002, including $253 million from Gibraltar Life,
compared to $505 million in 2001 when Gibraltar Life’s sales force sold policies for our existing Japanese insurance
operation during a portion of the year, pending the completion of Gibraltar Life’s reorganization. Since the first quarter
of 2001, the Gibraltar Life sales force has distributed only Gibraltar Life products. Sales in Japan other than Gibraltar
Life during 2001 were particularly strong due to anticipated premium rate increases that took effect on April 1, 2001
and October 1, 2001. Sales in all other countries, also on a constant exchange rate basis, decreased $11 million as a
result of a decrease from our operations in Taiwan and Korea, where 2002 sales were affected by premium rate
increases in 2001.
Investment Margins and Other Profitability Factors
Many of our insurance products sold in international markets provide for the buildup of cash values for the
policyholder at mandated guaranteed interest rates. The spread between the actual investment returns and these
guaranteed rates of return to the policyholder is an element of the profit or loss that we will experience on these
products. Interest rates guaranteed in our Japanese insurance contracts are regulated by Japanese authorities. Between
July 1, 1996, and April 1, 1999, we guaranteed premium rates using an interest rate of 3.1% on most of the products we
sold in Japan even though the yield on Japanese government and high-quality corporate bonds was less than that much
of this time. This resulted in some negative investment spreads for much of this business over this period. As a
consequence, our profitability with respect to these products in Japan during that period resulted primarily from
margins on mortality, morbidity and expense charges. In response to the low interest rate environment, Japanese
regulators approved a reduction in the required rates for most of the products we sell to 2.35% in April 1999, which
results in our charging higher premiums on new business for the same amount of insurance. While this has also
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