Prudential 2005 Annual Report Download - page 100

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
3. ACQUISITIONS AND DISPOSITIONS (continued)
The reinsurance arrangements between PRIAC and CIGNA include coinsurance-with-assumption, modified-coinsurance-with-
assumption, and modified-coinsurance-without-assumption.
The coinsurance-with-assumption arrangement applies to the acquired general account defined contribution and defined benefit
plan contracts. Prior to the acquisition, CIGNA Life assumed from CIGNA all of the insurance liabilities associated with these
contracts, totaling $15.9 billion, and received from CIGNA the related investments. PRIAC has established a trust account for the
benefit of CIGNA to secure its obligations to CIGNA under the coinsurance agreement. The Company has substantially completed
the process of requesting customers to agree to substitute PRIAC for CIGNA in their respective contracts.
The modified-coinsurance-with-assumption arrangements apply to the majority of separate account contracts, and the general
account defined benefit guaranteed-cost contracts acquired. Under the modified coinsurance arrangement associated with the
separate account contracts, CIGNA retained the separate account and other assets as well as the related separate account and other
liabilities until the agreed upon dates of asset transfer but, beginning on the date of acquisition, cedes all of the net profits or losses
and related net cash flows associated with the contracts to PRIAC. At the date of acquisition, the statement of financial position for
PRIAC included a reinsurance receivable of $32.4 billion and reinsurance payable of $32.4 billion established under these modified
coinsurance arrangements and reflected in “Reinsurance recoverables” and “Reinsurance payables,” respectively. As of
December 31, 2005, PRIAC has received from CIGNA the separate account assets and concurrently assumed the associated
separate account liabilities, which are primarily included in “Separate account assets” and “Separate account liabilities,”
respectively, in the Company’s Consolidated Statement of Financial Position. The Company has substantially completed the
process of requesting customers to agree to substitute PRIAC for CIGNA in their respective contracts.
The modified-coinsurance-with-assumption arrangement associated with the general account defined benefit guaranteed-cost
contracts is similar to the arrangement associated with the separate account contracts; however, beginning two years after the
acquisition, the Company may commute this modified coinsurance arrangement in exchange for cash consideration from CIGNA, at
which time PRIAC would no longer have a related liability or recoverable and the defined benefit guaranteed cost contracts would
remain with CIGNA. At the date of acquisition, PRIAC established a reinsurance receivable of $1.8 billion and a reinsurance
payable of $1.8 billion under the modified coinsurance arrangement, which are reflected in “Reinsurance recoverables” and
“Reinsurance payables,” respectively. The net profits earned by PRIAC during the two-year period that the modified coinsurance
arrangement is in effect are included in “Asset management fees and other income.” In January 2006, the Company notified CIGNA
pursuant to the agreement of its intention to commute this modified coinsurance arrangement but continues to discuss alternatives
related to the general account defined benefit guaranteed-cost contracts with CIGNA.
The modified-coinsurance-without-assumption arrangement applies to the remaining separate account contracts acquired and is
similar to the modified coinsurance arrangement associated with the separate account contracts described above; however, CIGNA
will retain the separate account and other assets and the related liabilities while ceding the net profits or losses and the associated
net cash flows to PRIAC for the remaining lives of the contracts. At the date of acquisition, PRIAC established a reinsurance
receivable of $1.0 billion and a reinsurance payable of $1.0 billion for this modified coinsurance arrangement, which are reflected in
“Reinsurance recoverables” and “Reinsurance payables,” respectively.
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