Prudential 2005 Annual Report Download - page 119

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
7. POLICYHOLDERS’ LIABILITIES (continued)
The following table provides a reconciliation of the activity in the liability for unpaid claims and claim adjustment expenses,
included in “Future policy benefits,” for accident and health insurance and property and casualty insurance at December 31:
2005 2004 2003
Accident
and
Health
Property
and
Casualty
Accident
and
Health
Property
and
Casualty
Accident
and
Health
Property
and
Casualty
(in millions)
Balance at January 1 ............................... $1,749 $ 58 $1,629 $ 58 $1,567 $ 1,861
Less reinsurance recoverables, net .................... 18 — 17 — 24 598
Net balance at January 1 ............................ 1,731 58 1,612 58 1,543 1,263
Incurred related to:
Current year ................................. 669 (3) 675 7 634 1,184
Prior years ................................... 70 4 48 3 33 (22)
Total incurred .................................... 739 1 723 10 667 1,162
Paid related to:
Current year ................................. 248 (3) 248 7 237 706
Prior years ................................... 394 4 364 — 361 297
Total paid ....................................... 642 1 612 7 598 1,003
Acquisitions (dispositions) and other .................. — 2 8 (3) — (1,364)
Net balance at December 31 ......................... 1,828 60 1,731 58 1,612 58
Plus reinsurance recoverables, net .................... 94 — 18 — 17 —
Balance at December 31 ............................ $1,922 $ 60 $1,749 $ 58 $1,629 $ 58
The unpaid claims and claim adjustment expenses presented above include estimates for liabilities associated with reported
claims and for incurred but not reported claims based, in part, on the Company’s experience. Changes in the estimated cost to settle
unpaid claims are charged or credited to the Consolidated Statements of Operations periodically as the estimates are revised.
Accident and health unpaid claims liabilities are discounted using interest rates ranging from 0% to 6.0%.
The amounts incurred for claims and claim adjustment expenses for accident and health in 2005, 2004 and 2003 that related to
prior years were primarily due to required interest partially offset by long-term disability claim termination experience. The
amounts incurred for claims and claim adjustment expenses for property and casualty in 2003 that related to prior years were
primarily driven by lower than anticipated losses for the auto line of business and prior period reserve releases.
Policyholders’ Account Balances
Policyholders’ account balances at December 31, are as follows:
2005 2004
(in millions)
Individual annuities ............................................................................... $12,464 $12,947
Group annuities .................................................................................. 20,045 20,694
Guaranteed investment contracts and guaranteed interest accounts .......................................... 14,960 15,574
Funding agreements ............................................................................... 4,535 3,147
Interest-sensitive life contracts ....................................................................... 10,057 9,989
Dividend accumulations and other .................................................................... 13,305 13,432
Policyholders’ account balances ..................................................................... $75,366 $75,783
Policyholders’ account balances represent an accumulation of account deposits plus credited interest less withdrawals,
expenses and mortality charges, if applicable. These policyholders’ account balances also include provisions for benefits under
non-life contingent payout annuities. Included in “Funding agreements” at December 31, 2005 and 2004, are $4,172 million and
$2,756 million, respectively, of medium-term notes of consolidated variable interest entities secured by funding agreements
purchased from the Company with the proceeds of such notes. The interest rates associated with such notes range from 3.6% to
4.7%. Interest crediting rates range from 0% to 8.8% for interest-sensitive life contracts and from 0% to 13.4% for contracts other
than interest-sensitive life. Less than 2% of policyholders’ account balances have interest crediting rates in excess of 8%.
Prudential Financial 2005 Annual Report 117