Prudential 2005 Annual Report Download - page 154
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PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. SEGMENT INFORMATION (continued)
Investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated
contractholder liabilities due to asset value changes. Certain products included in the retirement business acquired from CIGNA,
as well as certain products included in the International Insurance segment, are experience-rated in that investment results
associated with these products will ultimately accrue to contractholders. The investments supporting these experience-rated
products, excluding mortgage loans, are classified as trading. These trading investments are reflected on the statements of financial
position as “Trading account assets supporting insurance liabilities, at fair value.” Realized and unrealized gains and losses for these
investments are reported in “Asset management fees and other income.” Investment income for these investments is reported in
“Net investment income.” Mortgage loans that support these experience-rated products are carried at unpaid principal, net of
unamortized discounts and an allowance for losses, and are reflected on the statements of financial position as “Commercial loans.”
Adjusted operating income excludes net investment gains and losses on trading account assets supporting insurance liabilities.
This is consistent with the exclusion of realized investment gains and losses with respect to other investments supporting insurance
liabilities managed on a consistent basis, as discussed above. In addition, to be consistent with the historical treatment of charges
related to realized gains and losses on available for sale securities, adjusted operating income also excludes the change in
contractholder liabilities due to asset value changes in the pool of investments (including mortgage loans) supporting these
experience-rated contracts, which are reflected in “Interest credited to policyholders’ account balances.” The result of this approach
is that adjusted operating income for these products includes only net fee revenue and interest spread the Company earns on these
experience-rated contracts, and excludes changes in fair value of the pool of investments, both realized and unrealized, that accrue
to the contractholders.
Divested businesses. The contribution to income/loss of divested businesses that have been or will be sold or exited, but that
did not qualify for “discontinued operations” accounting treatment under U.S. GAAP, are excluded from adjusted operating income
as the results of divested businesses are not relevant to understanding the Company’s ongoing operating results.
Prudential Financial 2005 Annual Report152