Prudential 2005 Annual Report Download - page 26

Revenues from the segment’s individual annuity business increased $439 million, from $1.169 billion in 2003 to $1.608 billion in
2004, which included increased revenues of $332 million from American Skandia. Revenues of the segment’s individual annuity business,
excluding American Skandia, increased $107 million, from $730 million in 2003 to $837 million in 2004, due primarily to a $71 million
increase in net investment income, reflecting a higher level of invested assets, as well as increased yields. In addition, policy charges and
fees increased $36 million, reflecting an increase in the average market value of variable annuity customer accounts.
Benefits and Expenses
2005 to 2004 Annual Comparison. Benefits and expenses of the segment’s individual life insurance business, as shown in the table
above under “—Operating Results,” increased $81 million, from $1.683 billion in 2004 to $1.764 billion in 2005. Amortization of deferred
policy acquisition costs increased $95 million, from $274 million in 2004 to $369 million in 2005. Amortization of deferred policy
acquisition costs in 2005 includes an $89 million increase, reflecting an update and refinement of our assumptions, which was largely offset
by a decrease in change in reserves as well as an increase in policy charges and fee income, as discussed above. Policyholders’ benefits,
including interest credited to policyholder account balances increased $33 million, from $756 million in 2004 to $789 million in 2005,
reflecting growth in our term and universal life business partially offset by the impact of the update and refinement of assumptions
discussed above. In addition, interest expense increased $51 million due to increased borrowings. Partially offsetting these items was a
decline in operating expenses of $99 million from 2004 to 2005, reflecting actions previously taken to reduce staffing and occupancy costs,
for which associated costs were incurred in 2004, as well as a decline in commissions paid to our agents for the distribution of
non-proprietary insurance products, as discussed above.
Benefits and expenses of the segment’s individual annuity business increased $60 million, from $1.181 billion in 2004 to $1.241
billion in 2005. Amortization of deferred policy acquisition costs increased $48 million, from $125 million in 2004 to $173 million in 2005,
reflecting an increase to amortization due to increased gross profits in the current period and a net $9 million benefit due to the increased
estimates of total gross profits in both 2005 and 2004 discussed above. General and administrative expenses, net of capitalization, increased
$46 million from 2004 to 2005, including a $13 million increase in the amortization of value of business acquired, mainly due to the
modeling refinements discussed above, as well as increased costs associated with expansion of our distribution platforms and distribution
costs charged to expense associated with increased variable annuity sales. In addition, our asset based costs associated with trail
commissions and sub-advisory expenses have increased due to growth in account values. Partially offsetting these items was a decrease of
$55 million from 2004 to 2005 in policyholders’ benefits, including interest credited to policyholders’ account balances, including a $47
million benefit from the increased estimate of total gross profits and decreased cost of actual and expected death claims discussed above.
2004 to 2003 Annual Comparison. Benefits and expenses of the segment’s individual life insurance business increased $190 million,
from $1.493 billion in 2003 to $1.683 billion in 2004. The increase reflects a $175 million increase in operating expenses, including costs
related to the distribution of property and casualty insurance products discussed above. Amortization of deferred policy acquisition costs
increased $79 million from 2003 to 2004, reflecting a lower level of amortization in the prior year due to the strong equity market
performance and less favorable mortality experience in 2003. Partially offsetting these items was a decline in policyholder benefits and
related changes in reserves of $96 million, from $687 million in 2003 to $591 million in 2004, primarily due to claims experience, net of
reinsurance, being at a more favorable level than in the prior year.
Benefits and expenses of the segment’s individual annuity business increased $274 million, from $907 million in 2003 to $1.181
billion in 2004, which included increased benefits and expenses of $257 million related to American Skandia. Benefits and expenses of the
segment’s individual annuity business, excluding American Skandia, increased $17 million, from $635 million in 2003 to $652 million in
2004. Amortization of deferred policy acquisition costs increased $52 million, primarily as a result of a higher level of gross profits in
2004. Partially offsetting this was the impact of a $36 million charge to strengthen reserves for our periodic income annuities in 2003.
Prudential Financial 2005 Annual Report24