Prudential 2005 Annual Report Download - page 38

Revenues for Gibraltar Life increased $243 million, from $2.695 billion in 2003 to $2.938 billion in 2004, including a $200 million
favorable impact of currency fluctuations. Excluding the impact of the currency fluctuations, revenues increased $43 million, from $2.888
billion in 2003 to $2.931 billion in 2004, due primarily to increased premiums from single pay contracts of $125 million for which there
was a corresponding increase in policyholders’ benefits. Sales of single pay business in 2003 consisted primarily of endowment contracts,
for which premiums collected from customers are not included in reported revenues. Excluding the effect of single pay contracts, revenue
declined due to a reduction in the in force business.
Benefits and Expenses
2005 to 2004 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased $860
million, from $5.425 billion in 2004 to $6.285 billion in 2005, including benefits and expenses of our Aoba Life business, and a net
unfavorable impact of $52 million related to currency fluctuations. Excluding the impact of currency fluctuations, benefits and expenses
increased $808 million, from $5.448 billion in 2004 to $6.256 billion in 2005. On the same basis, benefits and expenses of our Japanese
Life Planner operation increased $608 million from 2004 to 2005, including the benefits and expenses from our Aoba Life business.
Benefits and expenses from our Korean operation increased $105 million, from $707 million in 2004 to $812 million in 2005. The
increases in benefits and expenses reflect increases in policyholders’ benefits, including changes in reserves, resulting from the aging of
business in force and a greater volume of business in force, which was driven by new sales and strong persistency, as well as the
contribution of the acquired Aoba Life business in Japan. A $5 million reduction in the liability for Japanese guaranty fund assessments and
a $5 million reduction in reserves due to refinements relative to recently introduced products of our Korean business during 2005 were
partial offsets to the growth in benefits and expenses.
Gibraltar Life’s benefits and expenses increased $75 million, from $2.536 billion in 2004 to $2.611 billion in 2005, including an $8
million favorable impact of currency fluctuations. Excluding the impact of the currency fluctuations, benefits and expenses increased $83
million, from $2.502 billion in 2004 to $2.585 billion in 2005, with an increase corresponding to the increased premiums from single pay
contracts discussed above partially offset by expected attrition of older business and a reduction in our liability for guaranty fund
assessments of approximately $10 million, together with a benefit of $9 million from refinements in reserves for a block of business during
the 2005 period. Benefits and expenses in the prior year period were reduced by $11 million from the extinguishment of a liability that was
established in connection with Gibraltar Life’s reorganization in 2001.
2004 to 2003 Annual Comparison. Benefits and expenses increased $663 million, from $4.762 billion in 2003 to $5.425 billion in
2004, including an unfavorable impact of $316 million related to currency fluctuations. Excluding the impact of currency fluctuations,
benefits and expenses increased $347 million reflecting a $318 million increase in our international insurance operations other than
Gibraltar Life, and a $29 million increase from Gibraltar Life. On this same basis, benefits and expenses of our Japanese Life Planner
operation increased $125 million from 2003 to 2004, but reflect lower policyholders’ benefits, including changes in reserves, in 2004
related to the single pay contracts noted above. Benefits and expenses from our Korean operation increased $146 million from $561 million
in 2003 to $707 million in 2004. The increase in benefits and expenses in both operations, excluding the effect of the single pay contracts,
reflects an increase in policyholders’ benefits, including changes in reserves, resulting from the aging of business in force and a greater
volume of business in force, which was driven by new sales and continued strong persistency.
Gibraltar Life’s benefits and expenses increased $211 million, from $2.325 billion in 2003 to $2.536 billion in 2004, including an
increase of $182 million related to currency fluctuations. Excluding the impact of the currency fluctuations, benefits and expenses
increased $29 million from 2003 to 2004, reflecting an increase in policyholders’ benefits, including changes in reserves associated with
single pay contracts and the greater increases in policy reserves, in 2004, associated with a lower than anticipated level of surrenders. In
addition, benefits and expenses for 2003 include a $9 million benefit from decreases in our estimated liability for guaranty fund
assessments for which 2004 includes only a minimal benefit. These increases were partially offset by a lower level of policyholders’
benefits due primarily to a reduction in the in force business and the reduction in reserves related to the extinguishment of a liability
established in connection with Gibraltar Life’s reorganization as well as a more favorable level of general and administrative expenses
compared to 2003.
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,
2005 2004 2003
(in millions)
New annualized premiums:
On an actual exchange rate basis:
International Insurance, excluding Gibraltar Life ......................................................... $ 856 $668 $608
Gibraltar Life ..................................................................................... 323 277 296
Total ............................................................................................ $1,179 $945 $904
On a constant exchange rate basis:
International Insurance, excluding Gibraltar Life ......................................................... $ 856 $684 $658
Gibraltar Life ..................................................................................... 319 274 315
Total ............................................................................................ $1,175 $958 $973
Prudential Financial 2005 Annual Report36