Prudential 2005 Annual Report Download - page 39

2005 to 2004 Annual Comparison. On a constant exchange rate basis, new annualized premiums increased $217 million, from $958
million in 2004 to $1.175 billion in 2005. On the same basis, new annualized premiums from our Japanese Life Planner operation increased
$130 million, reflecting sales of U.S. dollar denominated life insurance products with a retirement income feature introduced in November
2004 and an increase in the number of Life Planners. Sales in all other countries, also on a constant exchange rate basis, increased $42
million, primarily reflecting increases in sales in Korea and Taiwan. New annualized premiums from our Gibraltar Life operation increased
$45 million, on a constant exchange rate basis, from 2004 to 2005 as sales results in the current period benefited $48 million from the sales
of single pay contracts, for which the prior year period benefited $40 million, and $47 million from a recently introduced single pay U.S.
dollar denominated deferred annuity product.
2004 to 2003 Annual Comparison. On a constant exchange rate basis, new annualized premiums declined $15 million from $973
million in 2003 to $958 million in 2004. On the same basis, new annualized premiums from our Japanese Life Planner operation increased
$28 million, reflecting an increase in the number of Life Planners. Sales in all other countries, also on a constant exchange rate basis,
declined $3 million, primarily reflecting a decline in sales in Korea resulting from the appointment of Life Planners to sales management
positions in newly opened agencies as well as weakness in economic conditions in that country. New annualized premiums from our
Gibraltar Life operation declined $41 million, on a constant exchange rate basis, from 2003 to 2004 as sales results in 2003 benefited $95
million from the sales of single pay contracts for which 2004 benefited $40 million. Sales of single pay contracts in 2004 declined due to a
reduction in guaranteed rates in the latter half of 2003. Sales other than single pay contracts increased 6%.
Investment Margins and Other Profitability Factors
Many of our insurance products sold in international markets provide for the buildup of cash values for the policyholder at
contractually fixed guaranteed interest rates. Japanese authorities regulate interest rates guaranteed in our Japanese insurance contracts. The
guaranteed interest rates do not necessarily match the actual returns on the underlying investments and there may be times when the spread
between the actual investment returns and these guaranteed rates of return to the policyholder is negative and in which this negative spread
may not be offset by the mortality, morbidity and expense changes we earn on the products. With regulatory approval, guaranteed rates
may be changed on new business. While these actions enhance our ability to set rates commensurate with available investment returns, the
major sources of profitability on our products sold in Japan, other than at Gibraltar, are margins on mortality, morbidity and expense
charges rather than investment spreads.
We base premiums and cash values in most countries in which we operate on mandated mortality and morbidity tables. Our mortality
and morbidity experience in the International Insurance segment on an overall basis in 2005, 2004, and 2003 was well within our pricing
assumptions and below the guaranteed levels reflected in the premiums we charge.
International Investments
Operating Results
The following table sets forth the International Investments segment’s operating results for the periods indicated.
Year ended December 31,
2005 2004 2003
(in millions)
Operating results:
Revenues ........................................................................................ $486 $447 $240
Expenses ........................................................................................ 376 361 250
Adjusted operating income .......................................................................... 110 86 (10)
Realized investment gains (losses), net(1) ........................................................... — (48) (52)
Related charges(2) ............................................................................. — — —
Income (loss) from continuing operations before income taxes, extraordinary gain on acquisition and cumulative effect
of accounting change ............................................................................. $110 $ 38 $ (62)
(1) Revenues exclude Realized investment gains (losses), net. For a discussion of these items see “—Realized Investment Gains and General Account
Investments—Realized Investment Gains.”
(2) Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on
minority interest. For a discussion of these items see “—Realized Investment Gains and General Account Investments—Realized Investment Gains.”
On February 27, 2004, we acquired an 80% interest in Hyundai Investment and Securities Co., Ltd. and its subsidiary Hyundai
Investment Trust Management Co., Ltd., a Korean asset management firm, from an agency of the Korean government for $301 million in
cash, including $210 million used to repay debt assumed. The acquired company was subsequently renamed Prudential Investment &
Securities Co., Ltd, or PISC. The results of these operations are included in our consolidated results beginning March 1, 2004. See Note 3
to the Consolidated Financial Statements for further discussion of this acquisition.
Adjusted Operating Income
2005 to 2004 Annual Comparison. Adjusted operating income increased $24 million, from $86 million in 2004 to $110 million in
2005. This increase is primarily a result of the acquisition of PISC, as the prior year reflects only ten months of results of the acquired
business. Also contributing to the increase in adjusted operating income is higher fee and commission income from PISC, partially offset
by a corresponding increase in operating expenses, including minority interest, during the current year. During 2005, PISC contributed $74
million of adjusted operating income, including $24 million of fee revenue from the Korean government under an agreement entered into in
Prudential Financial 2005 Annual Report 37