Prudential 2006 Annual Report Download - page 134

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
9. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
The Company issues traditional variable annuity contracts through its separate accounts for which investment income and
investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues
variable annuity contracts with general and separate account options where the Company contractually guarantees to the
contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals (“return of net deposits”),
(2) total deposits made to the contract less any partial withdrawals plus a minimum return (“minimum return”), or (3) the highest
contract value on a specified date minus any withdrawals (“contract value”). These guarantees include benefits that are payable in
the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable
during specified periods.
The Company also issues annuity contracts with market value adjusted investment options (“MVAs”), which provide for a
return of principal plus a fixed rate of return if held to maturity, or, alternatively, a “market adjusted value” if surrendered prior to
maturity or if funds are reallocated to other investment options. The market value adjustment may result in a gain or loss to the
Company, depending on crediting rates or an indexed rate at surrender, as applicable.
In addition, the Company issues variable life, variable universal life and universal life contracts where the Company
contractually guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and
expense charges, whereas otherwise the contract would typically lapse (“no lapse guarantee”). Variable life and variable universal
life contracts are offered with general and separate account options, similar to variable annuities.
The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees
are carried at fair value and reported as “Separate account assets” with an equivalent amount reported as “Separate account
liabilities.” Amounts assessed against the contractholders for mortality, administration, and other services are included within
revenue in “Policy charges and fee income” and changes in liabilities for minimum guarantees are generally included in
“Policyholders’ benefits.” In 2006 and 2005 there were no gains or losses on transfers of assets from the general account to a
separate account.
For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current
guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of benefits that
are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity
payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account
balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum
accumulation balance minus the current account balance. The Company’s contracts with guarantees may offer more than one type
of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. As of December 31, 2006 and 2005, the
Company had the following guarantees associated with these contracts, by product and guarantee type:
December 31, 2006 December 31, 2005
In the
Event of
Death
At Annuitization/
Accumulation(1)
In the
Event of
Death
At Annuitization/
Accumulation(1)
(dollars in millions)
Variable Annuity Contracts
Return of net deposits
Account value ................................................................ $37,071 $ 57 $28,290 N/A
Net amount at risk ............................................................. $ 1,491 $ 5 $ 1,974 N/A
Average attained age of contractholders ............................................ 60years 64 years 60 years N/A
Minimum return or contract value
Account value ................................................................ $32,118 $28,322 $17,022 $13,980
Net amount at risk ............................................................. $ 2,528 $ 733 $ 1,809 $ 5
Average attained age of contractholders ............................................ 64years 59 years 64 years 58 years
Average period remaining until earliest expected annuitization .......................... N/A 6years N/A 6 years
(1) Includes income and withdrawal benefits as described herein. Net amount at risk as of December 31, 2006 includes $733 million relating to GMIB and
GMAB balances acquired from Allstate during 2006.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
132