Prudential 2006 Annual Report Download - page 140

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
10. CLOSED BLOCK (continued)
Closed Block revenues and benefits and expenses for the years ended December 31, 2006, 2005 and 2004 were as follows:
2006 2005 2004
(in millions)
Revenues
Premiums ............................................................................ $3,599 $3,619 $3,776
Net investment income ................................................................. 3,401 3,447 3,392
Realized investment gains (losses), net ..................................................... 490 624 709
Other income ......................................................................... 50 50 59
Total Closed Block revenues ......................................................... 7,540 7,740 7,936
Benefits and Expenses
Policyholders’ benefits ................................................................. 3,967 3,993 4,056
Interest credited to policyholders’ account balances ........................................... 139 137 137
Dividends to policyholders .............................................................. 2,518 2,653 2,364
General and administrative expenses ...................................................... 725 717 710
Total Closed Block benefits and expenses .............................................. 7,349 7,500 7,267
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes ................. 191 240 669
Income tax expense ........................................................................ 77 35 19
Closed Block revenues, net of Closed Block benefits and expenses and income taxes .................... $ 114 $ 205 $ 650
11. REINSURANCE
The Company participates in reinsurance in order to provide additional capacity for future growth and limit the maximum net
loss potential arising from large risks. On June 1, 2006, the Company acquired the variable annuity business of Allstate through a
reinsurance transaction. The reinsurance arrangements with Allstate include a coinsurance arrangement and a modified coinsurance
arrangement which are more fully described in Note 3. The acquisition of the retirement business of CIGNA on April 1, 2004,
required the Company through its wholly owned subsidiary, PRIAC, to enter into certain reinsurance arrangements with CIGNA to
effect the transfer of the retirement business included in the transaction. These reinsurance arrangements are more fully described in
Note 3. Also, in the fourth quarter of 2003, the Company sold its property and casualty insurance companies that operated
nationally in 48 states outside of New Jersey, and the District of Columbia to Liberty Mutual. In connection with that sale, the
Company reinsured Liberty Mutual for certain losses which will be settled based upon loss experience through December 31, 2008
and are more fully described in Note 21.
Life and disability reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term, per
person excess and coinsurance. In addition, the Company has reinsured with unaffiliated third parties, 73% of the Closed Block
through various modified coinsurance arrangements. The Company accounts for these modified coinsurance arrangements under the
deposit method of accounting. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded
balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the
Company under the terms of the reinsurance agreements. Reinsurance premiums, commissions, expense reimbursements, benefits
and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using
assumptions consistent with those used to account for the underlying contracts. The cost of reinsurance related to short-duration
contracts is accounted for over the reinsurance contract period. Amounts recoverable from reinsurers, for both short-and long-
duration reinsurance arrangements, are estimated in a manner consistent with the claim liabilities and policy benefits associated
with the reinsured policies.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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