Prudential 2006 Annual Report Download - page 33

Group Insurance
Operating Results
The following table sets forth the Group Insurance segment’s operating results for the periods indicated.
Year ended December 31,
2006 2005 2004
(in millions)
Operating results:
Revenues .......................................................................................... $4,555 $4,200 $3,892
Benefits and expenses ................................................................................ 4,326 3,976 3,718
Adjusted operating income ............................................................................ 229 224 174
Realized investment gains (losses), net, and related adjustments(1) ........................................ (16) 71 43
Related charges(2) .............................................................................. (2) (2) —
Income from continuing operations before income taxes, equity in earnings of operating joint ventures, extraordinary gain
on acquisition and cumulative effect of accounting change ................................................. $ 211 $ 293 $ 217
(1) Revenues exclude Realized investment gains (losses), net, and related adjustments. 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 interest
credited to policyholders’ account balances.
Adjusted Operating Income
2006 to 2005 Annual Comparison. Adjusted operating income increased $5 million, from $224 million in 2005 to $229 million in
2006. This increase primarily reflects more favorable claims experience in our group disability business and, to a lesser extent, a greater
benefit from refinements in group disability reserves as a result of annual reviews. These reserve refinements benefited the current year $19
million, primarily associated with our long-term care products, while benefiting the prior year $8 million. In addition, adjusted operating
income in 2006 benefited from an increased contribution from investment results, primarily reflecting growth in invested assets and higher
interest rates on shorter-term investments. Less favorable claims experience in our group life business and higher expenses, including
higher costs in 2006 related to legal and regulatory matters, largely offset these increases.
2005 to 2004 Annual Comparison. Adjusted operating income increased $50 million, from $174 million in 2004 to $224 in 2005,
primarily due to an increase in net investment income and growth in the segment’s group life business, as well as lower costs in 2005
related to legal and regulatory matters.
Revenues
2006 to 2005 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $355 million,
from $4.200 billion in 2005 to $4.555 billion in 2006. Group life premiums increased $249 million, from $2.546 billion in 2005 to $2.795
billion in 2006, primarily reflecting growth in business in force resulting from new sales and continued strong persistency, which remain
unchanged at 95% for both years. Group disability premiums, which include long-term care products, increased $37 million, from $724
million in 2005 to $761 million in 2006, primarily reflecting growth in business in force resulting from new sales and continued strong
persistency, which improved from 85% in 2005 to 90% in 2006. Net investment income also increased $30 million primarily reflecting a
larger base of invested assets due to business growth, as well as higher interest rates on shorter-term investments.
2005 to 2004 Annual Comparison. Revenues increased by $308 million, from $3.892 billion in 2004 to $4.200 billion in 2005. Group
life premiums increased by $272 million, from $2.274 billion in 2004 to $2.546 billion in 2005, primarily reflecting growth in business in
force resulting from new sales and continued strong persistency, which improved from 94% in 2004 to 95% in 2005. Group disability
premiums, which include long-term care products, increased by $48 million, from $676 million in 2004 to $724 million in 2005, primarily
reflecting growth in business in force resulting from new sales and continued strong persistency, which declined slightly from 86% in 2004 to
85% in 2005. Net investment income increased by $32 million, primarily reflecting a larger base of invested assets due to business growth.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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