Prudential 2006 Annual Report Download - page 34

Benefits and Expenses
The following table sets forth the Group Insurance segment’s benefits and administrative operating expense ratios for the periods indicated.
Year ended December 31,
2006 2005 2004
Benefits ratio(1):
Group life ........................................................................................ 91.8% 88.9% 87.5%
Group disability ................................................................................... 85.5 95.4 94.6
Administrative operating expense ratio(2):
Group life ........................................................................................ 9.6 8.9 10.9
Group disability ................................................................................... 21.5 20.9 22.1
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income. Group disability ratios include long-term care products.
(2) Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income. Group disability ratios include
long-term care products.
2006 to 2005 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased $350
million, from $3.976 billion in 2005 to $4.326 billion in 2006. The increase was primarily driven by an increase of $283 million in
policyholders’ benefits, including the change in policy reserves, reflecting the growth of business in force and less favorable claims
experience in our group life business, partially offset by more favorable claims experience in our group disability business. Also
contributing to the increase in benefits and expenses were higher operating expenses primarily reflecting growth in the business, as well as
higher costs in 2006 related to legal and regulatory matters.
The group life benefits ratio deteriorated 2.9 percentage points from 2005 to 2006, reflecting less favorable claims experience in our
group life business. The group disability benefits ratio improved by 9.9 percentage points from 2005 to 2006, due to more favorable claims
experience in our group disability business, and to a lesser extent, the benefit from the reserve refinements discussed above. Both the group
life and group disability administrative operating expense ratios deteriorated from 2005 to 2006, as a result of the higher costs in 2006
related to legal and regulatory matters.
2005 to 2004 Annual Comparison. Benefits and expenses increased by $258 million, from $3.718 billion in 2004 to $3.976 billion in
2005. The increase was primarily driven by an increase of $284 million in policyholders’ benefits, including the change in policy reserves,
reflecting the growth of business in force.
The group life benefits ratio deteriorated 1.4 percentage points from 2004 to 2005, primarily as a result of lower charges and fees in
2005 on experience rated contracts sold to employers for funding of employee benefit programs. These lower charges and fees resulted in a
corresponding decrease in administrative expenses. The group disability benefits ratio deteriorated by 0.8 percentage points from 2004 to
2005, reflecting less favorable claims experience. The group life administrative operating expense ratio improved from 2004 to 2005,
primarily reflecting the increases in premiums discussed above, lower legal and regulatory costs in 2005 and the decrease in administrative
expenses discussed above. The group disability administrative operating expense ratio improved from 2004 to 2005 primarily reflecting the
increases in premiums discussed above.
Sales Results
The following table sets forth the Group Insurance segment’s new annualized premiums for the periods indicated. In managing our
group insurance business, we analyze new annualized premiums, which do not correspond to revenues under U.S. GAAP, because new
annualized premiums measure the current sales performance of the business unit, while revenues primarily reflect the renewal persistency
and aging of in force policies written in prior years and net investment income, in addition to current sales.
Year ended December 31,
2006 2005 2004
(in millions)
New annualized premiums(1):
Group life ........................................................................................ $366 $370 $237
Group disability(2) ................................................................................. 138 154 161
Total ........................................................................................ $504 $524 $398
(1) Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life
Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts, and include
premiums from the takeover of claim liabilities.
(2) Includes long-term care products.
2006 to 2005 Annual Comparison. Total new annualized premiums decreased $20 million, from $524 million in the 2005 to $504
million in 2006. This decrease is primarily attributable to lower sales in our group disability business, as the prior year reflects higher
premiums relating to our assumption of existing liabilities from a third party. Group life sales were relatively unchanged, as a significant
large case sale in the first quarter of 2005 was offset by several large case sales during 2006.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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