Prudential 2006 Annual Report Download - page 44

income of $723 million, from $3.343 billion in 2004 to $4.066 billion in 2005, and an increase in net investment income of $309 million,
from $356 million in 2004 to $665 million in 2005. Premiums and policy charges and fee income from our Japanese Life Planner operation
increased $603 million, from $2.302 billion in 2004 to $2.905 billion in 2005, reflecting business growth and the contribution of the
acquired Aoba Life business. Premiums and policy charges and fee income from our Korean operation increased $115 million, from $781
million in 2004 to $896 million in 2005. The increases in premiums and policy charges and fee income are associated with business growth
and reflect new sales and strong persistency. The increase in net investment income reflects the favorable effects of certain investment
portfolio strategies implemented in 2005 including duration lengthening and increased U.S. dollar investments, asset growth, including the
Aoba Life acquisition, and a one-time $44 million benefit from an investment joint venture.
Revenues for Gibraltar Life increased $185 million, from $3.004 billion in 2004 to $3.189 billion in 2005, including a $10 million
favorable impact of currency fluctuations. Excluding the impact of the currency fluctuations, revenues increased $175 million, from $3.227
billion in 2004 to $3.402 billion in 2005. The increase in revenues reflects an increase in premiums of $94 million, from $2.503 billion in
2004 to $2.597 billion in 2005 and an $82 million increase in net investment income from $636 million in 2004 to $718 million in 2005.
Premiums in 2005 included $236 million from additional face amounts of insurance in force issued pursuant to the special dividend
arrangement established as part of Gibraltar Life’s reorganization and distributed in 2005. Premiums from single premium traditional
insurance contracts declined $92 million, from $265 million in 2004 to $173 million in 2005. Excluding the effect of both of these single
pay contracts, premiums declined $50 million, from $2.238 billion in 2004 to $2.188 billion in 2005 reflecting business run-off due to the
expected attrition of older business. The improvement in net investment income reflects the favorable effect of certain investment portfolio
strategies implemented in 2005 as described above.
Benefits and Expenses
2006 to 2005 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” declined $54
million, from $6.361 billion in 2005 to $6.307 billion in 2006, including a favorable impact of $244 million related to currency
fluctuations. Excluding the impact of currency fluctuations, benefits and expenses increased $190 million, from $6.730 billion in 2005 to
$6.920 billion in 2006.
Benefits and expenses of our Life Planner operations, excluding the impact of currency fluctuations, increased $377 million, from
$3.870 billion in 2005 to $4.247 billion in 2006. On the same basis, benefits and expenses of our Japanese Life Planner operation increased
$241 million, from $2.692 billion in 2005 to $2.933 billion in 2006. Benefits and expenses from our Korean operation increased $92
million, from $807 million in 2005 to $899 million in 2006. The increase in benefits and expenses in both operations reflects a greater
volume of business in force, which was driven by new sales and strong persistency. Benefits and expenses in 2005 include the favorable
impacts of a reduction in our liability for guaranty fund assessments in our Japanese Life Planner operation and reserve refinements on
recently introduced products in our Korean operation discussed above.
Gibraltar Life’s benefits and expenses declined $326 million, from $2.687 billion in 2005 to $2.361 billion in 2006, including a $139
million favorable impact of currency fluctuations. Excluding the impact of the currency fluctuations, benefits and expenses declined $187
million, from $2.861 billion in 2005 to $2.674 billion in 2006, reflecting the lower increases in reserves due to $234 million lower
premiums associated with the special dividend arrangement and lower single premiums as discussed above. These lower reserve increases
corresponding to the level of premiums were partially offset by a less favorable level of policyholder benefits and expenses, which included
charges of $17 million in 2006 from refinements in policy liabilities, compared to a favorable impact of $9 million in the prior year from
refinements in reserves for a block of business. Additionally, benefits and expenses for 2006 include a $6 million charge to increase our
estimated liability for guaranty fund assessments, while 2005 included a favorable impact of $10 million from a reduction of that liability.
2005 to 2004 Annual Comparison. Benefits and expenses increased $870 million, from $5.491 billion in 2004 to $6.361 billion in
2005, including benefits and expenses of our Aoba Life business, and a net unfavorable impact of $7 million related to currency
fluctuations. Excluding the impact of currency fluctuations, benefits and expenses increased $863 million, from $5.868 billion in 2004 to
$6.731 billion in 2005.
Benefits and expenses of our Life Planner operations, excluding the impact of currency fluctuations, increased $762 million, from
$3.108 billion in 2004 to $3.870 billion in 2005. On the same basis, benefits and expenses of our Japanese Life Planner operation increased
$647 million, from $2.045 billion in 2004 to $2.692 billion in 2005, including the benefits and expenses from our Aoba Life business.
Benefits and expenses from our Korean operation increased $104 million, from $703 million in 2004 to $807 million in 2005. The
increases in benefits and expenses reflect increases in policyholders’ benefits, including changes in reserves, resulting from the aging of
business in force and a greater volume of business in force, which was driven by new sales and strong persistency, as well as the
contribution of the acquired Aoba Life business in Japan. A $5 million reduction in the liability for Japanese guaranty fund assessments and
a $5 million reduction in reserves due to refinements relative to recently introduced products of our Korean business during 2005 were
partial offsets to the growth in benefits and expenses.
Gibraltar Life’s benefits and expenses increased $85 million, from $2.602 billion in 2004 to $2.687 billion in 2005, including a $16
million favorable impact of currency fluctuations. Excluding the impact of the currency fluctuations, benefits and expenses increased $101
million, from $2.760 billion in 2004 to $2.861 billion in 2005, with an increase corresponding to the increased premiums from single pay
contracts discussed above partially offset by expected attrition of older business and a reduction in our liability for guaranty fund
assessments of approximately $10 million, together with a benefit of $9 million from refinements in reserves for a block of business during
the 2005 period. Benefits and expenses in 2004 were reduced by $11 million from the extinguishment of a liability that was established in
connection with Gibraltar Life’s reorganization in 2001.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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