Prudential 2006 Annual Report Download - page 45

Sales Results
In managing our international insurance business, we analyze new annualized premiums, which do not correspond to revenues under
U.S. GAAP, as well as revenues, because new annualized premiums measure the current sales performance of the segment, while revenues
reflect the renewal persistency and aging of in force policies written in prior years and net investment income, in addition to current sales.
New annualized premiums include 10% of first year premiums or deposits from single pay products. New annualized premiums on an
actual and constant exchange rate basis are as follows for the periods indicated.
Year ended December 31,
2006 2005 2004
(in millions)
New annualized premiums:
On an actual exchange rate basis:
Life Planner operations ............................................................................. $ 767 $ 856 $ 668
Gibraltar Life ..................................................................................... 357 323 277
Total ............................................................................................ $1,124 $1,179 $ 945
On a constant exchange rate basis:
Life Planner operations ............................................................................. $ 802 $ 880 $ 709
Gibraltar Life ..................................................................................... 385 340 295
Total ............................................................................................ $1,187 $1,220 $1,004
2006 to 2005 Annual Comparison. On a constant exchange rate basis, new annualized premiums declined $33 million, from $1.220
billion in 2005 to $1.187 billion in 2006. On the same basis, new annualized premiums from our Japanese Life Planner operation declined
$70 million, primarily reflecting a decline in sales of U.S. dollar denominated products. Higher sales in the prior year reflected the
popularity of these products and sales in anticipation of premium rate increases. The decline in these sales was partially offset by increased
sales of term life insurance products. Sales in all other countries, also on a constant exchange rate basis, declined $8 million primarily
reflecting declines in sales in Korea and Taiwan. New annualized premiums from our Gibraltar Life operation increased $45 million, on a
constant exchange rate basis, from $340 million in 2005 to $385 million in 2006. Sales of our U.S. dollar denominated single premium
fixed annuity product increased $94 million, from $46 million in 2005 to $140 million in 2006, including $49 million of sales through our
bank distribution channel which commenced in the first quarter of 2006. Sales of our U.S. dollar denominated whole life policies increased
$18 million, from $5 million in 2005 to $23 million in 2006. These increases were partially offset by a decline in sales of our single pay
whole life products, from $51 million in 2005 to $12 million in 2006, and our traditional whole life products, from $80 million in 2005 to
$54 million in 2006.
2005 to 2004 Annual Comparison. On a constant exchange rate basis, new annualized premiums increased $216 million, from
$1.004 billion in 2004 to $1.220 billion in 2005. On the same basis, new annualized premiums from our Japanese Life Planner operation
increased $129 million, reflecting sales of U.S. dollar denominated life insurance products with a retirement income feature introduced in
November 2004 and an increase in the number of Life Planners. Sales in all other countries, also on a constant exchange rate basis,
increased $42 million, primarily reflecting increases in sales in Korea and Taiwan. New annualized premiums from our Gibraltar Life
operation increased $45 million, on a constant exchange rate basis, from 2004 to 2005 as sales results in 2005 benefited $51 million from
the sales of single pay whole life products, for which sales in 2004 benefited $43 million, and $46 million from a recently introduced U.S.
dollar denominated single premium fixed annuity product.
Investment Margins and Other Profitability Factors
Many of our insurance products sold in international markets provide for the buildup of cash values for the policyholder at mandated
guaranteed interest rates. Japanese authorities regulate interest rates guaranteed in our Japanese insurance contracts. The regulated
guaranteed interest rates do not necessarily match the actual returns on the underlying investments. The spread between the actual
investment returns and these guaranteed rates of return to the policyholder is an element of the profit or loss that we will experience on
these products. With regulatory approval, guaranteed rates may be changed on new business. While these actions enhance our ability to set
rates commensurate with available investment returns, the major sources of profitability on our products sold in Japan, other than those sold
by Gibraltar Life, are margins on mortality, morbidity and expense charges rather than investment spreads.
We base premiums and cash values in most countries in which we operate on mandated mortality and morbidity tables. Our mortality
and morbidity experience in the International Insurance segment on an overall basis in the years ended December 31, 2006, 2005, and 2004
was well within our pricing assumptions and below the guaranteed levels reflected in the premiums we charge.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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