Prudential 2007 Annual Report Download - page 134

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
7. VALUATION OF BUSINESS ACQUIRED, GOODWILL AND OTHER INTANGIBLES (continued)
The fair values of net mortgage servicing rights were $183 million and $176 million at December 31, 2007 and 2006, respectively.
Amortization expense for other intangibles was $46 million for the years ended December 31, 2007 and 2006 and $42 million for the year
ended December 31, 2005. Amortization expense for other intangibles is expected to be approximately $42 million in 2008, $46 million in
2009, $41 million in 2010, $37 million in 2011 and $33 million in 2012.
8. POLICYHOLDERS’ LIABILITIES
Future Policy Benefits
Future policy benefits at December 31, are as follows:
2007 2006
(in millions)
Life insurance .................................................................................. $ 88,017 $ 83,847
Individual and group annuities and supplementary contracts ............................................. 17,463 17,639
Other contract liabilities .......................................................................... 3,885 3,414
Subtotal future policy benefits excluding unpaid claims and claim adjustment expenses .................... 109,365 104,900
Unpaid claims and claim adjustment expenses ........................................................ 2,103 2,051
Total future policy benefits ................................................................... $111,468 $106,951
Life insurance liabilities include reserves for death and endowment policy benefits, terminal dividends and certain health benefits.
Individual and group annuities and supplementary contracts liabilities include reserves for life contingent immediate annuities and life
contingent group annuities. Other contract liabilities include unearned revenue and certain other reserves for group and individual life and
health products.
Future policy benefits for individual participating traditional life insurance are based on the net level premium method, calculated
using the guaranteed mortality and nonforfeiture interest rates which range from 2.5% to 7.5%. Participating insurance represented 17%
and 20% of domestic individual life insurance in force at December 31, 2007 and 2006, respectively, and 87%, 89% and 90% of domestic
individual life insurance premiums for 2007, 2006 and 2005, respectively.
Future policy benefits for individual non-participating traditional life insurance policies, group and individual long-term care policies
and individual health insurance policies are generally equal to the aggregate of (1) the present value of future benefit payments and related
expenses, less the present value of future net premiums, and (2) any premium deficiency reserves. Assumptions as to mortality, morbidity
and persistency are based on the Company’s experience, and in certain instances, industry experience, when the basis of the reserve is
established. Interest rates used in the determination of the present values range from 1.4% to 9.5%; less than 2% of the reserves are based
on an interest rate in excess of 8%.
Future policy benefits for individual and group annuities and supplementary contracts are generally equal to the aggregate of (1) the
present value of expected future payments, and (2) any premium deficiency reserves. Assumptions as to mortality are based on the
Company’s experience, and in certain instances, industry experience, when the basis of the reserve is established. The interest rates used in
the determination of the present values range from 1.1% to 14.8%; less than 2% of the reserves are based on an interest rate in excess of
8%.
Future policy benefits for other contract liabilities are generally equal to the present value of expected future payments based on the
Company’s experience, except for example, certain group insurance coverages for which future policy benefits are equal to gross unearned
premium reserves. The interest rates used in the determination of the present values range from 2.5% to 6.6%.
Premium deficiency reserves are established, if necessary, when the liability for future policy benefits plus the present value of
expected future gross premiums are determined to be insufficient to provide for expected future policy benefits and expenses and to recover
any unamortized policy acquisition costs. Premium deficiency reserves have been recorded for the group single premium annuity business,
which consists of limited-payment, long-duration traditional and non-participating annuities; structured settlements and single premium
immediate annuities with life contingencies; and for certain individual health policies. Liabilities of $2,464 million and $2,658 million as of
December 31, 2007 and 2006, respectively, are included in “Future policy benefits” with respect to these deficiencies, of which $1,160
million and $1,259 million as of December 31, 2007 and 2006, respectively, relate to net unrealized gains on securities classified as
available for sale.
The Company’s liability for future policy benefits is also inclusive of liabilities for guarantee benefits related to certain nontraditional
long-duration life and annuity contracts, which are discussed more fully in Note 9.
132 Prudential Financial 2007 Annual Report