Prudential 2007 Annual Report Download - page 135

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
8. POLICYHOLDERS’ LIABILITIES (continued)
Unpaid claims and claim adjustment expenses primarily reflect the Company’s estimate of future disability claim payments and
expenses as well as estimates of claims incurred but not yet reported as of the balance sheet dates related to group disability products.
Unpaid claim liabilities are discounted using interest rates ranging from 0% to 6%.
Policyholders’ Account Balances
Policyholders’ account balances at December 31, are as follows:
2007 2006
(in millions)
Individual annuities ............................................................................... $15,420 $14,660
Group annuities .................................................................................. 20,342 20,289
Guaranteed investment contracts and guaranteed interest accounts .......................................... 13,274 13,670
Funding agreements ............................................................................... 8,601 6,905
Interest-sensitive life contracts ....................................................................... 12,271 11,226
Dividend accumulations and other .................................................................... 14,246 13,902
Policyholders’ account balances ..................................................................... $84,154 $80,652
Policyholders’ account balances represent an accumulation of account deposits plus credited interest less withdrawals, expenses and
mortality charges, if applicable. These policyholders’ account balances also include provisions for benefits under non-life contingent
payout annuities. Included in “Funding agreements” at December 31, 2007 and 2006, are $8,535 million and $6,537 million, respectively,
of medium-term notes liabilities of consolidated variable interest entities secured by funding agreements purchased from the Company with
the proceeds of such notes. The interest rates associated with such notes range from 3.9% to 5.7%. Interest crediting rates range from 0% to
11.8% for interest-sensitive life contracts and from 0% to 13.4% for contracts other than interest-sensitive life. Less than 2% of
policyholders’ account balances have interest crediting rates in excess of 8%.
9. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS
The Company issues traditional variable annuity contracts through its separate accounts for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues variable annuity contracts
with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than
(1) total deposits made to the contract less any partial withdrawals (“return of net deposits”), (2) total deposits made to the contract less any
partial withdrawals plus a minimum return (“minimum return”), or (3) the highest contract value on a specified date minus any withdrawals
(“contract value”). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the
accumulation period and withdrawal and income benefits payable during specified periods.
The Company also issues annuity contracts with market value adjusted investment options (“MVAs”), which provide for a return of
principal plus a fixed rate of return if held to maturity, or, alternatively, a “market adjusted value” if surrendered prior to maturity or if
funds are reallocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on
crediting rates or an indexed rate at surrender, as applicable.
In addition, the Company issues variable life, variable universal life and universal life contracts where the Company contractually
guarantees to the contractholder a death benefit even when there is insufficient value to cover monthly mortality and expense charges,
whereas otherwise the contract would typically lapse (“no lapse guarantee”). Variable life and variable universal life contracts are offered
with general and separate account options.
The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are
carried at fair value and reported as “Separate account assets” with an equivalent amount reported as “Separate account liabilities.”
Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in “Policy
charges and fee income” and changes in liabilities for minimum guarantees are generally included in “Policyholders’ benefits.” In 2007 and
2006, there were no gains or losses on transfers of assets from the general account to a separate account.
For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current
guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of benefits that are
payable at annuitization or withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity
payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance.
For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance
minus the current account balance. The Company’s contracts with guarantees may offer more than one type of guarantee in each contract;
Prudential Financial 2007 Annual Report 133