Prudential 2007 Annual Report Download - page 141

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
10. CLOSED BLOCK (continued)
Closed Block revenues and benefits and expenses for the years ended December 31, 2007, 2006 and 2005 were as follows:
2007 2006 2005
(in millions)
Revenues
Premiums ............................................................................ $3,552 $3,599 $3,619
Net investment income ................................................................. 3,499 3,401 3,447
Realized investment gains (losses), net ..................................................... 584 490 624
Other income ......................................................................... 51 50 50
Total Closed Block revenues ......................................................... 7,686 7,540 7,740
Benefits and Expenses
Policyholders’ benefits ................................................................. 4,021 3,967 3,993
Interest credited to policyholders’ account balances ........................................... 139 139 137
Dividends to policyholders .............................................................. 2,731 2,518 2,653
General and administrative expenses ...................................................... 729 725 717
Total Closed Block benefits and expenses .............................................. 7,620 7,349 7,500
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes and discontinued
operations ............................................................................. 66 191 240
Income tax expense ........................................................................ 64 77 35
Closed Block revenues, net of Closed Block benefits and expenses and income taxes, before discontinued
operations ............................................................................. 2 114 205
Income from discontinued operations, net of taxes ................................................ 2 — —
Closed Block revenues, net of Closed Block benefits and expenses, income taxes and discontinued
operations ............................................................................. $ 4 $ 114 $ 205
11. REINSURANCE
The Company participates in reinsurance in order to provide additional capacity for future growth, to limit the maximum net loss
potential arising from large risks and in acquiring or disposing of businesses. On June 1, 2006, the Company acquired the variable annuity
business of Allstate through a reinsurance transaction. The reinsurance arrangements with Allstate include a coinsurance arrangement and a
modified coinsurance arrangement which are more fully described in Note 3. The acquisition of the retirement business of CIGNA on
April 1, 2004, required the Company, through a wholly owned subsidiary, to enter into certain reinsurance arrangements with CIGNA to
effect the transfer of the retirement business included in the transaction. These reinsurance arrangements are more fully described in Note
3. Also, in the fourth quarter of 2003, the Company sold its property and casualty insurance companies that operated nationally in 48 states
outside of New Jersey, and the District of Columbia, to Liberty Mutual. In connection with that sale, the Company reinsured Liberty
Mutual for certain losses which will be settled based upon loss experience through December 31, 2008 and are more fully described in
Note 21.
Life and disability reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term, per person
excess and coinsurance. In addition, the Company has reinsured with unaffiliated third parties, 73% of the Closed Block through various
modified coinsurance arrangements. The Company accounts for these modified coinsurance arrangements under the deposit method of
accounting. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a
liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the
reinsurance agreements. Reinsurance premiums, commissions, expense reimbursements, benefits and reserves related to reinsured long-
duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to
account for the underlying contracts. The cost of reinsurance related to short-duration contracts is accounted for over the reinsurance
contract period. Amounts recoverable from reinsurers, for both short-and long-duration reinsurance arrangements, are estimated in a
manner consistent with the claim liabilities and policy benefits associated with the reinsured policies.
The tables presented below exclude amounts pertaining to the Company’s discontinued operations.
Prudential Financial 2007 Annual Report 139