Prudential 2007 Annual Report Download - page 35

2007 to 2006 Annual Comparison. Total new annualized premiums decreased $152 million, or 30%, from $504 million in 2006 to
$352 million in 2007. This decrease is primarily due to lower large case sales in the group life business during 2007, reflective of highly
competitive pricing in the marketplace and the pricing discipline we apply in writing business. Partially offsetting this decrease were higher
large case and middle-market sales in the group disability business during 2007.
2006 to 2005 Annual Comparison. Total new annualized premiums decreased $20 million, from $524 million in 2005 to $504
million in 2006. This decrease was primarily attributable to lower sales in our group disability business, as 2005 reflects higher premiums
relating to our assumption of existing liabilities from a third party. Group life sales were relatively unchanged, as a significant large case
sale in the first quarter of 2005 was offset by several large case sales during 2006.
Investment Division
Asset Management
Operating Results
The following table sets forth the Asset Management segment’s operating results for the periods indicated.
Year ended December 31,
2007 2006 2005
(in millions)
Operating results:
Revenues ........................................................................................ $2,265 $2,050 $1,696
Expenses ........................................................................................ 1,627 1,457 1,232
Adjusted operating income .......................................................................... 638 593 464
Realized investment gains, net, and related adjustments(1) ............................................. 19 (4) 1
Income from continuing operations before income taxes and equity in earnings of operating joint ventures ........... $ 657 $ 589 $ 465
(1) Revenues exclude Realized investment gains (losses), net, and related adjustments. See “—Realized Investment Gains and General Account
Investments—Realized Investment Gains.”
Adjusted Operating Income
2007 to 2006 Annual Comparison. Adjusted operating income increased $45 million, from $593 million in 2006 to $638 million in
2007. Results for 2007 benefited from an increase in asset management fees of $107 million, primarily from institutional and retail
customer assets as a result of increased asset values due to market appreciation and net asset flows. Adjusted operating income also
benefited from increased transaction fees primarily from real estate investment management activities and increased revenues from the
segment’s proprietary investing business. Less favorable results from the segment’s commercial mortgage securitization operations, which
resulted in pretax losses of $62 million in 2007 compared to a contribution to adjusted operating income of $45 million in 2006, as well as
higher expenses, including performance-related compensation costs, was a partial offset. The losses in the segment’s commercial mortgage
securitization operations in 2007 resulted primarily from unfavorable credit market conditions during the second half of the year, which
resulted in decreases in value of positions held and losses on securitizations due to increased credit spreads. As of December 31, 2007, our
commercial mortgage operations held $542 million in loans and $188 million in applications and commitments as inventory for future
securitizations, in addition to $792 million of bonds it retained from 2007 securitizations. Net of the derivatives purchased as hedges, about
$750 million of these positions continue to be subject to changes in credit spreads.
2006 to 2005 Annual Comparison. Adjusted operating income increased $129 million, from $464 million in 2005 to $593 million in
2006. Results for 2006 benefited from an increase in performance based incentive fees of $61 million associated with appreciation and
gains on sale of real estate investments which we manage, and from income from our proprietary investing business, also associated with
appreciation and gains on sale of real estate related investments, including $23 million relating to a single investment in 2006. Proprietary
investing income in 2005 included $58 million relating to two sale transactions. Results for 2006 benefited from increased asset
management fees of $88 million, primarily from institutional and retail customer assets as a result of increased asset values due to market
appreciation and net asset inflows. Higher expenses, including performance-related compensation costs, partially offset the foregoing
increases.
Prudential Financial 2007 Annual Report 33