Prudential 2007 Annual Report Download - page 44

currency fluctuations, adjusted operating income increased $72 million reflecting continued growth of our Japanese and Korean Life
Planner operations and improved investment margins. The improved investment margins reflect the favorable effect of certain investment
portfolio strategies initially implemented in 2005 including increased investments in unhedged U.S. dollar denominated securities.
Adjusted operating income in 2005 included a one-time $44 million benefit from an investment joint venture, $5 million from a reduction
in our liability for guaranty fund assessments and a $5 million benefit from reserve refinements on recently introduced products in our
Korean operation.
Gibraltar Life’s adjusted operating income declined $9 million, from $502 million in 2005 to $493 million in 2006, including a $23
million favorable impact of currency fluctuations. Refinements of certain policy liabilities resulted in a $17 million reduction of Gibraltar
Life’s 2006 adjusted operating income, while results for 2005 benefited $9 million from refinements in reserves for a block of business.
Excluding the impact of these items and currency fluctuations, adjusted operating income of Gibraltar Life declined $6 million. Adjusted
operating income in 2006 includes a $6 million charge for an increase in our estimated liability for guaranty fund assessments, for which
2005 included a benefit of $10 million. In addition, mortality experience and expense levels were less favorable in 2006. Improved
investment income margins were a partial offset, reflecting income in 2006 of $6 million from a single real estate related investment and
the favorable effect of certain investment portfolio strategies initially implemented in 2005, including increased investments in unhedged
U.S. dollar denominated securities.
Revenues
2007 to 2006 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $418 million,
from $7.730 billion in 2006 to $8.148 billion in 2007. Excluding the impact of currency fluctuations, which had no net impact, revenues
increased $418 million, from $8.246 billion in 2006 to $8.664 billion in 2007.
Revenues from our Life Planner operations increased $437 million, from $4.876 billion in 2006 to $5.313 billion in 2007, including a
net favorable impact of currency fluctuations of $21 million. Excluding the impact of currency fluctuations, revenues increased $416
million from 2006 to 2007, primarily reflecting increases in premiums and policy charges and fee income of $386 million, from $4.435
billion in 2006 to $4.821 billion in 2007. Premiums and policy charges and fee income increased $271 million, from $3.061 billion in 2006
to $3.332 billion in 2007, in our Japanese Life Planner operation and increased $81 million, from $1.072 billion in 2006 to $1.153 billion in
2007, in our Korean operation. The increase in premiums and policy charges and fee income in both operations was primarily the result of
new sales and strong persistency. Net investment income also increased $133 million, from $716 million in 2006 to $849 million in 2007,
due to asset growth and higher investment yields reflecting duration lengthening of our Japanese yen investment portfolio and increased
utilization of U.S. dollar based investments. Offsetting the increase in net investment income was a $102 million decrease in the market
value of certain externally managed investments in the European market during 2007, which is reflected in asset management fees and
other income.
Revenues from Gibraltar Life declined $19 million, from $2.854 billion in 2006 to $2.835 billion in 2007, including an unfavorable
impact from currency fluctuations of $21 million. Excluding the impact of currency fluctuations, revenues increased $2 million, from
$3.074 billion in 2006 to $3.076 billion in 2007. Premiums decreased $89 million, from $2.224 billion in 2006 to $2.135 billion in 2007, as
premiums in 2006 benefited $92 million from additional face amounts of insurance issued pursuant to a special dividend arrangement
established as part of Gibraltar Life’s reorganization for which 2007 includes no such benefit. Substantially all of these premiums
recognized pursuant to the special dividend arrangement were offset by a corresponding charge to increase reserves for the affected
policies. Also reflected in premiums are higher sales of single premium contracts and an increase in first-year premium, mostly offset by a
decrease in renewal premiums reflecting the expected attrition of older business. Our premiums have declined as the market has continued
to transition from traditional products, on which we record premiums, to products with a retirement and savings objective, for which
customer funds received are recorded as deposits. More than offsetting the decrease in premium was a $104 million increase in net
investment income, from $788 million in 2006 to $892 million in 2007, due to improved investment income margins, as discussed above.
2006 to 2005 Annual Comparison Revenues increased $59 million, from $7.671 billion in 2005 to $7.730 billion in 2006, including
a net unfavorable impact of $179 million relating to currency fluctuations. Excluding the impact of currency fluctuations, revenues
increased $238 million, from $8.008 billion in 2005 to $8.246 billion in 2006.
Revenues from our Life Planner operations, excluding the impact of currency fluctuations, increased $437 million, from $4.735 billion
in 2005 to $5.172 billion in 2006. This increase in revenues came primarily from increases in premiums and policy charges and fee income
of $389 million, from $4.046 billion in 2005 to $4.435 billion in 2006, and a $61 million increase in net investment income from 2005 to
2006. Premiums and policy charges and fee income from our Japanese Life Planner operation increased $262 million, from $2.799 billion
in 2005 to $3.061 billion in 2006. Premiums and policy charges and fee income from our Korean operation increased $101 million, from
$971 million in 2005 to $1.072 billion in 2006. The increase in premiums and policy charges and fee income in both operations was
primarily the result of business growth and strong persistency. The increase in net investment income reflects business growth and the
favorable effect of certain investment portfolio strategies initially implemented in 2005, as discussed above. Net investment income in 2005
included a one-time, $44 million benefit from an investment joint venture.
Revenues for Gibraltar Life declined $335 million, from $3.189 billion in 2005 to $2.854 billion in 2006, including a $136 million
unfavorable impact of currency fluctuations. Excluding the impact of the currency fluctuations, revenues declined $199 million, from
$3.273 billion in 2005 to $3.074 billion in 2006. The decline in revenues reflects a decline in premiums of $274 million, from $2.498
billion in 2005 to $2.224 billion in 2006. The decline in premium income reflects a $136 million decrease, from $228 million in 2005 to
$92 million in 2006, in premiums recognized in connection with issuance of additional face amounts of insurance under a special dividend
arrangement established as part of Gibraltar Life’s reorganization. The decline in premiums also reflects a decrease of $89 million in single
42 Prudential Financial 2007 Annual Report