Prudential 2007 Annual Report Download - page 46

Sales Results
In managing our international insurance business, we analyze revenues, as well as new annualized premiums, which do not correspond
to revenues under U.S. GAAP. New annualized premiums measure the current sales performance of the segment, while revenues primarily
reflect the renewal persistency of policies written in prior years and net investment income, in addition to current sales. New annualized
premiums include 10% of first year premiums or deposits from single pay products. New annualized premiums on an actual and constant
exchange rate basis are as follows for the periods indicated.
Year ended December 31,
2007 2006 2005
(in millions)
New annualized premiums:
On an actual exchange rate basis:
Life Planner operations ............................................................................. $ 788 $ 767 $ 856
Gibraltar Life ..................................................................................... 359 357 323
Total ............................................................................................ $1,147 $1,124 $1,179
On a constant exchange rate basis:
Life Planner operations ............................................................................. $ 821 $ 808 $ 889
Gibraltar Life ..................................................................................... 382 377 329
Total ............................................................................................ $1,203 $1,185 $1,218
2007 to 2006 Annual Comparison. On a constant exchange rate basis, new annualized premiums increased $18 million, from $1.185
billion in 2006 to $1.203 billion in 2007. On this same basis, new annualized premiums from our Japanese Life Planner operations
increased $10 million reflecting increased sales of retirement income and U.S. dollar denominated whole life products, partially offset by
lower sales of increasing term life products to corporations as a result of pending tax law changes. Sales in all other countries, also on a
constant exchange rate basis, increased $3 million as decreased sales in Korea mostly offset increased sales in Taiwan and the rest of our
Life Planner operations. The number of Life Planners increased 338, or 6%, from 5,828 as of December 31, 2006 to 6,166 as of
December 31, 2007. This increase was driven by increases of 112, 66 and 90 in our Life Planner operations in Japan, Korea and Taiwan,
respectively. In addition, during 2007, 82 Life Planners in Japan were transferred to Gibraltar primarily to support our efforts to expand our
bank channel distribution.
New annualized premiums, on a constant exchange rate basis, from our Gibraltar Life operation increased $5 million from 2006 to
2007, primarily due to higher sales of our U.S. dollar whole life product and other traditional insurance products, which was partially offset
by lower sales of our U.S. dollar denominated single premium fixed annuity, particularly in our bank distribution channel. The number of
Life Advisor’s increased 320, or 5%, from 5,944 as of December 31, 2006 to 6,264 as of December 31, 2007.
2006 to 2005 Annual Comparison. On a constant exchange rate basis, new annualized premiums declined $33 million, from $1.218
billion in 2005 to $1.185 billion in 2006. On this same basis, new annualized premiums from our Japanese Life Planner operation declined
$72 million, primarily reflecting a decline in sales of U.S. dollar denominated products. Higher sales in 2005 reflected the popularity of
these products and sales in anticipation of premium rate increases. The decline in these sales was partially offset by increased sales of term
life insurance products. Sales in all other countries, also on a constant exchange rate basis, declined $9 million primarily reflecting declines
in sales in Korea and Taiwan.
New annualized premiums from our Gibraltar Life operation increased $48 million, on a constant exchange rate basis, from $329
million in 2005 to $377 million in 2006. Sales of our U.S. dollar denominated single premium fixed annuity product increased $95 million,
from $46 million in 2005 to $141 million in 2006, including $49 million of sales through our bank distribution channel which commenced
in the first quarter of 2006. Sales of our U.S. dollar denominated whole life policies increased $18 million, from $5 million in 2005 to $23
million in 2006. These increases were partially offset by a decline in sales of our single pay whole life products, from $50 million in 2005
to $12 million in 2006, and our traditional whole life products, from $77 million in 2005 to $52 million in 2006.
Investment Margins and Other Profitability Factors
Many of our insurance products sold in international markets provide for the buildup of cash values for the policyholder at mandated
guaranteed interest rates. Japanese authorities regulate interest rates guaranteed in our Japanese insurance contracts. The regulated
guaranteed interest rates do not necessarily match the actual returns on the underlying investments. The spread between the actual
investment returns and these guaranteed rates of return to the policyholder is an element of the profit or loss that we will experience on
these products. With regulatory approval, guaranteed rates may be changed on new business. While these actions enhance our ability to set
rates commensurate with available investment returns, the major sources of profitability on our products sold in Japan, other than those sold
by Gibraltar Life, are margins on mortality, morbidity and expense charges rather than investment spreads.
We base premiums and cash values in most countries in which we operate on mandated mortality and morbidity tables. Our mortality
and morbidity experience in the International Insurance segment on an overall basis in the years ended December 31, 2007, 2006, and 2005
was well within our pricing assumptions and below the guaranteed levels reflected in the premiums we charge.
44 Prudential Financial 2007 Annual Report