Prudential Financial, Inc.
Notes to Consolidated Financial Statements
Acquisition of Kyoei Life Insurance Company, Ltd. (continued)
the Company contributed ¥50 billion ($395 million) in cash to Gibraltar Life’s capital and on April 20, 2001 received 100% of Gibraltar Life’s newly issued common stock. The Company also provided ¥98 billion ($775 million) to Gibraltar Life in the form of a subordinated loan. On April 23, 2001, the Tokyo District Court declared the reorganization proceedings concluded and dismissed the Trustee. Under the Reorganization Plan, Gibraltar Life was restructured as follows:
Gibraltar Life was discharged from all financial indebtedness, retaining only liabilities under insurance policies and contracts, certain pension liabilities, liabilities incurred in the ordinary course of business and certain other claims approved by the Trustee. All existing shares of stock were extinguished without consideration.
Gibraltar Life’s in force insurance policies, except for group life, collective term and reinsurance policies, were restructured as follows:
The guaranteed interest rate on in force policies was reduced to 1.75%.
Except for individual annuities, cash surrender values before surrender charges were reduced by an average of approximately 11%, and maturity values were reduced by 8%. Annuities will be subject to reductions only if they are surrendered.
Special surrender charges will be imposed on existing policies.
Although participating policies retain their current participating status, it is not anticipated that policy dividends will be paid in the near future.
In years four and eight following the recognition of the Reorganization Plan by the Tokyo District Court, a special dividend to certain Gibraltar Life policyholders will be payable based on 70% of net realized investment gains, if any, over the Trustee’s valuation of real estate and loans, net of transaction costs and taxes. As of December 31, 2001, a liability of $678 million is included in “Policyholders’ dividends” for amounts expected to be distributed. The liability is based on the difference between the current estimated fair values of loans and real estate at the date of the Consolidated Statements of Financial Position and the value of such assets included in the Reorganization Plan. The liability will be adjusted as purchase discounts and premiums on loans are accreted and amortized and as changes occur in estimates of fair value of loans and real estate that are expected to have an effect on the ultimate amount to be paid.
No funds were requested from the Life Insurance Policyholders Protection Corporation of Japan, which is the
insurance industry guaranty fund in Japan.
For purposes of inclusion in the Company’s consolidated financial statements, Gibraltar Life has adopted a November 30 fiscal year end; therefore, the December 31, 2001 consolidated financial statements include Gibraltar Life’s assets and liabilities as of November 30, 2001, and Gibraltar Life’s results of operations for the period April 2, 2001 through November 30, 2001. The Company’s December 31, 2001 consolidated financial statements include assets and liabilities for Gibraltar Life of $30,238 million and $29,012 million, respectively, and income from continuing operations before income taxes for Gibraltar Life of $238 million. Pro forma information to reflect the acquisition of Gibraltar Life as if it had occurred as of an earlier date has been omitted, as the lack of continuity of operations of Gibraltar Life resulting from the implementation of the Reorganization Plan would render such pro forma information not meaningful.
Prudential Financial 2001 Annual Report