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Prudential Financial 2001 Annual Report - page 121 / 172

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Prudential Financial, Inc.

Notes to Consolidated Financial Statements

8. Policyholders’ Liabilities (continued)

The following table highlights the key assumptions generally utilized in calculating these reserves (excluding consideration of premium deficiency reserves and reserves relating to Gibraltar Life):

Product Life insurance . . . . .

Mortality . . . . . . . . . . For Closed Block Business, rates guaranteed in

Interest Rate 2.3% to 11.3% (b)

Estimation Method Net level premium (a)

calculating cash surrender values; for Financial Services Businesses, based on company experience or standard industry tables established at policy issue (a)

Individual annuities . . . . . . . . . . 1971 IAM, 1983 IAM and A2000 individual annuity mortality tables with certain modifications based on company experience established at policy issue (a)

3.5% to 13.4% (b)

Present value of expected future payments based on historical experience (a)

Group annuities . . . . . . . . . . . . . 1951 and 1983 Group Annuity Mortality Tables with certain modifications based on company experience established at policy issue

4.0% to 17.3%

Present value of expected future payments based on historical experience

Other contract liabilities . . . . . . .

2.5% to 11.5%

Present value of expected future payments based on historical experience

  • (a)

    Mortality assumptions for life insurance policies and individual annuities relating to Gibraltar Life are established at policy issue based on current Japanese industry tables with certain modifications based on company experience. Reserves for life insurance policies and individual annuities relating to Gibraltar Life are estimated based on the net level premium method and the present value of expected future payments based on historical experience, respectively.

  • (b)

    Interest rates used in establishing such reserves relating to Gibraltar Life range from 1.3% to 1.9% for both life insurance and individual annuity liabilities.

Premium deficiency reserves are established, if necessary, when the liability for future policy benefits plus the present value of expected future gross premiums are determined to be insufficient to provide for expected future policy benefits and expenses and to recover any unamortized policy acquisition costs. Premium deficiency reserves have been recorded for the group single premium annuity business, which consists of limited-payment, long duration traditional and non-participating annuities; structured settlements and single premium immediate annuities with life contingencies; and for certain individual health policies. Liabilities of $1,867 million and $2,002 million are included in “Future policy benefits” with respect to these deficiencies at December 31, 2001 and 2000, respectively.

Policyholders’ Account Balances Policyholders’ account balances at December 31, are as follows:

2001 2000

(In Millions)

Individual annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guaranteed investment contracts and guaranteed interest accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-sensitive life contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend accumulations and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

7,564

$

5,097

4,035

2,022

13,031

12,852

8,112

3,809

10,591

8,942

Policyholders’ account balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$43,333

$32,722

Policyholders’ account balances for interest-sensitive life and investment-type contracts represent an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges.

Prudential Financial 2001 Annual Report

119

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