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Prudential Financial, Inc. - Life Insurance -
Category Main Page
(973)
802-6000
751
Broad Street
Newark, NJ 07102
www.prudential.com
Sales
$27.9
billion
Business Description
Prudential Financial, Inc. is one of the largest financial services
institutions in the U.S. Through our subsidiaries and affiliates, we provide
a wide range of life insurance, other insurance products, investment
management and other financial products and services to individual and
institutional customers in the U.S. and over 30 other countries through one
of the largest distribution networks in the financial services industry.
Insurance Division
The Insurance division conducts its business through the Individual Life and
Annuities and Group Insurance segments.
Individual Life and Annuities
Our Individual Life and Annuities segment manufactures and distributes
individual variable life, term life, universal life and non-participating
whole life insurance, and variable and fixed annuity products, primarily to
the U.S. mass affluent market and mass market. In general, we consider
households with investable assets or income in excess of $100,000 as mass
affluent. Our life products are distributed primarily through Prudential
Agents and increasingly through third parties. Our annuity products are
distributed through a diverse group of independent financial planners,
broker-dealers and banks as well as through Prudential Agents.
On May 1, 2003, we acquired Skandia U.S. Inc. (“Skandia U.S.”), a wholly
owned subsidiary of Skandia Insurance Company Ltd. (“Skandia”), for a total
purchase price of $1.184 billion. Beginning May 1, 2003, 100% of the assets
acquired and liabilities assumed and the results of operations have been
included in our consolidated financial statements. The annuity operations of
Skandia U.S. are included as a component of our individual annuity business
discussed below. Our acquisition of Skandia U.S. included American Skandia,
Inc. (“American Skandia”). American Skandia, through its wholly owned
subsidiaries, is one of the largest distributors of variable annuities
through independent financial planners in the U. S. American Skandia also
operates a mutual fund business, the results of which are included within
the Investment Management segment. The acquisition significantly expanded
and diversified our third party distribution capabilities in the U.S. and
broadened our array of product offerings.
Skandia has agreed to indemnify us for certain losses, including losses
resulting from litigation or regulatory matters relating to events prior to
closing the transaction and brought within four years, subject to an
aggregate cap of $1 billion. Under the terms of a License Agreement, we will
have the right to use the “American Skandia” name in conjunction with our
own name in the U.S. in the annuity business for five years and in the
mutual fund business for two years. Skandia has agreed not to compete with
us in the U.S. in the annuity business for five years and in the mutual fund
business for two years.
The integration of American Skandia is expected to continue through the
first quarter of 2005. Currently, the distribution, marketing and product
development functions as well as many administrative, support, and control
functions have been combined with Prudential’s existing annuities business.
Key management from both organizations have been retained, and all major
decisions related to the integration have been communicated. In 2004,
integration efforts will focus on consolidating systems platforms and
operations functions. The integration of American Skandia is proceeding as
planned.
Products
Variable Life Insurance
We offer a number of individual variable life insurance products that
provide a return linked to an underlying investment portfolio designated by
the policyholder while providing the policyholder with the flexibility to
change both the death benefit and premium payments. Each product provides
for the deduction of charges and expenses from the customer’s investment
account. We also offer variable life products targeted to the estate
planning and corporate-owned life insurance markets.
Term Life Insurance
We offer a variety of term life insurance products. Most term products
include a conversion feature that allows the policyholder to convert the
policy into permanent life insurance coverage. We most recently repriced our
term insurance portfolio in June 2003.
Universal Life Insurance
We offer universal life insurance products that feature a market rate fixed
interest investment account and flexible premiums. In June 2003, we updated
our universal life insurance products and began to offer survivorship
universal life, which covers two individuals on a single policy and provides
for payment of a death benefit upon the death of the second insured
individual.
Non-participating Whole Life Insurance
We offer a non-participating whole life insurance product with guaranteed
fixed level premiums and guaranteed cash values.
Variable and Fixed Annuities
We offer variable annuities that provide our customers with the opportunity
to invest in proprietary and non-proprietary mutual funds and fixed-rate
options. The investments made by customers in the proprietary and
non-proprietary mutual funds represent separate accounts for which the
contractholder bears the investment risk. The investments made in the fixed
rate options are credited with interest at rates determined by us, subject
to certain minimums. Additionally, our variable annuities products offer
certain minimum death benefit and living benefit guarantee options. We also
offer fixed annuities that provide a guarantee of principal and a guaranteed
interest rate to be credited to the principal amount for a specified period
of time.
Marketing and Distribution
Prudential Agents
Our Prudential Agents distribute variable, term, universal and
non-participating whole life insurance, variable and fixed annuities, and
investment and protection products with proprietary and non-proprietary
investment options as well as selected insurance products manufactured by
others.
Underwriting and Pricing
Life Insurance
Our life insurance underwriters follow detailed and uniform policies and
procedures to assess and quantify the risk of our individual life insurance
products. We require the applicant to take a variety of underwriting tests,
such as medical examinations, electrocardiograms, blood tests, urine tests,
chest x-rays and consumer investigative reports, depending on the age of the
applicant and the amount of insurance requested. Our universal life
insurance contracts and the fixed component of our variable life insurance
contracts feature crediting rates, which are periodically reset. In
resetting these rates, we consider the returns on our portfolios supporting
the interest-sensitive life insurance business, current interest rates, the
competitive environment, and our profit objectives.
Annuities
We earn investment management fees based upon the average assets of the
mutual funds in our variable annuity products and mortality and expense fees
and other fees for various insurance-related options and features based on
average daily net asset value of the annuity separate accounts or the amount
of guaranteed value. We price our fixed annuities as well as the fixed-rate
options of our variable annuities based on assumptions as to investment
returns, expenses and persistency. Competition also influences our pricing.
We seek to maintain a spread between the return on our general account
invested assets and the interest we credit on our fixed annuities. To
encourage persistency, most of our variable and fixed annuities have
withdrawal restrictions and declining surrender or withdrawal charges for a
specified number of years.
Reserves
We establish reserve and policyholder fund liabilities to recognize our
future benefit obligations for our in force life and annuity policies. For
variable and interest-sensitive life insurance and annuity contracts, we
establish policyholders’ account balances that represent cumulative gross
premium payments plus credited interest and/or fund performance, less
withdrawals, expenses and mortality charges.
Reinsurance
Since 2000, we have reinsured the majority of the mortality risk we assume
under our newly sold individual life insurance policies. The maximum amount
of individual life insurance we may retain on any life is $30 million under
an individual policy and $50 million under a second-to-die life policy.
Group Insurance
Our Group Insurance segment manufactures and distributes a full range of
group life, long-term and short-term group disability, long-term care, and
corporate- and trust-owned life insurance in the U.S. to institutional
clients primarily for use in connection with employee and membership
benefits plans. Group Insurance also sells accidental death and
dismemberment and other ancillary coverages and provides plan administrative
services in connection with its insurance coverages.
Products
Group Life Insurance
We offer group life insurance products including basic, supplemental or
optional dependent term and universal life insurance. We also offer group
variable universal life insurance and supplemental and voluntary accidental
death and dismemberment insurance. Many of our employee-pay coverages
include a portability feature, allowing employees to retain their coverage
when they change employers or retire. We also offer a living benefits option
that allows insureds that are diagnosed with a terminal illness to receive
up to 50% of their life insurance benefit upon diagnosis, in advance of
death, to use as needed.
Group Disability Insurance
We offer short- and long-term group disability insurance, which protects
against loss of wages due to illness or injury. Short-term disability
generally provides coverage for three to six months, and long-term
disability covers the period after short-term disability ends. We also offer
absence management and integrated disability management services in
conjunction with a third party.
Other
We offer individual and group long-term care insurance and group corporate-
and trust-owned life insurance. Long-term care insurance protects the
insured from the costs of care in the community, at an adult day care
center, a nursing home or similar live-in care situation or at home by
providing a home health or a personal care aide. Group corporate- and
trust-owned life insurance are group variable life insurance contracts
typically used by large corporations to fund benefit plans for retired
employees. These latter products also may be used as vehicles to deliver
deferred compensation or non-qualified benefits to active employees.
Marketing and Distribution
Group Insurance has its own dedicated sales force that is organized around
products and market segments and distributes primarily through employee
benefits brokers and consultants. Group Insurance also distributes
individual long-term care products through Prudential Agents as well as
third party brokers and agents.
Underwriting and Pricing
Group Insurance’s product underwriting and pricing is centralized. We have
developed standard rating systems for each product line based on our past
experience and relevant industry experience. We are not obligated to accept
any application for a policy or group of policies from any distributor. We
follow uniform underwriting practices and procedures. If the coverage amount
exceeds certain prescribed age and amount limits, we may require a
prospective insured to submit to medical examinations.
We determine premiums on some of our policies on a retrospective experience
rated basis, in which case the policyholder bears some of the risk
associated with claim experience fluctuations during the policy period. We
base product pricing of group insurance products on the expected pay-out of
benefits that we calculate using assumptions for mortality, morbidity,
interest, expenses and persistency, depending upon the specific product
features.
Our other policies are not eligible to receive experience based refunds. The
adequacy of our initial pricing of these policies determines their
profitability. Long-term disability, in particular, involves a commitment to
insure disability that continues typically up until a person reaches normal
retirement age and, accordingly, contains the risk that loss experience is
affected by circumstances we did not expect when we issued a policy and
exceeds pricing assumptions. In addition, the trend towards multiple year
rate guarantees for new policies, which are typically three years for life
insurance and two years for disability insurance, further increases the
adverse consequences of mispricing coverage and lengthens the time it takes
to reduce loss ratios.
We have refocused group life and disability on improved risk selection and
reduced benefits ratios. We continuously make pricing adjustments, when
contractually permitted, which consider the emerging experience on our group
insurance products. While there can be no assurance, we expect these
actions, as well as pricing discipline in writing new business, will allow
us to maintain or improve our benefits ratios.
Reserves
We establish and carry as liabilities actuarially determined reserves that
we believe will meet our future obligations. We base these reserves on
actuarially recognized methods using prescribed morbidity and mortality
tables in general use in the U.S., which we modify to reflect our actual
experience when appropriate. Reserves also include claims reported but not
yet paid, claims incurred but not reported and claims in the process of
settlement.
Reinsurance
We reinsure portions of our disability insurance risks with third party
reinsurers. Effective July 1, 2003, we terminated our catastrophic
reinsurance coverage on our group life and accidental death and
dismemberment products, based on an evaluation of its cost effectiveness
given its current pricing.
Investment Division
The Investment division conducts its business through the Investment
Management, Financial Advisory, Retirement, and Other Asset Management
segments.
Investment Management
The Investment Management segment provides a broad array of investment
management and advisory services, mutual funds and other structured
products. These products and services are marketed and provided to the
public and private marketplace as well as the Insurance division, the
International Insurance and Investments division, and the Retirement
segment.
International Insurance and Investments Division
The International Insurance and Investments division conducts its business
through the International Insurance and International Investments segments.
International Insurance
Our International Insurance segment manufactures and distributes individual
life insurance products to the affluent market in Japan, Korea and other
foreign markets through Life Planners. In addition, as part of the
operations of Gibraltar Life Insurance Company, Ltd. (“Gibraltar Life”), we
offer similar products to the broad middle income market across Japan
through Life Advisors, a business we operate separately from our Life
Planners. We commenced sales in foreign markets using the Life Planner
model, as follows: Japan, 1988; Taiwan, 1990; Italy, 1990; Korea, 1991;
Brazil, 1998; Argentina, 1999; the Philippines, 1999; and Poland, 2000. We
also have a representative office in China.
We run each country operation on a stand-alone basis with local management
and sales teams initially supported by senior International Insurance staff
based in Asia and Newark, New Jersey. Each operation has its own marketing,
underwriting and claims and investment management functions, with the
exception of Japan, for which a large portion of the investment portfolio is
managed by our International Investments segment. Each operation invests
predominantly in local currency securities, typically bonds issued by the
local government or its agencies. In our larger operations, we have more
diversified portfolios.
The International Insurance segment includes the operations of Gibraltar
Life from the acquisition date, April 2001. Gibraltar Life, formerly Kyoei
Life Insurance Company, Ltd., was acquired for a combination of cash and an
extension of credit in the form of a subordinated loan in exchange for 100%
of Gibraltar’s newly issued common stock.
Products
We currently offer various traditional whole life, term life and endowment
policies, which provide for payment on the earlier of death or maturity. In
some of our operations we also offer certain health products with fixed
benefits. We also offer variable life products in Japan and Korea and offer
interest-sensitive life products in Japan, Taiwan and Argentina. Generally,
our international insurance products are non-participating and denominated
in local currency, with the exception of products in Argentina, which are
mostly U.S. dollar denominated, and a limited number of policies in Japan
and Korea that are also U.S. dollar denominated. For these dollar
denominated products, both premiums and benefits are payable in U.S.
dollars.
Life Planner Model
Our Life Planner model is significantly different from the way traditional
industry participants offer life insurance in Japan and in most of the other
countries where we do business. It is different from the way we market
through the Life Advisors of Gibraltar Life as well. We believe that our
selection standards, training, supervision and compensation package are key
to the Life Planner model and have helped our International Insurance
segment achieve higher rates of agent retention, agent productivity and
policy persistency than our local competitors. In general, we recruit Life
Planners with:
• university degrees, so that the Life Planner will have the same
educational background and outlook as the target customer;
• a minimum of two to three years of sales or sales management experience;
• no life insurance sales experience; and
• a pattern of job stability and success.
The Life Planner’s objective is to sell protection-oriented life insurance
products on a needs basis to upper middle and upper income customers.
Life Advisors
Our Life Advisors are the proprietary distribution force for products
offered by Gibraltar Life. Their focus is to provide individual protection
products to the broad middle income market in Japan, particularly through
its relationships with affinity groups. In July 2001, we introduced a new
compensation plan designed to improve productivity and persistency that is
similar to compensation plans in our other International Insurance
operations. Life Advisor compensation, which was based on a high fixed
salary component in the past, has been changed to a variable compensation
structure.
Underwriting and Pricing
Our International Insurance segment is subject to substantial local
regulation that is generally more restrictive for product offerings, pricing
and structure than U.S. insurance regulation. Each International Insurance
operation has its own underwriting department that employs variations of our
domestic practices in underwriting individual policy risks designed to
assess and quantify risks. In setting underwriting limits, we also consider
local industry standards to prevent adverse selection and to stay abreast of
industry trends. In addition, we set underwriting limits together with each
operation’s reinsurers.
Pricing of individual life insurance products, particularly in Japan and
Korea, is more regulated than in the U.S. In Japan, premiums are different
for participating and non-participating products, but within each product
type they are generally similar for all companies. The mortality and
morbidity rates and interest rates that we use to calculate premiums are
restricted by regulation on the basis of product type. The interest rates do
not always reflect the market rates we earn on our investments, and, as a
result, we experience negative spreads between the rate we guarantee and the
rate we earn on investments. These spreads had a negative impact on the
results of our Japanese insurance operations, other than Gibraltar Life,
over the past three years, and the profitability on our products in Japan
from these operations results primarily from margins on mortality, morbidity
and expense charges.
Reserves
We establish and carry as liabilities actuarially determined reserves, which
we believe will meet our future obligations. We base fixed death benefit
reserves on appropriate assumptions for investment yield, persistency,
mortality and morbidity rates, expenses and margins for adverse deviation.
In Japan, Korea and Argentina, we set reserves for variable and
interest-sensitive life products according to premiums collected plus
investment results credited less charges.
Reinsurance
International Insurance reinsures portions of its insurance risks with both
selected third party reinsurers and Prudential Insurance under reinsurance
agreements primarily on a yearly renewable term basis. International
Insurance also buys catastrophe reinsurance that covers multiple deaths from
a single occurrence in Japan, Taiwan and Brazil and has a coinsurance
agreement with Prudential Insurance for U.S. dollar denominated business in
Japan. The catastrophe reinsurance market has tightened considerably since
September 11, 2001, resulting in significant increases in premium and
additional exclusions from coverage.
Life Insurance Companies in the Directory
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Jefferson Pilot
Kansas City Life Insurance
Company
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Metlife
National
Western Life Insurance
Nationwide Financial Services
Presidential
Life
Protective Life
Prudential
Reinsurance Group of America
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