Prudential 2002 Annual Report Download - page 83
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Please find page 83 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.We assess interest rate sensitivity for “other than trading” financial assets, financial liabilities and derivatives
using hypothetical test scenarios that assume either upward or downward 100 basis point parallel shifts in the
yield curve from prevailing interest rates. The following tables set forth the potential loss in fair value from a
hypothetical 100 basis point upward shift at December 31, 2002 and 2001, because this scenario results in the
greatest net exposure to interest rate risk of the hypothetical scenarios tested at those dates. While the test scenario
is for illustrative purposes only and does not reflect our expectations regarding future interest rates or the
performance of fixed-income markets, it is a near-term, reasonably possible hypothetical change that illustrates
the potential impact of such events. These test scenarios do not measure the changes in value that could result
from non-parallel shifts in the yield curve, which we would expect to produce different changes in discount rates
for different maturities. As a result, the actual loss in fair value from a 100 basis point change in interest rates
could be different from that indicated by these calculations.
December 31, 2002
Notional
Value of
Derivatives
Estimated
Fair
Value
Hypothetical Fair
Value After + 100
Basis Point Parallel
Yield Curve Shift
Hypothetical
Change in
Fair Value
(in millions)
Financial assets with interest rate risk:
Fixed maturities:
Available for sale ........................................ $125,463 $118,100 $(7,363)
Held to maturity ......................................... 2,673 2,598 (75)
Commercial loans .......................................... 21,221 20,100 (1,121)
Mortgage securitization inventory ............................. 708 703 (5)
Policy loans ............................................... 10,714 10,044 (670)
Derivatives:
Swaps ................................................. $8,306 (63) (8) 55
Futures ................................................ 1,012 (31) 14 45
Options ................................................ 233 8 3 (5)
Forwards ............................................... 7,584 (195) (194) 1
Financial liabilities with interest rate risk:
Short-term and long-term debt .............................. (8,804) (8,447) 357
Investment contracts ...................................... (38,765) (38,203) 562
Guaranteed beneficial interest in Trust holding solely debentures of
Parent ................................................... (755) (730) 25
Total estimated potential loss ................................... $(8,194)
December 31, 2001
Notional
Value of
Derivatives
Estimated
Fair
Value
Hypothetical Fair
Value After + 100
Basis Point Parallel
Yield Curve Shift
Hypothetical
Change in
Fair Value
(in millions)
Financial assets with interest rate risk:
Fixed maturities:
Available for sale ........................................ $109,942 $103,620 $(6,322)
Held to maturity ......................................... 395 374 (21)
Commercial loans .......................................... 20,106 18,990 (1,116)
Mortgage securitization inventory ............................. 1,185 1,177 (8)
Policy loans ............................................... 9,562 8,982 (580)
Derivatives:
Swaps ................................................. $10,724 55 191 136
Futures ................................................ 2,877 6 62 56
Options ................................................ 338 3 (1) (4)
Forwards ............................................... 9,735 84 84 —
Financial liabilities with interest rate risk:
Short-term and long-term debt .............................. (10,840) (10,507) 333
Investment contracts ...................................... (35,911) (35,345) 566
Guaranteed beneficial interest in Trust holding solely debentures of
Parent ................................................... (690) (669) 21
Total estimated potential loss ................................... $(6,939)
Growing and Protecting Your Wealth82