Prudential 2011 Annual Report Download - page 124

in our enhanced short-term portfolio. These short-term portfolios are subject to specific investment policy statements, which among other
things, do not allow for significant asset/liability interest rate duration mismatch.
The following table sets forth our liabilities under asset-based or secured financing programs attributable to the Financial Services
Businesses and Closed Block Business as of the dates indicated.
December 31, 2011 December 31, 2010
Financial
Services
Businesses
Closed
Block
Business Consolidated
Financial
Services
Businesses
Closed
Block
Business Consolidated
(in millions)
Securities sold under agreements to repurchase .................. $3,118 $3,100 $6,218 $2,557 $3,328 $5,885
Cash collateral for loaned securities ........................... 2,254 719 2,973 1,614 557 2,171
Securities sold but not yet purchased .......................... 5 0 5 1 0 1
Total(1) ............................................. $5,377 $3,819 $9,196 $4,172 $3,885 $8,057
Portion of above securities that may be returned to the Company
overnight requiring immediate return of the cash collateral ....... $3,438 $2,012 $5,450 $2,581 $2,446 $5,027
Weighted average maturity, in days(2) ......................... 62 72 14 24
(1) The daily weighted average outstanding during 2011 and 2010 was $4,651 million and $4,678 million, respectively, for the Financial Services
Businesses and $4,301 million and $3,969 million, respectively, for the Closed Block Business.
(2) Excludes securities that may be returned to the Company overnight.
In addition, as of December 31, 2011, our Closed Block Business had outstanding mortgage dollar rolls under which we are
committed to repurchase $860 million of mortgage-backed securities, or “to be announced” (“TBA”) forward contracts. These repurchase
agreements do not qualify as secured borrowings and are accounted for as derivatives. These mortgage-backed securities are considered
high or highest quality based on NAIC or equivalent rating.
As of December 31, 2011, our domestic insurance entities had assets eligible for the securities lending program of $81.4 billion, of
which $8.9 billion were on loan. Taking into account market conditions and outstanding loan balances as of December 31, 2011, we
believe approximately $28.3 billion of the remaining eligible assets are readily lendable, of which approximately $19.0 billion relates to the
Financial Services Businesses; however, these amounts are subject to potential regulatory constraints and to changes in market conditions.
As referenced above, these programs are typically limited to securities in demand that can be loaned at relatively low financing rates.
As such, we believe there is unused capacity available through these programs. Holdings of cash and cash equivalent investments in these
short-term spread portfolios allow for further flexibility in sizing the portfolio to better match available financing. Current conditions in
both the financing and investment markets are continuously monitored in order to appropriately manage the cost of funds, investment
spreads, asset/liability duration matching and liquidity.
Federal Home Loan Bank of New York
Prudential Insurance is a member of the Federal Home Loan Bank of New York, or FHLBNY. Membership allows Prudential
Insurance access to the FHLBNY’s financial services, including the ability to obtain collateralized loans and to issue collateralized funding
agreements that can be used as an alternative source of liquidity. FHLBNY borrowings and funding agreements are collateralized by
qualifying mortgage-related assets or U.S. Treasury securities, the fair value of which must be maintained at certain specified levels relative
to outstanding borrowings, depending on the type of asset pledged. FHLBNY membership requires Prudential Insurance to own member
stock, and borrowings require the purchase of activity-based stock in an amount equal to 4.5% of outstanding borrowings. Under FHLBNY
guidelines, if Prudential Insurance’s financial strength ratings decline below A/A2/A Stable by S&P/Moody’s/Fitch, respectively, and the
FHLBNY does not receive written assurances from NJDOBI regarding Prudential Insurance’s solvency, new borrowings from the
FHLBNY would be limited to a term of 90 days or less. Currently there are no restrictions on the term of borrowings from the FHLBNY.
NJDOBI permits Prudential Insurance to pledge collateral to the FHLBNY in an amount of up to 5% of its prior year-end statutory net
admitted assets, excluding separate account assets. Based on Prudential Insurance’s statutory net admitted assets as of December 31, 2010,
the 5% limitation equates to a maximum amount of pledged assets of $7.4 billion and an estimated maximum borrowing capacity (after
taking into account required collateralization levels and purchases of activity-based stock) of approximately $6.1 billion. Nevertheless,
FHLBNY borrowings are subject to the FHLBNY’s discretion and to the availability of qualifying assets at Prudential Insurance.
As of December 31, 2011, we had pledged qualifying assets with a fair value of $2.8 billion, which supported outstanding
collateralized advances of $0.9 billion and collateralized funding agreements of $1.5 billion. The fair value of qualifying assets that were
available to Prudential Insurance but not pledged amounted to $5.6 billion as of December 31, 2011.
As of December 31, 2011, $199 million of the FHLBNY outstanding advances is reflected in “Short-term debt” and matures in
December 2012 and the remaining $725 million is in “Long-term debt” and matures in December 2015. As of December 31, 2011, $650
million of these proceeds were used to support the operating needs of our businesses and $274 million were used to purchase investments,
including the FHLBNY activity-based stock. The funding agreements issued to the FHLBNY, which are reflected in “Policyholders’
account balances,” have priority claim status above debt holders of Prudential Insurance. These funding agreements currently serve as a
substitute funding source for a product of our Retirement segment, which earns investment spread that was previously funded by retail
medium-term notes issued by Prudential Financial.
122 Prudential Financial, Inc. 2011 Annual Report