Prudential 2011 Annual Report Download - page 192

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
8. VALUE OF BUSINESS ACQUIRED
The balances of and changes in VOBA as of and for the years ended December 31, are as follows:
2011(1) 2010 2009
(in millions)
Balance, beginning of year ................................................................... $ 484 $511 $ 719
Acquisitions ............................................................................... 3,769 0 0
Amortization—Impact of assumption and experience unlocking and true-ups ........................... (23) (4) (80)
Amortization—All other ..................................................................... (555) (60) (137)
Change in unrealized investment gains and losses ................................................. (74) (11) (13)
Interest(2) ................................................................................ 65 25 27
Foreign currency translation .................................................................. 179 23 (5)
Balance, end of year ........................................................................ $3,845 $484 $ 511
(1) The VOBA balances at December 31, 2011 were $250 million, $29 million, $1,509 million, $1,981 million, and $76 million related to the insurance
transactions associated with the CIGNA, Prudential Annuities Holding Co., Edison Inc., Star Inc., and Aoba Life Insurance Company, LTD. (“Aoba
Life”), respectively. The weighted average remaining expected life of VOBA varies by product. The weighted average remaining expected lives were
approximately 16, 4, 8, 7, and 6 years for the VOBA related to CIGNA, Prudential Annuities Holding Co., Edison Inc., Star Inc. and Aoba Life,
respectively.
(2) The interest accrual rates vary by product. The interest rates for 2011 were 7.10%, 4.81%, 1.28% to 2.87%, 1.28% to 2.87% and 2.60% for the VOBA
related to CIGNA, Prudential Annuities Holding Co., Edison Inc., Star Inc. and Aoba Life, respectively. The interest rates for 2010 were 7.00%, 4.97%,
and 2.60% for the VOBA related to CIGNA, Prudential Annuities Holding Co., and Aoba Life, respectively. The interest rates for 2009 were 5.42%,
6.90%, 5.24%, and 2.60% for the VOBA related to Allstate, CIGNA, American Skandia, and Aoba Life, respectively.
During the first quarter of 2009 the Company recognized impairments of $73 million related to the VOBA associated with the Allstate
acquisition. These impairments are included on the “Amortization—Impact of assumption and experience unlocking and true-ups” line in
the table above. The impairment recorded in 2009 represented the remaining VOBA balance associated with the Allstate acquisition. These
impairments were reflective of the deterioration in the financial markets, which resulted in additional market depreciation within the
separate account assets and corresponding decreases in fee income and overall expected future earnings for this business. These
impairments were determined using discounted present value of future estimated gross profits. Since the VOBA balance was completely
impaired for these contracts, it cannot be reestablished for market value appreciation in subsequent periods. There were no impairments
during 2011 and 2010.
The following table provides estimated future amortization, net of interest, for the periods indicated.
VOBA
Amortization
(in millions)
2012 ................................................................................................ $ 362
2013 ................................................................................................ 387
2014 ................................................................................................ 336
2015 ................................................................................................ 290
2016 ................................................................................................ 255
2017 and thereafter ..................................................................................... 2,215
Total ................................................................................................ $3,845
190 Prudential Financial, Inc. 2011 Annual Report