Prudential 2011 Annual Report Download - page 36

hedge or limit our exposure to certain of the risks associated with these products, primarily through a combination of product design
elements, such as an automatic rebalancing element, and externally purchased hedging instruments. Our hedging program is discussed
below in “—Net impact of embedded derivatives related to our living benefit features and related hedge positions.” The rate of return we
realize from our variable annuity contracts can vary by contract based on our risk management strategy, including the impact of any capital
market movements that we may hedge, the impact on that portion of our variable annuity contracts that benefit from the automatic
rebalancing element, the impact of risks we have deemed suitable to retain and the impact of risks that are not able to be hedged.
The automatic rebalancing element, also referred to as an asset transfer feature, included in the design of certain optional living
benefits, transfers assets between certain variable investments selected by the annuity contractholder and, depending on the benefit feature,
the fixed-rate account in the general account or a bond portfolio within the separate accounts. The automatic rebalancing element
associated with currently-sold products transfers assets between certain variable investments selected by the annuity contractholder and a
designated bond portfolio within the separate accounts. The transfers are based on the static mathematical formula used with the particular
benefit which considers a number of factors, including, but not limited to, the impact of investment performance on the contractholder’s
total account value. In general, negative investment performance may result in transfers to either the fixed-rate account in the general
account or a bond portfolio within the separate accounts, and positive investment performance may result in transfers back to
contractholder-selected variable investments. Overall, the automatic rebalancing element helps to mitigate our exposure to equity market
risk and market volatility. Beginning in 2009, all offerings of optional living benefit features associated with currently-sold variable annuity
products include an automatic rebalancing element, and in 2009 we discontinued any new sales of optional living benefit features without
an automatic rebalancing element.
The following table sets forth the account values of our variable annuities with living benefit features and the net amount at risk of the
living benefit features split between those that include an automatic rebalancing element and those that do not, as of the dates indicated.
December 31, 2011 December 31, 2010 December 31, 2009
Account Value
Net Amount
at Risk Account Value
Net Amount
at Risk Account Value
Net Amount
at Risk
($ in millions)
Automatic rebalancing element(1) .................... $70,341 $4,238 $57,336 $1,217 $34,901 $1,061
No automatic rebalancing element .................... 15,300 2,361 17,735 1,825 17,570 2,785
Total variable annuity account values with living benefit
features ....................................... $85,641 $6,599 $75,071 $3,042 $52,471 $3,846
(% of total)
Automatic rebalancing element ...................... 82% 64% 76% 40% 67% 28%
No automatic rebalancing element .................... 18 36 24 60 33 72
Total variable annuity account values with living benefit
features ....................................... 100% 100% 100% 100% 100% 100%
(1) As of December 31, 2011, 2010 and 2009, asset values that have rebalanced to the general account or a separate account bond portfolio due to the
automatic rebalancing element represent 30% or $20.9 billion of the $70.3 billion total account value, 12% or $6.7 billion of the $57.3 billion total
account value and 23% or $8.2 billion of the $34.9 billion total account value, respectively.
The increase in account values that include an automatic rebalancing element as of December 31, 2011 compared to prior periods
primarily reflects sales of our latest product offerings which include this feature. The increase in the net amount at risk for these contracts
as of December 31, 2011 compared to prior periods reflects overall growth in our variable annuity business and account value performance
during 2011.
Our GMDBs guarantee a minimum return on the contract value or an enhanced value, if applicable, to be used solely for purposes of
determining benefits payable in the event of death. The net amount at risk associated with the GMDBs provided by our variable annuity
contracts includes risk we have deemed suitable to retain. However, certain of these account values are affected by an automatic
rebalancing element because the contractholder selected a living benefit feature which includes an automatic rebalancing element. All of
the variable annuity account values with living benefit features shown in the table above also contain GMDBs. An additional $21.1 billion,
$24.0 billion and $24.4 billion of variable annuity account values, as of December 31, 2011, 2010 and 2009, respectively, contain GMDBs,
but no living benefit features. The following table sets forth the account values of our variable annuities with GMDBs and the net amount
at risk of these benefits split between those that are affected by an automatic rebalancing element and those that are not, as of the dates
indicated.
December 31, 2011 December 31, 2010 December 31, 2009
Account Value
Net Amount
at Risk Account Value
Net Amount
at Risk Account Value
Net Amount
at Risk
($ in millions)
Automatic rebalancing element ...................... $ 70,341 $2,154 $57,336 $ 592 $34,901 $ 800
No automatic rebalancing element .................... 36,407 5,628 41,693 4,867 41,975 7,798
Total variable annuity account values with death benefit
features ....................................... $106,748 $7,782 $99,029 $5,459 $76,876 $8,598
(% of total)
Automatic rebalancing element ...................... 66% 28% 58% 11% 45% 9%
No automatic rebalancing element .................... 34 72 42 89 55 91
Total variable annuity account values with death benefit
features ....................................... 100% 100% 100% 100% 100% 100%
34 Prudential Financial, Inc. 2011 Annual Report