Prudential 2011 Annual Report Download - page 75

Net realized losses on fixed maturity securities were $125 million in 2011, compared to net realized losses of $361 million in 2010, as
set forth in the following table:
Year Ended December 31,
2011 2010
(in millions)
Realized investment gains (losses), net—Fixed Maturity Securities—Financial Services Businesses
Gross realized investment gains:
Gross gains on sales and maturities(1) .............................................................. $527 $380
Private bond prepayment premiums ................................................................ 36 37
Total gross realized investment gains ................................................................... 563 417
Gross realized investment losses:
Net other-than-temporary impairments recognized in earnings(2) ......................................... (431) (564)
Gross losses on sales and maturities(1) .............................................................. (250) (173)
Credit related losses on sales ...................................................................... (7) (41)
Total gross realized investment losses .................................................................. (688) (778)
Realized investment gains (losses), net—Fixed Maturity Securities ........................................... $(125) $(361)
Net gains (losses) on sales and maturities—Fixed Maturity Securities(1) ....................................... $277 $207
(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and credit related losses through sales of investments pursuant to our credit
risk and portfolio management objectives.
(2) Excludes the portion of other-than-temporary impairments recorded in “Other comprehensive income (loss),” representing any difference between the
fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.
Net trading gains on sales and maturities of fixed maturity securities of $277 million in 2011 were primarily due to sales within our
Retirement and Individual Annuities segments. Included in the gross gains on sales and maturities of fixed maturity securities were $35
million of gross gains related to the sale of asset-backed securities collateralized by sub-prime mortgages. Net trading gains on sales and
maturities of fixed maturity securities of $207 million in 2010 were primarily due to sales within our Retirement and Individual Annuities
segments. Included in the gross gains on sales and maturities of fixed maturity securities were $4 million of gross gains related to the sale
of asset-backed securities collateralized by sub-prime mortgages. Sales of fixed maturity securities in our Individual Annuities segment in
both years were primarily due to transfers of investments out of our general account and into separate accounts relating to an automatic
rebalancing element associated with certain living benefit features of some of our variable annuity products. See below for additional
information regarding the other-than-temporary impairments of fixed maturity securities in 2011 and 2010.
Net realized losses on equity securities were $120 million in 2011, of which other-than-temporary impairments were $94 million and
net trading losses on sales of equity securities were $26 million. Net trading losses in 2011 were primarily due to public equity sales within
our International Insurance operations. Net realized gains on equity securities were $11 million in 2010, of which net trading gains on sales
of equity securities were $89 million, partially offset by other-than-temporary impairments of $78 million. Net trading gains in 2010 were
primarily due to private equity sales within our Corporate and Other and International Insurance operations. See below for additional
information regarding the other-than-temporary impairments of equity securities in 2011 and 2010.
Net realized gains on commercial mortgage and other loans in 2011 were $89 million, primarily related to a net decrease in the loan
loss reserves of $169 million, which was largely offset by $139 million of realized losses on related restructurings and sales within our
Asset Management and International Insurance businesses. In addition, there were $32 million of mark-to-market gains on our interim loan
portfolio. Net realized gains on commercial mortgage and other loans in 2010 were $35 million and primarily related to a net decrease in
the loan loss reserves of $103 million and mark-to-market net gains on our interim loan portfolio. These net gains were partially offset by
net realized losses on loan modifications, payoffs, and foreclosures within our Asset Management business. For additional information
regarding our commercial mortgage and other loan loss reserves see “—General Account Investments—Commercial Mortgage and Other
Loans—Commercial Mortgage and Other Loan Quality.”
Net realized gains on derivatives were $2,095 million in 2011, compared to net realized gains of $601 million in 2010. The net
derivative gains in 2011 include net gains of $1,375 million related to product embedded derivatives and related hedge positions primarily
associated with certain variable annuity contracts. See “—Results of Operations for Financial Services Businesses by Segment—U.S.
Retirement Solutions and Investment Management Division—Individual Annuities” for additional information. Also, contributing to the
net derivative gains were net mark-to-market gains of $498 million on interest rate derivatives used to manage duration as interest rates
declined during 2011, and net gains of $214 million on foreign currency forward contracts used in our Star and Edison businesses to hedge
portfolio assets primarily due to the strengthening of the Japanese yen against the U.S. dollar and Australian dollar. The net derivative gains
in 2010 primarily reflect net gains of $521 million on interest rate derivatives used to manage duration as interest rates declined and net
gains of $325 million primarily related to embedded derivatives and related hedge positions associated with certain variable annuity
contracts. See “—Results of Operations for Financial Services Businesses by Segment—U.S. Retirement Solutions and Investment
Management Division—Individual Annuities” for additional information. Also contributing to the 2010 gains are net derivative gains of
$99 million on currency derivatives used to hedge foreign-denominated investments and net gains of $43 million on embedded derivatives
associated with certain externally-managed investments in the European market. Partially offsetting the 2010 gains were net derivative
losses of $319 million on foreign currency forward contracts used to hedge the future income of non-U.S. businesses primarily in Japan and
net losses of $75 million on credit derivatives as credit spreads tightened.
Net realized gains on other investments were $47 million in 2011, which included a $64 million gain on the partial sale of a real estate
seed investment, partially offset by $33 million of other other-than-temporary impairments on joint ventures and partnerships and real
estate investments. Net realized losses on other investments were $30 million in 2010, which reflected $30 million of other other-than-
temporary impairments on joint ventures and partnerships and real estate investments.
Prudential Financial, Inc. 2011 Annual Report 73