Prudential 2011 Annual Report Download - page 76

Related adjustments include that portion of “Realized investment gains (losses), net” that are included in adjusted operating income
and that portion of “Asset management fees and other income” and “Net investment income” that are excluded from adjusted operating
income. The adjustments are made to arrive at “Realized investment gains (losses), net, and related adjustments” which are excluded from
adjusted operating income. Related adjustments to realized investment gains (losses) were a net positive adjustment of $535 million in
2011. Adjustments for that portion of “Realized investment gains (losses), net” that are included in adjusted operating income were a net
negative adjustment of $240 million, driven by $154 million of gains that represent a principal source of earnings for certain of our
businesses, including $64 million from the partial sale of a real estate seed investment, as well as $259 million of gains primarily from
settlements on interest rate and currency swaps, partially offset by $175 million of losses related to the settlements of swaps used to hedge
foreign-denominated earnings. Adjustments for that portion of “Asset management fees and other income” and “Net investment income”
that are excluded from adjusted operating income were a net positive adjustment of $775 million, primarily driven by the impact of changes
in foreign currency exchange rates on certain assets and liabilities for which we economically hedge the foreign currency exposure.
Related adjustments to realized investment gains (losses) were a net negative adjustment of $140 million in 2010. Adjustments for that
portion of “Realized investment gains (losses), net” that are included in adjusted operating income were a net negative adjustment of $167
million, driven by $243 million of gains primarily from settlements on interest rate and currency swaps, partially offset by $93 million of
losses related to the settlements of swaps used to hedge foreign-denominated earnings. Adjustments for that portion of “Asset management
fees and other income” and “Net investment income” that are excluded from adjusted operating income were a net positive adjustment of
$27 million, primarily driven by the impact of changes in foreign currency exchange rates on certain assets and liabilities for which we
economically hedge the foreign currency exposure.
Charges that relate to “Realized investment gains (losses), net” are also excluded from adjusted operating income. Related charges
were net negative adjustments of $1,836 million and $178 million in 2011 and 2010, respectively. The $1,836 million in 2011 was
primarily driven by that portion of amortization of deferred policy acquisition and other costs relating to the net gain (loss) on embedded
derivatives and related hedge positions associated with certain variable annuity contracts. The $178 million in 2010 was primarily driven
by payments associated with the market value adjustment features related to certain variable annuity products we sell.
During 2011, we recorded other-than-temporary impairments of $558 million in earnings, compared to other-than-temporary
impairments of $672 million recorded in earnings in 2010. The following tables set forth, for the periods indicated, the composition of
other-than-temporary impairments recorded in earnings attributable to the Financial Services Businesses by asset type, and for fixed
maturity securities, by reason.
Year Ended December 31,
2011 2010
(in millions)
Other-than-temporary impairments recorded in earnings—Financial Services Businesses(1)
Public fixed maturity securities ........................................................................ $314 $422
Private fixed maturity securities ....................................................................... 117 142
Total fixed maturity securities .................................................................... 431 564
Equity securities ................................................................................... 94 78
Other invested assets(2) ............................................................................. 33 30
Total ........................................................................................ $558 $672
(1) 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.
(2) Includes other-than-temporary impairments relating to investments in joint ventures and partnerships and real estate investments.
Year Ended December 31, 2011
Asset-Backed Securities
Collateralized By
Sub-Prime Mortgages
All Other Fixed
Maturity
Securities
Total Fixed
Maturity
Securities
(in millions)
Other-than-temporary impairments on fixed maturity securities recorded in earnings—
Financial Services Businesses(1)
Due to credit events or adverse conditions of the respective issuer(2) ................ $106 $117 $223
Due to other accounting guidelines(3) ........................................ 12 196 208
Total .............................................................. $118 $313 $431
Year Ended December 31, 2010
Asset-Backed Securities
Collateralized By
Sub-Prime Mortgages
All Other Fixed
Maturity
Securities
Total Fixed
Maturity
Securities
(in millions)
Other-than-temporary impairments on fixed maturity securities recorded in earnings—
Financial Services Businesses(1)
Due to credit events or adverse conditions of the respective issuer(2) ................ $140 $185 $325
Due to other accounting guidelines(3) ........................................ 69 170 239
Total .............................................................. $209 $355 $564
(1) Excludes the portion of other-than-temporary impairment 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.
74 Prudential Financial, Inc. 2011 Annual Report