Prudential 2011 Annual Report Download - page 78

Net realized gains on commercial mortgage and other loans in 2011 were $33 million related to a net decrease in the loan loss reserve
of $42 million, partially offset by net realized losses on related foreclosures. Net realized gains on commercial mortgage and other loans in
2010 were $18 million related to a net decrease in the loan loss reserve of $22 million, partially offset by net realized losses on related
foreclosures. For additional information regarding our loan loss reserves see “—General Account Investments—Commercial Mortgage and
Other Loans—Commercial Mortgage and Other Loan Quality.”
Net realized gains on derivatives were $199 million in 2011 compared to net realized gains of $489 million in 2010. The net derivative
gains in 2011 primarily reflect net gains of $135 million on interest rate derivatives used to manage duration as interest rates declined, and
$53 million on “to be announced” (“TBA”) forward contracts as interest rates declined. Also, contributing to these gains are net derivative
gains of $23 million on currency derivatives used to hedge foreign denominated investments as the U.S. dollar strengthened against the
euro. Partially offsetting these gains were net derivative losses of $11 million on embedded derivatives associated with certain externally-
managed investments in the European market. Derivative gains in 2010 primarily reflect net mark-to-market gains of $404 million on
interest rate derivatives used to manage duration as interest rates declined and net derivative gains of $74 million on currency derivatives
used to hedge foreign denominated investments. Also, contributing to the net derivative gains in 2010 were net realized gains of $17
million on embedded derivatives associated with certain externally-managed investments in the European market.
During 2011, we recorded other-than-temporary impairments of $127 million in earnings, compared to other-than-temporary
impairments of $208 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 Closed Block Business 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—Closed Block Business(1)
Public fixed maturity securities ........................................................................ $ 90 $158
Private fixed maturity securities ....................................................................... 14 10
Total fixed maturity securities .................................................................... 104 168
Equity securities ................................................................................... 18 34
Other invested assets(2) ............................................................................. 5 6
Total ........................................................................................ $127 $208
(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.
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—
Closed Block Business(1)
Due to credit events or adverse conditions of the respective issuer(2) ................ $ 61 $36 $ 97
Due to other accounting guidelines(3) ........................................ 6 1 7
Total .............................................................. $ 67 $37 $104
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—
Closed Block Business(1)
Due to credit events or adverse conditions of the respective issuer(2) ................ $ 66 $28 $ 94
Due to other accounting guidelines(3) ........................................ 67 7 74
Total .............................................................. $133 $35 $168
(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.
(2) Represents circumstances where we believe credit events or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency
in the contractual cash flows related to the investment. The amount of the impairment recorded in earnings is the difference between the amortized cost
of the debt security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior
to impairment.
(3) Primarily represents circumstances where we intend to sell the security or more likely than not will be required to sell the security before recovery of its
amortized cost basis.
76 Prudential Financial, Inc. 2011 Annual Report