Prudential 2011 Annual Report Download - page 82

Net realized gains on derivatives were $489 million in 2010, compared to net realized losses of $298 million in 2009. 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 as the US dollar
strengthened versus the euro. Also, contributing to the net derivative gains were net realized gains of $17 million on embedded derivatives
associated with certain externally-managed investments in the European market. Derivative losses in 2009 primarily reflect net
mark-to-market losses of $218 million on interest rate derivatives used to manage the duration of the fixed maturity investment portfolio
and net losses of $149 million related to currency derivatives used to hedge foreign denominated investments. Partially offsetting these
losses were net gains of $52 million on embedded derivatives associated with certain externally-managed investments in the European
market.
Net realized losses on other investments were $4 million in 2010, which included $6 million of other-than-temporary impairments on
joint ventures and partnerships investments. Net realized losses on other investments were $48 million in 2009 of which $51 million was
related to other-than-temporary impairments on joint ventures and partnerships investments.
During 2010 we recorded other-than-temporary impairments of $208 million in earnings, compared to other-than-temporary
impairments of $1,184 million recorded in earnings in 2009. 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,
2010 2009
(in millions)
Other-than-temporary impairments recorded in earnings—Closed Block Business(1)
Public fixed maturity securities ........................................................................ $158 $ 465
Private fixed maturity securities ....................................................................... 10 55
Total fixed maturity securities .................................................................... 168 520
Equity securities ................................................................................... 34 613
Other invested assets(2) ............................................................................. 6 51
Total ........................................................................................ $208 $1,184
(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, 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
Year Ended December 31, 2009
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) ................ $319 $189 $508
Due to other accounting guidelines(3) ........................................ 3 9 12
Total .............................................................. $322 $198 $520
(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) 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.
Fixed maturity other-than-temporary impairments in 2010 were concentrated in asset-backed securities collateralized by sub-prime
mortgages that reflect adverse financial conditions of the respective issuers as well as our intent to sell certain asset-backed securities
collateralized by sub-prime mortgages. Fixed maturity other-than-temporary impairments in 2009 were concentrated in asset-backed
80 Prudential Financial, Inc. 2011 Annual Report