Prudential 2011 Annual Report Download - page 89

(1) Yields are based on quarterly average carrying values except for fixed maturities, equity securities and securities lending activity. Yields for fixed
maturities are based on amortized cost. Yields for equity securities are based on cost. Yields for fixed maturities and short-term investments and cash
equivalents are calculated net of liabilities and rebate expenses corresponding to securities lending activity. Yields exclude investment income on assets
other than those included in invested assets. Prior period’s yields are presented on a basis consistent with the current period presentation.
(2) Includes investment income of trading and banking operations, real estate and relocation services and asset management operations.
The decrease in net investment income yield attributable to the Financial Services Businesses’ general account, excluding the Japanese
operations’ portfolio, for 2011 compared to 2010 was primarily the result of lower interest rates on floating rate investments due to rate
resets and lower fixed maturity reinvestment rates, partially offset by higher income from our joint venture and limited partnerships, driven
by appreciation and gains on the underlying assets.
The decrease in net investment income yield attributable to the Financial Services Businesses’ general account, excluding the Japanese
operations’ portfolio, for 2010 compared to 2009 was primarily a result of lower interest rates on floating rate investments from rate resets
and lower fixed maturity reinvestment rates, partially offset by an increase in other investment yields driven by favorable joint venture and
limited partnership earnings driven by appreciation on the underlying assets.
The following tables set forth the income yield and investment income, excluding realized investment gains (losses) and non-hedge
accounting derivative results, for each major investment category of our Japanese operations’ general account for the periods indicated.
Year Ended December 31,
2011 2010 2009
Yield(1)(2) Amount Yield(1) Amount Yield(1) Amount
($ in millions)
Fixed maturities...................................................... 2.66% $2,844 2.81% $1,733 2.88% $1,519
Trading account assets supporting insurance liabilities ....................... 1.99 34 1.98 26 1.98 22
Equity securities ..................................................... 3.33 73 2.84 44 3.13 58
Commercial mortgage and other loans .................................... 4.10 212 4.63 175 4.85 167
Policy loans ......................................................... 3.37 90 3.85 72 3.91 63
Short-term investments and cash equivalents ............................... 0.62 23 0.24 4 0.62 11
Other investments .................................................... 3.48 163 6.01 132 6.26 129
Gross investment income before investment expenses .................... 2.70 3,439 2.97 2,186 3.05 1,969
Investment expenses .............................................. (0.11) (142) (0.14) (106) (0.15) (102)
Total investment income ............................................... 2.59% $3,297 2.83% $2,080 2.90% $1,867
(1) Yields are based on quarterly average carrying values except for fixed maturities, equity securities and securities lending activity. Yields for fixed
maturities are based on amortized cost. Yields for equity securities are based on cost. Yields for fixed maturities and short-term investments and cash
equivalents are calculated net of liabilities and rebate expenses corresponding to securities lending activity. Yields exclude investment income on assets
other than those included in invested assets. Prior period’s yields are presented on a basis consistent with the current period presentation.
(2) Yields are weighted for ten months of income and assets related to the Star and Edison Businesses.
The decrease in yield on the Japanese insurance portfolio for 2011 compared to 2010 is primarily attributable to lower fixed maturity
reinvestment rates in both the U.S. and Japan, and the impact from the acquisition of the Star and Edison portfolios.
The decrease in yield on the Japanese insurance portfolio for 2010 compared to 2009 is primarily attributable to lower fixed maturity
reinvestment rates and a lower interest rate environment both in the U.S. and Japan, as well as less favorable results in joint ventures and
limited partnerships.
Both the U.S. dollar-denominated and Australian dollar-denominated fixed maturities that are not hedged to yen through third party
derivative contracts provide a yield that is substantially higher than the yield on comparable yen-denominated fixed maturities. The average
amortized cost of U.S. dollar-denominated fixed maturities that are not hedged to yen through third party derivative contracts for the years
ended December 31, 2011 and 2010, was approximately $24.2 billion and $12.3 billion, respectively. The majority of U.S. dollar-
denominated fixed maturities support liabilities that are denominated in U.S. dollars. The average amortized cost of Australian dollar-
denominated fixed maturities that are not hedged to yen through third party derivative contracts for the years ended December 31, 2011 and
2010, was approximately $4.8 billion and $1.2 billion, respectively. The Australian dollar-denominated fixed maturities support liabilities
that are denominated in Australian dollars.
For additional information regarding U.S. dollar investments held in our Japanese insurance operations see, “—Results of Operations
for Financial Services Businesses by Segment—International Insurance Division.”
Fixed Maturity Securities
Investment Mix
Our fixed maturity securities portfolio consists of publicly-traded and privately-placed debt securities across an array of industry
categories. The fixed maturity securities relating to our international insurance operations are primarily comprised of foreign government
securities.
We manage our public portfolio to a risk profile directed or overseen by the Asset Liability Management and Risk Management
groups and to a profile that also reflects the local market environments impacting both our domestic and international insurance portfolios.
The investment objectives for fixed maturity securities are consistent with those described above. The total return that we earn on the
portfolio will be reflected both as investment income and also as realized gains or losses on investments.
Prudential Financial, Inc. 2011 Annual Report 87