Prudential 2011 Annual Report Download - page 93

(1) Our enhanced short-term portfolio is used primarily to invest cash proceeds of securities lending and repurchase activities, commercial paper issuances
and cash generated from certain trading and operating activities. The investment policy statement of this portfolio requires that securities purchased for
this portfolio have a remaining expected average life of 2 years or less when acquired.
(2) As of December 31, 2011, includes collateralized debt obligations with fair value of $112 million, with none secured by sub-prime mortgages. Also
includes asset-backed securities collateralized by education loans, equipment leases, franchises, timeshares, and aircraft.
(3) Excluded from the tables above are asset-backed securities held outside the general account in other entities and operations. For additional information
regarding asset-backed securities held outside the general account, see “—Invested Assets of Other Entities and Operations” below. Also excluded from
the table above are asset-backed securities classified as trading and carried at fair value. See “—Trading Account Assets Supporting Insurance
Liabilities” and “—Other Trading Account Assets” for additional information regarding these securities.
The tables above provide ratings as assigned by nationally recognized rating agencies as of December 31, 2011, including Standard &
Poor’s, Moody’s and Fitch. In making our investment decisions, rather than relying solely on the rating agencies’ evaluations, we assign
internal ratings to our asset-backed securities based upon our dedicated asset-backed securities unit’s independent evaluation of the
underlying collateral and securitization structure, including any guarantees from monoline bond insurers.
On an amortized cost basis, asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses
decreased from $3.424 billion as of December 31, 2010, to $2.634 billion as of December 31, 2011, primarily reflecting sales, principal
paydowns and other-than-temporary impairments recognized. Gross unrealized losses related to our asset-backed securities collateralized by
sub-prime mortgages attributable to the Financial Services Businesses were $906 million as of December 31, 2011, and $882 million as of
December 31, 2010. For additional information regarding other-than-temporary impairments of asset-backed securities collateralized by
sub-prime mortgages see “—Realized Investment Gains and Losses” above. For information regarding the methodology used in determining the
fair value of our asset-backed securities collateralized by sub-prime mortgages, see Note 20 to the Consolidated Financial Statements.
The weighted average estimated subordination percentage of our asset-backed securities collateralized by sub-prime mortgages
attributable to the Financial Services Businesses, excluding those supported by guarantees from monoline bond insurers, was 30% as of
December 31, 2011. The subordination percentage represents the current weighted average estimated percentage of the capital structure
subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. As of
December 31, 2011, based on amortized cost, approximately 63% of the asset-backed securities collateralized by sub-prime mortgages
attributable to the Financial Services Businesses have estimated credit subordination percentages of 20% or more, and 41% have estimated
credit subordination percentages of 30% or more.
In addition to subordination, certain securities, referred to as front pay or second pay securities, benefit from the prioritization of
principal cash flows within the senior tranches of the structure. In most instances, these shorter duration senior securities have priority to
principal cash flows over other securities in the structure, including longer duration senior securities. Included within the $2.634 billion of
asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses as of December 31, 2011
were $549 million of securities, on an amortized cost basis, that represent front pay or second pay securities, depending on the overall
structure of the securities.
Included within asset-backed securities attributable to the Closed Block Business are securities collateralized by sub-prime mortgages,
as defined above. The following tables set forth the amortized cost and fair value of our asset-backed securities attributable to the Closed
Block Business as of the dates indicated, by credit quality, and for asset-backed securities collateralized by sub-prime mortgages, by year
of issuance (vintage).
Asset-Backed Securities at Amortized Cost—Closed Block Business
December 31, 2011
Total
December 31,
2010
Lowest Rating Agency Rating
Vintage AAA AA A BBB
BB and
below
Total
Amortized
Cost
(in millions)
Collateralized by sub-prime mortgages:
Enhanced short-term portfolio(1):
2011—2008 ............................................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
2007 ................................................... 2 0 0 5 202 209 258
2006 ................................................... 0 3 3 16 192 214 390
2005 ................................................... 0 1 0 0 8 9 12
2004 & Prior ............................................. 0 0 0 0 0 0 0
Total enhanced short-term portfolio ................................. 2 4 3 21 402 432 660
All other portfolios:
2011—2008 ............................................. 0 0 0 0 0 0 0
2007 ................................................... 5 0 20 7 190 222 256
2006 ................................................... 95 0 0 0 685 780 868
2005 ................................................... 10 51 83 12 131 287 343
2004 & Prior ............................................. 2 37 63 79 388 569 630
Total all other portfolios .......................................... 112 88 166 98 1,394 1,858 2,097
Total collateralized by sub-prime mortgages(2) .................. 114 92 169 119 1,796 2,290 2,757
Other asset-backed securities:
Collateralized by credit cards ...................................... 432 0 36 189 2 659 642
Collateralized by auto loans ....................................... 739 0 0 0 0 739 396
Externally-managed investments in the European market ................ 0 0 0 199 0 199 212
Collateralized by education loans ................................... 196 289 0 0 0 485 201
Other asset-backed securities(3) .................................... 268 207 54 3 31 563 362
Total asset-backed securities ................................ $1,749 $588 $259 $510 $1,829 $4,935 $4,570
Prudential Financial, Inc. 2011 Annual Report 91