Prudential 2012 Annual Report Download - page 128

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS (continued)
period beginning on or after June 15, 2011, concurrent with the effective date of guidance for determining what constitutes a troubled debt
restructuring. The disclosures required by this guidance related to troubled debt restructurings were adopted in the third quarter of 2011 and
are included above and in Note 4.
In April 2010, the FASB issued authoritative guidance clarifying that an insurance entity should not consider any separate account
interests in an investment held for the benefit of policyholders to be the insurer’s interests, and should not combine those interests with its
general account interest in the same investment when assessing the investment for consolidation, unless the separate account interests are
held for a related party policyholder, whereby consolidation of such interests must be considered under applicable variable interest
guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2010 and retrospectively to all
prior periods upon the date of adoption, with early adoption permitted. The Company’s adoption of this guidance effective January 1, 2011
did not have a material effect on the Company’s consolidated financial position, results of operations, and financial statement disclosures.
Future Adoption of New Accounting Pronouncements
In December 2011 and January 2013, the FASB issued updated guidance regarding the disclosure of recognized derivative instruments
(including bifurcated embedded derivatives), repurchase agreements and securities borrowing/lending transactions that are offset in the
statement of financial position or are subject to an enforceable master netting arrangement or similar agreement (irrespective of whether
they are offset in the statement of financial position). This new guidance requires an entity to disclose information on both a gross basis and
net basis about instruments and transactions within the scope of this guidance. This new guidance is effective for annual reporting periods
beginning on or after January 1, 2013, and interim reporting periods within those years, and should be applied retrospectively for all
comparative periods presented. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial
position, results of operations, and financial statement disclosures.
In February 2013, the FASB issued updated guidance regarding the presentation of comprehensive income. Under the guidance, an
entity would separately present information about significant items reclassified out of accumulated other comprehensive income by
component as well as changes in accumulated other comprehensive income balances by component in either the financial statements or the
notes to the financial statements. The guidance does not change the items that are reported in other comprehensive income, does not change
when an item of other comprehensive income must be reclassified to net income, and does not amend any existing requirements for
reporting net income or other comprehensive income. The guidance is effective for the first interim or annual reporting period beginning
after December 15, 2012 and should be applied prospectively. This guidance is not expected to impact the Company’s consolidated
statements of financial position or cash flows. The Company is currently assessing the impact of this guidance on the Company’s
consolidated statements of operations and equity and the notes to consolidated financial statements.
3. ACQUISITIONS AND DISPOSITIONS
Acquisition of The Hartford’s Individual Life Insurance Business
On January 2, 2013, the Company acquired The Hartford’s individual life insurance business through a reinsurance transaction. Under
the agreement, the Company paid The Hartford cash consideration of $615 million, primarily in the form of a ceding commission to
provide reinsurance for approximately 700,000 life insurance policies with a net retained face amount in force of approximately $135
billion. This acquisition increases the Company’s scale in the U.S. individual life insurance market, particularly universal life products, and
provides complementary distribution opportunities through expanded wirehouse and bank distribution channels.
Acquisition of AIG Star Life Insurance Co., Ltd., AIG Edison Life Insurance Company and Related Entities from AIG
On February 1, 2011, Prudential Financial completed the acquisition from American International Group, Inc. (“AIG”) of AIG Star Life
Insurance Co., Ltd. (“Star”), AIG Edison Life Insurance Company (“Edison”), AIG Financial Assurance Japan K.K., and AIG Edison Service
Co., Ltd. (collectively, the “Star and Edison Businesses”) pursuant to the stock purchase agreement dated September 30, 2010 between
Prudential Financial and AIG. The total purchase price was $4,709 million, comprised of $4,213 million in cash and $496 million in assumed
third party debt, substantially all of which is expected to be repaid, over time, with excess capital of the acquired entities. The acquisition of these
businesses included the purchase by the Company of all of the shares of these entities, which became indirect wholly-owned subsidiaries of the
Company. All acquired entities were Japanese corporations and their businesses were in Japan, increasing the Company’s scale in the Japanese
insurance market. On January 1, 2012, Star and Edison were merged into the Gibraltar Life Insurance Company, Ltd.
Prudential Financial made a Section 338(g) election under the Internal Revenue Code with respect to the acquisition resulting in the
acquired entities being treated for U.S. tax purposes as newly-incorporated companies. Under such election, the U.S. tax basis of the assets
acquired and liabilities assumed of the Star and Edison Businesses were adjusted as of February 1, 2011 to reflect the consequences of the
Section 338(g) election.
Although the acquisition of the Star and Edison Businesses included the acquisition of multiple entities, the Company views this as a
single acquisition and reports it as such in the following disclosures.
126 Prudential Financial, Inc. 2012 Annual Report