Prudential 2012 Annual Report Download - page 147

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
5. VARIABLE INTEREST ENTITIES (continued)
Consolidated Variable Interest Entities for which the Company is the Investment Manager
The Company is the investment manager of certain asset-backed investment vehicles (commonly referred to as collateralized debt
obligations, or “CDOs”) and certain other vehicles for which the Company earns fee income for investment management services,
including certain investment structures which the Company’s asset management business invests with other co-investors in investment
funds referred to as feeder funds. The Company sells or syndicates investments through these vehicles, principally as part of the strategic
investing activity of the Company’s asset management businesses. Additionally, the Company may invest in debt or equity securities issued
by these vehicles. CDOs raise capital by issuing debt securities, and use the proceeds to purchase investments, typically interest-bearing
financial instruments. The Company analyzes these relationships to determine whether it has (1) the power to direct the activities of the
VIE that most significantly impact the economic performance of the entity and (2) the obligation to absorb losses of the entity that could be
potentially significant to the VIE or the right to receive benefits from the entity that could be potentially significant and thus is the primary
beneficiary. This analysis includes a review of (1) the Company’s rights and responsibilities as investment manager, (2) fees received by
the Company and (3) other interests (if any) held by the Company. The Company is not required to provide, and has not provided, material
financial or other support to any VIE for which it is the investment manager.
The Company has determined that it is the primary beneficiary of certain VIEs for which it is the asset manager, including certain
CDOs and other investment structures, as it meets both conditions listed above. The table below reflects the carrying amount and balance
sheet caption in which the assets and liabilities of consolidated VIEs for which the Company is the investment manager are reported. The
assets of these VIEs are restricted and must be used first to settle liabilities of the VIE. The creditors of these VIEs do not have recourse to
the Company in excess of the assets contained within the VIE.
December 31,
2012 2011
(in millions)
Fixed maturities, available-for-sale ...................................................................... $ 87 $ 83
Other trading account assets ........................................................................... 1,409 271
Commercial mortgage and other loans ................................................................... 127 154
Other long-term investments ........................................................................... 22 19
Cash and cash equivalents ............................................................................. 9 275
Accrued investment income ............................................................................ 0 1
Other assets ........................................................................................ 1 17
Total assets of consolidated VIEs ................................................................... $1,655 $820
Notes issued by consolidated VIEs ...................................................................... $1,577 $524
Other liabilities ...................................................................................... 0 199
Total liabilities of consolidated VIEs ................................................................. $1,577 $723
As included in the table above, notes issued by consolidated VIEs are classified in the line item on the Consolidated Statements of
Financial Position titled, “Notes issued by consolidated VIEs.” Recourse is limited to the assets of the respective Variable Interest Entity
and does not extend to the general credit of Prudential Financial. As of December 31, 2012, the maturities of these obligations were over
five years.
The Company also consolidates a VIE whose beneficial interests are wholly-owned by consolidated subsidiaries. This VIE is not
included in the table above and the Company does not currently intend to sell these beneficial interests to third parties.
Other Consolidated Variable Interest Entities
The Company is the primary beneficiary of certain VIEs in which the Company has invested, as part of its investment activities.
Included among these structured investments are structured investments issued by a VIE that manages yen-denominated investments
coupled with cross-currency coupon swap agreements thereby creating synthetic dual currency investments. The Company’s involvement
in the structuring of these investments combined with its economic interest indicates that the Company is the primary beneficiary. The
Company has not provided material financial or other support that was not contractually required to these VIEs. The table below reflects
the carrying amount and balance sheet caption in which the assets and liabilities of consolidated VIEs for which the Company is not the
investment manager are reported. These liabilities primarily comprise obligations under debt instruments issued by the VIEs that are non-
recourse to the Company. The creditors of each consolidated VIE have recourse only to the assets of that VIE.
December 31,
2012 2011
(in millions)
Fixed maturities, available-for-sale ..................................................................... $ 115 $ 129
Fixed maturities, held-to-maturity ...................................................................... 1,059 1,191
Trading account assets supporting insurance liabilities ...................................................... 8 8
Other long-term investments .......................................................................... 53 141
Accrued investment income ........................................................................... 3 5
Total assets of consolidated VIEs .................................................................. $1,238 $1,474
Total liabilities of consolidated VIEs ................................................................ $ 1 $ 0
Prudential Financial, Inc. 2012 Annual Report 145