Prudential 2012 Annual Report Download - page 149

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
7. INVESTMENTS IN OPERATING JOINT VENTURES
The Company has made investments in certain joint ventures that are strategic in nature and made other than for the sole purpose of
generating investment income. These investments are accounted for under the equity method of accounting and are included in “Other
assets” in the Company’s Consolidated Statements of Financial Position. The earnings from these investments are included on an after-tax
basis in “Equity in earnings of operating joint ventures, net of taxes” in the Company’s Consolidated Statements of Operations. The
summarized financial information for the Company’s operating joint ventures has been included in the summarized combined financial
information for all significant equity method investments shown in Note 4.
The following table sets forth information related to the Company’s investments in operating joint ventures as of and for the years
ended December 31:
2012 2011 2010
(in millions)
Investment in operating joint ventures(1) .......................................................... $393 $402 $784
Dividends received from operating joint ventures ................................................... $ 41 $ 49 $ 47
After-tax equity earnings of operating joint ventures ................................................. $ 60 $182 $ 82
(1) Includes $75 million, $126 million and $459 million related to an indirect investment in China Pacific Group as of December 31, 2012, 2011 and 2010,
respectively.
Investments in operating joint ventures
The Company has made investments in operating joint ventures as part of its Asset Management and International Insurance segments
and its Corporate and Other operations. The Company’s combined investment in these operating joint ventures includes an indirect
investment, through a consortium of investors, in China Pacific Group. The indirect investment in China Pacific Group includes unrealized
changes in market value, which are included in accumulated other comprehensive income and relate to the market price of China Pacific
Group’s publicly traded shares. The consortium of investors including the Company sold portions of its holdings during the years ended
December 31, 2012, 2011 and 2010, resulting in pre-tax gains to the Company of $60 million, $237 million and $66 million, respectively.
The consortium of investors sold its remaining investment in China Pacific Group in January 2013. The Company transacts with certain of
these operating joint ventures in the normal course of business, on terms equivalent to those that prevail in arm’s length transactions. For
the years ended December 31, 2012, 2011 and 2010, the Company recognized $22 million, $15 million and $16 million, respectively, of
asset management fee income from these transactions.
Former Investment in Afore XXI, S.A. de C.V.
On October 20, 2011, the Company entered into an agreement to sell its stake in Afore XXI, S.A. de C.V., a private pension fund
manager in Mexico, to Banorte, a major bank based in Mexico. The transaction was completed on December 2, 2011 and resulted in a pre-
tax gain of $96 million to the Asset Management segment. This gain is reflected in “Asset management fees and other income” of the
Company’s Consolidated Statements of Operations.
8. VALUE OF BUSINESS ACQUIRED
The balances of and changes in VOBA as of and for the years ended December 31, are as follows:
2012(1) 2011 2010
(in millions)
Balance, beginning of year .................................................................. $3,845 $ 484 $511
Acquisitions .......................................................................... 0 3,769 0
Amortization—Impact of assumption and experience unlocking and true-ups ....................... (31) (23) (4)
Amortization—All other ................................................................ (520) (555) (60)
Change in unrealized investment gains and losses ............................................ 90 (74) (11)
Interest(2) ............................................................................ 62 65 25
Foreign currency translation ............................................................. (198) 179 23
Balance, end of year ........................................................................ $3,248 $3,845 $484
(1) The VOBA balances at December 31, 2012 were $227 million, $43 million, $2,865 million and $113 million related to the insurance transactions
associated with the CIGNA, Prudential Annuities Holding Co., Gibraltar Life Insurance Company, LTD (“Gibraltar Life”, representing the balances
associated with the Edison Inc. and Star Inc. acquisitions), and Aoba Life Insurance Company, LTD. (“Aoba Life”), respectively. The weighted average
remaining expected life of VOBA varies by product. The weighted average remaining expected lives were approximately 14, 5, 8 and 6 years for the
VOBA related to CIGNA, Prudential Annuities Holding Co., Gibraltar Life. and Aoba Life, respectively.
(2) The interest accrual rates vary by product. The interest rates for 2012 were 6.40%, 6.18%, 1.28% to 2.87% and 2.60% for the VOBA related to CIGNA,
Prudential Annuities Holding Co., Gibraltar Life and Aoba Life, respectively. The interest rates for 2011 were 7.10%, 4.81%, 1.28% to 2.87%, 1.28% to
2.87% and 2.60% for the VOBA related to CIGNA, Prudential Annuities Holding Co., Edison Inc, Star Inc. and Aoba Life, respectively. The interest
rates for 2010 were 7.00%, 4.97%, and 2.60% for the VOBA related to CIGNA, Prudential Annuities Holding Co., and Aoba Life, respectively.
Prudential Financial, Inc. 2012 Annual Report 147