Prudential 2012 Annual Report Download - page 166

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
15. EQUITY (continued)
Additionally, although prior regulatory approval may not be required by law for the payment of dividends up to the limitations
described above, in practice, the Company would typically discuss any dividend payments with the applicable regulatory authority prior to
payment. Additionally, the payment of dividends by the Company’s subsidiaries is subject to declaration by their Board of Directors and
may be affected by market conditions and other factors.
The declaration and payment of dividends on the Class B Stock depends upon the financial performance of the Closed Block Business
and, as the Closed Block matures, the holders of the Class B Stock will receive the surplus of the Closed Block Business no longer required
to support the Closed Block for regulatory purposes. In addition, dividends on the Class B Stock are payable in an aggregate amount per year
at least equal to the lesser of (1) a Target Dividend Amount of $19.25 million or (2) the “CB Distributable Cash Flow” for such year, which
is a measure of the net cash flows of the Closed Block Business. Notwithstanding this formula, as with any common stock, Prudential
Financial retains the flexibility to suspend dividends on the Class B Stock; however, if CB Distributable Cash Flow exists and Prudential
Financial chooses not to pay dividends on the Class B Stock in an aggregate amount at least equal to the lesser of the CB Distributable Cash
Flow or the Target Dividend Amount for any period, then cash dividends cannot be paid on the Common Stock with respect to such period.
Statutory Net Income, Capital and Surplus
The Company’s domestic insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory
accounting practices prescribed or permitted by the insurance department of the state of domicile. These subsidiaries do not utilize prescribed or
permitted practices that vary materially from the statutory accounting practices prescribed by the National Association of Insurance
Commissioners (“NAIC”). Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as
incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and
accounting for deferred taxes on a different basis. Statutory net income (loss) of Prudential Insurance amounted to $1,382 million, $826 million
and $1,623 million for the years ended December 31, 2012, 2011 and 2010, respectively. Statutory capital and surplus of Prudential Insurance
amounted to $8,699 million and $8,160 million at December 31, 2012 and 2011, respectively. Statutory net income (loss) of PALAC amounted
to $217 million, $177 million and $348 million for the years ended December 31, 2012, 2011 and 2010, respectively. Statutory capital and
surplus of PALAC amounted to $448 million and $672 million at December 31, 2012 and 2011, respectively.
The Risk Based Capital (“RBC”) ratio is a primary measure by which the Company and its insurance regulators evaluate the capital
adequacy of Prudential Insurance and the Company’s other domestic insurance subsidiaries. The RBC ratio for Prudential Insurance
includes both the Financial Services Businesses and Closed Block Business. RBC is determined by NAIC—prescribed formulas that
consider, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s
products and liabilities, interest rate risks and general business risks. If a subsidiary’s Total Adjusted Capital (“TAC”), as calculated in a
manner prescribed by the NAIC, falls below the “Company Action Level” RBC of 100%, corrective action is required.
The Company’s international insurance subsidiaries prepare financial statements in accordance with local regulatory requirements,
and they do not utilize regulatory accounting practices that vary materially from the applicable prescribed regulatory accounting practices.
These statutory accounting practices differ from U.S. GAAP primarily by charging policy acquisition costs to expense as incurred and
establishing future policy benefit liabilities using different actuarial assumptions, as well as valuing investments and certain assets and
accounting for deferred taxes on a different basis.
The FSA utilizes a solvency margin ratio to evaluate the capital adequacy of Japanese insurance companies. The solvency margin ratio
considers the level of solvency margin capital to a solvency margin risk amount, which is calculated in a similar manner to RBC. If a
subsidiary’s solvency margin ratio falls below 200%, the FSA is authorized to take control of that entity.
All of the Company’s domestic and international insurance subsidiaries have capital and surplus levels that exceed their respective
regulatory minimum requirements.
Accumulated Other Comprehensive Income
The balance of and changes in each component of “Accumulated other comprehensive income (loss) attributable to Prudential
Financial, Inc.” for the years ended December 31, are as follows (net of taxes):
Accumulated Other Comprehensive Income (Loss)
Attributable to Prudential Financial, Inc.
Foreign Currency
Translation
Adjustment
Net Unrealized
Investment Gains
(Losses)(1)
Pension and
Postretirement
Unrecognized Net
Periodic Benefit
(Cost)
Total Accumulated
Other
Comprehensive
Income (Loss)
(in millions)
Balance, December 31, 2009 ......................... $ 674 $ 511 $(1,628) $ (443)
Impactofadoptionofaccountingchanges(2) .............. (151) 61 (144) (234)
Change in component during year ..................... 343 2,673 311 3,327
Balance, December 31, 2010 ......................... 866 3,245 (1,461) 2,650
Change in component during year ..................... 241 2,560 (206) 2,595
Balance, December 31, 2011 ......................... 1,107 5,805 (1,667) 5,245
Change in component during year ..................... (179) 5,597 (449) 4,969
Balance, December 31, 2012 ......................... $ 928 $11,402 $(2,116) $10,214
164 Prudential Financial, Inc. 2012 Annual Report