Prudential 2012 Annual Report Download - page 186

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. FAIR VALUE OF ASSETS AND LIABILITIES (continued)
As of December 31, 2011(5)
Level 1 Level 2 Level 3 Netting(1) Total
(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies ........ $ 0 $ 15,066 $ 66 $ $ 15,132
Obligations of U.S. states and their political subdivisions ............................... 0 2,740 0 2,740
Foreign government bonds ....................................................... 0 77,010 25 77,035
Corporate securities ............................................................ 12 125,650 1,450 127,112
Asset-backed securities .......................................................... 0 8,165 2,528 10,693
Commercial mortgage-backed securities ............................................ 0 11,935 145 12,080
Residential mortgage-backed securities ............................................. 0 9,840 16 9,856
Subtotal .................................................................. 12 250,406 4,230 254,648
Trading account assets:(2)
U.S. Treasury securities and obligations of U.S. government authorities and agencies ........ 0 208 9 217
Obligations of U.S. states and their political subdivisions ............................... 0 254 0 254
Foreign government bonds ....................................................... 2 653 0 655
Corporate securities ............................................................ 14 11,506 148 11,668
Asset-backed securities .......................................................... 0 1,603 416 2,019
Commercial mortgage-backed securities ............................................ 0 2,322 35 2,357
Residential mortgage-backed securities ............................................. 0 1,936 4 1,940
Equity securities ............................................................... 1,074 162 1,296 2,532
All other(3) ................................................................... 699 13,814 93 (11,222) 3,384
Subtotal .................................................................. 1,789 32,458 2,001 (11,222) 25,026
Equity securities, available-for-sale ................................................ 5,004 2,171 360 7,535
Commercial mortgage and other loans .............................................. 0 514 86 600
Other long-term investments ..................................................... 193 (11) 1,110 1,292
Short-term investments .......................................................... 5,506 3,254 0 8,760
Cash equivalents ............................................................... 2,667 6,762 0 9,429
Other assets ................................................................... 3 86 9 98
Subtotal excluding separate account assets ...................................... 15,174 295,640 7,796 (11,222) 307,388
Separate account assets(4) ....................................................... 40,319 158,703 19,358 218,380
Total assets ............................................................... $55,493 $454,343 $27,154 $(11,222) $525,768
Future policy benefits ........................................................... $ 0 $ 0 $ 2,886 $ $ 2,886
Other liabilities and notes of consolidated VIEs ...................................... 0 8,013 285 (7,854) 444
Total liabilities ............................................................ $ 0 $ 8,013 $ 3,171 $ (7,854) $ 3,330
(1) “Netting” amounts represent cash collateral of $2,086 million and $3,368 million as of December 31, 2012 and December 31, 2011, respectively, and
the impact of offsetting asset and liability positions held with the same counterparty.
(2) Includes Trading Account Assets Supporting Insurance Liabilities and Other Trading Account Assets.
(3) Level 1 represents cash equivalents and short term investments. All other amounts primarily represent derivative assets.
(4) Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are
borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account assets
classified as Level 3 consist primarily of real estate and real estate investment funds. Separate account liabilities are not included in the above table as
they are reported at contract value and not fair value in the Company’s Consolidated Statement of Financial Position.
(5) Includes reclassifications to conform to current period presentation.
The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a
recurring basis are summarized below.
Fixed Maturity Securities—The fair values of the Company’s public fixed maturity securities are generally based on prices obtained
from independent pricing services. Prices for each security are generally sourced from multiple pricing vendors, and a vendor hierarchy is
maintained by asset type based on historical pricing experience and vendor expertise. The Company ultimately uses the price from the
pricing service highest in the vendor hierarchy based on the respective asset type. Consistent with the fair value hierarchy described above,
securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable
pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not
reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with
the pricing service. If the pricing service updates the price to be more consistent with the presented market observations, the security
remains within Level 2.
Internally-developed valuations or indicative broker quotes are also used to determine fair value in circumstances where vendor
pricing is not available, or where the Company ultimately concludes that pricing information received from the independent pricing service
is not reflective of market activity. If the Company concludes the values from both pricing services and brokers are not reflective of market
activity, it may over-ride the information with an internally-developed valuation. As of December 31, 2012 and December 31, 2011, over-
rides on a net basis were not material. Pricing service over-rides, internally-developed valuations and indicative broker quotes are generally
included in Level 3 in the fair value hierarchy.
184 Prudential Financial, Inc. 2012 Annual Report