Prudential 2012 Annual Report Download - page 198

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. FAIR VALUE OF ASSETS AND LIABILITIES (continued)
Changes in Level 3 derivative assets and liabilities—The following tables provide a summary of the changes in fair value of Level 3
derivative assets and liabilities for the year ended December 31, 2012, as well as the portion of gains or losses included in income for the
year ended December 31, 2012, attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2012.
Year Ended December 31, 2012
Derivative Assets–
Equity
Derivative
Assets–
Credit
Derivative
Liabilities–
Interest Rate
(in millions)
Fair Value, beginning of period ......................................................... $83 $1 $(1)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net ....................................... (70) (1) 4
Asset management fees and other income ..................................... 0 0 0
Purchases ...................................................................... 6 0 0
Sales .......................................................................... 0 0 0
Issuances ....................................................................... 0 0 0
Settlements ..................................................................... 0 0 0
Transfers into Level 3(1) .......................................................... 0 0 0
Transfers out of Level 3(1) ......................................................... 0 0 0
Fair Value, end of period .............................................................. $19 $0 $3
Unrealized gains (losses) for the period relating to those level 3 assets that were still held at the end of
the period:
Included in earnings:
Realized investment gains (losses), net ....................................... $(70) $(1) $ 4
Asset management fees and other income ..................................... $ 0 $0 $0
Year Ended December 31, 2011
Derivative Assets–
Equity
Derivative
Liabilities–
Credit
Derivative
Liabilities–
Interest Rate
(in millions)
Fair Value, beginning of period ........................................................ $126 $0 $(12)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net ....................................... (29) 1 11
Asset management fees and other income .................................... 0 0 0
Purchases ...................................................................... 0 0 0
Sales ......................................................................... 0 0 0
Issuances ...................................................................... 0 0 0
Settlements .................................................................... (14) 0 0
Transfers into Level 3(1) .......................................................... 0 0 0
Transfers out of Level 3(1) ........................................................ 0 0 0
Fair Value, end of period ............................................................. $ 83 $1 $ (1)
Unrealized gains (losses) for the period relating to those level 3 assets that were still held at the end of
the period:
Included in earnings:
Realized investment gains (losses), net ....................................... $(29) $1 $ 11
Asset management fees and other income .................................... $ 0 $0 $ 0
(1) Transfers into or out of Level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.
Nonrecurring Fair Value Measurements—Certain assets and liabilities are measured at fair value on a nonrecurring basis.
Nonrecurring fair value adjustments resulted in $2 million of net gains being recorded for the year ended December 31, 2012 on certain
commercial mortgage loans. The carrying value of these loans as of December 31, 2012 was $35 million. Similar nonrecurring fair value
adjustments on commercial mortgage loans resulted in net losses of $7 million and $73 million for the years ended December 31, 2011 and
2010, respectively. The adjustments were based on discounted cash flows utilizing market rates or the fair value of the underlying real
estate collateral and were classified as Level 3 in the hierarchy.
Impairments of $46 million were recorded related to the write off of intangible assets. The impairments were primarily based on
discounted cash flow models, using assumptions and inputs specific to the Company, and are therefore, classified as Level 3 in the
hierarchy. Impairments of $4 million, $8 million and $6 million were recorded for the years ended December 31, 2012, 2011 and 2010,
respectively, on certain cost method investments. The impairments were based primarily on discounted future cash flow models and, where
appropriate, valuations provided by the general partners taken into consideration with deal and management fee expenses and classified as
Level 3 in the hierarchy.
Impairments of $14 million, $9 million and $6 million for the years ended December 31, 2012, 2011 and 2010, respectively, were
recorded for mortgage servicing rights. The impairments were based on internal models and were classified as Level 3 in the hierarchy. In
addition, impairments of $4 million and $22 million for the years ended December 31, 2012 and 2011, respectively, were recorded for real
estate investments, some of which were classified as discontinued operations. The impairments were based primarily on appraisal values
and were classified as Level 3 in the hierarchy.
196 Prudential Financial, Inc. 2012 Annual Report