Prudential 2012 Annual Report Download - page 199

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. FAIR VALUE OF ASSETS AND LIABILITIES (continued)
Fair Value Option—The following table presents information regarding changes in fair values recorded in earnings for commercial
mortgage loans, other long-term investments and notes issued by consolidated variable interest entities, where the fair value option has
been elected.
Years Ended December 31,
2012 2011 2010
(in millions)
Assets:
Commercial mortgage loans:
Changes in instrument-specific credit risk ............................................... $ 0 $1 $ 6
Other changes in fair value ........................................................... (1) 4 3
Other long-term investments:
Changes in fair value ................................................................ 40 (5) 18
Liabilities:
Notes issued by consolidated variable interest entities:
Changes in fair value ................................................................ 2 0 0
Changes in fair value are reflected in “Realized investment gains (losses), net” for commercial mortgage loans and “Asset
management fees and other income” for other long-term investments and notes issued by consolidated variable interest entities. Changes in
fair value due to instrument-specific credit risk are estimated based on changes in credit spreads and quality ratings for the period reported.
Interest income on commercial mortgage loans is included in net investment income. For the years ended December 31, 2012, 2011
and 2010, the Company recorded $13 million, $12 million and $22 million of interest income, respectively, on these fair value option loans.
Interest income on these loans is recorded based on the effective interest rates as determined at the closing of the loan.
The fair values and aggregate contractual principal amounts of commercial mortgage loans, for which the fair value option has been
elected, were $162 million and $156 million, respectively, as of December 31, 2012, and $603 million and $598 million, respectively, as
December 31, 2011. As of December 31, 2012, there were no loans in non-accrual status and none of the loans are more than 90 days past
due and still accruing.
The fair value of other long-term investments were $465 million and $366 million as of December 31, 2012 and 2011, respectively.
The fair value and aggregate contractual principal amounts of notes issued by consolidated variable interest entities, for which the fair
value option has been elected, were $1,406 million and $1,422 million, respectively, as of December 31, 2012, and $282 million and $294
million, respectively, as December 31, 2011. Interest expense recorded for these liabilities was $21 million for the year ended
December 31, 2012.
Fair Value of Financial Instruments
The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not
reported at fair value. However, in some cases, as described below, the carrying amount equals or approximates fair value.
December 31, 2012 December 31, 2011
Fair Value
Carrying
Amount(1)
Fair
Value
Carrying
Amount
Level 1 Level 2 Level 3 Total Total Total Total
(in millions)
Assets:
Fixed maturities, held-to-maturity ...................... $ 0 $ 2,643 $ 1,868 $ 4,511 $ 4,268 $ 5,354 $ 5,107
Commercial mortgage and other loans ................... 0 737 38,817 39,554 36,570 37,138 34,831
Policy loans ....................................... 0 0 14,592 14,592 11,575 14,858 11,559
Short-term investments .............................. 0 57 0 57 57 356 356
Cash and cash equivalents ............................ 4,316 184 0 4,500 4,500 4,822 4,822
Accrued investment income ........................... 0 3,127 0 3,127 3,127 2,793 2,793
Other assets ....................................... 67 1,903 631 2,601 2,601 3,105 3,105
Total assets ................................... $4,383 $ 8,651 $55,908 $ 68,942 $ 62,698 $ 68,426 $ 62,573
Liabilities:
Policyholders’ account balances—investment contracts ..... $ 0 $ 41,056 $63,144 $104,200 $101,232 $103,184 $102,245
Securities sold under agreements to repurchase ............ 0 5,818 0 5,818 5,818 6,218 6,218
Cash collateral for loaned securities ..................... 0 3,941 0 3,941 3,941 2,973 2,973
Short-term debt ..................................... 0 2,506 0 2,506 2,484 2,346 2,336
Long-term debt ..................................... 1,537 21,236 4,724 27,497 24,729 25,828 24,622
Bank customer liabilities(2) ........................... 0 0 0 0 0 1,745 1,730
Notes of consolidated VIEs ........................... 0 0 149 149 171 211 242
Other liabilities ..................................... 0 5,703 653 6,356 6,356 5,665 5,665
Separate account liabilities—investment contracts ......... 0 75,495 21,066 96,561 96,561 89,492 89,492
Total liabilities ................................ $1,537 $155,755 $89,736 $247,028 $241,292 $237,662 $235,523
Prudential Financial, Inc. 2012 Annual Report 197