Prudential 2012 Annual Report Download - page 205

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
21. DERIVATIVE INSTRUMENTS (continued)
Year Ended December 31, 2010
Realized
Investment
Gains/(Losses)
Net
Investment
Income
Other
Income
Interest
Expense
Interest
Credited
To Policyholders’
Account
Balances
Accumulated
Other
Comprehensive
Income(1)
(in millions)
Derivatives Designated as Hedging Instruments:
Fair value hedges
Interest Rate ............................................ $ (71) $(148) $ 0 $ 15 $68 $ 0
Currency ............................................... 100 (5) 0 0 0 0
Total fair value hedges .................................... 29 (153) 0 15 68 0
Cash flow hedges
Interest Rate ............................................ 0 0 0 (19) (3) (12)
Currency/Interest Rate .................................... 0 (9) 10 0 0 68
Total cash flow hedges .................................... 0 (9) 10 (19) (3) 56
Net investment hedges
Currency(2) ............................................ 0 0 0 0 0 (71)
Currency/Interest Rate .................................... 0 0 0 0 0 (129)
Total net investment hedges ................................ 0 0 0 0 0 (200)
Derivatives Not Qualifying as Hedging Instruments:
Interest Rate ............................................ 1,952 0 0 0 0 0
Currency ............................................... (205) 0 0 0 0 0
Currency/Interest Rate .................................... (17) 0 0 0 0 0
Credit ................................................. (101) 0 0 0 0 0
Equity ................................................. (1,115) 0 0 0 0 0
Embedded Derivatives .................................... 637 0 0 0 0 0
Total non-qualifying hedges ................................ 1,151 0 0 0 0 0
Total .................................................. $ 1,180 $(162) $10 $ (4) $65 $(144)
(1) Amounts deferred in “Accumulated other comprehensive income (loss).”
(2) Relates to the sale of equity method investments.
For the years ended December 31, 2012, 2011 and 2010, the ineffective portion of derivatives accounted for using hedge accounting
was not material to the Company’s results of operations and there were no material amounts reclassified into earnings relating to instances
in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or
within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging. In addition, there
were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying
as a fair value hedge.
Presented below is a roll forward of current period cash flow hedges in “Accumulated other comprehensive income (loss)” before
taxes:
(in millions)
Balance, December 31, 2009 .............................................................................. $(317)
Net deferred gains/(losses) on cash flow hedges from January 1 to December 31, 2010 ................................. 30
Amount reclassified into current period earnings ............................................................... 26
Balance, December 31, 2010 .............................................................................. (261)
Net deferred gains/(losses) on cash flow hedges from January 1 to December 31, 2011 ................................. 147
Amount reclassified into current period earnings ............................................................... 28
Balance, December 31, 2011 .............................................................................. (86)
Net deferred gains/(losses) on cash flow hedges from January 1 to December 31, 2012 ................................. (219)
Amount reclassified into current period earnings ............................................................... 48
Balance, December 31, 2012 .............................................................................. $(257)
Using December 31, 2012 values, it is anticipated that a pre-tax loss of approximately $23 million will be reclassified from
“Accumulated other comprehensive income (loss)” to earnings during the subsequent twelve months ending December 31, 2013, offset by
amounts pertaining to the hedged items. As of December 31, 2012, the Company does not have any qualifying cash flow hedges of
forecasted transactions other than those related to the variability of the payment or receipt of interest or foreign currency amounts on
existing financial instruments. The maximum length of time for which these variable cash flows are hedged is 21 years. Income amounts
deferred in “Accumulated other comprehensive income (loss)” as a result of cash flow hedges are included in “Net unrealized investment
gains (losses)” in the Consolidated Statements of Equity.
For effective net investment hedges, the amounts, before applicable taxes, recorded in the cumulative translation adjustment account
within “Accumulated other comprehensive income (loss)” were $117 million in 2012, $(102) million in 2011 and, $(73) million in 2010.
Prudential Financial, Inc. 2012 Annual Report 203