Prudential 2012 Annual Report Download - page 216

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
Commitments to Purchase Investments (excluding Commercial Mortgage Loans)
As of December 31,
2012 2011
(in millions)
Expected to be funded from the general account and other operations outside the separate accounts(1) .......... $3,410 $4,414
Expected to be funded from separate accounts ...................................................... 757 1,159
Portion of separate account commitments with recourse to Prudential Insurance ............................ 7 397
(1) Includes remaining commitments of $200 million and $385 million at December 31, 2012 and 2011, respectively, related to the Company’s agreement
to co-invest with the Fosun Group (Fosun) in a private equity fund, managed by Fosun, for the Chinese marketplace.
The Company has other commitments to purchase or fund investments, some of which are contingent upon events or circumstances
not under the Company’s control, including those at the discretion of the Company’s counterparties. The Company anticipates a portion of
these commitments will ultimately be funded from its separate accounts. Some of the separate account commitments have recourse to
Prudential Insurance if the separate accounts are unable to fund the amounts when due.
Guarantees of Investee Debt
As of December 31,
2012 2011
(in millions)
Total guarantees of debt issued by entities in which the separate accounts have invested ..................... $2,178 $2,433
Amount of above guarantee that is limited to separate account assets .................................... 2,167 2,364
Accrued liability associated with guarantee ......................................................... 0 0
A number of guarantees provided by the Company relate to real estate investments held in its separate accounts, in which entities that
the separate account has invested in have borrowed funds, and the Company has guaranteed their obligations. The Company provides these
guarantees to assist these entities in obtaining financing. The Company’s maximum potential exposure under these guarantees is mostly
limited to the assets of the separate account. The exposure that is not limited to the separate account assets relates mostly to guarantees
limited to fraud, criminal activity or other bad acts. These guarantees generally expire at various times over the next twenty four years. At
December 31, 2012, the Company’s assessment is that it is unlikely payments will be required. Any payments that may become required
under these guarantees would either first be reduced by proceeds received by the creditor on a sale of the underlying collateral, or would
provide rights to obtain the underlying collateral.
Indemnification of Securities Lending Transactions
As of December 31,
2012 2011
(in millions)
Indemnification provided to mutual fund and separate account clients for securities lending .................. $15,454 $13,950
Fair value of related collateral associated with above indemnifications ................................... 15,730 14,307
Accrued liability associated with guarantee ......................................................... 0 0
In the normal course of business, the Company may facilitate securities lending transactions on behalf of mutual funds and separate
accounts for which the Company is the investment advisor and/or the asset manager. In certain of these arrangements, the Company has
provided an indemnification to the mutual funds or separate accounts to hold them harmless against losses caused by counterparty (i.e.,
borrower) defaults associated with the securities lending activity facilitated by the Company. Collateral is provided by the counterparty to
the mutual fund or separate account at the inception of the loan equal to or greater than 102% of the fair value of the loaned securities and
the collateral is maintained daily at 102% or greater of the fair value of the loaned securities. The Company is only at risk if the
counterparty to the securities lending transaction defaults and the value of the collateral held is less than the value of the securities loaned
to such counterparty. The Company believes the possibility of any payments under these indemnities is remote.
Credit Derivatives Written
As discussed further in Note 21, the Company writes credit derivatives under which the Company is obligated to pay the counterparty
the referenced amount of the contract and receive in return the defaulted security or similar security.
214 Prudential Financial, Inc. 2012 Annual Report