Prudential 2012 Annual Report Download - page 218

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
In connection with an acquisition of an operating joint venture, the Company has agreed to pay additional consideration in future
periods, contingent upon the attainment by the acquired business of defined operating objectives. The arrangement will be resolved over
the following six months. Any payment would result in an increase to the Company’s investment in the operating joint venture. The
Company considers the likelihood that the acquired business attains the defined operating objectives to be remote.
Other Guarantees
As of December 31,
2012 2011
(in millions)
Other guarantees where amount can be determined ....................................................... $530 $690
Accrued liability for other guarantees and indemnifications ................................................ 8 13
The Company is also subject to other financial guarantees and indemnity arrangements. The Company has provided indemnities and
guarantees related to acquisitions, dispositions, investments and other transactions that are triggered by, among other things, breaches of
representations, warranties or covenants provided by the Company. These obligations are typically subject to various time limitations,
defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to
contractual limitations, while in other cases such limitations are not specified or applicable. Included above are $299 million and $300
million as of December 31, 2012 and 2011, respectively, of yield maintenance guarantees related to certain investments the Company sold.
The Company does not expect to make any payments on these guarantees and is not carrying any liabilities associated with these guarantees.
Since certain of these obligations are not subject to limitations, it is not possible to determine the maximum potential amount due
under these guarantees. The accrued liabilities identified above do not include retained liabilities associated with sold businesses.
Insolvency Assessments
Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction
to participate in guarantee associations, which are organized to pay contractual benefits owed pursuant to insurance policies issues by
impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired,
insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax
offsets. In addition, Japan has established the Japan Policyholders Protection Corporation as a contingency to protect policyholders against
the insolvency of life insurance companies in Japan through assessments to companies licensed to provide life insurance.
Assets and liabilities held for insolvency assessments were as follows:
As of December 31,
2012 2011
(in millions)
Other assets:
Premium tax offset for future undiscounted assessments ............................................... $ 76 $ 70
Premium tax offsets currently available for paid assessments ........................................... 5 6
Total ................................................................................... $ 81 $ 76
Other liabilities:
Insolvency assessments ........................................................................ $105 102
Contingent Liabilities
On an ongoing basis, the Company’s internal supervisory and control functions review the quality of sales, marketing and other
customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process
results in the discovery of product administration, servicing or other errors, including errors relating to the timing or amount of payments or
contract values due to customers. In certain cases, if appropriate, the Company may offer customers remediation and may incur charges,
including the cost of such remediation, administrative costs and regulatory fines.
The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and
escheatment of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. For
additional discussion of these matters, see “Litigation and Regulatory Matters” below.
It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially
affected as a result of payments in connection with the matters discussed above or other matters depending, in part, upon the results of operations
or cash flow for such period. Management believes, however, that ultimate payments in connection with these matters, after consideration of
applicable reserves and rights to indemnification, should not have a material adverse effect on the Company’s financial position.
216 Prudential Financial, Inc. 2012 Annual Report