Prudential 2012 Annual Report Download - page 57

Net realized losses on fixed maturity securities were $140 million in 2012, compared to net realized losses of $125 million in 2011, as
set forth in the following table:
Year Ended December 31,
2012 2011
(in millions)
Realized investment gains (losses), net—Fixed Maturity Securities—Financial Services Businesses
Gross realized investment gains:
Gross gains on sales and maturities(1) .............................................................. $375 $527
Private bond prepayment premiums ................................................................ 23 36
Total gross realized investment gains ................................................................... 398 563
Gross realized investment losses:
Net other-than-temporary impairments recognized in earnings(2) ......................................... (263) (431)
Gross losses on sales and maturities(1) .............................................................. (247) (250)
Credit related losses on sales ...................................................................... (28) (7)
Total gross realized investment losses ...................................................................... (538) (688)
Realized investment gains (losses), net—Fixed Maturity Securities ............................................... $(140) $(125)
Net gains (losses) on sales and maturities—Fixed Maturity Securities(1) ........................................... $128 $277
(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and credit related losses through sales of investments pursuant to our credit
risk objectives.
(2) Excludes the portion of other-than-temporary impairments recorded in “Other comprehensive income (loss),” representing any difference between the
fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.
Net trading gains on sales and maturities of fixed maturity securities of $128 million in 2012 were primarily due to sales within our
International Insurance, Retirement and Individual Annuities segments. Net trading gains on sales and maturities of fixed maturity
securities of $277 million in 2011 were primarily due to sales within our Retirement and Individual Annuities segments. These gains also
included $35 million of gross gains related to the sale of asset-backed securities collateralized by sub-prime mortgages. Sales of fixed
maturity securities in our Individual Annuities segment in both years were primarily due to transfers of investments out of our general
account and into separate accounts relating to an automatic rebalancing element embedded in the living benefit features of some of our
variable annuity products. See below for information regarding the other-than-temporary impairments of fixed maturity securities in 2012
and 2011.
Net realized losses on equity securities were $54 million in 2012, including other-than-temporary impairments of $104 million,
partially offset by net trading gains on sales of equity securities of $50 million, which were primarily due to sales within our Corporate and
Other operations. Net realized losses on equity securities were $120 million in 2011, including other-than-temporary impairments of $94
million and net trading losses on sales of equity securities of $26 million. Net trading losses in 2011 were primarily due to public equity
sales within our International Insurance operations. See below for additional information regarding the other-than-temporary impairments
of equity securities in 2012 and 2011.
Net realized gains on commercial mortgage and other loans in 2012 were $92 million, primarily related to a net decrease in the loan
loss reserves primarily driven by payoffs and quality rating upgrades. Net realized gains on commercial mortgage and other loans in 2011
were $89 million, primarily related to $32 million of mark-to-market gains on our interim loan portfolio, a net decrease of $30 million in
the loan loss reserves primarily driven by quality rating upgrades, and $27 million of gains within our Asset Management business. For
additional information regarding our commercial mortgage and other loan loss reserves see “—General Account Investments—Commercial
Mortgage and Other Loans—Commercial Mortgage and Other Loan Quality.”
Net realized losses on derivatives were $1,552 million in 2012, compared to net realized gains of $2,095 million in 2011. The net
derivative losses in 2012 primarily reflect net losses of $1,829 million on product related embedded derivatives and related hedge positions
primarily associated with certain variable annuity contracts. Also, contributing to the net derivative losses were net losses of $254 million
on foreign currency forward contracts used to hedge portfolio assets in our Japan business primarily due to the weakening of the Japanese
yen against the U.S. dollar, Australian dollar, euro, and British pound. Partially offsetting these losses were net gains of $121 million
primarily representing risk fees earned on synthetic guaranteed investment contracts in our Retirement businesses which are accounted for
as derivatives under U.S. GAAP, and net gains of $342 million on foreign currency forward contracts used to hedge the future income of
non-U.S. businesses, primarily in Japan due to the strengthening of the U.S. dollar against the Japanese yen. The net derivative gains in
2011 primarily reflect net gains of $1,375 million on embedded derivatives and related hedge positions associated with certain variable
annuity contracts. Also, contributing to the net derivative gains were net mark-to-market gains of $498 million on interest rate derivatives
used to manage duration as interest rates declined, and net gains of $214 million on foreign currency forward contracts used in our Japan
business to hedge portfolio assets primarily due to the strengthening of the Japanese yen against the U.S. dollar and Australian dollar. See
“—Results of Operations for Financial Services Businesses by Segment—U.S. Retirement Solutions and Investment Management
Division—Individual Annuities” for additional information regarding the product related embedded derivatives and related hedge positions
associated with certain variable annuity contracts.
Net realized losses on other investments were $30 million in 2012, which included other-than-temporary impairments of $74 million
on real estate and joint ventures and partnership investments, partially offset by a $41 million gain related to the sale of a real estate
investment. Net realized gains on other investments were $47 million in 2011, which primarily included a $64 million gain on the partial
sale of a real estate seed investment, partially offset by $33 million of other other-than-temporary impairments on real estate, joint ventures
and partnership investments.
Related adjustments include that portion of “Realized investment gains (losses), net” that are included in adjusted operating income
and that portion of “Asset management fees and other income” and “Net investment income” that are excluded from adjusted operating
income. These adjustments are made to arrive at “Realized investment gains (losses), net, and related adjustments” which are excluded
Prudential Financial, Inc. 2012 Annual Report 55