Prudential 2012 Annual Report Download - page 59

between January 1, 2013 and December 31, 2015 are $206 million. Absent a change in currency rates, impairments of approximately $45
million would be recorded in earnings in 2013 and approximately $45 million in 2014 on these securities. Fixed maturity other-than-
temporary impairments in 2011 were concentrated in the utility, finance, and consumer non-cyclical sectors of our corporate securities,
asset-backed securities collateralized by sub-prime mortgages, and Japanese commercial mortgage-backed securities. These other-than-
temporary impairments were primarily related to securities with unrealized foreign currency translation losses that are approaching
maturity or related to securities with liquidity concerns, downgrades in credit, bankruptcy or other adverse financial conditions of the
respective issuers, which have caused, or we believe will lead to, a deficiency in the contractual cash flows related to the investment.
Equity security other-than-temporary impairments in 2012 and 2011 were primarily in our Japanese insurance operations where the
securities’ decline in value has been maintained for one year or greater or where we intend to sell the security.
Other invested assets other-than-temporary impairments in 2012 and 2011 were mainly driven by a decline in value on certain real
estate, joint ventures and partnership investments.
For a further discussion of our policies regarding other-than-temporary impairments see “—General Account Investments—Fixed
Maturity Securities—Other-Than-Temporary Impairments of Fixed Maturity Securities” and “—General Account Investments—Equity
Securities—Other-Than-Temporary Impairments of Equity Securities” below.
Closed Block Business
For the Closed Block Business, net realized investment gains in 2012 were $243 million, compared to net realized investment gains of
$845 million in 2011.
Net realized gains on fixed maturity securities were $103 million in 2012, compared to net realized gains of $355 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—Closed Block Business
Gross realized investment gains:
Gross gains on sales and maturities(1) ............................................................. $243 $516
Private bond prepayment premiums ............................................................... 18 21
Total gross realized investment gains .................................................................. 261 537
Gross realized investment losses:
Net other-than-temporary impairments recognized in earnings(2) ........................................ (74) (104)
Gross losses on sales and maturities(1) ............................................................. (56) (75)
Credit related losses on sales .................................................................... (28) (3)
Total gross realized investment losses ..................................................................... (158) (182)
Realized investment gains (losses), net—Fixed Maturity Securities .............................................. $103 $355
Net gains (losses) on sales and maturities—Fixed Maturity Securities(1) .......................................... $187 $441
(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and credit related losses through sales of investments pursuant to our credit
risk and portfolio management 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 were $187 million in 2012 and $441 million in 2011, and both
years included net realized losses on other-than-temporary impairments of $74 million in 2012 and $104 million in 2011 respectively. See
below for additional information regarding the other-than-temporary impairments of fixed maturity securities in 2012 and 2011.
Net realized gains on equity securities were $78 million in 2012, which included net trading gains on sales of equity securities of $99
million, partially offset by other-than-temporary impairments of $21 million. Net realized gains on equity securities were $265 million in
2011, which included net trading gains on sales of equity securities of $283 million, partially offset by other-than-temporary impairments of
$18 million. 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 $2 million related to a net decrease in the loan loss reserve.
Net realized gains on commercial mortgage and other loans in 2011 were $33 million, primarily related to a net decrease in the loan loss
reserve of $42 million, partially offset by net realized losses on related foreclosures. For additional information regarding our loan loss
reserves see “—General Account Investments—Commercial Mortgage and Other Loans—Commercial Mortgage and Other Loan Quality.”
Net realized gains on derivatives were $52 million in 2012, compared to net realized gains of $199 million in 2011. Derivative gains
in 2012 primarily reflect net gains of $80 million on interest rate derivatives primarily used to manage duration and net gains of $26 million
on “to be announced” (“TBA”) forward contracts as interest rates declined, partially offset by net losses of $16 million on credit default
swaps as credit spreads tightened and net losses of $42 million on currency derivatives used to hedge foreign denominated investments as
the U.S. dollar weakened against the Euro and other currencies. The net derivative gains in 2011 primarily reflect net gains of $135 million
on interest rate derivatives used to manage duration, and $53 million on TBA forward contracts as interest rates declined. Also,
contributing to these gains are net derivative gains of $23 million on currency derivatives used to hedge foreign denominated investments
as the U.S. dollar strengthened against the Euro. Partially offsetting these gains were net derivative losses of $11 million on embedded
derivatives associated with certain externally-managed investments in the European market.
Prudential Financial, Inc. 2012 Annual Report 57