Prudential 2012 Annual Report Download - page 63

LIBOR curve and the intent to sell securities. Additionally, other-than-temporary impairments were driven by Japanese commercial
mortgage-backed securities that reflect adverse financial conditions of the respective issuers, and foreign currency translation losses related
to foreign denominated securities that are approaching maturity.
Equity security other-than-temporary impairments in 2011 and 2010 were primarily in our Japanese insurance operations where the
securities’ decline in value has been was maintained for one year or greater or where we intend to sell the security.
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 2011 were $845 million, compared to net realized investment gains of
$794 million in 2010.
Net realized gains on fixed maturity securities were $355 million in 2011, compared to net realized gains of $117 million in 2010, as
set forth in the following table:
Year Ended December 31,
2011 2010
(in millions)
Realized investment gains (losses), net—Fixed Maturity Securities—Closed Block Business
Gross realized investment gains:
Gross gains on sales and maturities(1) .............................................................. $516 $273
Private bond prepayment premiums ................................................................ 21 24
Total gross realized investment gains ................................................................... 537 297
Gross realized investment losses:
Net other-than-temporary impairments recognized in earnings(2) ......................................... (104) (168)
Gross losses on sales and maturities(1) .............................................................. (75) (10)
Credit related losses on sales ...................................................................... (3) (2)
Total gross realized investment losses ...................................................................... (182) (180)
Realized investment gains (losses), net—Fixed Maturity Securities ............................................... $355 $117
Net gains (losses) on sales and maturities—Fixed Maturity Securities(1) ........................................... $441 $263
(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 $441 million in 2011 and $263 million in 2010, which
included net realized losses on other-than-temporary impairments of $104 million and $168 million respectively. See below for additional
information regarding the other-than-temporary impairments of fixed maturity securities in 2011 and 2010.
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. Net realized gains on equity securities were $174 million in
2010, which included net trading gains on sales of equity securities of $208 million, partially offset by other-than-temporary impairments of
$34 million. See below for additional information regarding the other-than-temporary impairments of equity securities in 2011 and 2010.
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. Net realized gains on commercial mortgage and other loans in 2010 were $18 million, primarily related to a net
decrease in the loan loss reserve of $22 million. 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 $199 million in 2011, compared to net realized gains of $489 million in 2010. Derivative gains
in 2011 primarily reflect net gains of $135 million on interest rate derivatives used to manage duration as interest rates declined, and $53
million on TBA forward contracts as interest rates declined. Also, contributing to the net derivative gains were net realized gains of $23
million on currency derivatives used to hedge foreign denominated investments as the U.S. dollar strengthened against the euro. Derivative
gains in 2010 primarily reflect net mark-to-market gains of $404 million on interest rate derivatives used to manage the duration as interest
rates declined and net derivative gains of $74 million on currency derivatives used to hedge foreign denominated investments. Also,
contributing to the net derivative gains in 2010 were net realized gains of $17 million on embedded derivatives associated with certain
externally-managed investments in the European market.
Prudential Financial, Inc. 2012 Annual Report 61