Prudential 2012 Annual Report Download - page 64

During 2011 we recorded other-than-temporary impairments of $127 million in earnings, compared to other-than-temporary
impairments of $208 million recorded in earnings in 2010. The following tables set forth, for the periods indicated, the composition of
other-than-temporary impairments recorded in earnings attributable to the Closed Block Business by asset type, and for fixed maturity
securities, by reason.
Year Ended December 31,
2011 2010
(in millions)
Other-than-temporary impairments recorded in earnings—Closed Block Business(1)
Public fixed maturity securities ........................................................................ $ 90 $158
Private fixed maturity securities ....................................................................... 14 10
Total fixed maturity securities .................................................................... 104 168
Equity securities ................................................................................... 18 34
Other invested assets(2) ............................................................................. 5 6
Total ........................................................................................ $127 $208
(1) 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.
(2) Includes other-than-temporary impairments relating to investments in joint ventures and partnerships.
Year Ended December 31, 2011
Asset-Backed Securities
Collateralized By
Sub-Prime Mortgages
All Other Fixed
Maturity
Securities
Total Fixed
Maturity
Securities
(in millions)
Other-than-temporary impairments on fixed maturity securities recorded in earnings—
Closed Block Business(1)
Due to credit events or adverse conditions of the respective issuer(2) ................ $61 $36 $ 97
Due to other accounting guidelines(3) ........................................ 6 1 7
Total .............................................................. $67 $37 $104
Year Ended December 31, 2010
Asset-Backed Securities
Collateralized By
Sub-Prime Mortgages
All Other Fixed
Maturity
Securities
Total Fixed
Maturity
Securities
(in millions)
Other-than-temporary impairments on fixed maturity securities recorded in earnings—
Closed Block Business(1)
Due to credit events or adverse conditions of the respective issuer(2) ................ $ 66 $28 $ 94
Due to other accounting guidelines(3) ........................................ 67 7 74
Total .............................................................. $133 $35 $168
(1) 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.
(2) Represents circumstances where we believe credit events or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency
in the contractual cash flows related to the investment. The amount of the impairment recorded in earnings is the difference between the amortized cost
of the debt security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior
to impairment.
(3) Primarily represents circumstances where we intend to sell the security or more likely than not will be required to sell the security before recovery of its
amortized cost basis.
Fixed maturity other-than-temporary impairments in 2011 were concentrated in asset-backed securities collateralized by sub-prime
mortgages, and the utility and consumer cyclical sectors of our corporate securities and were primarily driven by 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. Fixed maturity other-than-temporary impairments in 2010 were
concentrated in asset-backed securities collateralized by sub-prime mortgages that reflect adverse financial conditions of the respective
issuers as well as our intent to sell certain asset-backed securities collateralized by sub-prime mortgages.
Equity security other-than-temporary impairments in 2011 and 2010 were primarily due to circumstances where the decline in value
was maintained for one year or greater.
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.
General Account Investments
We maintain diversified investment portfolios in our general account to support our liabilities to customers in our Financial Services
Businesses and the Closed Block Business, as well as our other general liabilities. Our general account does not include: (1) assets of our
trading and banking operations; (2) assets of our asset management operations, including assets managed for third parties; and (3) those
assets classified as “Separate account assets” on our balance sheet.
The general account portfolios are managed pursuant to the distinct objectives and investment policy statements of the Financial
Services Businesses and the Closed Block Business. The primary investment objectives of the Financial Services Businesses include:
• hedging the market risk characteristics of the major product liabilities and other obligations of the Company;
• optimizing investment income yield within risk constraints over time; and
62 Prudential Financial, Inc. 2012 Annual Report