Prudential 2012 Annual Report Download - page 67

(2) Includes invested assets of our trading, banking, and asset management operations. Excludes assets of our asset management operations managed for
third parties and those assets classified as “Separate account assets” on our balance sheet. For additional information regarding these investments, see
“—Invested Assets of Other Entities and Operations” below.
The increase in general account investments attributable to the Financial Services Businesses in 2012 was primarily due to the pension
risk transfer transactions as discussed above, portfolio growth as a result of reinvestment of net investment income and net operating
inflows, and a net increase in fair value driven by a decrease in interest rates. The general account investments attributable to the Closed
Block Business also increased in 2012, primarily due to portfolio growth as a result of reinvestment of net investment income and a net
increase in fair value driven by a decrease in interest rates, partially offset by net operating outflows. For information regarding the
methodology used in determining the fair value of our fixed maturities, see Note 20 to the Consolidated Financial Statements.
We have substantial insurance operations in Japan, with 46% and 50% of our Financial Services Businesses’ general account
investments relating to our Japanese insurance operations as of December 31, 2012 and December 31, 2011, respectively.
The following table sets forth the composition of the investments of our Japanese insurance operations’ general account as of the dates
indicated.
December 31,
2012 2011
(in millions)
Fixed maturities:
Public, available-for-sale, at fair value ....................................................................... $124,710 $111,857
Public, held-to-maturity, at amortized cost .................................................................... 3,116 3,743
Private, available-for-sale, at fair value ...................................................................... 6,252 5,020
Private, held-to-maturity, at amortized cost ................................................................... 1,152 1,364
Trading account assets supporting insurance liabilities, at fair value .................................................... 1,838 1,732
Other trading account assets, at fair value ........................................................................ 1,195 1,496
Equity securities, available-for-sale, at fair value ................................................................... 2,126 1,932
Commercial mortgage and other loans, at book value ............................................................... 6,156 5,672
Policy loans, at outstanding balance ............................................................................. 2,665 2,873
Other long-term investments(1) ................................................................................ 2,215 2,892
Short-term investments ....................................................................................... 318 719
Total Japanese general account investments(2) ................................................................ $151,743 $139,300
(1) Other long-term investments consist of real estate and non-real estate-related investments in joint ventures and partnerships, investment real estate held
through direct ownership, derivatives, and other miscellaneous investments.
(2) Excludes assets classified as “Separate accounts assets” on our balance sheet.
The increase in general account investments related to our Japanese insurance operations in 2012 was primarily attributable to
portfolio growth as a result of business inflows and the reinvestment of net investment income, as well as a net increase in fair value
primarily driven by declining interest rates, partially offset by the weakening of the yen against the U.S. dollar.
The functional currency of our Japanese insurance subsidiaries is the yen and, although the majority of the Japanese general account is
invested in yen-denominated investments, our Japanese insurance operations also hold significant investments denominated in U.S. and
Australian dollars.
As of December 31, 2012, our Japanese insurance operations had $44.9 billion, at fair value, of investments denominated in U.S.
dollars, including $4.4 billion that were hedged to yen through third party derivative contracts and $31.6 billion that support liabilities
denominated in U.S. dollars. As of December 31, 2011, our Japanese insurance operations had $38.9 billion, at fair value, of investments
denominated in U.S. dollars, including $4.4 billion that were hedged to yen through third party derivative contracts and $25.9 billion that
support liabilities denominated in U.S. dollars. The $6.0 billion increase of U.S. dollar investments from December 31, 2011 is primarily
driven by portfolio growth as a result of business inflows and an increase in fair value driven by a decrease in interest rates.
Our Japanese insurance operations had $8.6 billion and $6.4 billion, at fair value, of investments denominated in Australian dollars
that support liabilities denominated in Australian dollars as of December 31, 2012 and December 31, 2011, respectively. The $2.2 billion
increase of Australian dollar investments from December 31, 2011 is primarily driven by portfolio growth as a result of business inflows
and an increase in fair value driven by a decrease in interest rates.
For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations, see “—Results
of Operations for Financial Services Businesses by Segment—International Insurance Division,” above.
Eurozone Exposure
Our investment portfolio includes direct investment exposure to the Eurozone region. We define this region as consisting of those
countries within the European Union that have adopted the euro as their sole legal currency. The Eurozone region currently consists of
seventeen countries, including Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta,
the Netherlands, Portugal, Slovakia, Slovenia and Spain. Included in this region are peripheral countries, which we currently define as
consisting of Portugal, Italy, Ireland, Greece and Spain. Specific country exposure is determined based on the issuer’s country of
incorporation.
Prudential Financial, Inc. 2012 Annual Report 65