Prudential 2012 Annual Report Download - page 70

(1) Yields are based on quarterly average carrying values except for fixed maturities, equity securities and securities lending activity. Yields for fixed
maturities are based on amortized cost. Yields for equity securities are based on cost. Yields for fixed maturities and short-term investments and cash
equivalents are calculated net of liabilities and rebate expenses corresponding to securities lending activity. Yields exclude investment income on assets
other than those included in invested assets. Prior period’s yields are presented on a basis consistent with the current period presentation.
(2) Includes investment income of our trading, banking, and asset management operations.
The decrease in net investment income yield attributable to the Financial Services Businesses’ general account, excluding the Japanese
operations’ portfolio, for 2012, compared to 2011, was primarily the result of lower interest rates on floating rate investments due to rate
resets, lower fixed maturity reinvestment rates, and the addition of assets from the pension risk transfer transactions at current market
yields.
The decrease in net investment income yield attributable to the Financial Services Businesses’ general account, excluding the Japanese
operations’ portfolio, for 2011, compared to 2010, was primarily the result of lower interest rates on floating rate investments due to rate
resets and lower fixed maturity reinvestment rates, partially offset by higher income from our joint ventures and limited partnerships,
driven by appreciation and gains on the underlying assets.
The following tables set forth the income yield and investment income for each major investment category of our Japanese operations’
general account for the periods indicated. The yields are based on net investment income as reported under U.S. GAAP and do not include
adjustments, such as settlements of duration management swaps that are included in adjusted operating income.
Year Ended December 31,
2012 2011 2010
Yield(1) Amount Yield(1)(2) Amount Yield(1) Amount
($ in millions)
Fixed maturities ...................................................... 2.75% $3,317 2.75% $2,844 2.82% $1,733
Trading account assets supporting insurance liabilities ....................... 2.04 36 2.02 34 1.95 26
Equity securities ..................................................... 3.36 65 3.42 73 2.84 44
Commercial mortgage and other loans .................................... 4.15 237 4.16 212 4.63 175
Policy loans ......................................................... 3.60 99 3.44 90 3.85 72
Short-term investments and cash equivalents ............................... 0.16 5 0.68 23 0.22 4
Other investments .................................................... 4.71 181 3.72 163 6.06 132
Gross investment income before investment expenses .................... 2.82 3,940 2.81 3,439 2.96 2,186
Investment expenses .............................................. (0.13) (184) (0.13) (159) (0.14) (112)
Total investment income ............................................... 2.69% $3,756 2.68% $3,280 2.82% $2,074
(1) Yields are based on quarterly average carrying values except for fixed maturities, equity securities and securities lending activity. Yields for fixed
maturities are based on amortized cost. Yields for equity securities are based on cost. Yields for fixed maturities and short-term investments and cash
equivalents are calculated net of liabilities and rebate expenses corresponding to securities lending activity. Yields exclude investment income on assets
other than those included in invested assets. Prior period’s yields are presented on a basis consistent with the current period presentation.
(2) Yields for the year ended December 31, 2011 are weighted for ten months of income and assets related to the Star and Edison Businesses.
The increase in net investment income yield on the Japanese insurance portfolio for 2012, compared to 2011, is primarily attributable
to more favorable results from alternative investments and asset growth supporting both U.S. and Australian dollar-denominated products,
partially offset by lower fixed maturity reinvestment rates in both the U.S. and Japan.
The decrease in net investment income yield on the Japanese insurance portfolio for 2011, compared to 2010, is primarily attributable
to lower fixed maturity reinvestment rates in both the U.S. and Japan, and the impact of the Star and Edison portfolios.
Both the U.S. dollar-denominated and Australian dollar-denominated fixed maturities that are not hedged to yen through third party
derivative contracts provide a yield that is substantially higher than the yield on comparable yen-denominated fixed maturities. The average
amortized cost of U.S. dollar-denominated fixed maturities that are not hedged to yen through third party derivative contracts for the years
ended December 31, 2012 and 2011, was approximately $29.4 billion and $24.2 billion, respectively. The majority of U.S. dollar-
denominated fixed maturities support liabilities that are denominated in U.S. dollars. The average amortized cost of Australian dollar-
denominated fixed maturities that are not hedged to yen through third party derivative contracts for the years ended December 31, 2012 and
2011, was approximately $7.0 billion and $4.8 billion, respectively. The Australian dollar-denominated fixed maturities support liabilities
that are denominated in Australian dollars.
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.
68 Prudential Financial, Inc. 2012 Annual Report