Prudential 2012 Annual Report Download - page 72

(3) As of December 31, 2012 and 2011, based on amortized cost, 82% and 84%, respectively, represent Japanese government bonds held by our Japanese
insurance operations, with no other individual country representing more than 7% and 6%, respectively, of the balance.
(4) Includes securities collateralized by sub-prime mortgages. See “—Asset-Backed Securities” below.
(5) Includes securities related to the Build America Bonds program.
(6) Excluded from the table above are securities held outside the general account in other entities and operations. For additional information regarding
investments held outside the general account, see “—Invested Assets of Other Entities and Operations” below. Also excluded from the table above are
fixed maturity securities classified as trading. See “—Trading Account Assets Supporting Insurance Liabilities” and “—Other Trading Account Assets”
for additional information.
(7) Prior period’s amounts are presented on a basis consistent with the current period presentation.
The increase in net unrealized gains from December 31, 2011 to December 31, 2012, was primarily due to a net decrease in interest
rates in both the U.S. and Japan.
The following table sets forth the composition of the portion of our fixed maturity securities portfolio by industry category attributable
to the Closed Block Business as of the dates indicated and the associated gross unrealized gains and losses.
Fixed Maturity Securities—Closed Block Business
December 31, 2012 December 31, 2011(5)
Industry(1)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in millions)
Corporate securities:
Utility .................................... $ 4,773 $ 862 $ 12 $ 5,623 $ 4,440 $ 771 $ 38 $ 5,173
Consumer non-cyclical ...................... 4,419 750 5 5,164 4,757 761 11 5,507
Finance ................................... 3,728 442 17 4,153 3,968 259 82 4,145
Consumer cyclical .......................... 3,003 477 10 3,470 2,782 390 20 3,152
Capital goods .............................. 2,523 376 1 2,898 1,800 251 7 2,044
Energy ................................... 1,879 305 0 2,184 1,813 260 4 2,069
Communications ........................... 1,513 268 4 1,777 1,793 208 24 1,977
Basic industry .............................. 1,324 186 3 1,507 1,184 134 10 1,308
Transportation ............................. 1,386 186 4 1,568 1,338 153 13 1,478
Industrial other ............................. 1,074 110 2 1,182 1,648 165 4 1,809
Technology ............................... 626 103 7 722 764 93 15 842
Foreign agencies ........................... 355 68 0 423 358 45 3 400
Total corporate securities ......................... 26,603 4,133 65 30,671 26,645 3,490 231 29,904
Asset-backed securities(2) ........................ 4,592 71 320 4,343 4,935 56 819 4,172
Commercial mortgage-backed ..................... 4,029 179 2 4,206 3,559 158 2 3,715
U.S. Government ............................... 3,401 966 0 4,367 4,615 951 0 5,566
Residential mortgage-backed ...................... 1,520 97 3 1,614 1,880 125 19 1,986
Foreign government(3) .......................... 345 103 2 446 349 75 4 420
State & Municipal .............................. 647 126 1 772 657 96 0 753
Total(4) .............................. $41,137 $5,675 $393 $46,419 $42,640 $4,951 $1,075 $46,516
(1) Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for
all other holdings.
(2) Includes securities collateralized by sub-prime mortgages. See “—Asset-Backed Securities” below.
(3) As of December 31, 2012 and 2011, based on amortized cost, no individual foreign country represented more than 13% and 8%, respectively.
(4) The table above excludes fixed maturity securities classified as trading. See “—Other Trading Account Assets” for additional information.
(5) Prior period’s amounts are presented on a basis consistent with the current period presentation.
The increase in net unrealized gains from December 31, 2011 to December 31, 2012, was primarily due to a net decrease in interest
rates.
Asset-Backed Securities
Included within asset-backed securities attributable to both the Financial Services Businesses and the Closed Block Business are
securities collateralized by sub-prime mortgages. While there is no market standard definition, we define sub-prime mortgages as
residential mortgages that are originated to weaker quality obligors as indicated by weaker credit scores, as well as mortgages with higher
loan-to-value ratios or limited documentation. The deterioration of the U.S. housing market and higher unemployment levels over the past
several years, coupled with relaxed underwriting standards for some originators of sub-prime mortgages through 2007, have led to higher
delinquency rates, particularly for those mortgages issued in 2006 and 2007. This has resulted in increased attention given to potential
deficiencies in lenders’ foreclosure documentation, causing delays in the foreclosure process. From the perspective of an investor in
securities backed by sub-prime collateral, significant delays in foreclosure proceedings have resulted in increased servicing costs which
negatively affect the value of the impacted securities. Separately, as an investor in sub-prime securities, we are pursuing legal and other
actions with respect to potential remedies arising from any potential deficiencies related to the original lending and securitization practices.
70 Prudential Financial, Inc. 2012 Annual Report