Prudential 2012 Annual Report Download - page 75

(1) As of December 31, 2012, includes collateralized loan obligations with fair value of $605 million, with none secured by sub-prime mortgages. Also
includes asset-backed securities collateralized by franchises, equipment leases, aircraft, manufacturing, and timeshares.
(2) Excluded from the table above are asset-backed securities classified as trading.
On an amortized cost basis, asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business
decreased from $2.290 billion as of December 31, 2011, to $1.771 billion as of December 31, 2012, primarily reflecting sales, principal
paydowns and other-than-temporary impairments recognized. Gross unrealized losses related to our asset-backed securities collateralized by
sub-prime mortgages attributable to the Closed Block Business were $315 million as of December 31, 2012, and $789 million as of
December 31, 2011. For additional information regarding other-than-temporary impairments of asset-backed securities collateralized by sub-
prime mortgages see “—Realized Investment Gains and Losses” above. For information regarding the methodology used in determining the
fair value of our asset-backed securities collateralized by sub-prime mortgages, see Note 20 to the Consolidated Financial Statements.
The weighted average estimated subordination percentage of asset-backed securities collateralized by sub-prime mortgages
attributable to the Closed Block Business, excluding those supported by guarantees from monoline bond insurers, was 32% as of
December 31, 2012. The subordination percentage represents the current weighted average estimated percentage of the capital structure
subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. As of
December 31, 2012, based on amortized cost, approximately 67% of the asset-backed securities collateralized by sub-prime mortgages
attributable to the Closed Block Business have estimated credit subordination percentages of 20% or more, and 46% have estimated credit
subordination percentages of 30% or more.
In addition to subordination, certain securities, referred to as front pay or second pay securities, benefit from the prioritization of
principal cash flows within the senior tranches of the structure. In most instances, these shorter duration senior securities have priority to
principal cash flows over other securities in the structure, including longer duration senior securities. Included within the $1.771 billion of
asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business as of December 31, 2012, were
$348 million of securities, on an amortized cost basis, that represent front pay or second pay securities, depending on the overall structure
of the securities.
Residential Mortgage-Backed Securities
The following tables set forth the amortized cost of our residential mortgage-backed securities attributable to the Financial Services
Businesses and Closed Block Business as of the dates indicated.
Residential Mortgage-Backed Securities at Amortized Cost
December 31, 2012
Financial Services Businesses Closed Block Business
Amortized
Cost % of Total
Amortized
Cost % of Total
($ in millions)
By security type:
Agency pass-through securities(1) ........................................... $8,183 97.9% $1,364 89.7%
Collateralized mortgage obligations(2)(3) ..................................... 177 2.1 156 10.3
Total residential mortgage-backed securities ............................... $8,360 100.0% $1,520 100.0%
Portion rated AA or higher(4) ................................................... $8,247 98.7% $1,364 89.7%
December 31, 2011
Financial Services Businesses Closed Block Business
Amortized
Cost % of Total
Amortized
Cost % of Total
($ in millions)
By security type:
Agency pass-through securities(1) ........................................... $7,339 97.0% $1,664 88.5%
Collateralized mortgage obligations(2)(3) ..................................... 230 3.0 216 11.5
Total residential mortgage-backed securities ............................... $7,569 100.0% $1,880 100.0%
Portion rated AA or higher(4) ................................................... $7,489 99.0% $1,664 88.5%
(1) As of December 31, 2012, of these securities, for the Financial Services Businesses, $6.359 billion are supported by U.S. government and $1.824 billion
are supported by foreign governments. As of December 31, 2011, of these securities, for the Financial Services Businesses, $5.408 billion were
supported by the U.S. government and $1.931 billion were supported by foreign governments. For the Closed Block Business, all of the securities are
supported by the U.S. government as of both December 31, 2012 and 2011.
(2) Includes alternative residential mortgage loans of $36 million and $38 million in the Financial Services Businesses, and $76 million and $93 million in
the Closed Block Business, as of December 31, 2012 and 2011, respectively.
(3) As of December 31, 2012, of these collateralized mortgage obligations, for the Financial Services Businesses, 57% have credit ratings of A or above,
5% have BBB credit ratings and the remaining 38% have below investment grade ratings, and as of December 31, 2011, 68% have credit ratings of A or
above, 7% have BBB credit ratings and the remaining 25% have below investment grade ratings. As of December 31, 2012, for the Closed Block
Business, 13% have BBB credit ratings, and 87% have below investment grade ratings and, as of December 31, 2011, 16% have A credit ratings or
above, 34% have BBB credit ratings, and 50% have below investment grade ratings.
(4) Based on lowest external rating agency rating.
Prudential Financial, Inc. 2012 Annual Report 73