Prudential 2012 Annual Report Download - page 81

As a percentage of amortized cost, 75% of the portfolio was publicly-traded as of both December 31, 2012 and 2011, respectively. As
of December 31, 2012 and 2011, 93% and 92%, respectively, of the fixed maturity portfolio was considered high or highest quality based
on NAIC or equivalent rating. As of December 31, 2012, $1.867 billion of the residential mortgage-backed securities were publicly-traded
agency pass-through securities, which are supported by implicit or explicit government guarantees, of which 99% have credit ratings of A
or higher. Collateralized mortgage obligations, including approximately $73 million secured by “ALT-A” mortgages, represented the
remaining $98 million of residential mortgage-backed securities, of which 29% have credit ratings of A or better and 71% are BBB and
below. For a discussion of changes in the fair value of our trading account assets supporting insurance liabilities see “—Experience-Rated
Contractholder Liabilities, Trading Account Assets Supporting Insurance Liabilities and Other Related Investments,” above.
Other Trading Account Assets
Other trading account assets consist primarily of certain financial instruments that contain an embedded derivative where we elected to
classify the entire instrument as a trading account asset rather than bifurcate. These instruments are carried at fair value, with realized and
unrealized gains and losses reported in “Asset management fees and other income,” and excluded from adjusted operating income. Interest
and dividend income from these investments is reported in “Net investment income,” and is included in adjusted operating income.
The following table sets forth the composition of our other trading account assets as of the dates indicated.
December 31, 2012 December 31, 2011
Financial Services
Businesses
Closed Block
Business
Financial Services
Businesses
Closed Block
Business
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(in millions)
Short-term investments and cash equivalents ....... $ 1 $ 1 $ 0 $ 0 $ 4 $ 4 $ 0 $ 0
Fixed maturities .............................. 533 452 127 139 1,105 912 179 189
Equity securities(1) ........................... 933 973 123 136 1,226 1,177 133 128
Other ....................................... 0 0 0 0 11 11 0 0
Total other trading account assets ............ $1,467 $1,426 $250 $275 $2,346 $2,104 $312 $317
(1) Included in equity securities are perpetual preferred stock securities that have characteristics of both debt and equity securities.
As of December 31, 2012, on an amortized cost basis, 67% of asset-backed securities classified as “Other trading account assets”
attributable to the Financial Services Businesses have credit ratings of A or above, 18% have BBB credit ratings, and the remaining 15%
have BB or below credit ratings. As of December 31, 2012, on an amortized cost basis, 100% of asset-backed securities classified as “Other
trading account assets” attributable to the Closed Block Business have credit ratings of A or above.
Commercial Mortgage and Other Loans
Investment Mix
As of December 31, 2012 and 2011, we held approximately 9% and 10%, respectively, of our general account investments in
commercial mortgage and other loans. This percentage is net of a $244 million and $310 million allowance for losses as of December 31,
2012 and 2011, respectively.
The following table sets forth the composition of our commercial mortgage and other loans portfolio, before the allowance for losses,
as of the dates indicated.
December 31, 2012 December 31, 2011
Financial
Services
Businesses
Closed
Block
Business
Financial
Services
Businesses
Closed
Block
Business
(in millions)
Commercial and agricultural mortgage loans ............................................... $24,139 $9,666 $21,988 $9,100
Uncollateralized loans ................................................................. 1,833 0 2,236 0
Residential property loans .............................................................. 790 0 1,033 0
Other collateralized loans .............................................................. 47 0 66 0
Total commercial mortgage and other loans(1) .......................................... $26,809 $9,666 $25,323 $9,100
(1) Excluded from the table above are commercial mortgage loans held outside the general account in other entities and operations. For additional
information regarding commercial mortgage loans held outside the general account, see “—Invested Assets of Other Entities and Operations” below.
We originate commercial and agricultural mortgage loans using a dedicated investment staff and a network of independent companies
through our various regional offices. All loans are underwritten consistently to our standards using a proprietary quality rating system that
has been developed from our experience in real estate and mortgage lending.
Uncollateralized loans primarily represent reverse dual currency loans and corporate loans which do not meet the definition of a
security under authoritative accounting guidance.
Residential property loans primarily include Japanese recourse loans. Upon default of these recourse loans we can make a claim against
the personal assets of the property owner, in addition to the mortgaged property. These loans are also backed by third party guarantors.
Other collateralized loans attributable to the Financial Services Businesses include $45 million and $63 million of collateralized
consumer loans as of December 31, 2012 and 2011, respectively.
Composition of Commercial and Agricultural Mortgage Loans
The commercial real estate market was severely impacted by the financial crisis and the subsequent recession, though the flow of
capital to commercial real estate has been strong since 2010. Portfolio lenders have been actively originating loans, focusing primarily on
Prudential Financial, Inc. 2012 Annual Report 79