Prudential 2012 Annual Report Download - page 84

Commercial Mortgage and Other Loans by Contractual Maturity Date
The following table sets forth the breakdown of our commercial mortgage and other loan portfolio by contractual maturity as of
December 31, 2012.
December 31, 2012
Financial Services Businesses Closed Block Business
Amortized
Cost % of Total
Amortized
Cost % of Total
($ in millions)
Vintage
Maturing in 2013 ............................................................. $ 2,106 7.9% $ 583 6.0%
Maturing in 2014 ............................................................. 1,292 4.8 846 8.8
Maturing in 2015 ............................................................. 2,364 8.8 720 7.4
Maturing in 2016 ............................................................. 3,068 11.4 928 9.6
Maturing in 2017 ............................................................. 2,837 10.6 666 6.9
Maturing in 2018 ............................................................. 3,368 12.6 1,119 11.6
Maturing in 2019 ............................................................. 1,849 6.9 555 5.7
Maturing in 2020 ............................................................. 1,938 7.2 880 9.1
Maturing in 2021 ............................................................. 2,270 8.5 1,002 10.4
Maturing in 2022 ............................................................. 1,858 6.9 984 10.2
Maturing in 2023 ............................................................. 479 1.8 252 2.6
Maturing in 2024 and beyond ................................................... 3,380 12.6 1,131 11.7
Total commercial mortgage and other loans .................................... $26,809 100.0% $9,666 100.0%
Commercial Mortgage and Other Loan Quality
Ongoing review of the portfolio is performed and loans are placed on watch list status based on a predefined set of criteria, where they
are assigned to one of the following categories. We place loans on early warning status in cases where, based on our analysis of the loan’s
collateral, the financial situation of the borrower or tenants or other market factors, we believe a loss of principal or interest could occur.
We classify loans as closely monitored when we determine there is a collateral deficiency or other credit events that may lead to a potential
loss of principal or interest. Loans not in good standing are those loans where we have concluded that there is a high probability of loss of
principal, such as when the loan is in the process of foreclosure or the borrower is in bankruptcy. In our domestic operations, our workout
and special servicing professionals manage the loans on the watch list. As described below, in determining our allowance for losses we
evaluate each loan on the watch list to determine if it is probable that amounts due according to the contractual terms of the loan agreement
will not be collected. In our international portfolios, we monitor delinquency in consumer loans on a pool basis and evaluate any servicing
relationship and guarantees the same way we do for commercial mortgage loans.
We establish an allowance for losses to provide for the risk of credit losses inherent in the lending process. The allowance includes
loan specific reserves for loans that are determined to be impaired as a result of our loan review process, and a portfolio reserve for
probable incurred but not specifically identified losses for loans which are not on the watch list. We define an impaired loan as a loan for
which we estimate it is probable that amounts due according to the contractual terms of the loan agreement will not be collected. The loan
specific portion of the loss allowance is based on our assessment as to ultimate collectability of loan principal and interest. Valuation
allowances for an impaired loan are recorded based on the present value of expected future cash flows discounted at the loan’s effective
interest rate or based on the fair value of the collateral if the loan is collateral dependent. The portfolio reserve for incurred but not
specifically identified losses considers the current credit composition of the portfolio based on the internal quality ratings mentioned above.
The portfolio reserves are determined using past loan experience, including historical credit migration, loss probability, and loss severity
factors by property type. These factors are reviewed and updated as appropriate. The valuation allowance for commercial mortgage and
other loans can increase or decrease from period to period based on these factors.
Our general account investments in commercial mortgage and other loans attributable to the Financial Services Businesses, based
upon the recorded investment gross of allowance for credit losses, was $26,809 million and $25,323 million as of December 31, 2012 and
2011, respectively. As a percentage of recorded investment gross of allowance, 99% of the assets were current for both periods.
Our general account investments in commercial mortgage and other loans attributable to the Closed Block Business, based upon the
recorded investment gross of allowance for credit losses, was $9,666 million and $9,100 million as of December 31, 2012 and 2011,
respectively. As a percentage of recorded investment gross of allowance, more than 99% of the assets were current for both periods.
The following table sets forth the change in valuation allowances for our commercial mortgage and other loan portfolio 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)
Allowance, beginning of year ........................................................... $250 $60 $333 $102
Addition to/(release of) allowance for losses ........................................... (11) (2) (71) (34)
Charge-offs, net of recoveries ....................................................... (51) 0 (15) (8)
Change in foreign exchange ........................................................ (2) 0 3 0
Allowance, end of period ............................................................... $186 $58 $250 $ 60
Loan specific reserve .............................................................. 41 7 91 2
Portfolio reserve .................................................................. 145 51 159 58
82 Prudential Financial, Inc. 2012 Annual Report