Prudential 2012 Annual Report Download - page 85

Equity Securities
Investment Mix
The equity securities attributable to the Financial Services Businesses consist principally of investments in common and preferred
stock of publicly-traded companies, as well as mutual fund shares. The following table sets forth the composition of our equity securities
portfolio attributable to the Financial Services Businesses and the associated gross unrealized gains and losses as of the dates indicated.
Equity Securities—Financial Services Businesses
December 31, 2012 December 31, 2011
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in millions)
Non-redeemable preferred stocks .................... $ 15 $ 2 $ 0 $ 17 $ 19 $ 1 $ 1 $ 19
Mutual fund common stocks(1) ..................... 1,874 516 0 2,390 1,708 428 2 2,134
Other common stocks ............................. 2,392 274 42 2,624 2,428 92 272 2,248
Total equity securities(2) ...................... $4,281 $792 $42 $5,031 $4,155 $521 $275 $4,401
(1) Includes mutual fund shares representing our interest in the underlying assets of certain of our separate account investments supporting corporate-owned
life insurance. These mutual funds invest primarily in high yield bonds.
(2) Amounts presented exclude hedge funds and other alternative investments which are reported in “Other long-term investments.”
The following table sets forth the composition of our equity securities portfolio attributable to the Closed Block Business and the
associated gross unrealized gains and losses as of the dates indicated.
Equity Securities—Closed Block Business
December 31, 2012 December 31, 2011
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in millions)
Non-redeemable preferred stocks .................... $ 10 $ 2 $ 0 $ 12 $ 11 $ 0 $ 0 $ 11
Common stocks ................................. 2,447 779 13 3,213 2,746 538 173 3,111
Total equity securities ........................ $2,457 $781 $13 $3,225 $2,757 $538 $173 $3,122
Other-Than-Temporary Impairments of Equity Securities
For those equity securities classified as available-for-sale, we record unrealized gains and losses to the extent cost is different from
estimated fair value. All securities with unrealized losses are subject to our review to identify other-than-temporary impairments in value.
In evaluating whether a decline in value is other-than-temporary, we consistently consider several factors including, but not limited to, the
following:
• the extent and the duration of the decline; including, but not limited to, the following general guidelines:
• declines in value greater than 20%, maintained for six months or greater;
• declines in value maintained for one year or greater; and
• declines in value greater than 50%;
• the reasons for the decline in value (issuer specific event, currency or market fluctuation);
• our ability and intent to hold the investment for a period of time to allow for a recovery of value, including certain equity securities
managed by independent third parties where we do not exercise management discretion concerning individual buy or sell decisions;
and
• the financial condition of and near-term prospects of the issuer.
We generally recognize other-than-temporary impairments for securities with declines in value greater than 50% maintained for six
months or greater or with any decline in value maintained for one year or greater. In addition, in making our determinations we continue to
analyze the financial condition and near-term prospects of the issuer, including an assessment of the issuer’s capital position, and consider
our ability and intent to hold the investment for a period of time to allow for a recovery of value.
For those securities that have declines in value that are deemed to be only temporary, we make an assertion as to our ability and intent
to retain the security until recovery. Once identified, these securities are restricted from trading unless authorized based upon events that
could not have been foreseen at the time we asserted our ability and intent to retain the security until recovery. Examples of such events
include, but are not limited to, the deterioration of the issuer’s creditworthiness, a major business combination or disposition, a change in
regulatory requirements, certain other portfolio actions or other similar events. For those securities that have declines in value for which we
cannot assert our ability and intent to retain until recovery, including certain equity securities managed by independent third parties where
we do not exercise management discretion concerning individual buy or sell decisions, impairments are recognized as other-than-temporary
regardless of the reason for, or the extent of, the decline. For perpetual preferred securities, which have characteristics of both debt and
equity securities, we apply an impairment model similar to our fixed maturity securities, factoring in the position of the security in the
capital structure and the lack of a formal maturity date. For additional discussion of our policies regarding other-than-temporary
impairments of fixed maturity securities, see “—Fixed Maturity Securities—Other-than-Temporary Impairments of Fixed Maturity
Securities” above.
When we determine that there is an other-than-temporary impairment, we record a writedown to estimated fair value, which reduces
the cost basis and is included in “Realized investment gains (losses), net.” See Note 2 to the Consolidated Financial Statements for
Prudential Financial, Inc. 2012 Annual Report 83