Prudential 2012 Annual Report Download - page 93

(2) Includes Prudential Gibraltar.
(3) Represents our international insurance operations, excluding Japan.
We believe most of the longer-term recurring pay individual life insurance policies sold by our Japanese operations do not have
significant withdrawal risk because policyholders may incur surrender charges and must undergo a new underwriting process to obtain a
new insurance policy. In addition, we utilize market value adjustment features to mitigate the profitability impact and timing of
withdrawals of funds by customers. As of December 31, 2012, products with a market value adjustment feature represented $19.9 billion of
our Japan operations’ insurance-related liabilities.
Recently, Gibraltar Life has had substantial sales of its yen-denominated single premium reduced death benefit whole life product that
has a greater savings component. This product is more susceptible to increased levels of surrenders if interest rates increase in Japan, which
may result in losses. As of December 31, 2012, single premium reduced death benefit whole life products represented $10.0 billion of our
Japan operations’ insurance-related liabilities. Gibraltar Life also sells fixed annuities denominated in U.S. and Australian dollars that may
be subject to increased surrenders should these currencies appreciate in relation to the yen and interest rates in Australia and the U.S.
decline relative to Japan. As of December 31, 2012, fixed annuities denominated in U.S. and Australian dollars represented $17.1 billion of
our Japan operations’ insurance-related liabilities, of which $14.5 billion include a market value adjustment feature which mitigates the
profitability impact from surrenders.
Liquid Assets
Liquid assets include cash and cash equivalents, short-term investments, fixed maturities that are not designated as held-to-maturity
and public equity securities. In addition to access to substantial investment portfolios, our insurance companies’ liquidity is managed
through access to a variety of instruments available for funding and/or managing cash flow mismatches, including from time to time those
arising from claim levels in excess of projections. Our ability to utilize assets and liquidity between our subsidiaries is limited by regulatory
and other constraints. We believe that ongoing operations and the liquidity profile of our assets provide sufficient liquidity under
reasonably foreseeable stress scenarios for each of our insurance subsidiaries.
The following table sets forth the fair value of our domestic insurance operations’ portfolio of liquid assets, including cash and short-
term investments, fixed maturity investments other than those designated as held-to-maturity, by NAIC or equivalent rating, and public
equity securities, as of the dates indicated.
December 31, 2012
Prudential
Insurance PRIAC Other(1) Total
December 31,
2011
(in billions)
Cash and short-term investments ............................................... $ 5.6 $ 1.0 $ 0.8 $ 7.4 $ 6.6
Fixed maturity investments:
High or highest quality ................................................... 130.0 18.8 9.8 158.6 124.6
Other than high or highest quality .......................................... 8.1 1.3 0.6 10.0 10.3
Subtotal .................................................................. 138.1 20.1 10.4 168.6 134.9
Public equity securities ...................................................... 3.6 0 0 3.6 3.3
Total ..................................................................... $147.3 $21.1 $11.2 $179.6 $144.8
(1) Includes PALAC and PRUCO life insurance companies
The following table sets forth the fair value of our international insurance operations’ portfolio of liquid assets, including cash and
short-term investments, fixed maturity investments other than those designated as held-to-maturity, by NAIC or equivalent rating, and
public equity securities, as of the dates indicated.
December 31, 2012
Prudential
of Japan
Gibraltar
Life(1)
All
Other(2) Total
December 31,
2011
(in billions)
Cash and short-term investments ............................................. $ 0.6 $ 4.5 $ 0.1 $ 5.2 $ 5.4
Fixed maturity investments:
High or highest quality(3) .............................................. 28.6 94.7 11.6 134.9 120.6
Other than high or highest quality ........................................ 0.4 2.0 0.1 2.5 2.0
Subtotal ................................................................ 29.0 96.7 11.7 137.4 122.6
Public equity securities ..................................................... 1.3 2.1 0.4 3.8 3.4
Total ................................................................... $30.9 $103.3 $12.2 $146.4 $131.4
(1) Includes Prudential Gibraltar.
(2) Represents our international insurance operations, excluding Japan.
(3) Of the $134.9 billion of fixed maturity investments that are not designated as held–to-maturity and considered high or highest quality as of
December 31, 2012, $95.9 billion, or 71%, were invested in government or government agency bonds.
Prudential Financial, Inc. 2012 Annual Report 91