Prudential 2015 Annual Report Download - page 113

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
1. BUSINESS AND BASIS OF PRESENTATION
Prudential Financial, Inc. (“Prudential Financial”) and its subsidiaries (collectively, “Prudential” or the “Company” or “PFI”) provide
a wide range of insurance, investment management, and other financial products and services to both individual and institutional customers
throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities,
retirement-related services, mutual funds and investment management.
From December 18, 2001, the date of demutualization, through December 31, 2014, the Company organized its principal operations
into the Financial Services Businesses and the Closed Block Business, and had two classes of common stock outstanding. The Common
Stock, which is publicly-traded (NYSE:PRU), reflected the performance of the Financial Services Businesses, while the Class B Stock,
which was issued through a private placement and did not trade on any exchange, reflected the performance of the Closed Block Business.
On January 2, 2015, Prudential Financial repurchased and canceled all of the shares of the Class B Stock (the “Class B Repurchase”).
As a result, the Company no longer organizes its principal operations into the Financial Services Businesses and the Closed Block
Business. The Company’s principal operations are comprised of four divisions: the U.S. Retirement Solutions and Investment Management
division, the U.S. Individual Life and Group Insurance division, the International Insurance division and the Closed Block division. The
Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments and
businesses that have been or will be divested, excluding the Closed Block division.
The Closed Block division includes certain in force participating insurance and annuity products and corresponding assets that are
used for the payment of benefits and policyholders’ dividends on these products (the “Closed Block”), as well as certain related assets and
liabilities. See Note 12 for further information on the Closed Block. In connection with demutualization, the Company ceased offering
these participating products. The Closed Block division is accounted for as a divested business that is reported separately from the divested
businesses that are included in the Company’s Corporate and Other operations.
Basis of Presentation
As a result of the Class B Repurchase and resulting elimination of the separation of the Financial Services Businesses and the Closed
Block Business, these Consolidated Financial Statements refer to the divisions and segments of the Company that formerly comprised the
Financial Services Businesses as “PFI excluding Closed Block division” and refer to the operations that were formerly included in the
Closed Block Business as the “Closed Block division,” except as otherwise noted. Closed Block Business results were associated with the
Company’s Class B Stock for periods prior to January 1, 2015.
The Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises
control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the
general partner, and variable interest entities in which the Company is considered the primary beneficiary. See Note 5 for more information
on the Company’s consolidated variable interest entities. The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and transactions have
been eliminated.
The Company’s Gibraltar Life Insurance Company, Ltd. (“Gibraltar Life”) consolidated operations use a November 30 fiscal year end
for purposes of inclusion in the Company’s Consolidated Financial Statements. Consolidated balance sheet data as of December 31, 2015
and 2014, include the assets and liabilities of Gibraltar Life as of November 30 for each respective year. Consolidated income statement
data for the years ended December 31, 2015, 2014 and 2013, include Gibraltar Life’s results of operations for the twelve months ended
November 30 for each respective year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining deferred policy acquisition costs (“DAC”) and related amortization;
value of business acquired (“VOBA”) and its amortization; amortization of sales inducements; measurement of goodwill and any related
impairment; valuation of investments including derivatives and the recognition of other-than-temporary impairments (“OTTI”); future
policy benefits including guarantees; pension and other postretirement benefits; provision for income taxes and valuation of deferred tax
assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal matters.
Out of Period Adjustments
As previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2014, during 2014, the Company
recorded out of period adjustments resulting in an aggregate net decrease of $193 million to “Income (loss) from continuing operations
before income taxes and equity in earnings of operating joint ventures” for the year ended December 31, 2014. Such adjustments were
primarily comprised of: 1) a charge of $58 million from an increase in reserves for group long-term disability products; 2) a charge of $43
million from an increase in the deferred profit liability for certain limited pay business within the Gibraltar Life business; and 3) a charge of
Prudential Financial, Inc. 2015 Annual Report 111