Prudential 2015 Annual Report Download - page 143

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
The table below reflects the carrying amount and balance sheet caption in which the assets and liabilities of consolidated VIEs are
reported. The liabilities primarily comprise obligations under debt instruments issued by the VIEs that are non-recourse to the Company.
The creditors of these VIEs do not have recourse to the Company in excess of the assets contained within the VIEs.
Consolidated VIEs for
Which the Company is the
Investment Manager Other Consolidated VIEs
December 31, December 31,
2015 2014 2015 2014
(in millions)
Fixed maturities, available-for-sale ................................................ $ 0 $ 44 $ 179 $ 104
Fixed maturities, held-to-maturity ................................................. 0 0 760 763
Trading account assets supporting insurance liabilities ................................. 0 0 10 11
Other trading account assets ...................................................... 9,536 6,943 0 0
Commercial mortgage and other loans .............................................. 0 13 300 300
Other long-term investments ..................................................... 0 0 155 159
Cash and cash equivalents ....................................................... 337 623 1 0
Accrued investment income ...................................................... 56 39 3 3
Other assets ................................................................... 324 166 3 0
Total assets of consolidated VIEs ............................................. $10,253 $7,828 $1,411 $1,340
Notes issued by consolidated VIEs ................................................ $ 8,597 $6,058 $ 0 $ 0
Other liabilities ................................................................ 674 674 3 1
Total liabilities of consolidated VIEs ........................................... $ 9,271 $6,732 $ 3 $ 1
As included in the table above, notes issued by consolidated VIEs are classified in the line item on the Consolidated Statements of
Financial Position titled, “Notes issued by consolidated VIEs.” Recourse is limited to the assets of the respective VIE and does not extend
to the general credit of Prudential Financial. As of December 31, 2015, the maturities of these obligations were greater than five years.
In addition, not reflected in the table above, the Company has created a trust that is a VIE, to facilitate Prudential Insurance’s Funding
Agreement Notes Issuance Program (“FANIP”). The trust issues medium-term notes secured by funding agreements issued to the trust by
Prudential Insurance with the proceeds of such notes. The trust is the beneficiary of an indemnity agreement with the Company that
provides that the Company is responsible for costs related to the notes issued with limited exceptions. As a result, the Company has
determined that it is the primary beneficiary of the trust, which is therefore consolidated.
The funding agreements represent an intercompany transaction that is eliminated upon consolidation. However, in recognition of the
security interest in such funding agreements, the trust’s medium-term note liability of $2,958 million and $2,705 million at December 31,
2015 and 2014, respectively, is classified within “Policyholders’ account balances.” Creditors of the trust have recourse to Prudential
Insurance if the trust fails to make contractual payments on the medium-term notes. The Company has not provided material financial or
other support to the trust that was not contractually required.
Unconsolidated Variable Interest Entities
The Company has determined that it is not the primary beneficiary of certain VIEs for which it is the investment manager. These VIEs
consist primarily of investment funds for which the Company utilizes the Investment Company Model to assess consolidation.
Accordingly, the Company has determined that it is not the primary beneficiary of these entities because it does not stand to absorb a
majority of the VIE’s expected losses or to receive a majority of the VIE’s expected residual returns. For all other investment structures, the
Company has determined that it is not the primary beneficiary as it does not have both (1) the power to direct the activities of the VIE that
most significantly impact the economic performance of the entity and (2) the obligation to absorb losses of the entity that could be
potentially significant to the VIE or the right to receive benefits from the entity that could be potentially significant. The Company’s
maximum exposure to loss resulting from its relationship with unconsolidated VIEs for which it is the investment manager is limited to its
investment in the VIEs, which was $218 million and $137 million at December 31, 2015 and 2014, respectively. These investments are
reflected in “Fixed maturities, available-for-sale,” “Other trading account assets, at fair value” and “Other long-term investments.” The fair
value of assets held within these unconsolidated VIEs was $5,262 million and $6,973 million as of December 31, 2015 and 2014,
respectively. There are no liabilities associated with these unconsolidated VIEs on the Company’s Consolidated Statements of Financial
Position.
In the normal course of its activities, the Company will invest in joint ventures and limited partnerships. These ventures include hedge
funds, private equity funds and real estate-related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these
investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company has determined that it is not required to
consolidate these entities because either (1) it does not control them or (2) it does not have the obligation to absorb losses of the entities that
could be potentially significant to the entities or the right to receive benefits from the entities that could be potentially significant. The
Company classifies these investments as “Other long-term investments” and its maximum exposure to loss associated with these entities
was $7,532 million and $7,545 million as of December 31, 2015 and 2014, respectively.
Prudential Financial, Inc. 2015 Annual Report 141