Prudential 2015 Annual Report Download - page 144

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
In addition, in the normal course of its activities, the Company will invest in structured investments including VIEs for which it is not
the investment manager. These structured investments typically invest in fixed income investments and are managed by third parties and
include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The Company’s
maximum exposure to loss on these structured investments, both VIEs and non-VIEs, is limited to the amount of its investment. See Note 4
for details regarding the carrying amounts and classification of these assets. The Company has not provided material financial or other
support that was not contractually required to these structures. The Company has determined that it is not the primary beneficiary of these
structures due to the fact that it does not control these entities.
6. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in DAC as of and for the years ended December 31, are as follows:
2015 2014 2013
(in millions)
Balance, beginning of year ............................................................................. $15,971 $16,512 $14,100
Capitalization of commissions, sales and issue expenses .................................................. 2,653 2,694 2,902
Amortization—Impact of assumption and experience unlocking and true-ups ................................. 280 629 328
Amortization—All other ........................................................................... (2,400) (2,602) (568)
Change in unrealized investment gains and losses ....................................................... 477 (697) 492
Foreign currency translation and other ................................................................ (263) (565) (742)
Balance, end of year .................................................................................. $16,718 $15,971 $16,512
7. INVESTMENTS IN OPERATING JOINT VENTURES
The Company has made investments in certain joint ventures that are strategic in nature and made other than for the sole purpose of
generating investment income. These investments are accounted for under the equity method of accounting and are included in “Other
assets” in the Company’s Consolidated Statements of Financial Position. The earnings from these investments are included on an after-tax
basis in “Equity in earnings of operating joint ventures, net of taxes” in the Company’s Consolidated Statements of Operations. The
summarized financial information for the Company’s operating joint ventures has been included in the summarized combined financial
information for all significant equity method investments shown in Note 4.
The following table sets forth information related to the Company’s investments in operating joint ventures as of and for the years
ended December 31:
2015 2014 2013
(in millions)
Investment in operating joint ventures ............................................................................ $341 $325 $361
Dividends received from operating joint ventures ................................................................... $ 27 $ 27 $ 31
After-tax equity earnings of operating joint ventures(1) .............................................................. $ 15 $ 16 $ 59
(1) Includes gains associated with sales of the Company’s previous investment, through a consortium, in China Pacific Group, for which the Company’s
remaining shares were sold in January 2013. For the year ended December 31, 2013, the Company recognized a pre-tax gain of $66 million from the
sale of this investment.
The Company has made investments in operating joint ventures as part of its Asset Management and International Insurance segments
and its Corporate and Other operations. For the years ended December 31, 2015, 2014 and 2013, the Company recognized $34 million, $33
million and $30 million, respectively, of asset management fee income from these transactions.
8. VALUE OF BUSINESS ACQUIRED
The balances of and changes in VOBA as of and for the years ended December 31, are as follows:
2015(1) 2014 2013
(in millions)
Balance, beginning of year ............................................................................... $2,836 $3,675 $3,248
Acquisitions ....................................................................................... 0 7 1,370
Amortization—Impact of assumption and experience unlocking and true-ups ................................... 128 (175) 59
Amortization—All other ............................................................................. (385) (420) (509)
Change in unrealized investment gains and losses ......................................................... 214 (89) (55)
Interest(2) ........................................................................................ 86 95 105
Foreign currency translation .......................................................................... (57) (257) (543)
Other ............................................................................................ 6 0 0
Balance, end of year .................................................................................... $2,828 $2,836 $3,675
142 Prudential Financial, Inc. 2015 Annual Report