Prudential 2015 Annual Report Download - page 149

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
In addition to the amounts invested in separate account investment options above, $8,714 million at December 31, 2015, and $8,948
million at December 31, 2014, of account balances of variable annuity contracts with guarantees, inclusive of contracts with MVA features,
were invested in general account investment options. For the years ended December 31, 2015, 2014 and 2013, there were no transfers of
assets, other than cash, from the general account to any separate account, and accordingly no gains or losses recorded.
Liabilities for Guarantee Benefits
The table below summarizes the changes in general account liabilities for guarantees. The liabilities for guaranteed minimum death
benefits (“GMDB”), and guaranteed minimum income benefits (“GMIB”) are included in “Future policy benefits” and the related changes
in the liabilities are included in “Policyholders’ benefits.” Guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum
withdrawal benefits (“GMWB”), and guaranteed minimum income and withdrawal benefits (“GMIWB”) are accounted for as embedded
derivatives and are recorded at fair value within “Future policy benefits.” Changes in the fair value of these derivatives, including changes
in the Company’s own risk of non-performance, along with any fees attributed or payments made relating to the derivative, are recorded in
“Realized investment gains (losses), net.” See Note 20 for additional information regarding the methodology used in determining the fair
value of these embedded derivatives. The Company maintains a portfolio of derivative investments that serve as a partial hedge of the risks
associated with these products, for which the changes in fair value are also recorded in “Realized investment gains (losses), net.” This
portfolio of derivative investments does not qualify for hedge accounting treatment under U.S. GAAP. Additionally, the Company
externally reinsures the guaranteed benefit features associated with certain contracts. See Note 13 for further information regarding the
external reinsurance arrangement.
GMDB GMIB
GMAB/
GMWB/
GMIWB
Variable Life,
Variable
Universal Life
and
Universal Life Annuity Annuity Annuity
(in millions)
Balance at December 31, 2012 ......................................................... $ 371 $488 $459 $ 3,348
Incurred guarantee benefits(1) ...................................................... 97 35 10 (2,904)
Paid guarantee benefits and other ................................................... (4) (75) (23) 0
Other(2)(3) ..................................................................... 1,331 13 (49) (3)
Balance at December 31, 2013 ......................................................... 1,795 461 397 441
Incurred guarantee benefits(1) ...................................................... 794 245 84 7,741
Paid guarantee benefits and other ................................................... (18) (68) (15) 0
Other(2) ....................................................................... 279 4 1 0
Balance at December 31, 2014 ......................................................... 2,850 642 467 8,182
Incurred guarantee benefits(1) ...................................................... 517 167 1 252
Paid guarantee benefits ........................................................... (22) (85) (16) 0
Other(2) ....................................................................... (195) (10) (12) (1)
Balance at December 31, 2015 ......................................................... $3,150 $714 $440 $ 8,433
(1) Incurred guarantee benefits include the portion of assessments established as additions to reserves as well as changes in estimates affecting the reserves.
Also includes changes in the fair value of features considered to be derivatives.
(2) Other primarily represents impact of changes in unrealized investment gains and losses and foreign currency translation.
(3) GMDB includes amounts acquired from The Hartford Life Business on January 2, 2013.
The GMDB liability is determined each period end by estimating the accumulated value of a portion of the total assessments to date
less the accumulated value of the guaranteed death benefits in excess of the account balance. The GMIB liability associated with variable
annuities is determined each period by estimating the accumulated value of a portion of the total assessments to date less the accumulated
value of the projected income benefits in excess of the account balance. The portion of assessments used is chosen such that, at issue the
present value of expected death benefits or expected income benefits in excess of the projected account balance and the portion of the
present value of total expected assessments over the lifetime of the contracts are equal. The GMIB liability associated with fixed annuities
is determined each period by estimating the present value of projected income benefits in excess of the account balance. The Company
regularly evaluates the estimates used and adjusts the GMDB and GMIB liability balances, with an associated charge or credit to earnings,
if actual experience or other evidence suggests that earlier estimates should be revised.
The GMAB features provide the contractholder with a guaranteed return of initial account value or an enhanced value if applicable.
The most significant of the Company’s GMAB features are the guaranteed return option features, which includes an automatic rebalancing
element that reduces the Company’s exposure to these guarantees. The GMAB liability is calculated as the present value of future expected
payments in excess of the account balance less the present value of future expected rider fees attributable to the embedded derivative
feature.
Prudential Financial, Inc. 2015 Annual Report 147