Prudential 2015 Annual Report Download - page 151

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
of the policyholder dividend scales in effect in 2000, assuming experience underlying such scales continues. To the extent that, over time,
cash flows from the assets allocated to the Closed Block and claims and other experience related to the Closed Block are, in the aggregate,
more or less favorable than what was assumed when the Closed Block was established, total dividends paid to Closed Block policyholders
may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in
effect in 2000 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to Closed
Block policyholders and will not be available to stockholders. If the Closed Block has insufficient funds to make guaranteed policy benefit
payments, such payments will be made from Prudential Insurance’s assets outside of the Closed Block. The Closed Block will continue in
effect as long as any policy in the Closed Block remains in force unless, with the consent of the New Jersey insurance regulator, it is
terminated earlier.
The excess of Closed Block liabilities over Closed Block assets at the date of the demutualization (adjusted to eliminate the impact of
related amounts in AOCI) represented the estimated maximum future earnings at that date from the Closed Block expected to result from
operations attributed to the Closed Block after income taxes. In establishing the Closed Block, the Company developed an actuarial
calculation of the timing of such maximum future earnings. If actual cumulative earnings of the Closed Block from inception through the
end of any given period are greater than the expected cumulative earnings, only the expected earnings will be recognized in income. Any
excess of actual cumulative earnings over expected cumulative earnings will represent undistributed accumulated earnings attributable to
policyholders, which are recorded as a policyholder dividend obligation. The policyholder dividend obligation represents amounts to be
paid to Closed Block policyholders as an additional policyholder dividend unless otherwise offset by future Closed Block performance that
is less favorable than originally expected. If the actual cumulative earnings of the Closed Block from its inception through the end of any
given period are less than the expected cumulative earnings of the Closed Block, the Company will recognize only the actual earnings in
income. However, the Company may reduce policyholder dividend scales, which would be intended to increase future actual earnings until
the actual cumulative earnings equaled the expected cumulative earnings.
As of December 31, 2015 and 2014, the Company recognized a policyholder dividend obligation of $1,694 million and $1,558 million,
respectively, to Closed Block policyholders for the excess of actual cumulative earnings over the expected cumulative earnings. Additionally,
accumulated net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block have been reflected as a
policyholder dividend obligation of $2,815 million and $5,053 million at December 31, 2015 and 2014, respectively, to be paid to Closed
Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.
On December 5, 2013, December 5, 2014 and December 4, 2015, Prudential Insurance’s Board of Directors acted to increase the
2014, 2015 and 2016 dividends payable on Closed Block policies, respectively. These actions resulted in an increase of approximately $33
million, $60 million and $58 million in the liability for policyholders dividends recognized for the years ended December 31, 2013, 2014
and 2015, respectively.
Closed Block liabilities and assets designated to the Closed Block at December 31, as well as maximum future earnings to be
recognized from Closed Block liabilities and Closed Block assets, are as follows:
2015 2014
(in millions)
Closed Block liabilities
Future policy benefits ...................................................................................... $49,538 $49,863
Policyholders’ dividends payable ............................................................................. 945 931
Policyholders’ dividend obligation ............................................................................ 4,509 6,612
Policyholders’ account balances .............................................................................. 5,250 5,310
Other Closed Block liabilities ................................................................................ 4,171 5,084
Total Closed Block liabilities ............................................................................ 64,413 67,800
Closed Block assets
Fixed maturities, available-for-sale, at fair value ................................................................. 37,584 40,629
Other trading account assets, at fair value ...................................................................... 288 302
Equity securities, available-for-sale, at fair value ................................................................. 2,726 3,522
Commercial mortgage and other loans ......................................................................... 9,770 9,472
Policy loans .............................................................................................. 4,790 4,914
Other long-term investments ................................................................................. 2,921 2,765
Short-term investments ..................................................................................... 1,467 1,225
Total investments ..................................................................................... 59,546 62,829
Cash and cash equivalents .................................................................................. 1,036 1,201
Accrued investment income ................................................................................. 506 527
Other Closed Block assets .................................................................................. 458 332
Total Closed Block assets ............................................................................... 61,546 64,889
Excess of reported Closed Block liabilities over Closed Block assets ..................................................... 2,867 2,911
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses) ................................................................... 2,800 5,040
Allocated to policyholder dividend obligation ............................................................... (2,815) (5,053)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities ...................................... $ 2,852 $ 2,898
Prudential Financial, Inc. 2015 Annual Report 149