Prudential 2015 Annual Report Download - page 200

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 2014
Derivative Assets–
Equity
Derivative
Assets–
Interest Rate
(in millions)
Fair Value, beginning of period .................................................................... $0 $3
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net ................................................... 1 0
Other income ....................................................................... 0 0
Purchases .................................................................................. 0 0
Sales ..................................................................................... 0 0
Issuances .................................................................................. 0 0
Settlements ................................................................................ 0 0
Transfers into Level 3(1) ...................................................................... 5 0
Transfers out of Level 3(1) .................................................................... 0 0
Fair Value, end of period .......................................................................... $6 $3
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period:
Included in earnings:
Realized investment gains (losses), net ................................................... $1 $0
Other income ....................................................................... $0 $0
(1) Transfers into or out of Level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.
Nonrecurring Fair Value Measurements—The following table represents information for assets measured at fair value on a
nonrecurring basis. The estimated fair values were classified as Level 3 in the valuation hierarchy.
Year Ended December 31,
2015 2014 2013
(in millions)
Commercial mortgage loans(1):
Carrying value .................................................................................... $ 0 $ 0 $ 27
Gains (Losses) .................................................................................... $ 0 $ 0 $ (9)
Mortgage servicing rights(2):
Carrying value .................................................................................... $ 90 $ 89 $100
Gains (Losses) .................................................................................... $ (7) $ 7 $ 16
Cost method investments(3):
Carrying value .................................................................................... $239 $102 $338
Gains (Losses) .................................................................................... $(123) $ (21) $ (21)
(1) The reserve adjustments were based on discounted cash flows utilizing market rates or the fair value of the underlying real estate collateral.
(2) Mortgage servicing rights are revalued based on internal models which utilize inputs. The fair value for mortgage servicing rights is determined using a
discounted cash flow model incorporating assumptions for servicing revenues, adjusted for expected prepayments, delinquency rates, escrow deposit
income and estimated loan servicing expenses.
(3) For cost method impairments, the methodologies utilized were primarily discounted cash flow and, where appropriate, valuations provided by the
general partners taking into consideration investment-related expenses.
Fair Value Option
The fair value option provides the Company an option to elect fair value as an alternative measurement for selected financial assets
and financial liabilities not otherwise reported at fair value. Such elections have been made by the Company to help mitigate volatility in
earnings that results from different measurement attributes. Electing the fair value option also allows the Company to achieve consistent
accounting for certain assets and liabilities.
198 Prudential Financial, Inc. 2015 Annual Report