Prudential 2015 Annual Report Download - page 201

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
The following table presents information regarding changes in fair values recorded in earnings for commercial mortgage and other
loans, other long-term investments and notes issued by consolidated VIEs, where the fair value option has been elected.
Year Ended December 31,
2015 2014 2013
(in millions)
Assets:
Commercial mortgage and other loans:
Changes in instrument-specific credit risk ........................................................... $ 0 $ 0 $ 0
Other changes in fair value ...................................................................... 0 0 0
Other long-term investments:
Changes in fair value ........................................................................... 2 54 68
Liabilities:
Notes issued by consolidated VIEs:
Changes in fair value ........................................................................... $(434) $(201) $(17)
Changes in fair value are reflected in “Realized investment gains (losses), net” for commercial mortgage and other loans and “Other
income” for other long-term investments and notes issued by consolidated VIEs. Changes in fair value due to instrument-specific credit risk
are estimated based on changes in credit spreads and quality ratings for the period reported.
Interest income on commercial mortgage and other loans is included in net investment income. For the years ended December 31,
2015, 2014 and 2013, the Company recorded $11 million, $11 million and $10 million of interest income, respectively, on fair value option
loans. Interest income on these loans is recorded based on the effective interest rates as determined at the closing of the loan.
The fair values and aggregate contractual principal amounts of commercial mortgage and other loans, for which the fair value option
has been elected, were $274 million and $270 million, respectively, as of December 31, 2015, and $380 million and $372 million,
respectively, as December 31, 2014. As of December 31, 2015, there were no loans in non-accrual status and none of the loans are more
than 90 days past due and still accruing.
The fair value of other long-term investments was $1,322 million and $1,082 million as of December 31, 2015 and 2014, respectively.
The fair value and aggregate contractual principal amounts of limited recourse notes issued by consolidated VIEs, for which the fair
value option has been elected at issuance, were $8,597 million and $9,186 million, respectively, as of December 31, 2015, and $6,033
million and $6,216 million, respectively, as of December 31, 2014. Interest expense recorded for these liabilities was $351 million, $200
million and $106 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Fair Value of Financial Instruments
The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not
reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Consolidated Statements
of Financial Position; however, in some cases, as described below, the carrying amount equals or approximates fair value.
December 31, 2015
Fair Value
Carrying
Amount(1)
Level 1 Level 2 Level 3 Total Total
(in millions)
Assets:
Fixed maturities, held-to-maturity ............................................. $ 0 $ 1,543 $ 1,081 $ 2,624 $ 2,308
Commercial mortgage and other loans ......................................... 0 533 51,046 51,579 50,285
Policy loans .............................................................. 0 0 11,657 11,657 11,657
Other long-term investments ................................................. 0 0 1,653 1,653 1,563
Short-term investments ..................................................... 0 617 1 618 618
Cash and cash equivalents ................................................... 2,832 572 0 3,404 3,404
Accrued investment income .................................................. 0 3,110 0 3,110 3,110
Other assets .............................................................. 136 2,334 652 3,122 3,122
Total assets .......................................................... $2,968 $ 8,709 $66,090 $ 77,767 $ 76,067
Liabilities:
Policyholders’ account balances—investment contracts ............................ $ 0 $ 39,314 $54,957 $ 94,271 $ 93,937
Securities sold under agreements to repurchase .................................. 0 7,882 0 7,882 7,882
Cash collateral for loaned securities ........................................... 0 3,496 0 3,496 3,496
Short-term debt ........................................................... 0 1,221 0 1,221 1,216
Long-term debt ............................................................ 1,328 16,540 3,433 21,301 19,727
Notes issued by consolidated VIEs ............................................ 0 0 0 0 0
Other liabilities ............................................................ 0 5,344 695 6,039 6,039
Separate account liabilities—investment contracts ................................ 0 69,978 32,267 102,245 102,245
Total liabilities ....................................................... $1,328 $143,775 $91,352 $236,455 $234,542
Prudential Financial, Inc. 2015 Annual Report 199