Prudential 2015 Annual Report Download - page 203

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
Other Long-Term Investments
Other long-term investments include investments in joint ventures and limited partnerships. The estimated fair values of these cost
method investments are generally based on the Company’s NAV as provided in the financial statements of the investees. In certain
circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to support applying such
adjustments. No such adjustments were made as of December 31, 2015 and 2014.
Short-Term Investments, Cash and Cash Equivalents, Accrued Investment Income and Other Assets
The Company believes that due to the short-term nature of certain assets, the carrying value approximates fair value. These assets
include: certain short-term investments which are not securities, are recorded at amortized cost and include quality loans; cash and cash
equivalent instruments; accrued investment income; and other assets that meet the definition of financial instruments, including receivables,
such as reinsurance recoverables, unsettled trades, accounts receivable and restricted cash.
Policyholders’ Account Balances—Investment Contracts
Only the portion of policyholders’ account balances related to products that are investment contracts (those without significant
mortality or morbidity risk) are reflected in the table above. For fixed deferred annuities, single premium endowments, payout annuities
and other similar contracts without life contingencies, fair values are generally derived using discounted projected cash flows based on
interest rates that are representative of the Company’s financial strength ratings, and hence reflect the Company’s own NPR. For
guaranteed investment contracts, funding agreements, structured settlements without life contingencies and other similar products, fair
values are generally derived using discounted projected cash flows based on interest rates being offered for similar contracts with
maturities consistent with those of the contracts being valued. For those balances that can be withdrawn by the customer at any time
without prior notice or penalty, the fair value is the amount estimated to be payable to the customer as of the reporting date, which is
generally the carrying value. For defined contribution and defined benefit contracts and certain other products, the fair value is the market
value of the assets supporting the liabilities.
Securities Sold Under Agreements to Repurchase
The Company receives collateral for selling securities under agreements to repurchase, or pledges collateral under agreements to
resell. Repurchase and resale agreements are also generally short-term in nature and, therefore, the carrying amounts of these instruments
approximate fair value.
Cash Collateral for Loaned Securities
Cash collateral for loaned securities represents the collateral received or paid in connection with loaning or borrowing securities,
similar to the securities sold under agreement to repurchase above. For these transactions, the carrying value of the related asset or liability
approximates fair value, as they equal the amount of cash collateral received or paid.
Debt
The fair value of short-term and long-term debt, as well as notes issued by consolidated VIEs, is generally determined by either prices
obtained from independent pricing services, which are validated by the Company, or discounted cash flow models. With the exception of
the notes issued by consolidated VIEs for which recourse is limited to the assets of the respective VIE and does not extend to the general
credit of the Company, the fair values of these instruments consider the Company’s own NPR. Discounted cash flow models predominately
use market observable inputs such as the borrowing rates currently available to the Company for debt and financial instruments with similar
terms and remaining maturities. For commercial paper issuances and other debt with a maturity of less than 90 days, the carrying value
approximates fair value.
Other Liabilities
Other liabilities are primarily payables, such as reinsurance payables, unsettled trades, drafts and accrued expense payables. Due to the
short-term until settlement of most of these liabilities, the Company believes that carrying value approximates fair value.
Separate Account Liabilities—Investment Contracts
Only the portion of separate account liabilities related to products that are investment contracts are reflected in the table above.
Separate account liabilities are recorded at the amount credited to the contractholder, which reflects the change in fair value of the
corresponding separate account assets including contractholder deposits less withdrawals and fees; therefore, carrying value approximates
fair value.
Prudential Financial, Inc. 2015 Annual Report 201