Prudential 2015 Annual Report Download - page 206

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
(1) Notional amounts are presented on a gross basis and include derivatives used to offset existing positions.
(2) Based on notional amounts, most of the Company’s derivatives do not qualify for hedge accounting as follows: i) derivatives that economically hedge
embedded derivatives do not qualify for hedge accounting because changes in the fair value of the embedded derivatives are already recorded in net
income, ii) derivatives that are utilized as macro hedges of the Company’s exposure to various risks typically do not qualify for hedge accounting
because they do not meet the criteria required under portfolio hedge accounting rules, and iii) synthetic GICs, which are product standalone derivatives,
do not qualify as hedging instruments under hedge accounting rules.
(3) Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlyings. The fair value of these embedded
derivatives was a net liability of $8,408 million as of December 31, 2015 and a net liability of $8,162 million as of December 31, 2014, primarily
included in “Future policy benefits.”
Offsetting Assets and Liabilities
The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance
recoverables), and repurchase and reverse repurchase agreements that are offset in the Consolidated Statements of Financial Position, and/
or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Consolidated
Statements of Financial Position.
December 31, 2015
Gross
Amounts of
Recognized
Financial
Instruments
Gross
Amounts
Offset in the
Statement of
Financial
Position
Net Amounts
Presented in
the Statement
of Financial
Position
Financial
Instruments/
Collateral(1)
Net
Amount
(in millions)
Offsetting of Financial Assets:
Derivatives(1) ................................................... $14,028 $(11,457) $2,571 $(1,296) $1,275
Securities purchased under agreement to resell ......................... 776 0 776 (776) 0
Total Assets .................................................... $14,804 $(11,457) $3,347 $(2,072) $1,275
Offsetting of Financial Liabilities:
Derivatives(1) ................................................... $ 5,310 $ (5,276) $ 34 $ (14) $ 20
Securities sold under agreement to repurchase ......................... 7,882 0 7,882 (7,882) 0
Total Liabilities ................................................. $13,192 $ (5,276) $7,916 $(7,896) $ 20
December 31, 2014
Gross
Amounts of
Recognized
Financial
Instruments
Gross
Amounts
Offset in the
Statement of
Financial
Position
Net Amounts
Presented in
the Statement
of Financial
Position
Financial
Instruments/
Collateral(1)
Net
Amount
(in millions)
Offsetting of Financial Assets:
Derivatives(1) ................................................... $13,786 $(12,332) $1,454 $ (623) $831
Securities purchased under agreement to resell ......................... 702 0 702 (702) 0
Total Assets .................................................... $14,488 $(12,332) $2,156 $(1,325) $831
Offsetting of Financial Liabilities:
Derivatives(1) ................................................... $ 6,810 $ (6,661) $ 149 $ (149) $ 0
Securities sold under agreement to repurchase ......................... 9,407 0 9,407 (9,407) 0
Total Liabilities ................................................. $16,217 $ (6,661) $9,556 $(9,556) $ 0
(1) Amounts exclude the excess of collateral received/pledged from/to the counterparty.
For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “—
Counterparty Credit Risk” below. For securities purchased under agreements to resell and securities sold under agreements to repurchase,
the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the
Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would
generally be permitted to exercise rights of offset. See Note 2 for additional information.
Cash Flow, Fair Value and Net Investment Hedges
The primary derivative instruments used by the Company in its fair value, cash flow and net investment hedge accounting
relationships are interest rate swaps, currency swaps and currency forwards. These instruments are only designated for hedge accounting in
instances where the appropriate criteria are met. The Company does not use futures, options, credit, equity or embedded derivatives in any
of its fair value, cash flow or net investment hedge accounting relationships.
204 Prudential Financial, Inc. 2015 Annual Report