Prudential 2015 Annual Report Download - page 35

(2) Excludes the net impacts of assumption updates and other refinements, and includes rider fees received attributable to future benefit payments. The
assumption update impact to the change in value of hedge target was approximately $106 million, $(1,263) million and $(1,386) million for 2015, 2014
and 2013, respectively. The assumption update impact to the change in portions of U.S. GAAP liability, before NPR, excluded from hedge target, was
approximately $(172) million, $(318) million and $(2,542) million for 2015, 2014 and 2013, respectively. The assumption update impact to the change
in the NPR adjustment was approximately $(8) million, $618 million and $1,798 million for 2015, 2014 and 2013, respectively. The assumption update
impact to the related benefit (charge) to amortization of DAC and other costs was approximately $40 million, $332 million and $597 million for 2015,
2014 and 2013, respectively.
(3) Attributed fees received for 2015, 2014 and 2013 were approximately $999 million, $940 million and $862 million, respectively, and were included in
“Change in value of hedge target.”
(4) Excludes $(585) million, $(3,036) million and $1,603 million for 2015, 2014 and 2013, respectively, representing the impact of managing interest rate
risk through capital management strategies other than hedging of particular exposures. Because this decision is based on the capital considerations of the
Company as a whole, the impact is reported in Corporate and Other operations. See “—Corporate and Other.”
(5) Represents the impact attributable to the difference between the value of the hedge target and the value of the embedded derivative as defined by U.S.
GAAP, before adjusting for NPR, as discussed above.
The net gain of $894 million for 2015 primarily reflected a $2,243 million net benefit from the change in the NPR adjustment, driven
by net increases in the base embedded derivative liability before NPR primarily due to declining interest rates and widening credit spreads.
This impact was partially offset by a $547 million net charge from changes in the value of our hedge target and related hedge positions,
primarily driven by fund underperformance relative to indices and unfavorable liability basis. Each of these items resulted in partial offsets
included in the $701 million related charge to the amortization of DAC and other costs. The net charge from the impact of assumption
updates and other refinements of $34 million resulted from our annual review and update of assumptions, primarily driven by modifications
to our actuarial assumptions and other refinements. Results also reflected the changes in the portions of the U.S. GAAP liability that are
excluded from our hedge target, net of related impacts to the amortization of DAC and other costs.
The net gain of $279 million for 2014 primarily reflected a $3,824 million net benefit from the change in the NPR adjustment driven
by net increases in the base embedded derivative liability before NPR, primarily due to declining interest rates. This impact was partially
offset by a $421 million net charge from changes in the value of our hedge target and related hedge positions, primarily driven by fund
underperformance relative to indices and unfavorable liability basis. Each of these items resulted in partial offsets included in the $496
million related charge to the amortization of DAC and other costs. The net charge from the impact of assumption updates and other
refinements of $631 million was primarily driven by modifications to our actuarial assumptions, including updates to our lapse assumption,
to reflect our review of emerging experience, future expectations and other data, and other refinements. Results also reflected the changes
in the portions of the U.S. GAAP liability that are excluded from our hedge target, net of related impacts to the amortization of DAC and
other costs. In addition, results included a net charge of $35 million related to prior periods. See Note 1 to the Consolidated Financial
Statements for additional information.
The net loss of $4,034 million for 2013 primarily reflected a $4,333 million net charge from the change in the NPR adjustment driven
by net decreases in the base embedded derivative liability before NPR, primarily reflecting the impact of favorable capital markets
conditions, as well as tightening of our NPR credit spreads. In addition, results included a $231 million net charge from changes in the
value of our hedge target and related hedge positions, primarily driven by fund underperformance relative to indices and an unfavorable net
market impact, partially offset by favorable liability basis. Each of these items resulted in partial offsets included in the $1,161 million
related benefit to the amortization of DAC and other costs. The net charge from the impact of assumption updates and other refinements of
$1,533 million was primarily driven by modifications to our lapse rate assumptions to reflect our review of emerging experience, future
expectations and other data, and other refinements. These updates increased expected claims significantly more than expected fees, which
increased our net liability. Results also reflected the changes in the portions of the U.S. GAAP liability that are excluded from our hedge
target, net of related impacts to the amortization of DAC and other costs.
For information regarding the Capital Protection Framework we use to evaluate and support the risks of our hedging program, see “—
Liquidity and Capital Resources—Capital.”
Retirement
Operating Results
The following table sets forth the Retirement segment’s operating results for the periods indicated.
Year ended December 31,
2015 2014 2013
(in millions)
Operating results:
Revenues ....................................................................................... $11,821 $12,077 $ 6,028
Benefits and expenses ............................................................................. 10,890 10,862 4,989
Adjusted operating income ......................................................................... 931 1,215 1,039
Realized investment gains (losses), net, and related adjustments ........................................ 255 591 (1,489)
Related charges .............................................................................. (1) (4) 1
Investment gains (losses) on trading account assets supporting insurance liabilities, net ...................... (581) 151 (718)
Change in experience-rated contractholder liabilities due to asset value changes ........................... 490 (106) 695
Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures ..... $ 1,094 $ 1,847 $ (472)
Prudential Financial, Inc. 2015 Annual Report 33