Prudential 2015 Annual Report Download - page 59

associated with foreign exchange remeasurement on assets that were transferred under the new structure in Gibraltar Life and will be
recognized in earnings over time as these assets mature or are sold. See “—Results of Operations by Segment—International Insurance
Division” above. These gains were partially offset by OTTI of $97 million. Net gains on sales and maturities of fixed maturity securities of
$736 million in 2014 were primarily due to sales and maturities of U.S. dollar-denominated securities within our International Insurance
segment. These gains were partially offset by OTTI of $36 million. See below for information regarding the OTTI of fixed maturity
securities in 2015 and 2014.
Net realized gains on equity securities were $4 million and $81 million for the years ended 2015 and 2014, respectively, primarily
driven by gains on sales within our International Insurance segment. These gains were partially offset by OTTI of $111 million and $26
million for the years ended 2015 and 2014, respectively. See below for additional information regarding the OTTI of equity securities in
2015 and 2014.
Net realized gains on commercial mortgage and other loans for the year ended 2015 were $36 million, primarily driven by servicing
revenue of $31 million in our Asset Management business and a net decrease in the allowance for losses of $5 million. Net realized gains
on commercial mortgage and other loans were $79 million for the year ended 2014 were primarily driven by a net decrease in the
allowance for losses of $65 million, including the impact of assumption updates. For additional information regarding our commercial
mortgage and other allowance for losses, see “—General Account Investments—Commercial Mortgage and Other Loans—Commercial
Mortgage and Other Loan Quality” below.
Net realized gains on derivatives were $1,775 million in 2015, compared to net realized losses of $445 million in 2014. The net gains
in 2015 primarily reflect $995 million of gains on product related embedded derivatives and related hedge positions mainly associated with
certain variable annuity contracts, $326 million of gains on interest rate derivatives used to manage duration as interest rates decreased,
$345 million of gains on foreign currency derivatives used to hedge foreign denominated investments as the U.S. dollar strengthened
against various currencies, and $159 million of gains primarily representing fees earned on fee-based synthetic guaranteed investment
contracts (“GICs”) which are accounted for as derivatives. The net derivative losses in 2014 primarily reflect net losses of $2,627 million
on product related embedded derivatives and related hedge positions mainly associated with certain variable annuity contracts. Also,
contributing were net losses of $500 million on foreign currency derivatives used to hedge portfolio assets in our Japan business, primarily
due to the weakening of the Japanese yen against the U.S. dollar and other currencies. These losses were partially offset by gains of $1,502
million on interest rate derivatives used to manage duration as long-term interest rates decreased, $869 million gains on other foreign
currency derivatives primarily associated with hedges of portfolio assets in our U.S. business and hedges of future income of non-U.S.
businesses (predominantly in Japan) as the U.S. dollar strengthened against various currencies, and $166 million gains of fees earned on
fee-based synthetic GICs.
Net realized losses within other investments were $54 million in 2015 primarily driven by OTTI of $121 million on investments in
limited partnerships, partially offset by gains of $40 million, on sales of real estate. Net realized gains on other investments were $7 million
in 2014 and included net gains of $28 million, primarily from our Asset Management and International Insurance segments, partially offset
by OTTI of $21 million on real estate and joint ventures and partnership investments.
Related adjustments include the portions of “Realized investment gains (losses), net” that are included in adjusted operating income
and the portions of “Other income” and “Net investment income” that are excluded from adjusted operating income. These adjustments are
made to arrive at “Realized investment gains (losses), net, and related adjustments” which are excluded from adjusted operating income.
Results for 2015 include net negative related adjustments of $934 million driven by settlements on interest rate and currency derivatives.
Results for 2014 included net negative related adjustments of $4,063 million driven by the impact of foreign currency exchange rate
movements on certain non-yen denominated assets and liabilities within our Japan insurance operations and by settlements on interest rate
and currency derivatives. We implemented a structure in Gibraltar Life, effective for financial reporting beginning in the first quarter of
2015, which has minimized volatility in reported U.S. GAAP earnings arising from foreign currency remeasurement. For additional
information, see “—Results of Operations by Segment—International Insurance Division” above.
Charges that relate to “Realized investment gains (losses), net” are also excluded from adjusted operating income, and may be
reflected as net charges or net benefits. Results for 2015 include net related charges of $679 million, compared to net related charges of
$542 million in 2014. Both periods’ results were driven by the impact of derivative activity on the amortization of DAC and other costs and
certain policyholder reserves. For additional information, see Note 22 to the Consolidated Financial Statements.
During 2015, we recorded OTTI of $329 million in earnings, compared to $83 million in 2014. The following tables set forth, for the
periods indicated, the composition of OTTI recorded in earnings attributable to the PFI excluding the Closed Block division by asset type,
and for fixed maturity securities, by reason.
Year Ended December 31,
2015 2014
(in millions)
OTTI recorded in earnings—PFI excluding Closed Block Division(1)
Public fixed maturity securities ........................................................................ $ 31 $22
Private fixed maturity securities ....................................................................... 66 14
Total fixed maturity securities .................................................................... 97 36
Equity securities ................................................................................... 111 26
Other invested assets(2) ............................................................................. 121 21
Total ........................................................................................ $329 $83
(1) Excludes the portion of OTTI recorded in “Other comprehensive income (loss),” representing any difference between the fair value of the impaired debt
security and the net present value of its projected future cash flows at the time of impairment.
(2) Includes OTTI relating to investments in joint ventures and partnerships and real estate investments.
Prudential Financial, Inc. 2015 Annual Report 57