Prudential 2015 Annual Report Download - page 75

Commercial Mortgage-Backed Securities at Fair Value
December 31, 2015
Lowest Rating Agency Rating(1)
Vintage AAA AA A BBB
BB and
below
Total
Fair Value
Total
December 31,
2014
(in millions)
2015 ............................................................ $ 506 $ 95 $ 0 $ 0 $0 $ 601 $ 0
2014 ............................................................ 2,470 1 0 0 0 2,471 2,474
2013 ............................................................ 2,512 101 0 8 0 2,621 2,571
2012—2009 ...................................................... 195 285 0 0 0 480 547
2008—2007 ...................................................... 63 35 13 4 0 115 305
2006 ............................................................ 1,038 43 10 0 0 1,091 2,642
2005 & Prior ...................................................... 38 2 4 0 0 44 1,469
Total commercial mortgage-backed securities(2)(3) ....................... $6,822 $562 $27 $12 $0 $7,423 $10,008
(1) The table above provides ratings as assigned by nationally recognized rating agencies as of December 31, 2015, including Standard & Poor’s, Moody’s,
Fitch and Realpoint.
(2) Excluded from the table above are commercial mortgage-backed securities held outside the general account in other entities and operations. Also
excluded from the table above are commercial mortgage-backed securities classified as trading.
(3) Included in the table above, as of December 31, 2015, are agency commercial mortgage-backed securities with fair value of $508 million, all rated AA.
Fixed Maturity Securities Credit Quality
The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”), evaluates the
investments of insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called “NAIC
Designations.” In general, NAIC Designations of “1” highest quality, or “2” high quality, include fixed maturities considered investment
grade, which include securities rated Baa3 or higher by Moody’s or BBB- or higher by Standard & Poor’s. NAIC Designations of “3”
through “6” generally include fixed maturities referred to as below investment grade, which include securities rated Ba1 or lower by
Moody’s and BB+ or lower by Standard & Poor’s. The NAIC Designations for commercial mortgage-backed securities and non-agency
residential mortgage-backed securities, including our asset-backed securities collateralized by sub-prime mortgages, are based on security
level expected losses as modeled by an independent third-party (engaged by the NAIC) and the statutory carrying value of the security,
including any purchase discounts or impairment charges previously recognized.
As a result of time lags between the funding of investments, the finalization of legal documents, and the completion of the SVO filing
process, the fixed maturity portfolio generally includes securities that have not yet been designated by the SVO as of each balance sheet
date. Pending receipt of SVO designations, the categorization of these securities by NAIC Designation is based on the expected ratings
indicated by internal analysis.
Investments of our international insurance companies are not subject to NAIC guidelines. Investments of our Japanese insurance
operations are regulated locally by the Financial Services Agency, an agency of the Japanese government. The Financial Services Agency
has its own investment quality criteria and risk control standards. Our Japanese insurance companies comply with the Financial Services
Agency’s credit quality review and risk monitoring guidelines. The credit quality ratings of the investments of our Japanese insurance
companies are based on ratings assigned by nationally recognized credit rating agencies, including Moody’s, Standard & Poor’s, or rating
equivalents based on ratings assigned by Japanese credit ratings agencies.
The following table sets forth our fixed maturity portfolio by NAIC Designation or equivalent ratings attributable to PFI excluding the
Closed Block division as of the dates indicated.
December 31, 2015 December 31, 2014
NAIC Designation(1)(2)
Amortized
Cost
Gross
Unrealized
Gains(3)
Gross
Unrealized
Losses(3)(4)
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains(3)
Gross
Unrealized
Losses(3)(4)
Fair
Value
(in millions)
1 $177,350 $22,783 $1,445 $198,688 $176,122 $25,715 $ 564 $201,273
2 43,731 3,698 1,545 45,884 42,111 4,934 402 46,643
Subtotal High or Highest Quality Securities(5) ...... 221,081 26,481 2,990 244,572 218,233 30,649 966 247,916
3 7,085 408 292 7,201 6,619 537 58 7,098
4 2,332 150 100 2,382 2,228 204 50 2,382
5 415 78 12 481 441 83 24 500
6 367 20 4 383 264 22 3 283
Subtotal Other Securities(6)(7) ................... 10,199 656 408 10,447 9,552 846 135 10,263
Total Fixed Maturities ..................... $231,280 $27,137 $3,398 $255,019 $227,785 $31,495 $1,101 $258,179
(1) Reflects equivalent ratings for investments of the international insurance operations.
Prudential Financial, Inc. 2015 Annual Report 73