Prudential 2001 Annual Report Download - page 149

Prudential Financial, Inc.
Notes to Consolidated Financial Statements
19. Derivative Instruments (continued)
Credit Risk
The Company is exposed to credit-related losses in the event of nonperformance by counterparties to derivative
financial instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the
fair value at the reporting date. The credit exposure of the Company’s swaps transactions is represented by the fair
value (market value) of contracts with a positive fair value (market value) at the reporting date. Because exchange-
traded futures and options are effected through regulated exchanges, and positions are marked to market on a daily
basis, the Company has little exposure to credit-related losses in the event of nonperformance by counterparties to
such financial instruments. The credit exposure of exchange-traded instruments is represented by the negative
change, if any, in the fair value (market value) of contracts from the fair value (market value) at the reporting date.
The credit exposure of currency forwards is represented by the difference, if any, between the exchange rate
specified in the contract and the exchange rate for the same currency at the reporting date.
The Company manages credit risk by entering into transactions with creditworthy counterparties and obtaining
collateral where appropriate and customary. In addition, the Company enters into over-the-counter swaps pursuant
to master agreements that provide for a single net payment to be made by one counterparty to another at each due
date and upon termination. Likewise, the Company effects exchange-traded futures and options through regulated
exchanges and these positions are marked to market on a daily basis.
20. Segment Information
The Company has organized its principal operations into the Financial Services Businesses and the Closed Block
Business. Within the Financial Services Businesses, the Company operates through four divisions which, together,
encompass ten reportable segments. The four operating divisions within the Financial Services Businesses are: U.S.
Consumer, Employee Benefits, International and Asset Management. Businesses that are not sufficiently material to
warrant separate disclosure are included in Corporate and Other operations. Collectively, the businesses that
comprise the four operating divisions and Corporate and Other are referred to as the Financial Services Businesses.
The segments within the Financial Services Businesses as well as the Closed Block Business correspond to
businesses for which discrete financial information is available and reviewed by management.
The U.S. Consumer division consists of the Individual Life Insurance, Private Client Group, Retail Investments and
Property and Casualty Insurance segments. The Individual Life Insurance segment manufactures and distributes
variable life, term life, universal life, and other non-participating life insurance products to the United States retail
market and distributes investment and protection products for other segments. The Private Client Group segment
offers full service securities brokerage and financial advisory services, as well as consumer banking services, to
retail customers in the United States. The Retail Investments segment manufactures, distributes and services mutual
funds, variable and fixed annuities and wrap-fee products to retail customers in the United States. The Property and
Casualty Insurance segment manufactures and distributes personal lines property and casualty insurance products,
principally automobile and homeowners insurance, to the United States retail market.
The Employee Benefits division consists of the Group Insurance and Other Employee Benefits segments. The
Group Insurance segment manufactures and distributes group life, disability and related insurance products in
connection with employee and member benefit plans. The Other Employee Benefits segment manufactures, services
and delivers products and services for defined contribution and other retirement plans as well as guaranteed
investment contracts, group annuities and relocation services to employers. The Other Employee Benefits segment
also markets real estate brokerage franchises to regional and local real estate brokers.
The International division consists of the International Insurance and International Securities and Investments
segments. The International Insurance segment manufactures and distributes principally individual life insurance
products to the affluent retail market in Japan, as well as Korea and Taiwan, and has commenced operations in
selected Asian, Latin American and European countries. The International Securities and Investments segment
offers brokerage services, primarily in U.S. securities, asset management and financial advisory services to retail
and institutional clients outside of the United States.
The Asset Management division consists of the Investment Management and Advisory Services and Other Asset
Management segments. The Investment Management and Advisory Services segment provides institutional asset
Prudential Financial 2001 Annual Report 147