Prudential 2003 Annual Report Download - page 170

Download and view the complete annual report

Please find page 170 of the 2003 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 180

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. COMMITMENTS AND GUARANTEES, CONTINGENCIES AND LITIGATION (continued)
In connection with the Company’s discontinued consumer banking business, it has commitments under home
equity lines of credit and other lines of credit to lend up to specified limits to customers. It is anticipated that
commitment amounts will only be partially drawn down based on overall customer usage patterns and, therefore, do
not necessarily represent future cash requirements. The Company evaluates each credit decision on such commitments
at least annually and has the ability to cancel or suspend such lines at its option. The total commitments for home
equity lines of credit and other lines of credit were $1,859 million, of which $818 million remains available at
December 31, 2003.
The Company also has other commitments, which primarily include commitments to fund investments. These
commitments amounted to $2,964 million at December 31, 2003.
In connection with certain acquisitions, the Company has agreed to pay additional consideration in future periods,
based upon the attainment by the acquired entity of defined operating objectives. In accordance with GAAP, the
Company does not accrue contingent consideration obligations prior to the attainment of the objectives. At December
31, 2003, maximum potential future consideration pursuant to such arrangements, to be resolved over the following six
years, is $269 million. Any such payments would result in increases in intangible assets, including goodwill.
Certain contracts underwritten by the Company’s guaranteed products business include guarantees of principal
related to financial assets owned by the guaranteed party. These contracts are accounted for as derivatives, at fair value,
in accordance with SFAS No. 133. At December 31, 2003, such contracts in force carried a total guaranteed value of
$1,567 million.
A number of guarantees provided by the Company relate to real estate investments, in which the unconsolidated
investor has borrowed funds, and the Company has guaranteed their obligation to their lender. In some cases, the
investor is an affiliate, and in other cases the unaffiliated investor purchases the real estate investment from the
Company. The Company provides these guarantees to assist them in obtaining financing for the transaction on more
beneficial terms. The Company’s maximum potential exposure under these guarantees was $880 million at December
31, 2003. Any payments that may become required of the Company under these guarantees would either first be
reduced by proceeds received by the creditor on a sale of the assets, or would provide the Company with rights to
obtain the assets. At December 31, 2003, no amounts were accrued as a result of the Company’s assessment that it is
unlikely payments will be required.
The Company is subject to other financial guarantees and indemnity arrangements, including those related to
businesses that have been sold. Some of these guarantees may extend far into the future, and are subject to caps
aggregating to $36 million. In other limited cases, the amount that can be claimed from the Company or the time in
which these claims may be presented to the Company are not limited. At December 31, 2003, the Company has
accrued liabilities of $11 million associated with all other financial guarantees and indemnity arrangements, which
does not include liabilities retained associated with sold businesses.
Contingencies
As discussed in Note 3, in the fourth quarter of 2003, the Company sold its property and casualty insurance
companies that operate nationally in 48 states outside of New Jersey, and the District of Columbia, to Liberty Mutual.
In connection with that sale, the Company reinsured Liberty Mutual for certain losses including: any further adverse
loss development on the stop-loss reinsurance agreement with Everest Re Group, Ltd. (“Everest”) discussed in the next
paragraph; any adverse loss development on losses occurring prior to the sale that arise from insurance contracts
generated through certain “discontinued” distribution channels or due to certain loss events including mold damage or
Growing and Protecting Your Wealth168