Prudential 2003 Annual Report Download - page 62

of $420 million, which were offset in part by realized gains on sales of fixed income securities and prepayment
premiums. Realized losses in 2001 included fixed maturity impairments of $385 million and credit related losses of
$184 million, which were offset in part by realized gains on sales of fixed income securities and prepayment premiums.
We realized net losses on equity securities of $186 million in 2002, including $145 million of impairments, compared
to losses of $177 million in 2001, which included $86 million of impairments. Net losses on derivatives were $174
million for 2002 compared to $10 million for 2001. Derivative losses for 2002 were largely attributable to losses on
equity futures contracts and currency hedges of non-U.S. dollar investments.
General Account Investments
We maintain a diversified investment portfolio in our insurance companies to support our liabilities to customers
in our Financial Services Businesses and the Closed Block Business, as well as our other general liabilities. Our
general account does not include assets of our securities brokerage, securities trading, banking operations, assets of our
asset management operations managed for third parties, and separate account assets for which the customer assumes
risks of ownership.
The General Account portfolio is managed pursuant to the distinct objectives of the Financial Services Businesses
and the Closed Block Business. The primary investment objectives of the Financial Services Businesses include:
• matching the liability characteristics of the major products and other obligations of the Company; and
• maximizing the portfolio book yield within risk constraints.
The primary investment objectives of the Closed Block Business include:
• providing for the reasonable dividend expectations of the participating policyholders within the Closed Block
Business and the Class B shareholders; and
• maximizing total return and preserving principal, within risk constraints, while matching the liability
characteristics of the major products in the Closed Block Business.
Management of Investments
We design asset mix strategies for our general account to match the characteristics of our products and other
obligations and seek to closely approximate the interest rate sensitivity of the assets with the estimated interest rate
sensitivity of the product liabilities. We achieve income objectives through asset/liability management and strategic
and tactical asset allocations within a disciplined risk management framework. Our asset allocation also reflects our
desire for broad diversification across asset classes, sectors and issuers.
The Investment Committee of our Board of Directors oversees our proprietary investments. It also reviews
performance and risk positions quarterly. Our Senior Vice President, Asset Liability and Risk Management, approves
the investment policy for the general account assets of our insurance subsidiaries and oversees the investment process
for our general account. Under his direction, the Asset Liability and Risk Management Group works with our business
units to develop investment objectives, performance factors and measures and asset allocation ranges.
The Asset Liability and Risk Management Group also works closely with each of our business units to ensure that
the specific characteristics of our products are incorporated into its processes. The Asset Liability and Risk
Management Group has the authority to initiate tactical shifts within exposure ranges approved annually by the
Investment Committee. The Investment Management segment manages virtually all of our investments, other than
those of our International Insurance segment, under the direction of the Asset Liability and Risk Management Group.
Our International Insurance segment manages the majority of its investments locally.
Asset/Liability Management
The Asset Liability and Risk Management Group uses a disciplined, risk-controlled approach to asset/liability
management. The methodology focuses on aligning assets to the effective sensitivity of the cash flow and return
Growing and Protecting Your Wealth60