Prudential 2005 Annual Report Download - page 50

(2) Excludes assets of our asset management operations, including assets managed for third parties, and those assets classified as “separate accounts assets”
on our balance sheet.
Our Japanese insurance operations use the Yen as their functional currency, as it is the currency in which they conduct the majority of
their operations. Although the majority of the Japanese general account is invested in Yen denominated investments, our Japanese
insurance operations also hold significant investments denominated in U.S. dollars, some of which may be hedged to Yen through third
party contracts. As of December 31, 2005, our Japanese insurance operations had $6.4 billion of investments denominated in U.S. dollars,
including $1.7 billion that were hedged to Yen through third party contracts. As of December 31, 2004, our Japanese insurance operations
had $6.2 billion of investments denominated in U.S. dollars, including $3.8 billion that were hedged to Yen through third party contracts.
Investment Results
The following tables set forth the income yield and investment income, excluding realized investment gains (losses), for each major
investment category of our general account for the periods indicated.
Year ended December 31, 2005
Financial Services
Businesses
Closed Block
Business Combined
Yield(1) Amount Yield(1) Amount Yield(1) Amount
($ in millions)
Fixed maturities ........................................................ 4.68% $4,717 6.64% $2,840 5.26% $ 7,556
Trading account assets supporting insurance liabilities .......................... 4.33 576 — — 4.33 582
Equity securities ........................................................ 3.43 53 2.31 52 2.77 105
Commercial loans ...................................................... 6.62 1,016 7.86 548 7.15 1,564
Policy loans ........................................................... 4.91 141 6.26 329 5.79 470
Short-term investments and cash equivalents ................................. 2.82 202 5.27 129 3.14 331
Other investments ...................................................... 9.23 361 23.10 204 11.81 623
Gross investment income before investment expenses ...................... 4.92 7,066 6.82 4,102 5.49 11,231
Investment expenses ................................................ (0.20) (477) (0.24) (381) (0.21) (858)
Investment income after investment expenses ......................... 4.72% 6,589 6.58% 3,721 5.28% 10,373
Investment results of other entities and operations(2) ........................... 250 — 187
Total investment income ................................................. $6,839 $3,721 $10,560
Year ended December 31, 2004
Financial Services
Businesses
Closed Block
Business Combined
Yield(1) Amount Yield(1) Amount Yield(1) Amount
($ in millions)
Fixed maturities ........................................................ 4.60% $3,975 6.82% $2,709 5.29% $6,684
Trading account assets supporting insurance liabilities .......................... 4.04 364 — — 4.04 364
Equity securities ........................................................ 3.57 40 2.54 48 2.93 88
Commercial loans ...................................................... 6.71 947 7.93 545 7.09 1,492
Policy loans ........................................................... 4.71 125 6.36 338 5.81 463
Short-term investments and cash equivalents ................................. 1.61 102 2.96 72 1.84 174
Other investments ...................................................... 8.18 330 21.59 205 10.94 535
Gross investment income before investment expenses ...................... 4.80 5,883 6.96 3,917 5.46 9,800
Investment expenses ................................................ (0.20) (312) (0.25) (236) (0.21) (548)
Investment income after investment expenses ......................... 4.60% 5,571 6.71% 3,681 5.25% 9,252
Investment results of other entities and operations(2) ........................... 178 — 178
Total investment income ................................................. $5,749 $3,681 $9,430
(1) Yields are based on average carrying values except for fixed maturities, equity securities and securities lending activity. Yields for fixed maturities are
based on amortized cost. Yields for equity securities are based on cost. Yields for securities lending activity are calculated net of corresponding
liabilities and rebate expenses. Yields exclude investment income on assets other than those included in invested assets of the Financial Services
Businesses. Prior periods yields are presented on a basis consistent with the current period presentation.
(2) Includes investment income of securities brokerage, securities trading, banking operations, real estate and relocation services, and asset management
operations.
The net investment income yield on our general account investments after investment expenses, excluding realized investment gains
(losses), was 5.28% and 5.25% for the years ended December 31, 2005 and 2004, respectively.
The net investment income yield attributable to the Financial Services Businesses was 4.72% for the year ended December 31, 2005,
compared to 4.60% for the year ended December 31, 2004. The increase in yield was primarily due to an increase in fixed maturity yield,
mainly attributable to the impact of investment activities related to the investment portfolio of our Japanese insurance operations, which is
discussed in greater detail below.
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