Prudential 2005 Annual Report Download - page 51

The net investment income yield attributable to the Closed Block Business was 6.58% for the year ended December 31, 2005,
compared to 6.71% for the year ended December 31, 2004. The decrease was primarily due to net declines in fixed maturity and
commercial loan yields primarily attributable to the impact of investment activities in a low interest rate environment.
The following tables set forth the income yield and investment income, excluding realized investment gains (losses), for each major
investment category of our Japanese general account for the periods indicated.
Year ended
December 31, 2005
Year ended
December 31, 2004
Yield(1) Amount Yield(1) Amount
($ in millions)
Fixed maturities ........................................................................... 2.31% $ 860 1.89% $605
Trading account assets supporting insurance liabilities ............................................ 1.31 12 1.74 12
Equity securities .......................................................................... 3.00 42 2.26 24
Commercial loans ......................................................................... 4.15 115 4.27 115
Policy loans .............................................................................. 3.43 34 3.38 28
Short-term investments and cash equivalents .................................................... 0.75 5 2.49 2
Other investments ......................................................................... 15.10 156 7.71 92
Gross investment income before investment expenses ......................................... 2.75 1,224 2.29 878
Investment expenses ................................................................... (0.20) (90) (0.21) (80)
Total investment income .................................................................... 2.55% $1,134 2.08% $798
(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.
The yield on the Japanese insurance operations’ portfolios was 2.55% for the year ended December 31, 2005, compared to 2.08% for
the year ended December 31, 2004. The increase in yield on the Japanese insurance portfolio between periods is primarily attributable to an
increase in U.S. dollar investments and the lengthening of the duration of the investment portfolio. Also contributing to the increase were
more favorable results from joint venture investments within other investments. The yield on fixed maturities above includes the effect of
U.S. dollar denominated fixed maturities that are not hedged to Yen through third party contracts and provide a yield that is substantially
higher than the yield on comparable Japanese fixed maturities. The average value of U.S. dollar denominated fixed maturities that are not
hedged to Yen through third party contracts over the years ended December 31, 2005 and 2004 was approximately $3.5 billion and $2.2
billion, respectively, based on amortized cost.
Fixed Maturity Securities
Investment Mix
Our fixed maturity securities portfolio consists of publicly traded and privately placed debt securities across an array of industry
categories. The fixed maturity securities relating to our international insurance operations are primarily comprised of foreign government
securities.
We manage our public portfolio to a risk profile directed by the Asset Liability and Risk Management Group and, in the case of our
international insurance portfolios, to a profile that reflects local market regulations and our investment competencies in these markets. We
seek to employ relative value analysis both in credit selection and in purchasing and selling securities. The total return that we earn on the
portfolio will be reflected both as investment income and also as realized gains or losses on investments.
We use our private placement and asset-backed portfolios to enhance the diversification and yield of our overall fixed maturity
portfolio. Within our domestic portfolios, we maintain a private fixed income portfolio that is larger than the industry average as a
percentage of total fixed income holdings. Over the last several years, our investment staff has directly originated more than half of our
annual private placement originations. Our origination capability offers the opportunity to lead transactions and gives us the opportunity for
better terms, including covenants and call protection, and to take advantage of innovative deal structures.
Investments in fixed maturity securities attributable to the Financial Services Businesses were $105.0 billion at amortized cost with an
estimated fair value of $108.5 billion as of December 31, 2005 versus $100.2 billion at amortized cost with an estimated fair value of
$104.7 billion as of December 31, 2004. Investments in fixed maturity securities attributable to the Closed Block Business were $47.3
billion at amortized cost with an estimated fair value of $49.5 billion as of December 31, 2005 versus $45.4 billion at amortized cost with
an estimated fair value of $48.8 billion as of December 31, 2004.
Prudential Financial 2005 Annual Report 49