Prudential 2005 Annual Report Download - page 57

Unrealized Losses from Fixed Maturity Securities
The following table sets forth the amortized cost and gross unrealized losses of fixed maturity securities attributable to the Financial
Services Businesses where the estimated fair value had declined and remained below amortized cost by 20% or more for the following
timeframes:
December 31, 2005 December 31, 2004
Amortized
Cost
Gross
Unrealized
Losses
Amortized
Cost
Gross
Unrealized
Losses
(in millions)
Less than six months ............................................................ $ 33 $ 8 $ 3 $ 1
Six months or greater but less than nine months ....................................... — — — —
Nine months or greater but less than twelve months .................................... — — 2 1
Twelve months and greater ....................................................... — — — —
Total .................................................................... $ 33 $ 8 $ 5 $ 2
The gross unrealized losses as of December 31, 2005 were concentrated in the manufacturing sector while the gross unrealized losses
as of December 31, 2004 were concentrated in the manufacturing and services sectors.
The following table sets forth the amortized cost and gross unrealized losses of fixed maturity securities attributable to the Closed
Block Business where the estimated fair value had declined and remained below amortized cost by 20% or more for the following
timeframes:
December 31, 2005 December 31, 2004
Amortized
Cost
Gross
Unrealized
Losses
Amortized
Cost
Gross
Unrealized
Losses
(in millions)
Less than six months ............................................................ $ 23 $ 5 $ 4 $ 1
Six months or greater but less than nine months ....................................... — — — —
Nine months or greater but less than twelve months .................................... — — — —
Twelve months and greater ....................................................... — — — —
Total ..................................................................... $ 23 $ 5 $ 4 $ 1
The gross unrealized losses as of December 31, 2005 were primarily concentrated in the manufacturing sector, while the gross
unrealized losses as of December 31, 2004 were concentrated in the foreign government securities sectors.
Impairments of Fixed Maturity Securities
We maintain separate monitoring processes for public and private fixed maturities and create watch lists to highlight securities that
require special scrutiny and management. Our public fixed maturity asset managers formally review all public fixed maturity holdings on a
quarterly basis and more frequently when necessary to identify potential credit deterioration whether due to ratings downgrades,
unexpected price variances, and/or industry specific concerns. We classify public fixed maturity securities of issuers that have defaulted as
securities not in good standing and all other public watch list assets as closely monitored.
For private placements our credit and portfolio management processes help ensure prudent controls over valuation and management.
We have separate pricing and authorization processes to establish “checks and balances” for new investments. We apply consistent
standards of credit analysis and due diligence for all transactions, whether they originate through our own in-house origination staff or
through agents. Our regional offices closely monitor the portfolios in their regions. We set all valuation standards centrally, and we assess
the fair value of all investments quarterly.
Our private fixed maturity asset managers conduct specific servicing tests on each investment on an ongoing basis to determine
whether the investment is in compliance or should be placed on the watch list or assigned an early warning classification. We assign early
warning classifications to those issuers that have failed a servicing test or experienced a minor covenant default, and we continue to
monitor them for improvement or deterioration. In certain situations, the general account benefits from negotiated rate increases or fees
resulting from a covenant breach. We assign closely monitored status to those investments that have been recently restructured or for which
restructuring is a possibility due to substantial credit deterioration or material covenant defaults. We classify as not in good standing
securities of issuers that are in more severe conditions, for example, bankruptcy or payment default.
Fixed maturity securities classified as held to maturity are those securities where we have the intent and ability to hold the securities
until maturity. These securities are reflected at amortized cost in our consolidated statement of financial position. Other fixed maturity
securities are considered available for sale, and, as a result, we record unrealized gains and losses to the extent that amortized cost is
different from estimated fair value. All held to maturity securities and all available for sale securities with unrealized losses are subject to
Prudential Financial 2005 Annual Report 55