Prudential 2006 Annual Report Download - page 62

The following table sets forth the composition of the portion of our fixed maturity securities portfolio by industry category attributable
to the Closed Block Business as of the dates indicated and the associated gross unrealized gains and losses.
December 31, 2006 December 31, 2005
Industry(1)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in millions)
Corporate Securities:
Manufacturing ....................... $ 8,358 $ 349 $ 80 $ 8,627 $ 8,480 $ 468 $ 88 $ 8,860
Finance ............................. 8,930 135 46 9,019 6,687 155 44 6,798
Utilities ............................. 5,753 323 66 6,010 5,875 409 48 6,236
Services ............................ 4,765 219 41 4,943 4,722 273 34 4,961
Energy ............................. 2,104 120 14 2,210 2,177 201 4 2,374
Retail and Wholesale .................. 1,691 71 11 1,751 1,845 98 15 1,928
Transportation ....................... 1,061 66 12 1,115 1,138 96 5 1,229
Other .............................. — — — — 24 4 — 28
Total Corporate Securities .................. 32,662 1,283 270 33,675 30,948 1,704 238 32,414
Asset-Backed Securities .................... 8,171 23 15 8,179 6,847 26 13 6,860
U.S. Government ......................... 4,376 242 38 4,580 4,828 579 2 5,405
Mortgage Backed ......................... 3,362 14 35 3,341 3,145 18 32 3,131
Foreign Government ...................... 895 105 2 998 1,266 175 5 1,436
Total ........................... $49,466 $1,667 $360 $50,773 $47,034 $2,502 $290 $49,246
(1) Investment data has been classified based on Lehman industry categorizations for domestic public holdings and similar classifications by industry for all
other holdings.
As a percentage of amortized cost, fixed maturity investments attributable to the Closed Block Business as of December 31, 2006
consist primarily of 18% finance sector, 17% manufacturing sector, 17% asset-backed securities sector, 12% utilities sector, and 10%
services sector compared to 18% manufacturing sector, 15% asset-backed securities sector, 14% finance sector, 12% utilities sector, and
10% U.S. government sector as of December 31, 2005. As of December 31, 2006, 86% of the mortgage backed securities in the Closed
Block Business were publicly traded agency pass-through securities related to residential mortgage loans. Collateralized mortgage
obligations represented the remaining 14% of mortgage backed securities (and 1% of total fixed maturities in the Closed Block Business).
The gross unrealized losses related to our fixed maturity portfolio attributable to the Closed Block Business were $0.4 billion as of
December 31, 2006 compared to $0.3 billion as of December 31, 2005. The gross unrealized losses as of December 31, 2006 and
December 31, 2005 were concentrated primarily in the manufacturing, utilities, and finance sectors.
Fixed Maturity Securities Credit Quality
The Securities Valuation Office, or SVO, of the National Association of Insurance Commissioners, or NAIC, evaluates the
investments of insurers for regulatory reporting purposes and assigns fixed maturity securities to one of six categories called “NAIC
Designations.” NAIC designations of “1” or “2” include fixed maturities considered investment grade, which include securities rated Baa3
or higher by Moody’s or BBB- or higher by Standard & Poor’s. NAIC Designations of “3” through “6” are referred to as below investment
grade, which include securities rated Ba1 or lower by Moody’s and BB+ or lower by Standard & Poor’s. As a result of time lags between
the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the fixed maturity portfolio
generally includes securities that have not yet been rated by the SVO as of each balance sheet date. Pending receipt of SVO ratings, the
categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.
Investments of our international insurance companies are not subject to NAIC guidelines. Investments of our Japanese insurance
operations are regulated locally by the Financial Services Agency, an agency of the Japanese government. The Financial Services Agency
has its own investment quality criteria and risk control standards. Our Japanese insurance companies comply with the Financial Services
Agency’s credit quality review and risk monitoring guidelines. The credit quality ratings of the non-U.S. dollar denominated investments of
our Japanese insurance companies are based on ratings assigned by Moody’s, Standard & Poor’s, or rating equivalents based on ratings
assigned by Japanese credit ratings agencies.
The amortized cost of our public and private below investment grade fixed maturities attributable to the Financial Services Businesses
totaled $7.1 billion, or 6%, of the total fixed maturities as of December 31, 2006 and $6.0 billion, or 6%, of the total fixed maturities as of
December 31, 2005. Below investment grade fixed maturities represented 11% of the gross unrealized losses attributable to the Financial
Services Businesses as of December 31, 2006, compared to 14% of gross unrealized losses as of December 31, 2005.
The amortized cost of our public and private below investment grade fixed maturities attributable to the Closed Block Business totaled
$6.2 billion, or 13%, of the total fixed maturities as of December 31, 2006 and $5.9 billion, or 13%, of the total fixed maturities as of
December 31, 2005. Below investment grade fixed maturities represented 16% of the gross unrealized losses attributable to the Closed
Block Business as of December 31, 2006, compared to 24% of gross unrealized losses as of December 31, 2005.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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