Prudential 2006 Annual Report Download - page 79

As of December 31, 2006 and 2005, our international insurance subsidiaries had cash and short-term investments of approximately
$1.1 billion and $1.6 billion, respectively, and fixed maturity investments, other than those designated as held to maturity, with fair values
of $37.0 billion and $35.6 billion, respectively. As of December 31, 2006, $36.1 billion, or 97%, of the fixed maturity investments that are
not designated as held to maturity within our international insurance subsidiaries were rated investment grade. The remaining $0.9 billion,
or 3%, of these fixed maturity investments were rated non-investment grade. Of those amounts, $20.3 billion of the investment grade fixed
maturity investments and $0.5 billion of the non-investment grade fixed maturity investments were associated with Gibraltar Life. We
consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity
measures to evaluate the adequacy of our international insurance operations’ liquidity under a variety of stress scenarios. We believe that
ongoing operations and the liquidity profile of our international insurance assets provide sufficient current liquidity, including under
reasonably foreseeable stress scenarios.
Asset Management Subsidiaries
Our asset management businesses, which include real estate, public and private fixed income and public equity asset management, as
well as commercial mortgage origination, servicing and securitization, proprietary investing and retail investment products, such as mutual
funds and wrap-fee products, are largely unregulated from the standpoint of dividends and distributions. Our asset management subsidiaries
through which we conduct these businesses generally do not have restrictions on the amount of distributions they can make, and they
provide a stable source of significant cash flow to Prudential Financial.
The principal sources of liquidity for our asset management subsidiaries include asset management fees, revenues from proprietary
investments and commercial mortgage operations, and available borrowing lines from internal sources including Prudential Funding and
Prudential Financial, as well as from third parties. The principal uses of liquidity include the financing associated with our propriety
investments and commercial mortgage operations, general and administrative expenses, and distribution of dividends and returns of capital
to Prudential Financial.
The primary liquidity risks for our asset management subsidiaries include the potential impacts of adverse market conditions and poor
investment management performance on the profitability of the businesses. Our asset management subsidiaries continue to maintain
sufficiently liquid balance sheets. As of December 31, 2006 and 2005, our asset management subsidiaries had cash and cash equivalents
and short-term investments of $949 million and $442 million, respectively. We believe the cash flows from our asset management
businesses are adequate to satisfy the current liquidity requirements of their operations, as well as requirements that could arise under
foreseeable stress scenarios, which are monitored through the use of internal measures.
Prudential Securities Group
As of December 31, 2006 and 2005, Prudential Securities Group’s assets totaled $7.4 billion and $6.7 billion, respectively. Prudential
Securities Group owns our investment in Wachovia Securities as well as the retained wholly owned businesses. The wholly owned
businesses remaining in Prudential Securities Group continue to maintain sufficiently liquid balance sheets, consisting mostly of cash and
cash equivalents, segregated client assets, short-term collateralized receivables from clients and broker-dealers, and collateralized loans to
clients. Distributions from our investment in Wachovia Securities to Prudential Securities Group totaled $277 million and $154 million for
the years ended December 31, 2006 and 2005, respectively. As of December 31, 2006, Prudential Securities Group had remaining assets
amounting to $172 million related to its former institutional fixed income activities, compared to $229 million as of December 31, 2005.
On August 29, 2006, Prudential Equity Group, LLC, or PEG, a wholly owned subsidiary of Prudential Securities Group, paid $600
million in connection with the settlement of investigations into market timing related activities involving PEG’s former Prudential
Securities operations. For further discussion see “—Litigation and Regulatory Matters—Other Matters—Mutual Fund Market Timing
Practices” within Note 21 to our Consolidated Financial Statements.
Financing Activities
As of December 31, 2006 and 2005, total short- and long-term debt of the Company on a consolidated basis was $24.0 billion and
$19.4 billion, respectively, which includes $11.6 billion and $8.3 billion, respectively, related to the parent company, Prudential Financial.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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