Prudential 2007 Annual Report Download - page 118

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
3. ACQUISITIONS AND DISPOSITIONS
Acquisition of a portion of Union Bank of California’s Retirement Business
On December 31, 2007, the Company acquired a portion of the Union Bank of California, N.A’s retirement business for $103 million
of cash consideration. In recording the transaction, the entire purchase price was allocated to other intangibles, which are reflected in
“Other assets.”
Sale of Oppenheim Joint Ventures
On July 12, 2007, the Company sold its 50% interest in its operating joint ventures Oppenheim Pramerica Fonds Trust GmbH and
Oppenheim Pramerica Asset Management S.a.r.l., which the Company accounted for under the equity method, to its partner Oppenheim
S.C.A. for $121 million. These businesses establish, package and distribute mutual fund products to German and other European retail
investors. The Company recorded a pre-tax gain on sale of $37 million and related taxes of $22 million for the year ended December 31,
2007.
Acquisition of The Allstate Corporation’s Variable Annuity Business
On June 1, 2006 (the “date of acquisition”), the Company acquired the variable annuity business of The Allstate Corporation
(“Allstate”) through a reinsurance transaction for $635 million of total consideration, consisting primarily of a $628 million ceding
commission. The reinsurance arrangements with Allstate include a coinsurance arrangement associated with the general account liabilities
assumed and a modified coinsurance arrangement associated with the separate account liabilities assumed. The assets acquired and
liabilities assumed have been included in the Company’s Consolidated Financial Statements as of the date of acquisition. The Company’s
results of operations include the results of the acquired variable annuity business beginning from the date of acquisition. The assets
acquired included primarily cash of $1.4 billion that was subsequently used to purchase investments; VOBA of $648 million that represents
the present value of future profits embedded in the acquired contracts; and $97 million of goodwill. The liabilities assumed included
primarily a liability for variable annuity contractholders’ account balances of $1.5 billion associated with the coinsurance agreement. The
assets acquired and liabilities assumed also included a reinsurance receivable from Allstate and a reinsurance payable to Allstate, each in
the amount of $14.8 billion. The reinsurance payable, which represents the Company’s obligation under the modified coinsurance
arrangement, is netted with the reinsurance receivable in the Company’s Consolidated Statement of Financial Position. Pro forma
information for this acquisition is omitted as the impact is not material.
Acquisition of CIGNA Corporation’s Retirement Business
On April 1, 2004, the Company acquired the retirement business of CIGNA for cash consideration of $2.1 billion. Concurrent with the
acquisition, the Company entered into reinsurance arrangements with CIGNA to effect the transfer of the business included in the
transaction.
The Company has assumed the liabilities and received the related assets associated with the coinsurance-with-assumption arrangement
related to the acquired general account defined contribution and defined benefit plan contracts and the modified-coinsurance-with-
assumption arrangement related to the majority of the acquired separate account contracts. The Company has substantially completed the
process of requesting customers to agree to substitute CIGNA with a wholly owned subsidiary of the Company in these contracts.
CIGNA will retain the assets and liabilities associated with the modified-coinsurance-without-assumption arrangement related to the
remaining acquired separate account contracts, but has ceded the net profits or losses and the associated net cash flows to the Company for
the remaining lives of the contracts. The reinsurance recoverable and reinsurance payable associated with this arrangement are discussed in
more detail in Note 11.
In addition, as an element of the acquisition, the Company had the right, beginning two years after the acquisition, to commute the
modified-coinsurance-with-assumption arrangement related to the acquired defined benefit guaranteed-cost contracts in exchange for cash
consideration from CIGNA. Effective April 1, 2006, the Company reached an agreement with CIGNA to convert the modified-
coinsurance-with-assumption arrangement to an indemnity coinsurance arrangement, effectively retaining the economics of the defined
benefit guaranteed-cost contracts for the life of the block of business. Upon conversion, the Company extinguished its reinsurance
recoverable and reinsurance payable with CIGNA related to the modified-coinsurance-with-assumption arrangement. Concurrently, the
Company assumed $1.7 billion of liabilities from CIGNA under the indemnity coinsurance arrangement and received the related assets.
Acquisition of Hyundai Investment and Securities Co., Ltd.
In 2004, the Company acquired an 80 percent interest in Hyundai Investment and Securities Co., Ltd., a Korean asset management
firm, from an agency of the Korean government, for $301 million in cash, including $210 million used to repay debt assumed. Subsequent
to the acquisition, the company was renamed Prudential Investment & Securities Co., Ltd. On January 25, 2008, the Company acquired the
remaining 20 percent for $90 million.
116 Prudential Financial 2007 Annual Report