Prudential 2007 Annual Report Download - page 130

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
4. INVESTMENTS (continued)
bifurcated and marked to market through “Realized investment gains (losses), net,” based upon the change in value of the underlying
portfolio. The Company’s variable interest in each of these VIEs represents less than 50% of the only class of variable interests issued by
the VIE. The Company’s maximum exposure to loss from these interests was $1,933 million and $2,131 million at December 31, 2007 and
2006, respectively, which includes the fair value of the embedded derivatives.
Securities Pledged, Restricted Assets and Special Deposits
The Company pledges as collateral investment securities it owns to unaffiliated parties through certain transactions, including
securities lending, securities sold under agreements to repurchase and futures contracts. At December 31, the carrying value of investments
pledged to third parties as reported in the Consolidated Statements of Financial Position included the following:
2007 2006
(in millions)
Fixed maturities, available for sale ................................................................... $16,073 $17,798
Trading account assets supporting insurance liabilities .................................................... 527 374
Other trading account assets ........................................................................ 957 964
Separate account assets ............................................................................ 5,372 4,657
Total securities pledged ............................................................................ $22,929 $23,793
In the normal course of its business activities, the Company accepts collateral that can be sold or repledged. The primary sources of
this collateral are securities in customer accounts and securities purchased under agreements to resell. The fair value of this collateral was
approximately $704 million and $650 million at December 31, 2007 and 2006, respectively, of which $704 million in 2007 and $408
million in 2006 had either been sold or repledged.
Assets of $197 million and $271 million at December 31, 2007 and 2006, respectively, were on deposit with governmental authorities
or trustees. Additionally, assets carried at $692 million and $697 million at December 31, 2007 and 2006, respectively, were held in
voluntary trusts established primarily to fund guaranteed dividends to certain policyholders and to fund certain employee benefits. Letter
stock or other securities restricted as to sale amounted to $154 million and $0 million at December 31, 2007 and 2006, respectively.
Restricted cash and securities of $3,097 million and $2,752 million at December 31, 2007 and 2006, respectively, were included in “Other
assets.” The restricted cash and securities primarily represent funds deposited by clients and funds accruing to clients as a result of trades or
contracts.
5. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs as of and for the years ended December 31, are as follows:
2007 2006 2005
(in millions)
Balance, beginning of year ................................................................ $10,863 $ 9,438 $ 8,847
Capitalization of commissions, sales and issue expenses ........................................ 2,250 2,039 1,806
Amortization .......................................................................... (996) (745) (1,014)
Change in unrealized investment gains and losses .............................................. 53 45 155
Disposition of subsidiaries ................................................................ — (6) —
Foreign currency translation and other ...................................................... 185 92 (356)
Impact of adoption of SOP 05-1 ........................................................... (16) — —
Balance, end of year ..................................................................... $12,339 $10,863 $ 9,438
128 Prudential Financial 2007 Annual Report