Prudential 2007 Annual Report Download - page 56

The other-than-temporary impairments recorded on fixed maturities in 2007 consist of $123 million on public securities and $16
million on private securities, compared with fixed maturity other-than-temporary impairments of $16 million on public securities and $7
million on private securities in 2006. Included in the other-than-temporary impairments recorded on fixed maturities in 2007 are $65
million of other-than-temporary impairments on asset-backed securities collateralized by sub-prime mortgages, primarily recorded in the
second half of 2007. Fixed maturity other-than-temporary impairments in 2007 were concentrated in asset-backed securities and the
services and finance sectors of our corporate securities, and were primarily driven by credit spread increases as discussed above, interest
rates, downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers. Fixed maturity other-than-temporary
impairments in 2006 were concentrated in the manufacturing sector and were primarily driven by interest rates, downgrades in credit,
bankruptcy or other adverse financial conditions of the respective issuers.
Closed Block Business
For the Closed Block Business, net realized investment gains in 2007 were $589 million, compared to net realized investment gains of
$481 million in 2006. Net realized gains on fixed maturity securities were $182 million in 2007 and reflect net gains on sales and maturities
of fixed maturity securities of $205 million and private bond prepayment premiums of $39 million, partially offset by other-than-temporary
impairments of $48 million and credit-related losses of $14 million. Net gains on sales and maturities of fixed maturity securities included
gross losses of $262 million, of which $11 million related to sales of asset-backed securities collateralized by sub-prime mortgages,
primarily in the second half of 2007. See “—General Account Investments—Fixed Maturity Securities” for additional information
regarding our exposure to sub-prime mortgages. Net realized gains on fixed maturity securities were $279 million in 2006 and reflect net
gains on sales and maturities of fixed maturity securities of $284 million, including a recovery of $29 million from a U.S.
telecommunications company, and private bond prepayment premiums of $49 million, partially offset by fixed maturity other-than-
temporary impairments of $31 million and credit-related losses of $23 million. Net gains on sales and maturities of fixed maturity securities
in 2006 included gross losses of $184 million.
Net realized gains on equity securities were $337 million in 2007, of which net trading gains on equity securities were $369 million,
partially offset by other-than-temporary impairments of $32 million. Net realized gains on equity securities were $187 million in 2006, of
which net trading gains on equity securities were $204 million, partially offset by other-than-temporary impairments of $17 million. These
gains were a result of sales pursuant to our active management strategy.
Net gains on derivatives were $61 million in 2007, compared to net losses of $68 million in 2006. Derivative gains in 2007 primarily
reflect the impact of interest derivatives used to manage the duration of the fixed maturity investment portfolio partially offset by net losses
on currency derivatives used to hedge foreign investments. Derivative losses in 2006 primarily relate to currency derivatives used to hedge
foreign investments.
Net realized investment gains on other investments were $9 million in 2007. Net realized investment gains on other investments were
$83 million in 2006 primarily related to net gains from real estate related investments.
During 2007, we recorded total other-than-temporary impairments of $86 million attributable to the Closed Block Business, compared
to total other-than-temporary impairments of $51 million attributable to the Closed Block Business in 2006. The other-than-temporary
impairments in 2007 consisted of $48 million relating to fixed maturities, $32 million relating to equity securities, and $6 million relating
to other invested assets, which include real estate investments and investments in joint ventures and partnerships. The other-than-temporary
impairments in 2006 consisted of $31 million relating to fixed maturities, $17 million relating to equity securities, and $3 million relating
to other invested assets, as defined above.
The other-than-temporary impairments recorded on fixed maturities in 2007 consist of $29 million on public securities and $19
million on private securities, compared with $7 million on public securities and $24 million on private securities in 2006. Included in the
other-than-temporary impairments recorded on fixed maturities in 2007 are $15 million of other-than-temporary impairments on asset-
backed securities collateralized by sub-prime mortgages, primarily recorded in the second half of 2007. Other-than-temporary impairments
of fixed maturity securities include amounts which are currently expected to be accreted into net investment income in future periods based
on the future estimated cash flows of the securities. Other-than-temporary impairments in 2007 were concentrated in asset-backed
securities and the services and manufacturing sectors of our corporate securities and were primarily driven by credit spread increases as
discussed above, interest rates, downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers. Other-than-
temporary impairments in 2006 were concentrated in the services and manufacturing sectors and were primarily driven by interest rates,
downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers.
2006 to 2005 Annual Comparison
Financial Services Businesses
The Financial Services Businesses’ net realized investment gains in 2006 were $293 million, compared to net realized investment
gains of $742 million in 2005. Net realized losses on fixed maturity securities were $219 million in 2006 and reflect net losses on sales and
maturities of fixed maturity securities of $203 million, impairments of $23 million and credit losses of $25 million, partially offset by
private bond prepayment premiums of $32 million. Net realized losses on fixed maturity securities include gross losses on sales and
maturities of fixed maturity securities of $517 million mainly in the Retirement, Individual Annuities and International Insurance segments,
which were primarily interest-rate related. Interest-rate related losses on fixed maturities primarily reflect sales of lower yielding bonds in a
higher rate environment in order to meet various cash flow needs, manage portfolio duration and reflect our strategy for maximizing
portfolio yield while minimizing the amount of taxes on realized capital gains. Interest-rate related losses, which are excluded from
54 Prudential Financial 2007 Annual Report