Prudential 2007 Annual Report Download - page 64

Fixed Maturity Securities and Unrealized Gains and Losses by Industry Category
The following table sets forth the composition of the portion of our fixed maturity securities portfolio by industry category attributable
to the Financial Services Businesses as of the dates indicated and the associated gross unrealized gains and losses.
December 31, 2007 December 31, 2006
Industry(1)
Amortized
Cost
Gross
Unrealized
Gains(2)
Gross
Unrealized
Losses(2)
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains(2)
Gross
Unrealized
Losses(2)
Fair
Value
(in millions)
Corporate Securities:
Manufacturing ................... $ 14,754 $ 523 $ 248 $ 15,029 $ 14,126 $ 577 $138 $ 14,565
Finance ......................... 11,009 141 247 10,903 12,425 267 68 12,624
Utilities ......................... 10,170 408 191 10,387 9,313 454 74 9,693
Services ........................ 8,238 237 191 8,284 7,397 297 71 7,623
Energy ......................... 4,009 157 69 4,097 3,550 189 45 3,694
Transportation ................... 2,872 112 38 2,946 2,483 128 20 2,591
Retail and Wholesale .............. 2,722 64 50 2,736 2,605 78 20 2,663
Other .......................... 742 11 20 733 549 11 16 544
Total Corporate Securities .............. 54,516 1,653 1,054 55,115 52,448 2,001 452 53,997
Foreign Government .................. 27,606 904 98 28,412 25,164 685 70 25,779
Asset-Backed Securities ................ 13,833 123 747 13,209 16,073 156 29 16,200
Residential Mortgage Backed(3) ......... 7,782 104 46 7,840 8,523 77 53 8,547
Commercial Mortgage Backed(4) ........ 6,581 102 25 6,658 6,909 57 34 6,932
U.S. Government ..................... 3,168 416 — 3,584 2,812 324 14 3,122
Total (5) .................... $113,486 $3,302 $1,970 $114,818 $111,929 $3,300 $652 $114,577
(1) Investment data has been classified based on Lehman industry categorizations for domestic public holdings and similar classifications by industry for all
other holdings.
(2) Includes $36 million of gross unrealized gains and $41 million of gross unrealized losses as of December 31, 2007, compared to $24 million of gross
unrealized gains and $53 million of gross unrealized losses as of December 31, 2006 on securities classified as held to maturity, which are not reflected
in other comprehensive income.
(3) Excluded from the above are available for sale residential mortgage-backed securities held outside the general account in other entities and operations
with amortized cost of $603 million and fair value of $608 million, all of which have credit ratings of AAA.
(4) Commercial Mortgage Backed securities were previously presented primarily within Corporate Securities – Finance.
(5) The table above excludes fixed maturity securities classified as trading. See “—trading account assets supporting insurance liabilities” for additional
information.
As a percentage of amortized cost, fixed maturity investments attributable to the Financial Services Businesses as of December 31,
2007, consist primarily of 24% foreign government securities, 13% manufacturing sector, 12% asset-backed securities and 10% finance
sector, compared to 22% foreign government securities, 14% asset-backed securities, 13% manufacturing sector and 11% finance sector as
of December 31, 2006. As of December 31, 2007, 96% of the residential mortgage-backed securities in the Financial Services Businesses
were publicly traded agency pass-through securities, which are supported by implicit or explicit government guarantees and have credit
ratings of AA or AAA. Collateralized mortgage obligations, including approximately $61 million secured by “ALT-A” mortgages,
represented the remaining 4% of residential mortgage-backed securities (and less than 1% of total fixed maturities in the Financial Services
Businesses), and all have credit ratings of A or above.
As of December 31, 2007, included within asset-backed securities attributable to the Financial Services Businesses on an amortized
cost basis is approximately $7.8 billion ($7.1 billion fair value) of securities collateralized by sub-prime mortgages, $1.8 billion ($1.9
billion fair value) of externally managed investments in the European market, $1.2 billion ($1.2 billion fair value) of securities
collateralized by auto loans, $0.9 billion ($0.9 billion fair value) of securities collateralized by credit card receivables, and $2.1 billion
($2.1 billion fair value) of other asset-backed securities.
The $1.8 billion of externally managed investments in European markets, included above in asset-backed securities of the Financial
Services Businesses, reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of
European fixed income securities and derivatives, including corporate bonds and asset-backed securities. Our investment in these notes
further diversifies our credit risk. None of the underlying investments are securities collateralized by U.S. sub-prime mortgages, and 90%
of the underlying investments are rated investment grade. The notes have a stated coupon and provide a return based on the return of the
underlying securities. The notes are accounted for as available for sale fixed maturity securities with embedded derivatives (total return
swaps). Changes in the value of the notes are reported in Stockholders’ Equity under the heading “Accumulated Other Comprehensive
Income.” Changes in the market value of the embedded total return swaps are included in current period earnings in “Realized investment
gains (losses), net.” Adjusted operating income includes cumulative losses and recoveries of such losses on the embedded derivatives in the
period they occur. Cumulative net gains on the embedded derivatives are deferred and amortized into adjusted operating income over the
remaining life of the notes.
62 Prudential Financial 2007 Annual Report