Prudential 2007 Annual Report Download - page 70

asset-backed securities collateralized by sub-prime mortgages, $0.6 billion were other asset-backed securities and $0.5 billion were
municipal bonds, which are included within the U.S. Government line of the fixed maturity securities composition table above.
Management estimates that 63% of the asset-backed securities collateralized by sub-prime mortgages, 79% of the other asset-backed
securities, and virtually all of the municipal bonds would have investment grade credit ratings giving no effect to the support of these
securities by guarantees from monoline bond insurers. As of December 31, 2007, the bond insurance is provided by five insurance
companies, with no company representing more than 29% of the overall amortized cost of the securities supported by bond insurance
attributable to the Financial Services Businesses.
As of December 31, 2007, on an amortized cost basis, $1.4 billion ($1.3 billion fair value), or 3%, of fixed maturity investments
attributable to the Closed Block Business were supported by guarantees from monoline bond insurers. All of these investments had AAA
credit ratings as of December 31, 2007, reflecting the credit quality of the monoline bond insurer. Management estimates, taking into
account the structure and credit quality of the underlying investments and giving no effect to the support of these securities by guarantees
from monoline bond insurers, that 81% of the $1.4 billion total (based upon amortized cost) would have investment grade credit ratings.
Based on amortized cost, $1.1 billion of the $1.4 billion of securities supported by bond insurance were asset-backed securities
collateralized by sub-prime mortgages, $0.2 billion were other asset-backed securities, and $0.1 billion were municipal bonds, which are
included within the U.S. Government line of the fixed maturity securities composition table above. Management estimates that 78% of the
asset-backed securities collateralized by sub-prime mortgages, 85% of the other asset-backed securities, and all of the municipal bonds
would have investment grade credit ratings giving no effect to the support of these securities by guarantees from monoline bond insurers.
As of December 31, 2007, the bond insurance is provided by five insurance companies, with no company representing more than 35% of
the overall amortized cost of the securities supported by bond insurance attributable to the Closed Block Business.
The amortized cost of our public and private below investment grade fixed maturities attributable to the Financial Services Businesses
totaled $7.5 billion, or 7%, of the total fixed maturities as of December 31, 2007 and $7.1 billion, or 6%, of the total fixed maturities as of
December 31, 2006. Below investment grade fixed maturities represented 12% and 11% of the gross unrealized losses attributable to the
Financial Services Businesses as of December 31, 2007 and December 31, 2006, respectively.
The amortized cost of our public and private below investment grade fixed maturities attributable to the Closed Block Business totaled
$5.7 billion, or 12%, of the total fixed maturities as of December 31, 2007 and $6.2 billion, or 13%, of the total fixed maturities as of
December 31, 2006. Below investment grade fixed maturities represented 18% of the gross unrealized losses attributable to the Closed
Block Business as of December 31, 2007, compared to 16% of gross unrealized losses as of December 31, 2006.
Public Fixed Maturities—Credit Quality
The following table sets forth our public fixed maturity portfolios by NAIC rating attributable to the Financial Services Businesses as
of the dates indicated.
(1) (2) December 31, 2007 December 31, 2006
NAIC
Designation Rating Agency Equivalent
Amortized
Cost
Gross
Unrealized
Gains(3)
Gross
Unrealized
Losses(3)
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains(3)
Gross
Unrealized
Losses(3)
Fair
Value
(in millions)
1 Aaa, Aa, A ........................... $74,678 $2,036 $1,184 $75,530 $75,796 $1,787 $322 $77,261
2 Baa ................................. 13,573 490 351 13,712 13,328 580 137 13,771
Subtotal Investment Grade ............... 88,251 2,526 1,535 89,242 89,124 2,367 459 91,032
3 Ba .................................. 2,830 68 102 2,796 2,692 109 22 2,779
4 B ................................... 1,681 38 82 1,637 1,746 93 23 1,816
5 C and lower ........................... 115 5 6 114 115 8 2 121
6 In or near default ....................... 34 5 1 38 48 7 1 54
Subtotal Below Investment Grade ......... 4,660 116 191 4,585 4,601 217 48 4,770
Total Public Fixed Maturities ............. $92,911 $2,642 $1,726 $93,827 $93,725 $2,584 $507 $95,802
(1) Reflects equivalent ratings for investments of the international insurance operations that are not rated by U.S. insurance regulatory authorities.
(2) Includes, as of December 31, 2007 and December 31, 2006, respectively, 14 securities with amortized cost of $49 million (fair value, $46 million) and
10 securities with amortized cost of $50 million (fair value, $51 million) that have been categorized based on expected NAIC designations pending
receipt of SVO ratings.
(3) Includes $25 million of gross unrealized gains and $39 million gross unrealized losses as of December 31, 2007, compared to $22 million of gross
unrealized gains and $47 million of gross unrealized losses as of December 31, 2006 on securities classified as held to maturity that are not reflected in
other comprehensive income.
68 Prudential Financial 2007 Annual Report