Prudential 2007 Annual Report Download - page 79

Unrealized Losses from Equity Securities
The following table sets forth the cost and gross unrealized losses of our equity securities attributable to the Financial Services
Businesses where the estimated fair value had declined and remained below cost by 20% or more for the following timeframes:
December 31, 2007 December 31, 2006
Cost
Gross
Unrealized
Losses Cost
Gross
Unrealized
Losses
(in millions)
Less than three months ...................................................................... $201 $ 55 $ 2 $ 2
Three months or greater but less than six months .................................................. 45 14 60 17
Six months and greater ...................................................................... — — — —
Total ................................................................................ $246 $ 69 $ 62 $ 19
The gross unrealized losses as of December 31, 2007 were primarily concentrated in the manufacturing and other sectors compared to
December 31, 2006 where the gross unrealized losses were primarily concentrated in the services, retail and wholesale and other sectors.
We have not recognized the gross unrealized losses shown in the table above as other-than-temporary impairments. See “—Impairments of
Equity Securities” for a discussion of the factors we consider in making these determinations.
The following table sets forth the cost and gross unrealized losses of our equity securities attributable to the Closed Block Business
where the estimated fair value had declined and remained below cost by 20% or more for the following timeframes:
December 31, 2007 December 31, 2006
Cost
Gross
Unrealized
Losses Cost
Gross
Unrealized
Losses
(in millions)
Less than three months ...................................................................... $241 $ 66 $ 5 $2
Three months or greater but less than six months ................................................. 54 19 6 2
Six months and greater ...................................................................... — — 6 2
Total ................................................................................ $295 $ 85 $17 $6
The gross unrealized losses as of December 31, 2007 were primarily concentrated in the finance and services sectors compared to
December 31, 2006 where the gross unrealized losses were primarily concentrated in the utilities and transportation sectors. We have not
recognized the gross unrealized losses shown in the table above as other-than-temporary impairments. See “—Impairments of Equity
Securities” for a discussion of the factors we consider in making these determinations.
Impairments of Equity Securities
For those equity securities classified as available for sale we record unrealized gains and losses to the extent cost is different from
estimated fair value. All securities with unrealized losses are subject to our review to identify other-than-temporary impairments in value.
In evaluating whether a decline in value is other-than-temporary, we consider several factors including, but not limited to, the following:
• the extent (generally if greater than 20%) and the duration (generally if greater than six months) of the decline;
• the reasons for the decline in value (credit event, currency or market fluctuation);
• our ability and intent to hold the investment for a period of time to allow for a recovery of value; and
• the financial condition of and near-term prospects of the issuer.
When we determine that there is an other-than-temporary impairment, we record a writedown to estimated fair value, which reduces
the cost basis. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. Estimated fair
values for publicly traded equity securities are based on quoted market prices or prices obtained from independent pricing services.
Estimated fair values for privately traded equity securities are determined using valuation and discounted cash flow models that require a
substantial level of judgment. In determining the fair value of certain privately traded equity securities the discounted cash flow model may
also use unobservable inputs, which reflect our own assumptions about the inputs market participants would use in pricing the asset.
Impairments on equity securities are included in “Realized investment gains (losses), net” and are excluded from adjusted operating
income.
Impairments of equity securities attributable to the Financial Services Businesses were $43 million and $14 million for the years
ended December 31, 2007 and 2006, respectively. Impairments of equity securities attributable to the Closed Block Business were $32
million and $17 million for the years ended December 31, 2007 and 2006, respectively. For a further discussion of impairments, see
“—Realized Investment Gains” above.
Prudential Financial 2007 Annual Report 77