Prudential 2007 Annual Report Download - page 80

Other Long-Term Investments
“Other long-term investments” are comprised as follows:
December 31, 2007 December 31, 2006
Financial Services
Businesses
Closed Block
Business
Financial Services
Businesses
Closed Block
Business
(in millions)
Joint ventures and limited partnerships:
Real estate related .............................................. $ 342 $ 308 $ 293 $216
Non real estate related .......................................... 755 1,014 372 785
Real estate held through direct ownership ............................. 946 — 992 13
Other .......................................................... 681 (54) 1,134 (49)
Total other long-term investments ............................... $2,724 $1,268 $2,791 $965
Trading Account Assets Supporting Insurance Liabilities
“Trading account assets supporting insurance liabilities, at fair value” include assets that support certain products included in the
Retirement and International Insurance segments, which are experience rated, meaning that the investment results associated with these
products will ultimately accrue to contractholders. Realized and unrealized gains and losses for these investments are reported in “Asset
management fees and other income.” Investment income for these investments is reported in “Net investment income.”
Results for the years ended December 31, 2007, 2006 and 2005 include the recognition of investment losses of zero million,
investment gains of $35 million and investment losses of $33 million, respectively, on “Trading account assets supporting insurance
liabilities, at fair value.” These gains and losses primarily represent interest-rate related mark-to-market adjustments on fixed maturity
securities. Consistent with our treatment of “Realized investment gains (losses), net,” these gains and losses, which will ultimately accrue
to the contractholders, are excluded from adjusted operating income. In addition, results for the years ended December 31, 2007, 2006 and
2005 include decreases of $13 million, decreases of $11 million and increases of $44 million, respectively, in contractholder liabilities due
to asset value changes in the pool of investments that support these experience-rated contracts. These liability changes are reflected in
“Interest credited to policyholders’ account balances” and are also excluded from adjusted operating income. As prescribed by U.S. GAAP,
changes in the fair value of commercial loans held in our general account, other than when associated with impairments, are not recognized
in income in the current period, while the impact of these changes in commercial loan value are reflected as a change in the liability to
contractholders in the current period. Included in the amounts above related to the change in the liability to contractholders is an increase
related to commercial loans of $40 million, an increase related to commercial loans of $14 million and a decrease related to commercial
loans of $12 million, respectively, for the years ended December 31, 2007, 2006 and 2005.
Divested Businesses
Our income from continuing operations includes results from several businesses that have been or will be sold or exited that do not
qualify for “discontinued operations” accounting treatment under U.S. GAAP. The results of these divested businesses are reflected in our
Corporate and Other operations, but excluded from adjusted operating income. A summary of the results of these divested business that
have been excluded from adjusted operating income is as follows for the periods indicated:
Year ended December 31,
2007 2006 2005
(in millions)
Exchange shares previously held by Prudential Equity Group .................................................... $ 9 $ 64 $—
Property and casualty insurance ............................................................................ 5 12 (12)
Prudential Securities capital markets ........................................................................ 15 — (4)
Prudential Home Mortgage Company ....................................................................... 8 — —
Total divested business excluded from adjusted operating income ............................................. $37 $ 76 $(16)
In the second quarter of 2007, we exited the equity sales, trading and research operations of the Prudential Equity Group, and the
results of these operations are reflected as discontinued operations for all periods presented. See Note 3 to the Consolidated Financial
Statements for additional information concerning Prudential Equity Group. We retained certain securities relating to trading exchange
memberships of these former operations. These securities were received in 2006 in connection with the commencement of public trading of
stock exchange shares. The changes in the fair value of these shares are reflected within divested businesses for all periods presented.
In 2003, we sold our property and casualty insurance companies that operated nationally in 48 states outside of New Jersey, and the
District of Columbia, to Liberty Mutual Group, and our New Jersey property and casualty insurance companies to Palisades Group. Results
of these property and casualty insurance operations are reflected as a divested business for all periods presented. We have retained
liabilities for pre-closing litigation and obligations under reinsurance contracts provided in connection with potential adverse loss
development on the business sold to Liberty Mutual Group.
78 Prudential Financial 2007 Annual Report