securities are considered available for sale, and, as a result, we record unrealized gains and losses to the extent that amortized cost is
different from estimated fair value. All held to maturity securities and all available for sale 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
consistently consider several factors including, but not limited to, the following:
• the reasons for the decline in value (credit event, currency or interest rate related, including general credit spread widening);
• the financial condition of and near-term prospects of the issuer; and
• the extent and the duration of the decline, including, but not limited to, the following general guidelines;
•
declines in value greater than 20%, maintained for six months or greater;
•
declines in value greater than 15%, maintained for more than one year on below investment grade bonds; and
•
declines in value less than six months where there has been a precipitous (generally 50% or greater) decline in value.
Given recent market conditions and liquidity concerns, and the resulting historically wide bid-ask spreads and high levels of price
volatility, the extent and duration of a decline in value have become less indicative of when the market may believe there has been credit
deterioration with respect to an issuer. Considering these current conditions, beginning in the third quarter of 2008 our determinations of
whether a decline in value is other-than-temporary have placed greater emphasis on our analysis of the underlying credit versus the extent
and duration of a decline in value. Our credit analysis of an investment includes determining whether the issuer is current on its contractual
payments, evaluating whether it is probable that we will be able to collect all amounts due according to the contractual terms of the security,
and analyzing our overall ability to recover the amortized cost of the investment. We continue to utilize valuation declines as a potential
indicator of credit deterioration, and apply additional levels of scrutiny in our analysis as the severity and duration of the decline increases.
In addition, effective with our adoption on January 1, 2009 of new authoritative guidance related to debt securities we recognize an
other-than-temporary impairment in earnings for a debt security in an unrealized loss position when either (a) we have the intent to sell the
debt security or (b) it is more likely than not we will be required to sell the debt security before its anticipated recovery. For all debt securities
in unrealized loss positions that do not meet either of these two criteria, we analyze our ability to recover the amortized cost by comparing
the net present value of our best estimate of projected future cash flows with the amortized cost of the security. If the net present value is less
than the amortized cost of the investment, an other-than-temporary impairment is recorded. The determination of the assumptions used in
these projections requires the use of significant management judgment. See Note 2 to the Consolidated Financial Statements for additional
information regarding these assumptions and our policies for recognizing other-than-temporary impairments for debt securities.
Other-than-temporary impairments of general account fixed maturity securities attributable to the Financial Services Businesses that
were recognized in earnings were $1.162 billion and $1.628 billion for the years ended December 31, 2009 and 2008, respectively.
Included in the other-than-temporary impairments of general account fixed maturities attributable to the Financial Services Businesses for
the years ended December 31, 2009 and 2008, were $668 million and $970 million, respectively, of other-than-temporary impairments on
asset-backed securities collateralized by sub-prime mortgages.
Other-than-temporary impairments of fixed maturity securities attributable to the Closed Block Business that were recognized in
earnings were $520 million and $718 million for the years ended December 31, 2009 and 2008, respectively. Included in the other-thantemporary impairments of fixed maturities attributable to the Closed Block Business for the years ended December 31, 2009 and 2008,
were $322 million and $463 million, respectively, of other-than-temporary impairments on asset-backed securities collateralized by
sub-prime mortgages. For a further discussion of other-than-temporary impairments, see “—Realized Investment Gains and Losses” above.
Trading account assets supporting insurance liabilities
Certain products included in the Retirement and International Insurance segments, are experience-rated, meaning that we expect the
investment results associated with these products will ultimately accrue to contractholders. The investments supporting these experiencerated products, excluding commercial mortgage and other loans, are classified as trading. These trading investments are reflected on the
balance sheet as “Trading account assets supporting insurance liabilities, at fair value.” Realized and unrealized gains and losses for these
investments are reported in “Asset management fees and other income,” and excluded from adjusted operating income. Investment income
for these investments is reported in “Net investment income,” and is included in adjusted operating income. The following table sets forth
the composition of this portfolio as of the dates indicated.
December 31, 2009
Amortized
Fair
Cost
Value
Short-term Investments and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Maturities:
Corporate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Mortgage-Backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential Mortgage-Backed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
725
$
December 31, 2008
Amortized
Fair
Cost
Value
(in millions)
725
$ 1,232
$ 1,232
9,202
1,899
1,434
1,022
508
169
9,502
1,893
1,432
857
517
159
8,814
2,335
708
915
416
147
7,971
2,092
684
635
420
143
Total Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,234
1,033
14,360
935
13,335
1,074
11,945
698
Total trading account assets supporting insurance liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,992
$16,020
$15,641
$13,875
As a percentage of amortized cost, 75% of the portfolio was publicly traded as of both December 31, 2009, and December 31, 2008.
As of both December 31, 2009 and December 31, 2008, 88% of the fixed maturity portfolio was considered high or highest quality based
96
Prudential Financial 2009 Annual Report