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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 001-16707
Prudential Financial, Inc.
(Exact Name of Registrant as Specified in its Charter)
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| New Jersey | 22-3703799 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
751 Broad Street
Newark, NJ 07102
(973) 802-6000
(Address and Telephone Number of Registrant’s Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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| Title of Each Class | Trading Symbols(s) | Name of Each Exchange on Which Registered |
| Common Stock, Par Value $.01 | PRU | New York Stock Exchange |
| 5.625% Junior Subordinated Notes | PRS | New York Stock Exchange |
| 4.125% Junior Subordinated Notes | PFH | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large Accelerated Filer | x | | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
| | | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of July 31, 2021, 386 million shares of the registrant’s Common Stock (par value $0.01) were outstanding.
TABLE OF CONTENTS
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| Item 1A. | | |
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| Item 6. | | |
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Forward-Looking Statements
Certain of the statements included in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. There can be no assurance that future developments affecting Prudential Financial, Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) the ongoing impact of the COVID-19 pandemic on the global economy, financial markets and our business; (2) losses on investments or financial contracts due to deterioration in credit quality or value, or counterparty default; (3) losses on insurance products due to mortality experience, morbidity experience or policyholder behavior experience that differs significantly from our expectations when we price our products; (4) changes in interest rates, equity prices and foreign currency exchange rates that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events, and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data, (d) reliance on third-parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) U.S. state insurance laws and developments regarding group-wide supervision, capital and reserves, (e) insurer capital standards outside the U.S. and (f) privacy and cybersecurity regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) an inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (11) ratings downgrades; (12) market conditions that may adversely affect the sales or persistency of our products; (13) competition; (14) reputational damage; (15) the costs, effects, timing, or success of our plans to execute our strategy; and (16) the integration of Assurance IQ, LLC into our strategy. Prudential Financial, Inc. does not undertake to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2020 for discussion of certain risks relating to our businesses and investment in our securities.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Financial Position
June 30, 2021 and December 31, 2020 (in millions, except share amounts)
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| | June 30, 2021 | | December 31, 2020 |
| ASSETS | | | | |
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2021-$80; 2020-$133) (amortized cost: 2021-$338,942; 2020-$354,470)(1) | | $ | 382,981 | | | $ | 412,905 | |
Fixed maturities, held-to-maturity, at amortized cost (net of allowance for credit losses: 2021-$7; 2020-$9) (fair value: 2021-$1,987; 2020-$2,298)(1) | | 1,662 | | | 1,930 | |
Fixed maturities, trading, at fair value (amortized cost: 2021-$6,690; 2020-$3,670)(1) | | 6,567 | | | 3,914 | |
| Assets supporting experience-rated contractholder liabilities, at fair value | | 24,596 | | | 24,115 | |
Equity securities, at fair value (cost: 2021-$5,413; 2020-$5,968)(1) | | 8,018 | | | 8,135 | |
Commercial mortgage and other loans (net of $172 and $235 allowance for credit losses; includes $304 and $1,092 of loans measured at fair value under the fair value option at June 30, 2021 and December 31, 2020, respectively)(1) | | 64,359 | | | 65,425 | |
| Policy loans | | 10,652 | | | 11,271 | |
| | | | |
Other invested assets (net of $2 and $2 allowance for credit losses; includes $7,667 and $6,407 of assets measured at fair value at June 30, 2021 and December 31, 2020, respectively)(1) | | 20,384 | | | 18,125 | |
Short-term investments (net of allowance for credit losses: 2021-$0; 2020-$1) | | 6,325 | | | 7,800 | |
| Total investments | | 525,544 | | | 553,620 | |
| Cash and cash equivalents(1) | | 15,145 | | | 13,701 | |
| Accrued investment income(1) | | 3,037 | | | 3,193 | |
| Deferred policy acquisition costs | | 19,029 | | | 19,027 | |
| Value of business acquired | | 1,057 | | | 1,103 | |
Other assets (net of allowance for credit losses: 2021-$15; 2020-$11)(1) | | 21,957 | | | 22,801 | |
| Separate account assets | | 340,692 | | | 327,277 | |
| TOTAL ASSETS | | $ | 926,461 | | | $ | 940,722 | |
| LIABILITIES AND EQUITY | | | | |
| LIABILITIES | | | | |
| Future policy benefits | | $ | 289,233 | | | $ | 306,343 | |
| Policyholders’ account balances | | 159,548 | | | 161,682 | |
| Policyholders’ dividends | | 8,555 | | | 9,524 | |
| Securities sold under agreements to repurchase | | 9,557 | | | 10,894 | |
| Cash collateral for loaned securities | | 4,431 | | | 3,499 | |
| Income taxes | | 10,196 | | | 12,022 | |
| Short-term debt | | 909 | | | 925 | |
Long-term debt | | 19,670 | | | 19,718 | |
Other liabilities (net of allowance for credit losses: 2021-$20; 2020-$20 )(1) | | 19,702 | | | 20,323 | |
| Notes issued by consolidated variable interest entities(1) | | 284 | | | 305 | |
| Separate account liabilities | | 340,692 | | | 327,277 | |
| Total liabilities | | 862,777 | | | 872,512 | |
| COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14) | | | | |
| EQUITY | | | | |
Preferred Stock ($0.01 par value; 10,000,000 shares authorized; none issued) | | 0 | | | 0 | |
Common Stock ($0.01 par value; 1,500,000,000 shares authorized; 666,305,189 shares issued as of both June 30, 2021 and December 31, 2020) | | 6 | | | 6 | |
Additional paid-in capital | | 25,644 | | | 25,584 | |
Common Stock held in treasury, at cost (279,534,275 and 269,867,738 shares at June 30, 2021 and December 31, 2020, respectively) | | (20,687) | | | (19,652) | |
| Accumulated other comprehensive income (loss) | | 23,277 | | | 30,738 | |
| Retained earnings | | 34,808 | | | 30,749 | |
| Total Prudential Financial, Inc. equity | | 63,048 | | | 67,425 | |
| Noncontrolling interests | | 636 | | | 785 | |
| Total equity | | 63,684 | | | 68,210 | |
| TOTAL LIABILITIES AND EQUITY | | $ | 926,461 | | | $ | 940,722 | |
__________
(1)See Note 4 for details of balances associated with variable interest entities.
See Notes to Unaudited Interim Consolidated Financial Statements
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Operations
Three and Six Months Ended June 30, 2021 and 2020 (in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| REVENUES | | | | | | | |
| Premiums | $ | 6,779 | | | $ | 7,693 | | | $ | 14,322 | | | $ | 15,357 | |
| Policy charges and fee income | 1,400 | | | 1,523 | | | 2,890 | | | 3,012 | |
| Net investment income | 4,552 | | | 4,186 | | | 8,934 | | | 8,388 | |
| Asset management and service fees | 1,198 | | | 991 | | | 2,374 | | | 2,024 | |
| Other income (loss) | 1,353 | | | 1,474 | | | 1,635 | | | (1,117) | |
| Realized investment gains (losses), net | 635 | | | (3,752) | | | 2,714 | | | (2,085) | |
| Total revenues | 15,917 | | | 12,115 | | | 32,869 | | | 25,579 | |
| BENEFITS AND EXPENSES | | | | | | | |
| Policyholders’ benefits | 7,615 | | | 8,450 | | | 15,725 | | | 17,456 | |
| Interest credited to policyholders’ account balances | 1,074 | | | 1,832 | | | 1,842 | | | 2,224 | |
| Dividends to policyholders | 833 | | | 531 | | | 1,437 | | | 454 | |
| Amortization of deferred policy acquisition costs | 392 | | | 287 | | | 1,133 | | | 1,244 | |
| General and administrative expenses | 3,230 | | | 3,347 | | | 6,545 | | | 6,871 | |
| Total benefits and expenses | 13,144 | | | 14,447 | | | 26,682 | | | 28,249 | |
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES | 2,773 | | | (2,332) | | | 6,187 | | | (2,670) | |
| Total income tax expense (benefit) | 609 | | | 115 | | | 1,245 | | | 57 | |
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES | 2,164 | | | (2,447) | | | 4,942 | | | (2,727) | |
| Equity in earnings of operating joint ventures, net of taxes | 19 | | | 42 | | | 45 | | | 52 | |
| | | | | | | |
| | | | | | | |
| NET INCOME (LOSS) | 2,183 | | | (2,405) | | | 4,987 | | | (2,675) | |
| Less: Income (loss) attributable to noncontrolling interests | 25 | | | 4 | | | 1 | | | 5 | |
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC. | $ | 2,158 | | | $ | (2,409) | | | $ | 4,986 | | | $ | (2,680) | |
| EARNINGS PER SHARE | | | | | | | |
| Basic earnings per share-Common Stock: | | | | | | | |
| Net income (loss) attributable to Prudential Financial, Inc. | $ | 5.44 | | | $ | (6.12) | | | $ | 12.47 | | | $ | (6.80) | |
| Diluted earnings per share-Common Stock: | | | | | | | |
| Net income (loss) attributable to Prudential Financial, Inc. | $ | 5.40 | | | $ | (6.12) | | | $ | 12.39 | | | $ | (6.80) | |
See Notes to Unaudited Interim Consolidated Financial Statements
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Comprehensive Income
Three and Six Months Ended June 30, 2021 and 2020 (in millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| NET INCOME (LOSS) | $ | 2,183 | | | $ | (2,405) | | | $ | 4,987 | | | $ | (2,675) | |
| Other comprehensive income (loss), before tax: | | | | | | | |
Foreign currency translation adjustments for the period | (48) | | | 88 | | | (729) | | | (207) | |
| Net unrealized investment gains (losses) | 5,353 | | | 10,101 | | | (8,775) | | | 8,747 | |
Defined benefit pension and postretirement unrecognized periodic benefit (cost) | 74 | | | 72 | | | 170 | | | 144 | |
| Total | 5,379 | | | 10,261 | | | (9,334) | | | 8,684 | |
Less: Income tax expense (benefit) related to other comprehensive income (loss) | 1,319 | | | 2,023 | | | (1,857) | | | 1,885 | |
| Other comprehensive income (loss), net of taxes | 4,060 | | | 8,238 | | | (7,477) | | | 6,799 | |
| Comprehensive income (loss) | 6,243 | | | 5,833 | | | (2,490) | | | 4,124 | |
Less: Comprehensive income (loss) attributable to noncontrolling interests | 27 | | | 5 | | | (15) | | | 6 | |
Comprehensive income (loss) attributable to Prudential Financial, Inc. | $ | 6,216 | | | $ | 5,828 | | | $ | (2,475) | | | $ | 4,118 | |
See Notes to Unaudited Interim Consolidated Financial Statements
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Equity
Three and Six Months Ended June 30, 2021 and 2020 (in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Prudential Financial, Inc. Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Common Stock Held In Treasury | | Accumulated Other Comprehensive Income (Loss) | | Total Prudential Financial, Inc. Equity | | Noncontrolling Interests | | Total Equity |
| Balance, December 31, 2020 | $ | 6 | | | $ | 25,584 | | | $ | 30,749 | | | $ | (19,652) | | | $ | 30,738 | | | $ | 67,425 | | | $ | 785 | | | $ | 68,210 | |
| | | | | | | | | | | | | | | |
| Common Stock acquired | | | | | | | (375) | | | | | (375) | | | | | (375) | |
| | | | | | | | | | | | | | | |
| Contributions from noncontrolling interests | | | | | | | | | | | | | 3 | | | 3 | |
| Distributions to noncontrolling interests | | | | | | | | | | | | | (6) | | | (6) | |
| | | | | | | | | | | | | | | |
| Stock-based compensation programs | | | (5) | | | | | 149 | | | | | 144 | | | | | 144 | |
| Dividends declared on Common Stock | | | | | (467) | | | | | | | (467) | | | | | (467) | |
| Comprehensive income: | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | 2,828 | | | | | | | 2,828 | | | (24) | | | 2,804 | |
| Other comprehensive income (loss), net of tax | | | | | | | | | (11,519) | | | (11,519) | | | (18) | | | (11,537) | |
| Total comprehensive income (loss) | | | | | | | | | | | (8,691) | | | (42) | | | (8,733) | |
| Balance, March 31, 2021 | 6 | | | 25,579 | | | 33,110 | | | (19,878) | | | 19,219 | | | 58,036 | | | 740 | | | 58,776 | |
| Common Stock acquired | | | | | | | (875) | | | | | (875) | | | | | (875) | |
| | | | | | | | | | | | | | | |
| Contributions from noncontrolling interests | | | | | | | | | | | | | 9 | | | 9 | |
| Distributions to noncontrolling interests | | | | | | | | | | | | | (22) | | | (22) | |
| Consolidations (deconsolidations) of noncontrolling interests | | | | | | | | | | | | | (118) | | | (118) | |
| Stock-based compensation programs | | | 65 | | | | | 66 | | | | | 131 | | | | | 131 | |
| Dividends declared on Common Stock | | | | | (460) | | | | | | | (460) | | | | | (460) | |
| Comprehensive income: | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | 2,158 | | | | | | | 2,158 | | | 25 | | | 2,183 | |
| Other comprehensive income (loss), net of tax | | | | | | | | | 4,058 | | | 4,058 | | | 2 | | | 4,060 | |
| Total comprehensive income (loss) | | | | | | | | | | | 6,216 | | | 27 | | | 6,243 | |
| Balance, Balance, June 30, 2021 | $ | 6 | | | $ | 25,644 | | | $ | 34,808 | | | $ | (20,687) | | | $ | 23,277 | | | $ | 63,048 | | | $ | 636 | | | $ | 63,684 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
| | | | | | | | | | | | | | | |
| | Prudential Financial, Inc. Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Common Stock Held In Treasury | | Accumulated Other Comprehensive Income (Loss) | | Total Prudential Financial, Inc. Equity | | Noncontrolling Interests | | Total Equity |
| Balance, December 31, 2019 | $ | 6 | | | $ | 25,532 | | | $ | 32,991 | | | $ | (19,453) | | | $ | 24,039 | | | $ | 63,115 | | | $ | 604 | | | $ | 63,719 | |
| Cumulative effect of adoption of accounting changes(1) | | | | | (99) | | | | | | | (99) | | | | | (99) | |
| Common Stock acquired | | | | | | | (500) | | | | | (500) | | | | | (500) | |
| | | | | | | | | | | | | | | |
| Contributions from noncontrolling interests | | | | | | | | | | | | | 31 | | | 31 | |
| Distributions to noncontrolling interests | | | | | | | | | | | | | (11) | | | (11) | |
| | | | | | | | | | | | | | | |
| Stock-based compensation programs | | | (26) | | | | | 112 | | | | | 86 | | | | | 86 | |
| Dividends declared on Common Stock | | | | | (445) | | | | | | | (445) | | | | | (445) | |
| Comprehensive income: | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | (271) | | | | | | | (271) | | | 1 | | | (270) | |
| Other comprehensive income (loss), net of tax | | | | | | | | | (1,439) | | | (1,439) | | | 0 | | | (1,439) | |
| Total comprehensive income (loss) | | | | | | | | | | | (1,710) | | | 1 | | | (1,709) | |
| Balance, March 31, 2020 | 6 | | | 25,506 | | | 32,176 | | | (19,841) | | | 22,600 | | | 60,447 | | | 625 | | | 61,072 | |
| Common Stock acquired | | | | | | | | | | | | | | | |
| Contributions from noncontrolling interests | | | | | | | | | | | | | 4 | | | 4 | |
| Distributions to noncontrolling interests | | | | | | | | | | | | | (23) | | | (23) | |
| Stock-based compensation programs | | | 7 | | | | | 56 | | | | | 63 | | | | | 63 | |
| Dividends declared on Common Stock | | | | | (441) | | | | | | | (441) | | | | | (441) | |
| Comprehensive income: | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | (2,409) | | | | | | | (2,409) | | | 4 | | | (2,405) | |
| Other comprehensive income (loss), net of tax | | | | | | | | | 8,237 | | | 8,237 | | | 1 | | | 8,238 | |
| Total comprehensive income (loss) | | | | | | | | | | | 5,828 | | | 5 | | | 5,833 | |
| Balance, Balance, June 30, 2020 | $ | 6 | | | $ | 25,513 | | | $ | 29,326 | | | $ | (19,785) | | | $ | 30,837 | | | $ | 65,897 | | | $ | 611 | | | $ | 66,508 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
__________
(1)Includes the impact from the adoption of ASU 2016-13. See Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.
See Notes to Unaudited Interim Consolidated Financial Statements
PRUDENTIAL FINANCIAL, INC.
Unaudited Interim Consolidated Statements of Cash Flows
Six Months Ended June 30, 2021 and 2020 (in millions)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net income (loss) | $ | 4,987 | | | $ | (2,675) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Realized investment (gains) losses, net | (2,714) | | | 2,085 | |
| Policy charges and fee income | (1,142) | | | (1,366) | |
| Interest credited to policyholders’ account balances | 1,842 | | | 2,224 | |
| Depreciation and amortization | 45 | | | 383 | |
| (Gains) losses on assets supporting experience-rated contractholder liabilities, net | 89 | | | (142) | |
| Change in: | | | |
| Deferred policy acquisition costs | (167) | | | (120) | |
| Future policy benefits and other insurance liabilities | 2,663 | | | 5,186 | |
| Income taxes | 221 | | | (4) | |
| Derivatives, net | (3,466) | | | 10,629 | |
| Other, net | (1,296) | | | (2,721) | |
| Cash flows from (used in) operating activities | 1,062 | | | 13,479 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Proceeds from the sale/maturity/prepayment of: | | | |
| Fixed maturities, available-for-sale | 34,913 | | | 20,664 | |
| Fixed maturities, held-to-maturity | 144 | | | 58 | |
| Fixed maturities, trading | 2,141 | | | 276 | |
| Assets supporting experience-rated contractholder liabilities | 9,048 | | | 14,015 | |
| Equity securities | 2,266 | | | 1,274 | |
| Commercial mortgage and other loans | 3,739 | | | 2,639 | |
| Policy loans | 1,091 | | | 1,291 | |
| Other invested assets | 1,319 | | | 939 | |
| Short-term investments | 15,998 | | | 21,107 | |
| Payments for the purchase/origination of: | | | |
| Fixed maturities, available-for-sale | (29,501) | | | (26,815) | |
| | | |
| Fixed maturities, trading | (5,345) | | | (446) | |
| Assets supporting experience-rated contractholder liabilities | (9,727) | | | (15,453) | |
| Equity securities | (1,923) | | | (1,370) | |
| Commercial mortgage and other loans | (3,554) | | | (2,463) | |
| Policy loans | (676) | | | (1,288) | |
| Other invested assets | (1,426) | | | (1,435) | |
| Short-term investments | (14,552) | | | (27,076) | |
| | | |
| Dispositions, net of cash disposed | 132 | | | 0 | |
| Derivatives, net | (776) | | | 841 | |
| Other, net | (149) | | | (107) | |
| Cash flows from (used in) investing activities | 3,162 | | | (13,349) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Policyholders’ account deposits | 15,182 | | | 25,452 | |
| Policyholders’ account withdrawals | (15,575) | | | (20,306) | |
| Net change in securities sold under agreements to repurchase and cash collateral for loaned securities | (405) | | | 41 | |
| Cash dividends paid on Common Stock | (926) | | | (886) | |
| Net change in financing arrangements (maturities 90 days or less) | 73 | | | 306 | |
| Common Stock acquired | (1,238) | | | (500) | |
| Common Stock reissued for exercise of stock options | 113 | | | 73 | |
| Proceeds from the issuance of debt (maturities longer than 90 days) | 71 | | | 1,563 | |
| Repayments of debt (maturities longer than 90 days) | (173) | | | (791) | |
| | | |
| Repayments of notes issued by consolidated VIEs | 0 | | | (18) | |
| | | |
| Other, net | 211 | | | (247) | |
| Cash flows from (used in) financing activities | (2,667) | | | 4,687 | |
| Effect of foreign exchange rate changes on cash balances | (217) | | | 6 | |
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS | 1,340 | | | 4,823 | |
| CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR | 13,855 | | | 16,474 | |
| CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD | $ | 15,195 | | | $ | 21,297 | |
| NON-CASH TRANSACTIONS DURING THE PERIOD | | | |
| Treasury Stock shares issued for stock-based compensation programs | $ | 131 | | | $ | 144 | |
| | | |
| Significant Pension Risk Transfer transactions: | | | |
| Assets received, excluding cash and cash equivalents | $ | 0 | | | $ | 238 | |
| Liabilities assumed | 0 | | | 505 | |
| Net cash received | $ | 0 | | | $ | 267 | |
| | | |
| | | |
| | | |
| | | |
| RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | | | |
| Cash and cash equivalents | $ | 15,145 | | | $ | 21,149 | |
| Restricted cash and restricted cash equivalents (included in “Other assets”) | 50 | | | 148 | |
| Total cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 15,195 | | | $ | 21,297 | |
See Notes to Unaudited Interim Consolidated Financial Statements
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements
1. BUSINESS AND BASIS OF PRESENTATION
Prudential Financial, Inc. (“Prudential Financial”) and its subsidiaries (collectively, “Prudential” or the “Company”) provide a wide range of insurance, investment management, and other financial products and services to both individual and institutional customers throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities, retirement-related services, mutual funds and investment management.
The Company’s principal operations consist of PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the Retirement, Group Insurance, Individual Annuities, Individual Life and Assurance IQ businesses), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included in Corporate and Other. Divested and Run-off Businesses consist of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind-down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and Run-off Businesses described above.
Basis of Presentation
The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner and variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. See Note 4 for additional information on the Company’s consolidated variable interest entities. Intercompany balances and transactions have been eliminated.
In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining deferred policy acquisition costs (“DAC”) and related amortization; policyholders’ account balances related to the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products; value of business acquired (“VOBA”) and its amortization; amortization of deferred sales inducements (“DSI”); measurement of goodwill and any related impairment; valuation of investments including derivatives, measurement of allowance for credit losses, and the recognition of other-than-temporary impairments (“OTTI”); future policy benefits including guarantees; pension and other postretirement benefits; provision for income taxes and valuation of deferred tax assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal and regulatory matters.
COVID-19
Beginning in the first quarter of 2020, the outbreak of the novel coronavirus (“COVID-19”) resulted in extreme stress and disruption in the global economy and financial markets. While markets have rebounded, the pandemic has adversely impacted, and may continue to adversely impact, the Company’s results of operations, financial condition and cash flows. Due to the highly uncertain nature of these conditions, it is not possible to estimate the ultimate impacts at this time. The risks may have manifested, and may continue to manifest, in the Company’s financial statements in the areas of, among others, i) investments:
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
increased risk of loss on our investments due to default or deterioration in credit quality or value; and ii) insurance liabilities and related balances: potential changes to assumptions regarding investment returns, mortality, morbidity and policyholder behavior which are reflected in our insurance liabilities and certain related balances (e.g., DAC, VOBA, etc.). The Company cannot predict what impact the COVID-19 pandemic will ultimately have on its businesses.
Business Dispositions
The Prudential Life Insurance Company of Taiwan Inc.
In June 2021, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. (the “Buyer”) for cash consideration of approximately NT5.5 billion, equal to approximately $200 million at then current exchange rates, and contingent consideration with a fair value of approximately $25 million as of June 30, 2021. The fair value of the contingent consideration is tied to the level of yields for the 10-year Taiwanese Government bond for two years after the signing of the transaction and can result in a maximum payout of $100 million if yields increase by 40 basis points. In connection with the transaction, the Company recognized a liability with a fair value of approximately $34 million as of June 30, 2021, representing its financial guarantee of certain insurance obligations of POT.
The after-tax loss on the sale of POT was approximately $400 million, of which approximately $350 million was recorded during 2020, and approximately $40 million and $10 million were recorded during the first and second quarters of 2021, respectively.
Prior to the sale, in the third quarter of 2020, the Company transferred the results of POT and the anticipated impact of its sale from the International Businesses segment to Divested and Run-off Businesses within Corporate & Other operations. Prior period amounts were restated at that time, which impacted both segment reporting and adjusted operating income, but did not impact results reported under GAAP. Results for the six months ended June 30, 2020 contained herein reflect this restatement.
Pramerica SGR (PGIM Italy Joint Venture)
In March 2021, the Company sold its 35% ownership stake in Pramerica SGR, PGIM’s asset management joint venture in Italy, to its partner UBI Banca, which was acquired in 2020 by Intesa Sanpaolo Group. The after-tax gain on the sale of Pramerica SGR was approximately $330 million, which was recognized in adjusted operating income in the first quarter of 2021.
The Prudential Life Insurance Company of Korea, Ltd.
In August 2020, PIIH completed the sale of The Prudential Life Insurance Company of Korea, Ltd. (“POK”) to KB Financial Group Inc., for cash consideration of approximately ₩2.3 trillion, equal to approximately $1.9 billion. The Company recognized an approximate $800 million after-tax loss on the transaction in 2020.
Prior to the sale, in the second quarter of 2020, the Company transferred the results of POK and the anticipated impact of its sale from the International Businesses segment to Divested and Run-off Businesses within Corporate & Other operations. Prior period amounts were restated at that time, which impacted both segment reporting and adjusted operating income, but did not impact results reported under GAAP. Results for the six months ended June 30, 2020 contained herein reflect this restatement.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the current period presentation.
2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
and/or those that have been issued but not yet adopted as of June 30, 2021, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.
ASU issued but not yet adopted as of June 30, 2021 — ASU 2018-12
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018 and is expected to have a significant impact on the Consolidated Financial Statements and Notes to the Consolidated Financial Statements. In October 2019, the FASB issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. As a result of the COVID-19 pandemic, in November 2020 the FASB issued ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company currently intends to adopt ASU 2018-12 effective January 1, 2023 using the modified retrospective transition method where permitted. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. Outlined below are four key areas of change, although there are other less significant changes not noted below. In addition to the impacts to the balance sheet upon adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date.
| | | | | | | | | | | | | | | | | | | | |
| ASU 2018-12 Amended Topic | | Description | | Method of adoption | | Effect on the financial statements or other significant matters |
Cash flow assumptions used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products
| | Requires an entity to review and, if necessary, update the cash flow assumptions used to measure the liability for future policy benefits, for both changes in future assumptions and actual experience, at least annually using a retrospective update method with a cumulative catch-up adjustment recorded in a separate line item in the Consolidated Statements of Operations. | | An entity may choose one of two adoption methods for the liability for future policy benefits: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in Accumulated other comprehensive income (loss) (“AOCI”) or (2) a full retrospective transition method. | | The Company currently intends to adopt this guidance effective January 1, 2023 using the modified retrospective transition method. The impacts of electing such method are currently under assessment. |
Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products
| | Requires discount rate assumptions to be based on an upper-medium grade fixed income instrument yield, which will be updated each quarter with the impact recorded through OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the discount rate assumptions. | | As noted above, an entity may choose either a modified retrospective transition method or full retrospective transition method for the liability for future policy benefits. Under either method, for balance sheet remeasurement purposes, the liability for future policy benefits will be remeasured using current discount rates as of either the beginning of the prior year (if early adoption is elected) or the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI. | | As noted above, the Company currently intends to adopt the guidance for the liability for future policy benefits effective January 1, 2023 using the modified retrospective transition method. Upon adoption, there will be an adjustment to AOCI as a result of remeasuring in-force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment upon adoption will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed. |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | |
Amortization of deferred acquisition costs (DAC) and other balances
| | Requires DAC and other balances, such as unearned revenue reserves and DSI, to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability. | | An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or (2) if an entity chooses a full retrospective transition method for its liability for future policy benefits, as described above, it is required to also use a full retrospective transition method for DAC and other balances. | | The Company currently intends to adopt this guidance effective January 1, 2023 using the modified retrospective transition method. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI. |
Market Risk Benefits (“MRB”)
| | Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record MRB assets and liabilities separately on the Consolidated Statements of Financial Position. Changes in fair value of market risk benefits are recorded in net income, except for the portion of the change in MRB liabilities attributable to changes in an entity’s non-performance risk (“NPR”), which is recognized in OCI. | | An entity shall adopt the guidance for market risk benefits using the retrospective transition method, which includes a cumulative effect adjustment on the balance sheet as of either the beginning of prior year (if early adoption is elected) or the beginning of the earliest period presented. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption. | | The Company currently intends to adopt this guidance effective January 1, 2023 using the retrospective transition method. Upon adoption, the Company expects an impact to retained earnings for the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., guaranteed minimum death benefits on variable annuities) and an impact from reclassifying the cumulative effect of changes in NPR from retained earnings to AOCI. The magnitude of such adjustments is currently being assessed. |
Modifications related to COVID-19
We assess modifications to certain fixed income instruments on a case-by-case basis to evaluate whether a troubled debt restructuring ("TDR") has occurred. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") provides a temporary suspension of TDR accounting for certain COVID-19 related modifications where the investment was not more than 30 days past due as of December 31, 2019 (“TDR Relief”). The TDR Relief was set to expire on December 31, 2020, but was extended through December 31, 2021 by the Consolidated Appropriations Act of 2021. The Company elected to apply the TDR Relief beginning in the first quarter of 2021. The TDR Relief does not apply to modifications completed 60 days after the national emergency related to COVID-19 ends, or December 31, 2021, whichever comes earlier. As of June 30, 2021, any such modifications did not have a material impact on the Company's results of operations. For additional information regarding the Company’s policies for troubled debt restructurings, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
3. INVESTMENTS
Fixed Maturity Securities
The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
| | (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 24,448 | | | $ | 5,642 | | | $ | 38 | | | $ | 0 | | | $ | 30,052 | |
| Obligations of U.S. states and their political subdivisions | 10,461 | | | 1,909 | | | 6 | | | 0 | | | 12,364 | |
| Foreign government bonds | 85,829 | | | 13,028 | | | 412 | | | 0 | | | 98,445 | |
| U.S. public corporate securities | 95,625 | | | 14,915 | | | 272 | | | 11 | | | 110,257 | |
| U.S. private corporate securities(1) | 36,968 | | | 3,324 | | | 148 | | | 44 | | | 40,100 | |
| Foreign public corporate securities | 25,733 | | | 3,041 | | | 74 | | | 22 | | | 28,678 | |
| Foreign private corporate securities | 29,735 | | | 2,290 | | | 265 | | | 3 | | | 31,757 | |
| Asset-backed securities(2) | 13,463 | | | 163 | | | 13 | | | 0 | | | 13,613 | |
| Commercial mortgage-backed securities | 13,764 | | | 899 | | | 16 | | | 0 | | | 14,647 | |
| Residential mortgage-backed securities(3) | 2,916 | | | 160 | | | 8 | | | 0 | | | 3,068 | |
| Total fixed maturities, available-for-sale(1) | $ | 338,942 | | | $ | 45,371 | | | $ | 1,252 | | | $ | 80 | | | $ | 382,981 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses | | Amortized Cost, Net of Allowance |
| | (in millions) |
| Fixed maturities, held-to-maturity: | | | | | | | | | | | |
| Foreign government bonds | $ | 865 | | | $ | 240 | | | $ | 0 | | | $ | 1,105 | | | $ | 0 | | | $ | 865 | |
| Foreign public corporate securities | 502 | | | 58 | | | 0 | | | 560 | | | 7 | | | 495 | |
| Foreign private corporate securities | 81 | | | 2 | | | 0 | | | 83 | | | 0 | | | 81 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Residential mortgage-backed securities(3) | 221 | | | 18 | | | 0 | | | 239 | | | 0 | | | 221 | |
| Total fixed maturities, held-to-maturity(4) | $ | 1,669 | | | $ | 318 | | | $ | 0 | | | $ | 1,987 | | | $ | 7 | | | $ | 1,662 | |
__________
(1)Excludes notes with amortized cost of $5,616 million (fair value, $5,674 million), which have been offset with the associated debt under a netting agreement.
(2)Includes credit-tranched securities collateralized by loan obligations, auto loans, education loans, credit cards and other asset types.
(3)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(4)Excludes notes with amortized cost of $4,748 million (fair value, $5,427 million), which have been offset with the associated debt under a netting agreement.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
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| | December 31, 2020 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
| | (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | | | |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 30,766 | | | $ | 9,699 | | | $ | 17 | | | $ | 0 | | | $ | 40,448 | |
| Obligations of U.S. states and their political subdivisions | 10,668 | | | 2,144 | | | 1 | | | 0 | | | 12,811 | |
| Foreign government bonds | 94,110 | | | 16,373 | | | 239 | | | 0 | | | 110,244 | |
| U.S. public corporate securities | 95,299 | | | 18,516 | | | 213 | | | 47 | | | 113,555 | |
| U.S. private corporate securities(1) | 36,894 | | | 4,196 | | | 134 | | | 19 | | | 40,937 | |
| Foreign public corporate securities | 25,857 | | | 3,768 | | | 64 | | | 24 | | | 29,537 | |
| Foreign private corporate securities | 28,668 | | | 3,183 | | | 226 | | | 33 | | | 31,592 | |
| Asset-backed securities(2) | 14,489 | | | 176 | | | 74 | | | 0 | | | 14,591 | |
| Commercial mortgage-backed securities | 15,036 | | | 1,288 | | | 11 | | | 10 | | | 16,303 | |
| Residential mortgage-backed securities(3) | 2,683 | | | 205 | | | 1 | | | 0 | | | 2,887 | |
| Total fixed maturities, available-for-sale(1) | $ | 354,470 | | | $ | 59,548 | | | $ | 980 | | | $ | 133 | | | $ | 412,905 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses | | Amortized Cost, Net of Allowance |
| | (in millions) |
| Fixed maturities, held-to-maturity: | | | | | | | | | | | |
| Foreign government bonds | $ | 935 | | | $ | 270 | | | $ | 0 | | | $ | 1,205 | | | $ | 0 | | | $ | 935 | |
| Foreign public corporate securities | 651 | | | 68 | | | 0 | | | 719 | | | 9 | | | 642 | |
| Foreign private corporate securities | 87 | | | 1 | | | 0 | | | 88 | | | 0 | | | 87 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Residential mortgage-backed securities(3) | 266 | | | 20 | | | 0 | | | 286 | | | 0 | | | 266 | |
| Total fixed maturities, held-to-maturity(4) | $ | 1,939 | | | $ | 359 | | | $ | 0 | | | $ | 2,298 | | | $ | 9 | | | $ | 1,930 | |
__________
(1)Excludes notes with amortized cost of $5,966 million (fair value, $6,100 million), which have been offset with the associated debt under a netting agreement.
(2)Includes credit-tranched securities collateralized by loan obligations, auto loans, education loans, home equity and other asset types.
(3)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(4)Excludes notes with amortized cost of $4,998 million (fair value, $5,821 million), which have been offset with the associated debt under a netting agreement.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
The following tables set forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the dates indicated:
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| | | June 30, 2021 |
| | | Less Than Twelve Months | | Twelve Months or More | | Total |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | | (in millions) |
| Fixed maturities, available-for-sale: | | |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | | $ | 1,213 | | | $ | 38 | | | $ | 1 | | | $ | 0 | | | $ | 1,214 | | | $ | 38 | |
| Obligations of U.S. states and their political subdivisions | | 222 | | | 6 | | | 0 | | | 0 | | | 222 | | | 6 | |
| Foreign government bonds | | 7,424 | | | 254 | | | 1,806 | | | 158 | | | 9,230 | | | 412 | |
| U.S. public corporate securities | | 7,799 | | | 219 | | | 804 | | | 45 | | | 8,603 | | | 264 | |
| U.S. private corporate securities | | 2,666 | | | 76 | | | 867 | | | 72 | | | 3,533 | | | 148 | |
| Foreign public corporate securities | | 2,050 | | | 43 | | | 631 | | | 28 | | | 2,681 | | | 71 | |
| Foreign private corporate securities | | 3,346 | | | 88 | | | 1,863 | | | 174 | | | 5,209 | | | 262 | |
| Asset-backed securities | | 5,023 | | | 10 | | | 561 | | | 3 | | | 5,584 | | | 13 | |
| Commercial mortgage-backed securities | | 603 | | | 13 | | | 66 | | | 3 | | | 669 | | | 16 | |
| Residential mortgage-backed securities | | 522 | | | 8 | | | 12 | | | 0 | | | 534 | | | 8 | |
| Total fixed maturities, available-for-sale | | $ | 30,868 | | | $ | 755 | | | $ | 6,611 | | | $ | 483 | | | $ | 37,479 | | | $ | 1,238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Less Than Twelve Months | | Twelve Months or More | | Total |
| | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| | | (in millions) |
| Fixed maturities, available-for-sale: | | |
| U.S. Treasury securities and obligations of U.S. government authorities and agencies | | $ | 750 | | | $ | 17 | | | $ | 0 | | | $ | 0 | | | $ | 750 | | | $ | 17 | |
| Obligations of U.S. states and their political subdivisions | | 73 | | | 1 | | | 0 | | | 0 | | | 73 | | | 1 | |
| Foreign government bonds | | 6,536 | | | 231 | | | 39 | | | 8 | | | 6,575 | | | 239 | |
| U.S. public corporate securities | | 3,905 | | | 87 | | | 1,197 | | | 106 | | | 5,102 | | | 193 | |
| U.S. private corporate securities | | 1,712 | | | 52 | | | 843 | | | 82 | | | 2,555 | | | 134 | |
| Foreign public corporate securities | | 1,412 | | | 30 | | | 376 | | | 23 | | | 1,788 | | | 53 | |
| Foreign private corporate securities | | 798 | | | 34 | | | 2,371 | | | 192 | | | 3,169 | | | 226 | |
| Asset-backed securities | | 4,132 | | | 25 | | | 4,685 | | | 49 | | | 8,817 | | | 74 | |
| Commercial mortgage-backed securities | | 284 | | | 8 | | | 93 | | | 3 | | | 377 | | | 11 | |
| Residential mortgage-backed securities | | 116 | | | 1 | | | 1 | | | 0 | | | 117 | | | 1 | |
| Total fixed maturities, available-for-sale | | $ | 19,718 | | | $ | 486 | | | $ | 9,605 | | | $ | 463 | | | $ | 29,323 | | | $ | 949 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
As of June 30, 2021 and December 31, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $977 million and $636 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $261 million and $313 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, 2021, the $483 million of gross unrealized losses of twelve months or more were concentrated in the energy, utility and finance sectors within corporate securities and foreign government securities. As of December 31, 2020, the $463 million of gross unrealized losses of twelve months or more were concentrated in corporate securities within the energy, utility and finance sectors.
In accordance with its policy described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at June 30, 2021. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of June 30, 2021, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.
The following table sets forth the amortized cost or amortized cost, net of allowance and fair value of fixed maturities by contractual maturities, as of the date indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Available-for-Sale | | Held-to-Maturity |
| | Amortized Cost | | Fair Value | | Amortized Cost, Net of Allowance | | Fair Value |
| (in millions) |
| Fixed maturities: | | | | | | | |
| Due in one year or less | $ | 12,858 | | | $ | 13,332 | | | $ | 0 | | | $ | 0 | |
| Due after one year through five years | 53,062 | | | 57,163 | | | 495 | | | 560 | |
| Due after five years through ten years | 66,502 | | | 74,127 | | | 104 | | | 108 | |
| Due after ten years(1) | 176,377 | | | 207,031 | | | 842 | | | 1,080 | |
| Asset-backed securities | 13,463 | | | 13,613 | | | 0 | | | 0 | |
| Commercial mortgage-backed securities | 13,764 | | | 14,647 | | | 0 | | | 0 | |
| Residential mortgage-backed securities | 2,916 | | | 3,068 | | | 221 | | | 239 | |
| Total | $ | 338,942 | | | $ | 382,981 | | | $ | 1,662 | | | $ | 1,987 | |
__________
(1)Excludes available-for-sale notes with amortized cost of $5,616 million (fair value, $5,674 million) and held-to-maturity notes with amortized cost of $4,748 million (fair value, $5,427 million), which have been offset with the associated debt under a netting agreement.
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed and residential mortgage-backed securities are shown separately in the table above, as they do not have a single maturity date.
The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on write-downs and the allowance for credit losses of fixed maturities, for the periods indicated:
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | |
| Proceeds from sales(1) | $ | 5,078 | | | $ | 5,217 | | | $ | 19,768 | | | $ | 10,370 | |
| Proceeds from maturities/prepayments | 8,002 | | | 5,539 | | | 14,896 | | | 10,422 | |
| Gross investment gains from sales and maturities | 361 | | | 405 | | | 1,963 | | | 873 | |
| Gross investment losses from sales and maturities | (99) | | | (149) | | | (489) | | | (210) | |
| | | | | | | |
| Write-downs recognized in earnings(2) | 0 | | | (64) | | | 0 | | | (155) | |
| (Addition to) release of allowance for credit losses | 51 | | | (80) | | | 53 | | | (238) | |
| Fixed maturities, held-to-maturity: | | | | | | | |
| Proceeds from maturities/prepayments(3) | $ | 132 | | | $ | 22 | | | $ | 144 | | | $ | 63 | |
| (Addition to) release of allowance for credit losses | 0 | | | 0 | | 2 | | | 0 |
__________
(1)Includes $(249) million and $128 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2021 and 2020, respectively.
(2)Amounts represent write-downs on credit adverse securities, write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.
(3)Includes $0 million and $5 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2021 and 2020, respectively.
The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 122 | | | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 131 | |
Additions to allowance for credit losses not previously recorded | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | | 0 | | | 9 | |
| | | | | | | | | | | | | |
Reductions for securities sold during the period | 0 | | | 0 | | | (4) | | | 0 | | | (9) | | | 0 | | | (13) | |
| | | | | | | | | | | | | |
| Additions (reductions) on securities with previous allowance | 0 | | | 0 | | | (47) | | | 0 | | | 0 | | | 0 | | | (47) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 0 | | | $ | 80 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 80 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 38 | | | $ | 119 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 158 | |
Additions to allowance for credit losses not previously recorded | 0 | | | 0 | | | 86 | | | 0 | | | 0 | | | 0 | | | 86 | |
| | | | | | | | | | | | | |
Reductions for securities sold during the period | 0 | | | 0 | | | (28) | | | 0 | | | 0 | | | 0 | | | (28) | |
| | | | | | | | | | | | | |
| Additions (reductions) on securities with previous allowance | 0 | | | 0 | | | 22 | | | 0 | | | 0 | | | 0 | | | 22 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 38 | | | $ | 199 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 123 | | | $ | 0 | | | $ | 10 | | | $ | 0 | | | $ | 133 | |
Additions to allowance for credit losses not previously recorded | 0 | | | 0 | | | 40 | | | 0 | | | 0 | | | 0 | | | 40 | |
| | | | | | | | | | | | | |
Reductions for securities sold during the period | 0 | | | 0 | | | (30) | | | 0 | | | (9) | | | 0 | | | (39) | |
| | | | | | | | | | | | | |
| Additions (reductions) on securities with previous allowance | 0 | | | 0 | | | (53) | | | 0 | | | (1) | | | 0 | | | (54) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 0 | | | $ | 80 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 80 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, available-for-sale: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Additions to allowance for credit losses not previously recorded | 0 | | | 38 | | | 205 | | | 0 | | | 1 | | | 0 | | | 244 | |
| | | | | | | | | | | | | |
Reductions for securities sold during the period | 0 | | | 0 | | | (28) | | | 0 | | | 0 | | | 0 | | | (28) | |
| | | | | | | | | | | | | |
| Additions (reductions) on securities with previous allowance | 0 | | | 0 | | | 22 | | | 0 | | | 0 | | | 0 | | | 22 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 38 | | | $ | 199 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, held-to-maturity: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 7 | |
| | | | | | | | | | | | | |
| Current period provision for expected losses | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 0 | | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, held-to-maturity: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9 | |
| | | | | | | | | | | | | |
| Current period provision for expected losses | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, held-to-maturity: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9 | |
| | | | | | | | | | | | | |
| Current period provision for expected losses | 0 | | | 0 | | | (2) | | | 0 | | | 0 | | | 0 | | | (2) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 0 | | | $ | 7 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| U.S. Treasury Securities and Obligations of U.S. States | | Foreign Government Bonds | | U.S. and Foreign Corporate Securities | | Asset-Backed Securities | | Commercial Mortgage-Backed Securities | | Residential Mortgage-Backed Securities | | Total |
| (in millions) |
| Fixed maturities, held-to-maturity: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Cumulative effect of adoption of ASU 2016-13 | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | | 0 | | | 9 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | 0 | | | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9 | |
For additional information about the Company’s methodology for developing our allowance and expected losses, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
For the three months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment within the consumer cyclical, energy and communication sectors within corporate securities. For the three months ended June 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the consumer cyclical, energy and communications sectors within corporate securities.
For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment within the energy and consumer cyclical sectors within corporate securities. For the six months ended June 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the energy, communications and consumer cyclical sectors within corporate securities.
The Company did not have any fixed maturity securities purchased with credit deterioration, as of June 30, 2021 or December 31, 2020.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Assets Supporting Experience-Rated Contractholder Liabilities
The following table sets forth the composition of “Assets supporting experience-rated contractholder liabilities,” as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2021 | | December 31, 2020 |
| | | Amortized Cost or Cost | | Fair Value | | Amortized Cost or Cost | | Fair Value |
| | | (in millions) |
| Short-term investments and cash equivalents | | $ | 518 | | | $ | 518 | | | $ | 658 | | | $ | 658 | |
| Fixed maturities: | | | | | | | | |
| Corporate securities | | 14,913 | | | 15,682 | | | 14,442 | | | 15,472 | |
| Commercial mortgage-backed securities | | 1,594 | | | 1,662 | | | 1,743 | | | 1,839 | |
| Residential mortgage-backed securities(1) | | 785 | | | 820 | | | 964 | | | 1,018 | |
| Asset-backed securities(2) | | 1,811 | | | 1,836 | | | 1,665 | | | 1,697 | |
| Foreign government bonds | | 1,011 | | | 1,016 | | | 934 | | | 945 | |
| U.S. government authorities and agencies and obligations of U.S. states | | 529 | | | 598 | | | 371 | | | 443 | |
| Total fixed maturities(3) | | 20,643 | | | 21,614 | | | 20,119 | | | 21,414 | |
| Equity securities | | 2,052 | | | 2,464 | | | 1,661 | | | 2,043 | |
| Total assets supporting experience-rated contractholder liabilities(4) | | $ | 23,213 | | | $ | 24,596 | | | $ | 22,438 | | | $ | 24,115 | |
__________
(1)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.
(2)Includes collateralized loan obligations, auto loans, education loans, home equity and other asset types. Collateralized loan obligations at fair value were $1,314 million and $1,102 million as of June 30, 2021 and December 31, 2020, respectively, all of which were rated A or higher.
(3)As a percentage of amortized cost, 93% and 94% of the portfolio was considered high or highest quality based on NAIC or equivalent ratings, as of June 30, 2021 and December 31, 2020, respectively.
(4)As a percentage of amortized cost, 80% and 79% of the portfolio consisted of public securities as of June 30, 2021 and December 31, 2020, respectively.
The net change in unrealized gains (losses) from assets supporting experience-rated contractholder liabilities still held at period end, recorded within “Other income (loss),” was $165 million and $984 million during the three months ended June 30, 2021 and 2020, respectively, and $(294) million and $142 million during the six months ended June 30, 2021 and 2020, respectively.
Equity Securities
The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was $86 million and $825 million during the three months ended June 30, 2021 and 2020, respectively, and $438 million and $(656) million during the six months ended June 30, 2021 and 2020, respectively.
Concentrations of Financial Instruments
The Company monitors its concentrations of financial instruments and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any single issuer.
As of the dates indicated, the Company’s exposure to concentrations of credit risk of single issuers greater than 10% of the Company’s equity included securities of the U.S. government and certain U.S. government agencies and securities guaranteed by the U.S. government, as well as the securities disclosed below:
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2021 | | December 31, 2020 |
| | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | | (in millions) |
| Investments in Japanese government and government agency securities: | | | | | | | | |
| Fixed maturities, available-for-sale | | $ | 75,523 | | | $ | 85,965 | | | $ | 80,273 | | | $ | 92,764 | |
| Fixed maturities, held-to-maturity | | 843 | | | 1,077 | | | 912 | | | 1,173 | |
| Fixed maturities, trading | | 24 | | | 24 | | | 25 | | | 25 | |
| Assets supporting experience-rated contractholder liabilities | | 872 | | | 873 | | | 849 | | | 855 | |
| | | | | | | | |
| | | | | | | | |
| Total | | $ | 77,262 | | | $ | 87,939 | | | $ | 82,059 | | | $ | 94,817 | |
Commercial Mortgage and Other Loans
The following table sets forth the composition of “Commercial mortgage and other loans,” as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2021 | | December 31, 2020 |
| | | Amount (in millions) | | % of Total | | Amount (in millions) | | % of Total |
| Commercial mortgage and agricultural property loans by property type: | | | | | | | | |
| Office | | $ | 12,347 | | | 19.4 | % | | $ | 12,750 | | | 19.7 | % |
| Retail | | 7,160 | | | 11.2 | | | 7,326 | | | 11.3 | |
| Apartments/Multi-Family | | 17,434 | | | 27.3 | | | 18,330 | | | 28.3 | |
| Industrial | | 15,390 | | | 24.1 | | | 14,954 | | | 23.1 | |
| Hospitality | | 2,356 | | | 3.7 | | | 2,395 | | | 3.7 | |
| Other | | 4,951 | | | 7.8 | | | 4,981 | | | 7.7 | |
| Total commercial mortgage loans | | 59,638 | | | 93.5 | | | 60,736 | | | 93.8 | |
| Agricultural property loans | | 4,162 | | | 6.5 | | | 4,048 | | | 6.2 | |
| Total commercial mortgage and agricultural property loans | | 63,800 | | | 100.0 | % | | 64,784 | | | 100.0 | % |
| Allowance for credit losses | | (166) | | | | | (227) | | | |
| Total net commercial mortgage and agricultural property loans | | 63,634 | | | | | 64,557 | | | |
| Other loans: | | | | | | | | |
| Uncollateralized loans | | 579 | | | | | 655 | | | |
| Residential property loans | | 81 | | | | | 101 | | | |
| Other collateralized loans | | 71 | | | | | 120 | | | |
| Total other loans | | 731 | | | | | 876 | | | |
| Allowance for credit losses | | (6) | | | | | (8) | | | |
| Total net other loans | | 725 | | | | | 868 | | | |
| Total net commercial mortgage and other loans(1) | | $ | 64,359 | | | | | $ | 65,425 | | | |
__________
(1)Includes loans held for sale which are carried at fair value and are collateralized primarily by apartment complexes. As of June 30, 2021 and December 31, 2020, the net carrying value of these loans was $304 million and $1,092 million, respectively.
As of June 30, 2021, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (28%), Texas (8%) and New York (7%)) and included loans secured by properties in Europe (8%), Australia (1%) and Asia (1%).
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
The following tables set forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | | Commercial Mortgage Loans | | Agricultural Property Loans | | Residential Property Loans | | Other Collateralized Loans | | Uncollateralized Loans | | Total |
| | (in millions) |
| Allowance, beginning of period | | $ | 209 | | | $ | 8 | | | $ | 0 | | | $ | 2 | | | $ | 5 | | | $ | 224 | |
| | | | | | | | | | | | |
| Addition to (release of) allowance for expected losses | | (49) | | | (2) | | | 0 | | | 0 | | | (1) | | | (52) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Allowance, end of period | | $ | 160 | | | $ | 6 | | | $ | 0 | | | $ | 2 | | | $ | 4 | | | $ | 172 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 |
| | | Commercial Mortgage Loans | | Agricultural Property Loans | | Residential Property Loans | | Other Collateralized Loans | | Uncollateralized Loans | | Total |
| | (in millions) |
| Allowance, beginning of period | | $ | 225 | | | $ | 8 | | | $ | 0 | | | $ | 3 | | | $ | 4 | | | $ | 240 | |
| | | | | | | | | | | | |
| Addition to (release of) allowance for expected losses | | 5 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Allowance, end of period | | $ | 230 | | | $ | 8 | | | $ | 0 | | | $ | 3 | | | $ | 4 | | | $ | 245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | | Commercial Mortgage Loans | | Agricultural Property Loans | | Residential Property Loans | | Other Collateralized Loans | | Uncollateralized Loans | | Total |
| | (in millions) |
| Allowance, beginning of period | | $ | 218 | | | $ | 9 | | | $ | 0 | | | $ | 3 | | | $ | 5 | | | $ | 235 | |
| | | | | | | | | | | | |
| Addition to (release of) allowance for expected losses | | (58) | | | (3) | | | 0 | | | 0 | | | (1) | | | (62) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | (1) | |
| Allowance, end of period | | $ | 160 | | | $ | 6 | | | $ | 0 | | | $ | 2 | | | $ | 4 | | | $ | 172 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 |
| | | Commercial Mortgage Loans | | Agricultural Property Loans | | Residential Property Loans | | Other Collateralized Loans | | Uncollateralized Loans | | Total |
| | (in millions) |
| Allowance, beginning of period | | $ | 114 | | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 4 | | | $ | 121 | |
| Cumulative effect of adoption of ASU 2016-13 | | 110 | | | 5 | | | 0 | | | 0 | | | 0 | | | 115 | |
| Addition to (release of) allowance for expected losses | | 6 | | | 0 | | | 0 | | | 0 | | | 0 | | | 6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 3 | |
| Allowance, end of period | | $ | 230 | | | $ | 8 | | | $ | 0 | | | $ | 3 | | | $ | 4 | | | $ | 245 | |
For additional information about the Company’s methodology for developing our allowance and expected losses, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
For the three months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. For the three months ended June 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to new loan originations and net negative credit migration within the existing loan portfolio.
For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. For the six months ended June 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.
The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Amortized Cost by Origination Year |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | | Total |
| (in millions) |
| Commercial Mortgage Loans | | | | | | | | | | | | | | | |
| Loan-to-Value Ratio: | | | | | | | | | | | | | | | |
| 0%-59.99% | $ | 760 | | | $ | 627 | | | $ | 2,678 | | | $ | 3,230 | | | $ | 3,491 | | | $ | 16,677 | | | | | $ | 27,463 | |
| 60%-69.99% | 1,410 | | | 1,992 | | | 4,835 | | | 4,125 | | | 2,334 | | | 6,338 | | | | | 21,034 | |
| 70%-79.99% | 1,073 | | | 2,310 | | | 2,428 | | | 1,467 | | | 926 | | | 2,397 | | | | | 10,601 | |
| 80% or greater | 33 | | | 0 | | | 3 | | | 61 | | | 55 | | | 388 | | | | | 540 | |
| Total | $ | 3,276 | | | $ | 4,929 | | | $ | 9,944 | | | $ | 8,883 | | | $ | 6,806 | | | $ | 25,800 | | | | | $ | 59,638 | |
| Debt Service Coverage Ratio: | | | | | | | | | | | | | | | |
| Greater or Equal to 1.2x | $ | 3,161 | | | $ | 4,812 | | | $ | 9,166 | | | $ | 8,427 | | | $ | 6,545 | | | $ | 23,084 | | | | | $ | 55,195 | |
| 1.0 - 1.2x | 115 | | | 115 | | | 655 | | | 303 | | | 259 | | | 2,018 | | | | | 3,465 | |
| Less than 1.0x | 0 | | | 2 | | | 123 | | | 153 | | | 2 | | | 698 | | | | | 978 | |
| Total | $ | 3,276 | | | $ | 4,929 | | | $ | 9,944 | | | $ | 8,883 | | | $ | 6,806 | | | $ | 25,800 | | | | | $ | 59,638 | |
| Agricultural Property Loans | | | | | | | | | | | | | | | |
| Loan-to-Value Ratio: | | | | | | | | | | | | | | | |
| 0%-59.99% | $ | 472 | | | $ | 946 | | | $ | 504 | | | $ | 343 | | | $ | 388 | | | $ | 1,374 | | | | | $ | 4,027 | |
| 60%-69.99% | 51 | | | 10 | | | 34 | | | 38 | | | 2 | | | 0 | | | | | 135 | |
| 70%-79.99% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | 0 | |
| 80% or greater | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | 0 | |
| Total | $ | 523 | | | $ | 956 | | | $ | 538 | | | $ | 381 | | | $ | 390 | | | $ | 1,374 | | | | | $ | 4,162 | |
| Debt Service Coverage Ratio: | | | | | | | | | | | | | | | |
| Greater or Equal to 1.2x | $ | 515 | | | $ | 934 | | | $ | 527 | | | $ | 373 | | | $ | 332 | | | $ | 1,263 | | | | | $ | 3,944 | |
| 1.0 - 1.2x | 8 | | | 22 | | | 10 | | | 2 | | | 58 | | | 42 | | | | | 142 | |
| Less than 1.0x | 0 | | | 0 | | | 1 | | | 6 | | | 0 | | | 69 | | | | | 76 | |
| Total | $ | 523 | | | $ | 956 | | | $ | 538 | | | $ | 381 | | | $ | 390 | | | $ | 1,374 | | | | | $ | 4,162 | |
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PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | | | |
| Amortized Cost by Origination Year | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | | | Total | | | | | | | | | | | | |
| (in millions) | | | | | | | | | | | | |
| Commercial Mortgage Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loan-to-Value Ratio: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 0%-59.99% | $ | 828 | | | $ | 2,693 | | | $ | 3,217 | | | $ | 3,854 | | | $ | 3,223 | | | $ | 15,360 | | | | | $ | 29,175 | | | | | | | | | | | | | |
| 60%-69.99% | 2,678 | | | 4,981 | | | 4,291 | | | 2,239 | | | 2,667 | | | 4,058 | | | | | 20,914 | | | | | | | | | | | | | |
| 70%-79.99% | 2,492 | | | 2,587 | | | 1,500 | | | 1,057 | | | 918 | | | 1,409 | | | | | 9,963 | | | | | | | | | | | | | |
| 80% or greater | 23 | | | 3 | | | 61 | | | 69 | | | 23 | | | 505 | | | | | 684 | | | | | | | | | | | | | |
| Total | $ | 6,021 | | | $ | 10,264 | | | $ | 9,069 | | | $ | 7,219 | | | $ | 6,831 | | | $ | 21,332 | | | | | $ | 60,736 | | | | | | | | | | | | | |
| Debt Service Coverage Ratio: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Greater or Equal to 1.2x | $ | 5,901 | | | $ | 9,429 | | | $ | 8,587 | | | $ | 6,954 | | | $ | 6,382 | | | $ | 18,904 | | | | | $ | 56,157 | | | | | | | | | | | | | |
| 1.0 - 1.2x | 118 | | | 711 | | | 383 | | | 263 | | | 384 | | | 1,719 | | | | | 3,578 | | | | | | | | | | | | | |
| Less than 1.0x | 2 | | | 124 | | | 99 | | | 2 | | | 65 | | | 709 | | | | | 1,001 | | | | | | | | | | | | | |
| Total | $ | 6,021 | | | $ | 10,264 | | | $ | 9,069 | | | $ | 7,219 | | | $ | 6,831 | | | $ | 21,332 | | | | | $ | 60,736 | | | | | | | | | | | | | |
| Agricultural Property Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loan-to-Value Ratio: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 0%-59.99% | $ | 956 | | | $ | 494 | | | $ | 349 | | | $ | 527 | | | $ | 367 | | | $ | 1,254 | | | | | $ | 3,947 | | | | | | | | | | | | | |
| 60%-69.99% | 8 | | | 51 | | | 39 | | | 3 | | | 0 | | | 0 | | | | | 101 | | | | | | | | | | | | | |
| 70%-79.99% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | 0 | | | | | | | | | | | | | |
| 80% or greater | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | 0 | | | | | | | | | | | | | |
| Total | $ | 964 | | | $ | 545 | | | $ | 388 | | | $ | 530 | | | $ | 367 | | | $ | 1,254 | | | | | $ | 4,048 | | | | | | | | | | | | | |
| Debt Service Coverage Ratio: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Greater or Equal to 1.2x | $ | 941 | | | $ | 544 | | | $ | 381 | | | $ | 468 | | | $ | 308 | | | $ | 1,202 | | | | | $ | 3,844 | | | | | | | | | | | | | |
| 1.0 - 1.2x | 23 | | | 0 | | | 1 | | | 59 | | | 1 | | | 40 | | | | | 124 | | | | | | | | | | | | | |
| Less than 1.0x | 0 | | | 1 | | | 6 | | | 3 | | | 58 | | | 12 | | | | | 80 | | | | | | | | | | | | | |
| Total | $ | 964 | | | $ | 545 | | | $ | 388 | | | $ | 530 | | | $ | 367 | | | $ | 1,254 | | | | | $ | 4,048 | | | | | | | | | | | | | |
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For additional information about the Company’s commercial mortgage and other loans credit quality monitoring process, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2021 |
| | | Current | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due(1) | | Total Past Due | | Total Loans | | Non-Accrual Status(2) |
| | | (in millions) |
| Commercial mortgage loans | | $ | 59,638 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 59,638 | | | $ | 2 | |
| Agricultural property loans | | 4,098 | | | 49 | | | 0 | | | 15 | | | 64 | | | 4,162 | | | 17 | |
| Residential property loans | | 79 | | | 1 | | | 0 | | | 1 | | | 2 | | | 81 | | | 1 | |
| Other collateralized loans | | 71 | | | 0 | | | 0 | | | 0 | | | 0 | | | 71 | | | 0 | |
| Uncollateralized loans | | 579 | | | 0 | | | 0 | | | 0 | | | 0 | | | 579 | | | 0 | |
| Total | | $ | 64,465 | | | $ | 50 | | | $ | 0 | | | $ | 16 | | | $ | 66 | | | $ | 64,531 | | | $ | 20 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
__________
(1)As of June 30, 2021, there were no loans in this category accruing interest.
(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Current | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due(1) | | Total Past Due | | Total Loans | | Non-Accrual Status(2) |
| | | (in millions) |
| Commercial mortgage loans | | $ | 60,614 | | | $ | 3 | | | $ | 119 | | | $ | 0 | | | $ | 122 | | | $ | 60,736 | | | $ | 5 | |
| Agricultural property loans | | 3,996 | | | 37 | | | 0 | | | 15 | | | 52 | | | 4,048 | | | 15 | |
| Residential property loans | | 99 | | | 1 | | | 0 | | | 1 | | | 2 | | | 101 | | | 1 | |
| Other collateralized loans | | 120 | | | 0 | | | 0 | | | 0 | | | 0 | | | 120 | | | 0 | |
| Uncollateralized loans | | 655 | | | 0 | | | 0 | | | 0 | | | 0 | | | 655 | | | 0 | |
| Total | | $ | 65,484 | | | $ | 41 | | | $ | 119 | | | $ | 16 | | | $ | 176 | | | $ | 65,660 | | | $ | 21 | |
__________
(1)As of December 31, 2020, there were no loans in this category accruing interest.
(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Loans on non-accrual status recognized interest income of less than $1 million and $2 million for both the three months and six months ended June 30, 2021 and 2020, respectively. Loans on non-accrual status that did not have a related allowance for credit losses were $17 million and $15 million as of June 30, 2021 and December 31, 2020, respectively.
The Company did not have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of both June 30, 2021 and December 31, 2020.
Other Invested Assets
The following table sets forth the composition of “Other invested assets,” as of the dates indicated:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | | (in millions) |
| LPs/LLCs: | | | | |
| Equity method: | | | | |
| Private equity(1) | | $ | 5,250 | | | $ | 4,311 | |
| Hedge funds | | 2,856 | | | 2,451 | |
| Real estate-related(1) | | 2,117 | | | 1,985 | |
| Subtotal equity method | | 10,223 | | | 8,747 | |
| Fair value: | | | | |
| Private equity | | 1,885 | | | 1,786 | |
| Hedge funds | | 2,245 | | | 2,036 | |
| Real estate-related | | 319 | | | 314 | |
| Subtotal fair value | | 4,449 | | | 4,136 | |
| Total LPs/LLCs | | 14,672 | | | 12,883 | |
| Real estate held through direct ownership(2) | | 1,872 | | | 2,027 | |
| Derivative instruments | | 2,850 | | | 1,915 | |
| Other(3) | | 990 | | | 1,300 | |
| Total other invested assets | | $ | 20,384 | | | $ | 18,125 | |
_________
(1)Prior period amounts have been updated to conform to current period presentation.
(2)As of June 30, 2021 and December 31, 2020, real estate held through direct ownership had mortgage debt of $361 million and $409 million, respectively.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
(3)Primarily includes strategic investments made by investment management operations, leveraged leases and member and activity stock held in the Federal Home Loan Banks of New York and Boston. For additional information regarding the Company’s holdings in the Federal Home Loan Banks of New York and Boston, see Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Accrued Investment Income
The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:
| | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | (in millions) |
| Fixed maturities | $ | 2,560 | | | $ | 2,676 | |
| | | |
| | | |
| | | |
| Equity securities | 4 | | | 7 | |
| Commercial mortgage and other loans | 192 | | | 205 | |
| Policy loans | 257 | | | 274 | |
| Other invested assets | 22 | | | 27 | |
| Short-term investments and cash equivalents | 2 | | | 4 | |
| Total accrued investment income | $ | 3,037 | | | $ | 3,193 | |
Write-downs on accrued investment income were less than $1 million and $9 million for the three months ended June 30, 2021 and 2020, respectively, and less than $1 million and $12 million for the six months ended June 30, 2021 and 2020, respectively.
Net Investment Income
The following table sets forth “Net investment income” by investment type, for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (in millions) |
| Fixed maturities, available-for-sale(1) | | $ | 3,006 | | | $ | 3,067 | | | $ | 6,005 | | | $ | 6,179 | |
| Fixed maturities, held-to-maturity(1) | | 55 | | | 58 | | 113 | | | 117 | |
| Fixed maturities, trading | | 37 | | | 34 | | 61 | | | 68 | |
| Assets supporting experience-rated contractholder liabilities | | 167 | | | 164 | | 326 | | | 348 | |
| Equity securities | | 58 | | | 55 | | 81 | | | 83 | |
| Commercial mortgage and other loans | | 644 | | | 618 | | 1,261 | | | 1,258 | |
| Policy loans | | 126 | | | 150 | | 271 | | | 303 | |
| | | | | | | | |
| Other invested assets | | 617 | | | 147 | | 1,133 | | | 278 | |
| Short-term investments and cash equivalents | | 20 | | | 65 | | 30 | | | 152 | |
| Gross investment income | | 4,730 | | | 4,358 | | | 9,281 | | | 8,786 | |
| Less: investment expenses | | (178) | | | (172) | | | (347) | | | (398) | |
| Net investment income | | $ | 4,552 | | | $ | 4,186 | | | $ | 8,934 | | | $ | 8,388 | |
__________
(1)Includes income on credit-linked notes which are reported on the same financial statement line items as related surplus notes, as conditions are met for right to offset.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
Realized Investment Gains (Losses), Net
The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (in millions) |
| Fixed maturities(1) | | $ | 313 | | | $ | 112 | | | $ | 1,529 | | | $ | 270 | |
| Commercial mortgage and other loans | | 61 | | | 2 | | | 91 | | | 24 | |
| Investment real estate | | 12 | | | 11 | | | 64 | | | 10 | |
| LPs/LLCs | | 17 | | | (3) | | | 17 | | | (6) | |
| Derivatives | | 239 | | | (3,881) | | | 1,014 | | | (2,389) | |
| Other | | (7) | | | 7 | | | (1) | | | 6 | |
| Realized investment gains (losses), net | | $ | 635 | | | $ | (3,752) | | | $ | 2,714 | | | $ | (2,085) | |
__________
(1)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading.
Net Unrealized Gains (Losses) on Investments within AOCI
The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| | (in millions) |
| | | |
| | | |
| Fixed maturity securities, available-for-sale with an allowance | $ | 6 | | | $ | (25) | |
| Fixed maturity securities, available-for-sale without an allowance | 44,113 | | | 58,593 | |
| Derivatives designated as cash flow hedges(1) | 261 | | | (168) | |
| Derivatives designated as fair value hedges(1) | (17) | | | 10 | |
| Other investments(2) | 2 | | | 7 | |
| Net unrealized gains (losses) on investments | $ | 44,365 | | | $ | 58,417 | |
__________
(1)For additional information on cash flow and fair value hedges, see Note 5.
(2)As of June 30, 2021, there were no net unrealized losses on held-to-maturity securities that were previously transferred from available-for-sale. Includes net unrealized gains on certain joint ventures that are strategic in nature and are included in “Other assets.”
Repurchase Agreements and Securities Lending
In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. The following table sets forth the composition of “Securities sold under agreements to repurchase,” as of the dates indicated:
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Remaining Contractual Maturities of the Agreements | | | | | | Remaining Contractual Maturities of the Agreements | | | | |
| Overnight & Continuous | | Up to 30 Days | | | | Total | | Overnight & Continuous | | Up to 30 Days | | | | Total |
| (in millions) |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 8,761 | | | $ | 482 | | | | | $ | 9,243 | | | $ | 9,548 | | | $ | 546 | | | | | $ | 10,094 | |
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| Commercial mortgage-backed securities | 30 | | | 0 | | | | | 30 | | | 463 | | | 0 | | | | | 463 | |
| Residential mortgage-backed securities | 284 | | | 0 | | | | | 284 | | | 337 | | | 0 | | | | | 337 | |
| | | | | | | | | | | | | | | |
Total securities sold under agreements to repurchase(1) | $ | 9,075 | | | $ | 482 | | | | | $ | 9,557 | | | $ | 10,348 | | | $ | 546 | | | | | $ | 10,894 | |
__________
(1)The Company did not have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.
The following table sets forth the composition of “Cash collateral for loaned securities” which represents the liability to return cash collateral received for the following types of securities loaned, as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Remaining Contractual Maturities of the Agreements | | | | Remaining Contractual Maturities of the Agreements | | |
| Overnight & Continuous | | Up to 30 Days | | Total | | Overnight & Continuous | | Up to 30 Days | | Total |
| (in millions) |
| | | | | | | | | | | |
Obligations of U.S. states and their political subdivisions | $ | 103 | | | $ | 0 | | | $ | 103 | | | $ | 108 | | | $ | 0 | | | $ | 108 | |
| Foreign government bonds | 274 | | | 0 | | | 274 | | | 426 | | | 0 | | | 426 | |
| U.S. public corporate securities | 3,038 | | | 0 | | | 3,038 | | | 2,360 | | | 0 | | | 2,360 | |
| Foreign public corporate securities | 706 | | | 0 | | | 706 | | | 567 | | | 0 | | | 567 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Equity securities | 310 | | | 0 | | | 310 | | | 38 | | | 0 | | | 38 | |
| Total cash collateral for loaned securities(1) | $ | 4,431 | | | $ | 0 | | | $ | 4,431 | | | $ | 3,499 | | | $ | 0 | | | $ | 3,499 | |
__________
(1)The Company did not have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.
4. VARIABLE INTEREST ENTITIES
In the normal course of its activities, the Company enters into relationships with various special-purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). For additional information, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Consolidated Variable Interest Entities
The table below reflects the carrying amount and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported. The liabilities primarily comprise obligations under debt instruments issued by the VIEs. The creditors of these VIEs do not have recourse to the Company in excess of the assets contained within the VIEs.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Consolidated VIEs for which the Company is the Investment Manager(1) | | Other Consolidated VIEs(1) |
| | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 |
| | (in millions) |
| Fixed maturities, available-for-sale | $ | 109 | | | $ | 110 | | | $ | 274 | | | $ | 296 | |
| Fixed maturities, held-to-maturity | 81 | | | 87 | | | 820 | | | 882 | |
| Fixed maturities, trading | 177 | | | 160 | | | 0 | | | 0 | |
| Equity securities | 57 | | | 42 | | | 0 | | | 0 | |
| Commercial mortgage and other loans | 899 | | | 975 | | | 0 | | | 0 | |
| Other invested assets | 2,671 | | | 2,221 | | | 145 | | | 127 | |
| Cash and cash equivalents | 99 | | | 101 | | | 0 | | | 0 | |
| Accrued investment income | 1 | | | 2 | | | 3 | | | 4 | |
| Other assets | 456 | | | 594 | | | 844 | | | 768 | |
| Total assets of consolidated VIEs | $ | 4,550 | | | $ | 4,292 | | | $ | 2,086 | | | $ | 2,077 | |
| Other liabilities | $ | 592 | | | $ | 256 | | | $ | 0 | | | $ | 2 | |
| Notes issued by consolidated VIEs(2) | 284 | | | 305 | | | 0 | | | 0 | |
| Total liabilities of consolidated VIEs | $ | 876 | | | $ | 561 | | | $ | 0 | | | $ | 2 | |
__________
(1)Total assets of consolidated VIEs reflect $2,560 million and $2,538 million as of June 30, 2021 and December 31, 2020, respectively, related to VIEs whose beneficial interests are wholly-owned by consolidated subsidiaries.
(2)Recourse is limited to the assets of the respective VIE and does not extend to the general credit of the Company. As of June 30, 2021, the maturity of this obligation was within 4 years.
Unconsolidated Variable Interest Entities
The Company has determined that it is not the primary beneficiary of certain VIEs for which it is the investment manager. The Company’s maximum exposure to loss resulting from its relationship with unconsolidated VIEs for which it is the investment manager is limited to its investment in the VIEs, which was $954 million and $935 million at June 30, 2021 and December 31, 2020, respectively. These investments are reflected in “Fixed maturities, available-for-sale,” “Fixed maturities, trading,” “Equity securities” and “Other invested assets.” There are no liabilities associated with these unconsolidated VIEs on the Company’s Unaudited Interim Consolidated Statements of Financial Position.
In the normal course of its activities, the Company will invest in limited partnerships and limited liability companies (“LPs/LLCs”), which include hedge funds, private equity funds and real estate-related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company classifies these investments as “Other invested assets” and its maximum exposure to loss associated with these entities was $14,672 million and $12,883 million as of June 30, 2021 and December 31, 2020, respectively.
In addition, in the normal course of its activities, the Company will invest in structured investments including VIEs for which it is not the investment manager. These structured investments typically invest in fixed income investments and are managed by third-parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The Company’s maximum exposure to loss on these structured investments, both VIEs and non-VIEs, is limited to the amount of its investment. See Note 3 for details regarding the carrying amounts and classification of these assets. The Company has not provided material financial or other support that was not contractually required to these structures. The Company has determined that it is not the primary beneficiary of these structures due to the fact that it does not control these entities.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
5. DERIVATIVES AND HEDGING
Types of Derivative and Hedging Instruments
The Company utilizes various derivatives and hedging instruments to manage its risk. Commonly used derivative and non-derivative hedging instruments include, but are not necessarily limited to:
•Interest rate contracts: futures, swaps, forwards, options, caps and floors
•Equity contracts: futures, options and total return swaps
•Foreign exchange contracts: futures, options, forwards, swaps, and foreign currency debt instruments
•Credit contracts: single and index reference credit default swaps
Other types of financial contracts that the Company accounts for as derivatives are:
•To-be-announced (“TBA”) forward contracts, loan commitments, embedded derivatives and synthetic guaranteed investment contracts (“GICs”).
For detailed information on these contracts and the related strategies, see Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Primary Risks Managed by Derivatives
The table below provides a summary of the gross notional amount and fair value of derivatives contracts by the primary underlying risks, excluding embedded derivatives and associated reinsurance recoverables. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements and cash collateral. This netting impact results in total derivative assets of $2,827 million and $1,906 million as of June 30, 2021 and December 31, 2020, respectively, and total derivative liabilities of $1,556 million and $792 million as of June 30, 2021 and December 31, 2020, respectively, reflected in the Unaudited Interim Consolidated Statements of Financial Position.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Primary Underlying Risk /Instrument Type | June 30, 2021 | | December 31, 2020 |
| | | Fair Value | | | | Fair Value |
| Gross Notional | | Assets | | Liabilities | | Gross Notional | | Assets | | Liabilities |
| | (in millions) |
| Derivatives Designated as Hedge Accounting Instruments: | | | | | | | | | | | |
| Interest Rate | | | | | | | | | | | |
| Interest Rate Swaps | $ | 3,012 | | | $ | 760 | | | $ | (75) | | | $ | 3,065 | | | $ | 978 | | | $ | (90) | |
| Interest Rate Forwards | 298 | | | 8 | | | (15) | | | 249 | | | 0 | | | (8) | |
| Foreign Currency | | | | | | | | | | | |
| Foreign Currency Forwards | 2,812 | | | 55 | | | (124) | | | 2,577 | | | 68 | | | (116) | |
| Currency/Interest Rate | | | | | | | | | | | |
| Foreign Currency Swaps | 23,510 | | | 893 | | | (611) | | | 22,642 | | | 878 | | | (1,037) | |
| Total Derivatives Designated as Hedge Accounting Instruments | $ | 29,632 | | | $ | 1,716 | | | $ | (825) | | | $ | 28,533 | | | $ | 1,924 | | | $ | (1,251) | |
| Derivatives Not Qualifying as Hedge Accounting Instruments: | | | | | | | | | | | |
| Interest Rate | | | | | | | | | | | |
| Interest Rate Swaps | $ | 207,176 | | | $ | 11,897 | | | $ | (15,771) | | | $ | 178,803 | | | $ | 17,174 | | | $ | (13,172) | |
| Interest Rate Futures | 16,653 | | | 62 | | | (6) | | | 15,778 | | | 99 | | | (5) | |
| Interest Rate Options | 15,418 | | | 610 | | | (229) | | | 14,593 | | | 914 | | | (233) | |
| Interest Rate Forwards | 2,335 | | | 25 | | | 0 | | | 2,910 | | | 25 | | | 0 | |
| Foreign Currency | | | | | | | | | | | |
| Foreign Currency Forwards | 29,672 | | | 854 | | | (1,038) | | | 35,478 | | | 764 | | | (647) | |
| Foreign Currency Options | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency/Interest Rate | | | | | | | | | | | |
| Foreign Currency Swaps | 12,716 | | | 622 | | | (333) | | | 13,661 | | | 537 | | | (601) | |
| Credit | | | | | | | | | | | |
| Credit Default Swaps | 3,921 | | | 131 | | | 0 | | | 3,360 | | | 63 | | | (28) | |
| Equity | | | | | | | | | | | |
| Equity Futures | 5,719 | | | 8 | | | (6) | | | 5,668 | | | 10 | | | (25) | |
| Equity Options | 48,571 | | | 951 | | | (1,368) | | | 36,250 | | | 1,731 | | | (1,028) | |
| Total Return Swaps | 18,363 | | | 84 | | | (421) | | | 22,489 | | | 32 | | | (1,277) | |
| Other | | | | | | | | | | | |
| Other(1) | 1,260 | | | 0 | | | 0 | | | 1,262 | | | 0 | | | 0 | |
| Synthetic GICs | 83,805 | | | 1 | | | 0 | | | 86,264 | | | 0 | | | 0 | |
| Total Derivatives Not Qualifying as Hedge Accounting Instruments | $ | 445,609 | | | $ | 15,245 | | | $ | (19,172) | | | $ | 416,516 | | | $ | 21,349 | | | $ | (17,016) | |
| Total Derivatives(2)(3) | $ | 475,241 | | | $ | 16,961 | | | $ | (19,997) | | | $ | 445,049 | | | $ | 23,273 | | | $ | (18,267) | |
__________
(1)“Other” primarily includes derivative contracts used to improve the balance of the Company’s tail longevity and mortality risk. Under these contracts, the Company’s gains (losses) are capped at the notional amount.
(2)Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of $15,656 million and $20,119 million as of June 30, 2021 and December 31, 2020, respectively, primarily included in “Future policy benefits.”
(3)Recorded in “Other invested assets” and “Other liabilities” on the Unaudited Interim Consolidated Statements of Financial Position.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
As of June 30, 2021, the following amounts were recorded on the Unaudited Interim Consolidated Statements of Financial Position related to the carrying amount of the hedged assets (liabilities) and cumulative basis adjustments included in the carrying amount for fair value hedges.
| | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 | |
| Balance Sheet Line Item in which Hedged Item is Recorded | Carrying Amount of the Hedged Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1) | | Carrying Amount of the Hedged Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1) | |
| | | | | | | | |
| (in millions) |
| Fixed maturities, available-for-sale, at fair value | $ | 372 | | | $ | 67 | | | $ | 402 | | | $ | 79 | | |
| Commercial mortgage and other loans | $ | 19 | | | $ | 1 | | | $ | 20 | | | $ | 2 | | |
| Policyholders’ account balances | $ | (1,545) | | | $ | (193) | | | $ | (1,627) | | | $ | (303) | | |
| Future policy benefits | $ | (1,511) | | | $ | (294) | | | $ | (1,585) | | | $ | (372) | | |
__________
(1)There were no material fair value hedging adjustments for hedged assets and liabilities for which hedge accounting has been discontinued.
Most of the Company’s derivatives do not qualify for hedge accounting for various reasons. For example: (i) derivatives that economically hedge embedded derivatives do not qualify for hedge accounting because changes in the fair value of the embedded derivatives are already recorded in net income; (ii) derivatives that are utilized as macro hedges of the Company’s exposure to various risks typically do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedge accounting rules; and (iii) synthetic GICs, which are product standalone derivatives, do not qualify as hedging instruments under hedge accounting rules.
Offsetting Assets and Liabilities
The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance recoverables), and repurchase and reverse repurchase agreements that are offset in the Unaudited Interim Consolidated Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Unaudited Interim Consolidated Statements of Financial Position.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
| | Gross Amounts of Recognized Financial Instruments | | Gross Amounts Offset in the Statements of Financial Position | | Net Amounts Presented in the Statements of Financial Position | | Financial Instruments/ Collateral(1) | | Net Amount |
| | (in millions) |
| Offsetting of Financial Assets: | | | | | | | | | |
| Derivatives | $ | 16,817 | | | $ | (14,134) | | | $ | 2,683 | | | $ | (704) | | | $ | 1,979 | |
| Securities purchased under agreement to resell | 427 | | | 0 | | | 427 | | | (427) | | | 0 | |
| Total assets | $ | 17,244 | | | $ | (14,134) | | | $ | 3,110 | | | $ | (1,131) | | | $ | 1,979 | |
| Offsetting of Financial Liabilities: | | | | | | | | | |
| Derivatives | $ | 19,990 | | | $ | (18,441) | | | $ | 1,549 | | | $ | (816) | | | $ | 733 | |
| Securities sold under agreement to repurchase | 9,557 | | | 0 | | | 9,557 | | | (9,527) | | | 30 | |
| Total liabilities | $ | 29,547 | | | $ | (18,441) | | | $ | 11,106 | | | $ | (10,343) | | | $ | 763 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Gross Amounts of Recognized Financial Instruments | | Gross Amounts Offset in the Statements of Financial Position | | Net Amounts Presented in the Statements of Financial Position | | Financial Instruments/ Collateral(1) | | Net Amount |
| | (in millions) |
| Offsetting of Financial Assets: | | | | | | | | | |
| Derivatives | $ | 23,144 | | | $ | (21,367) | | | $ | 1,777 | | | $ | (806) | | | $ | 971 | |
| Securities purchased under agreement to resell | 252 | | | 0 | | | 252 | | | (252) | | | 0 | |
| Total assets | $ | 23,396 | | | $ | (21,367) | | | $ | 2,029 | | | $ | (1,058) | | | $ | 971 | |
| Offsetting of Financial Liabilities: | | | | | | | | | |
| Derivatives | $ | 18,265 | | | $ | (17,475) | | | $ | 790 | | | $ | (790) | | | $ | 0 | |
| Securities sold under agreement to repurchase | 10,894 | | | 0 | | | 10,894 | | | (10,432) | | | 462 | |
| Total liabilities | $ | 29,159 | | | $ | (17,475) | | | $ | 11,684 | | | $ | (11,222) | | | $ | 462 | |
__________
(1) Amounts exclude the excess of collateral received/pledged from/to the counterparty.
For information regarding the rights of offset associated with the derivative assets and liabilities in the table above, see “—Counterparty Credit Risk” below. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.
Cash Flow, Fair Value and Net Investment Hedges
The primary derivative and non-derivative instruments used by the Company in its fair value, cash flow and net investment hedge accounting relationships are interest rate swaps, currency swaps, currency forwards, and foreign currency denominated debts. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, or equity derivatives in any of its fair value, cash flow or net investment hedge accounting relationships.
The following table provides the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, including the offset of the hedged item in fair value hedge relationships.
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Realized Investment Gains (Losses) | | Net Investment Income | | Other Income (Loss) | | Interest Expense | | Interest Credited to Policyholders’ Account Balances | | Policyholders’ Benefits | | AOCI(1) |
| | (in millions) |
| Derivatives Designated as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Fair value hedges | | | | | | | | | | | | | |
| Gains (losses) on derivatives designated as hedge instruments: | | | | | | | | | | | | | |
| Interest Rate | $ | (7) | | | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 100 | | | $ | 92 | | | $ | 0 | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | |
| Total gains (losses) on derivatives designated as hedge instruments | (7) | | | (2) | | | 0 | | | 0 | | | 100 | | | 93 | | | 0 | |
| Gains (losses) on the hedged item: | | | | | | | | | | | | | |
| Interest Rate | 7 | | | 4 | | | 0 | | | 0 | | | (96) | | | (92) | | | 0 | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | |
| Total gains (losses) on hedged item | 7 | | | 4 | | | 0 | | | 0 | | | (96) | | | (93) | | | 0 | |
| Amortization for gains (losses) excluded from assessment of the effectiveness | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | (29) | |
| Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | (29) | |
| Total gains (losses) on fair value hedges net of hedged item | 0 | | | 2 | | | 0 | | | 0 | | | 4 | | | (1) | | | (29) | |
| Cash flow hedges | | | | | | | | | | | | | |
| Interest Rate | 8 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 16 | |
| Currency | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 15 | |
| Currency/Interest Rate | 13 | | | 67 | | | (24) | | | 0 | | | 0 | | | 0 | | | 389 | |
| Total gains (losses) on cash flow hedges | 19 | | | 67 | | | (24) | | | 0 | | | 0 | | | 0 | | | 420 | |
| Net investment hedges | | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | | (13) | |
| Currency/Interest Rate | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total gains (losses) on net investment hedges | 0 | | | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | | (13) | |
| Derivatives Not Qualifying as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Interest Rate | 3,348 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency | (58) | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency/Interest Rate | 133 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Credit | 24 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Equity | (898) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Embedded Derivatives | (2,332) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total gains (losses) on derivatives not qualifying as hedge accounting instruments | 217 | | | 0 | | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total | $ | 236 | | | $ | 69 | | | $ | (15) | | | $ | 0 | | | $ | 4 | | | $ | (1) | | | $ | 378 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Realized Investment Gains (Losses) | | Net Investment Income | | Other Income (Loss) | | Interest Expense | | Interest Credited to Policyholders’ Account Balances | | Policyholders’ Benefits | | AOCI(1) |
| | (in millions) |
| Derivatives Designated as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Fair value hedges | | | | | | | | | | | | | |
| Gains (losses) on derivatives designated as hedge instruments: | | | | | | | | | | | | | |
| Interest Rate | $ | 14 | | | $ | (5) | | | $ | 0 | | | $ | 0 | | | $ | (91) | | | $ | (79) | | | $ | 0 | |
| Currency | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | | | 0 | |
| Total gains (losses) on derivatives designated as hedge instruments | 12 | | | (5) | | | 0 | | | 0 | | | (91) | | | (71) | | | 0 | |
| Gains (losses) on the hedged item: | | | | | | | | | | | | | |
| Interest Rate | (14) | | | 8 | | | 0 | | | 0 | | | 111 | | | 88 | | | 0 | |
| Currency | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | (8) | | | 0 | |
| Total gains (losses) on hedged item | (12) | | | 8 | | | 0 | | | 0 | | | 111 | | | 80 | | | 0 | |
| Amortization for gains (losses) excluded from assessment of the effectiveness | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | | | (27) | |
| Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | | | (27) | |
| Total gains (losses) on fair value hedges net of hedged item | 0 | | | 3 | | | 0 | | | 0 | | | 20 | | | 6 | | | (27) | |
| Cash flow hedges | | | | | | | | | | | | | |
| Interest Rate | 13 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | (31) | |
| Currency | (3) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
| Currency/Interest Rate | 38 | | | 138 | | | 29 | | | 0 | | | 0 | | | 0 | | | 462 | |
| Total gains (losses) on cash flow hedges | 48 | | | 139 | | | 29 | | | 0 | | | 0 | | | 0 | | | 429 | |
| Net investment hedges | | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | | (13) | |
| Currency/Interest Rate | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total gains (losses) on net investment hedges | 0 | | | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | | (13) | |
| Derivatives Not Qualifying as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Interest Rate | (2,576) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency | (336) | | | 0 | | | (4) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency/Interest Rate | 415 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Credit | 27 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Equity | (1,887) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Other | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Embedded Derivatives | 5,320 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total gains (losses) on derivatives not qualifying as hedge accounting instruments | 964 | | | 0 | | | (5) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total | $ | 1,012 | | | $ | 142 | | | $ | 35 | | | $ | 0 | | | $ | 20 | | | $ | 6 | | | $ | 389 | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 |
| | Realized Investment Gains (Losses) | | Net Investment Income | | Other Income (Loss) | | Interest Expense | | Interest Credited to Policyholders’ Account Balances | | Policyholders’ Benefits | | AOCI(1) |
| | (in millions) |
| Derivatives Designated as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Fair value hedges | | | | | | | | | | | | | |
| Gains (losses) on derivatives designated as hedge instruments: | | | | | | | | | | | | | |
| Interest Rate | $ | 1 | | | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 6 | | | $ | (1) | | | $ | 0 | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | |
| Total gains (losses) on derivatives designated as hedge instruments | 1 | | | (2) | | | 0 | | | 0 | | | 6 | | | 1 | | | 0 | |
| Gains (losses) on the hedged item: | | | | | | | | | | | | | |
| Interest Rate | (1) | | | 4 | | | 0 | | | 0 | | | 5 | | | 9 | | | 0 | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | |
| Total gains (losses) on hedged item | (1) | | | 4 | | | 0 | | | 0 | | | 5 | | | 7 | | | 0 | |
| | | | | | | | | | | | | |
| Amortization for gains (losses) excluded from assessment of the effectiveness | | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | |
| Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | |
| Total gains (losses) on fair value hedges net of hedged item | 0 | | | 2 | | | 0 | | | 0 | | | 11 | | | 8 | | | (3) | |
| Cash flow hedges | | | | | | | | | | | | | |
| Interest Rate | 10 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (8) | |
| Currency | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (10) | |
| Currency/Interest Rate | 49 | | | 82 | | | (99) | | | 0 | | | 0 | | | 0 | | | (669) | |
| Total gains (losses) on cash flow hedges | 61 | | | 82 | | | (99) | | | 0 | | | 0 | | | 0 | | | (687) | |
| Net investment hedges | | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (4) | |
| Currency/Interest Rate | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total gains (losses) on net investment hedges | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (4) | |
| Derivatives Not Qualifying as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Interest Rate | (232) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency | (103) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Currency/Interest Rate | (86) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Credit | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Equity | (5,221) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Other | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Embedded Derivatives | 1,702 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total gains (losses) on derivatives not qualifying as hedge accounting instruments | (3,940) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Total | $ | (3,879) | | | $ | 84 | | | $ | (99) | | | $ | 0 | | | $ | 11 | | | $ | 8 | | | $ | (694) | |
PRUDENTIAL FINANCIAL, INC.
Notes to Unaudited Interim Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Realized Investment Gains (Losses) | | Net Investment Income | | Other Income (Loss) | | Interest Expense | | Interest Credited to Policyholders’ Account Balances | | Policyholders’ Benefits | | AOCI(1) |
| (in millions) |
| Derivatives Designated as Hedge Accounting Instruments: | | | | | | | | | | | | | |
| Fair value hedges | | | | | | | | | | | | | |
| Gains (losses) on derivatives designated as hedge instruments: | | | | | | | | | | | | | |
| Interest Rate | $ | (29) | | | $ | (4) | | | $ | 0 | | | $ | 0 | | | $ | 330 | | | $ | 279 | | | $ | 0 | |
| Currency | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | |
| Total gains (losses) on derivatives designated as hedge instruments | (27) | | | (4) | | | 0 | | | 0 | | | 330 | | | 281 | | | 0 | |
| Gains (losses) on the hedged item: | | | | | | | | | | | | | |
| Interest Rate | 29 | | | 9 | | | 0 | | | 0 | | | (318) | | | (270) | | | 0 | |
| Currency | (1) | | | 1 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | |
| Total gains (losses) on hedged item | 28 | | | 10 | | | 0 | | | 0 | | | (318) | | | (272) | | | 0 | |
| Amortization for gains (losses) excluded from assessment of the effectiveness | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Currency | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | |
| Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | |
| Total gains (losses) on fair value hedges net of hedged item | 1 | | | 6 | | | 0 | | | 0 | | | 12 | | | 9 | | | (3) | |
| | | | | | | | | | | | | |
| Cash flow hedges | | | | | | | | | | | | | |
| Interest Rate | 8 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 44 | |
| Currency | 4 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 91 |