INFORMATION ABOUT PRUDENTIAL FINANCIAL, INC.'S INVESTMENTS AS OF 12/31/08
Published on
Exhibit 99.2
Prudential Financial, Inc.
Financial Services Businesses
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Mortgage and Other Loans
December 31, 2008
($ millions)
| General Account Investments |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||
| Asset-backed securities (a) |
10,863 | 90 | 2,467 | 8,486 | ||||
| Residential mortgage-backed securities (b) |
10,688 | 336 | 114 | 10,910 | ||||
| Commercial mortgage-backed securities (c) |
8,506 | 3 | 1,657 | 6,852 |
| Gross Carrying Value |
Allowance For Losses |
Net Book Value | |||||
| Commercial mortgage and other loans (d) |
22,245 | (153 | ) | 22,092 |
(a) Supplemental information for asset-backed securities:
| LOWEST RATING AGENCY RATING (5) | Total Amortized Cost |
Total Fair Value | ||||||||||||||
| Vintage | AAA | AA | A | BBB | BB and below |
|||||||||||
| Collateralized by sub-prime mortgages: |
||||||||||||||||
| Enhanced short-term portfolio |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 148 | 30 | 74 | 141 | 155 | 548 | 405 | |||||||||
| 2006 | 678 | 218 | 116 | 371 | 155 | 1,538 | 1,284 | |||||||||
| 2005 | 21 | — | — | 9 | 5 | 35 | 31 | |||||||||
| 2004 | — | — | — | — | — | — | — | |||||||||
| 2003 and prior | — | — | — | — | — | — | — | |||||||||
| Total enhanced short-term portfolio (1) |
847 | 248 | 190 | 521 | 315 | 2,121 | 1,720 | |||||||||
| All other portfolios |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 5 | 10 | 27 | 64 | 162 | 268 | 158 | |||||||||
| 2006 | 222 | 169 | 70 | 403 | 401 | 1,265 | 709 | |||||||||
| 2005 | 16 | 253 | 80 | 126 | 90 | 565 | 324 | |||||||||
| 2004 | 40 | 356 | 224 | 50 | 3 | 673 | 381 | |||||||||
| 2003 and prior | 27 | 172 | 125 | 91 | 49 | 464 | 292 | |||||||||
| Total all other portfolios |
310 | 960 | 526 | 734 | 705 | 3,235 | 1,864 | |||||||||
| Total collateralized by sub-prime mortgages (2) |
1,157 | 1,208 | 716 | 1,255 | 1,020 | 5,356 | 3,584 | |||||||||
| Other asset-backed securities: |
||||||||||||||||
| Externally managed investments in the European |
— | — | 260 | 655 | 19 | 934 | 941 | |||||||||
| Collateralized by auto loans |
1,248 | 108 | 5 | 129 | 2 | 1,492 | 1,421 | |||||||||
| Collateralized by credit cards |
72 | — | 2 | 686 | — | 760 | 454 | |||||||||
| Collateralized by non-sub-prime mortgages |
940 | 48 | 8 | 37 | 18 | 1,051 | 1,073 | |||||||||
| Other (4) |
642 | 128 | 96 | 242 | 162 | 1,270 | 1,013 | |||||||||
| Total asset-backed securities |
4,059 | 1,492 | 1,087 | 3,004 | 1,221 | 10,863 | 8,486 | |||||||||
| (1) | Our Enhanced Short-term portfolio is used primarily to invest cash proceeds of securities lending and repurchase activities, commercial paper issuances and cash generated from certain trading and operating activities. The investment policy statement of this portfolio requires that securities purchased for this portfolio have a remaining expected average life of 2 years or less when acquired. |
| (2) | The weighted average estimated subordination percentage of our general account asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses, excluding those supported by guarantees from monoline bond insurers, was 34% as of December 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. As of December 31, 2008, based on amortized cost, approximately 87% of these asset-backed securities collateralized by sub-prime mortgages have estimated credit subordination percentages of 20% or more, and 50% have estimated credit subordination percentages of 30% or more. |
In addition to subordination, certain securities, referred to as front pay or second pay securities, benefit from the prioritization of principal cash flows within the senior tranches of the structure. In most instances, these shorter duration senior securities have priority to principal cash flows over other securities in the structure, including longer duration senior securities. Included within the $5.356 billion of asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses as of December 31, 2008 were $1.718 billion of securities, on an amortized cost basis, that represent front pay or second pay securities, depending on the overall structure of the securities.
| (3) | Externally managed investments in the European markets reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of European fixed income securities and derivatives, including 45% European corporate and bank bonds, 21% bank capital, 14% European asset-backed securities, and 20% other. As of December 31, 2008, the amortized cost and fair value shown in the table above includes the $(625) million impact of a bifurcated embedded derivative. |
| (4) | Includes collateralized debt obligations with amortized cost of $495 million and fair value of $329 million, with less than 1% secured by sub-prime mortgages. Also includes asset backed-securities collateralized by education loans, equipment leases, timeshares, aircraft, and franchises. |
Excluded from the table above are asset-backed securities held outside the general account in other entities and operations with amortized cost of $240 million and fair value of $222 million. Based on amortized cost, 84% of these securities have credit ratings of AAA, 2% have A credit ratings, and the remaining 14% have credit ratings of BBB or below. As of December 31, 2008, included within these asset-backed securities are securities collateralized by sub-prime mortgages with amortized cost and fair value of $4 million, all of which have AAA credit ratings, with $3 million in the 2006 vintage and $1 million in the 2003 vintage. Also included are collateralized debt obligations with amortized cost and fair value of $10 million, with none secured by sub-prime mortgages. Also excluded from the table above are asset-backed securities classified as trading and carried at fair value, including $0.9 billion of trading account assets supporting insurance liabilities, the investment results of which ultimately accrue to contract holders. An additional $398 million of asset-backed securities as of December 31, 2008 are classified as other trading, including $27 million held outside the general account, 89% of which have credit ratings of AAA and 11% of which have credit ratings of BB, and $371 million included in our general account, 77% of which have credit ratings of A or above and the remaining 23% virtually all have BBB credit ratings.
(b) Supplemental information for residential mortgage-backed securities:
As of December 31, 2008, based on amortized cost, 98% of the general account residential mortgage-backed securities attributable to the Financial Services Businesses were publicly traded agency pass-through securities, which are supported by implicit or explicit government guarantees and have credit ratings of AA or above. Collateralized mortgage obligations, including approximately $49 million secured by “ALT-A” mortgages, represented the remaining $192 million of residential mortgage-backed securities; and 92% have credit ratings of A or above, and the remaining 8% with BB credit ratings or higher.
Excluded from the above are residential mortgage-backed securities held outside the general account in other entities and operations with amortized cost of $770 million and fair value of $778 million, all of which have AAA credit ratings. Also excluded from the above are $708 million of residential mortgage-backed securities classified as trading account assets supporting insurance liabilities and carried at fair value, the investment results of which ultimately accrue to contract holders.
Prudential Financial, Inc.
Financial Services Businesses
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Mortgage and Other Loans
December 31, 2008
($ millions)
(c) Supplemental information for commercial mortgage-backed securities:
| LOWEST RATING AGENCY RATING (2) | Total Amortized Cost |
Total Fair Value | ||||||||||||
| Vintage |
AAA | AA | A | BBB | BB and below |
|||||||||
| 2008 |
181 | 4 | 31 | 101 | 24 | 341 | 293 | |||||||
| 2007 |
1,689 | — | 3 | 72 | 78 | 1,842 | 1,393 | |||||||
| 2006 |
3,367 | 6 | — | 7 | 9 | 3,389 | 2,695 | |||||||
| 2005 |
1,541 | — | — | 12 | 32 | 1,585 | 1,288 | |||||||
| 2004 |
432 | — | — | — | 4 | 436 | 359 | |||||||
| 2003 and prior |
794 | 73 | 31 | 15 | — | 913 | 824 | |||||||
| Total (1) (2) |
8,004 | 83 | 65 | 207 | 147 | 8,506 | 6,852 | |||||||
| (1) | As of December 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account commercial mortgage-backed securities attributable to the Financial Services Businesses is 69% and 1.54 times, respectively. The weighted average estimated subordination percentage of our general account investments in commercial mortgage-backed securities attributable to the Financial Services Businesses was 33% as of December 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. The weighted average estimated subordination percentage includes an adjustment for that portion of the capital structure which has been effectively defeased by US Treasury securities. As of December 31, 2008, based on amortized cost, approximately 93% of these commercial mortgage-backed securities have estimated credit subordination percentages of 20% or more, and 77% have estimated credit subordination percentages of 30% or more. |
| (2) | Included in the table above are non-us commercial mortgage-backed securities of $11 million in AAA, $4 million in AA, $34 million in A, $192 million in BBB and $142 million in BB and below. |
Excluded from the table above are commercial mortgage-backed securities held outside the general account in other entities and operations with amortized cost of $28 million and fair value of $22 million, 75% of which have credit ratings of AA or better and the remaining 25% have credit ratings of BB and below. Also excluded from the table above are commercial mortgage-backed securities classified as trading and carried at fair value, including $2.3 billion of trading account assets supporting insurance liabilities, the investment results of which ultimately accrue to contract holders. An additional $1 million of commercial mortgage-backed securities held outside the general account as of December 31, 2008 are classified as other trading, all of which have AAA credit ratings.
(d) Supplemental information for commercial mortgage and other loans:
| Commercial mortgages by property type: |
Gross Carrying Value |
% of Total | |||
| Industrial buildings |
4,544 | 20.4 | % | ||
| Office buildings |
4,024 | 18.1 | % | ||
| Retail stores |
3,742 | 16.8 | % | ||
| Apartment complexes |
3,549 | 16.0 | % | ||
| Other |
1,719 | 7.7 | % | ||
| Agricultural properties |
1,224 | 5.5 | % | ||
| Hospitality |
1,134 | 5.1 | % | ||
| Subtotal of commercial mortgages |
19,936 | 89.6 | % | ||
| Uncollateralized loans |
1,204 | 5.4 | % | ||
| Collateralized by residential properties |
976 | 4.4 | % | ||
| Other collateralized loans |
129 | 0.6 | % | ||
| Total commercial mortgage and other loans |
22,245 | 100.0 | % | ||
| Commercial mortgage and other loans by status: |
Gross Carrying Value | |
| Performing |
22,162 | |
| Delinquent, not in foreclosure |
57 | |
| Delinquent, in foreclosure |
— | |
| Restructured |
26 | |
| Total commercial mortgage and other loans |
22,245 | |
As of December 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account investments in commercial mortgages attributable to the Financial Services Businesses was 58% and 1.89 times, respectively.
Prudential Financial, Inc.
Closed Block Business
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Mortgage and Other Loans
December 31, 2008
($ millions)
| Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||
| Asset-backed securities (a) |
5,737 | 44 | 1,690 | 4,091 | ||||
| Residential mortgage-backed securities (b) |
3,110 | 100 | 109 | 3,101 | ||||
| Commercial mortgage-backed securities (c) |
3,858 | 2 | 672 | 3,188 |
| Gross Carrying Value |
Allowance For Losses |
Net Book Value | |||||
| Commercial mortgage and other loans (d) |
8,806 | (58 | ) | 8,748 |
(a) Supplemental information for asset-backed securities:
| LOWEST RATING AGENCY RATING (5) | Total Amortized Cost |
Total Fair Value | ||||||||||||||
| Vintage | AAA | AA | A | BBB | BB and below |
|||||||||||
| Collateralized by sub-prime mortgages: |
||||||||||||||||
| Enhanced short-term portfolio |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 146 | 31 | 76 | 133 | — | 386 | 290 | |||||||||
| 2006 | 694 | 221 | 120 | 311 | 8 | 1,354 | 1,143 | |||||||||
| 2005 | 22 | — | — | 9 | — | 31 | 27 | |||||||||
| 2004 | — | — | — | — | — | — | — | |||||||||
| 2003 and prior | — | — | — | — | — | — | — | |||||||||
| Total enhanced short-term portfolio (1) |
862 | 252 | 196 | 453 | 8 | 1,771 | 1,460 | |||||||||
| All other portfolios |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 24 | 7 | — | 31 | 256 | 318 | 206 | |||||||||
| 2006 | 190 | 45 | 109 | 247 | 525 | 1,116 | 623 | |||||||||
| 2005 | 24 | 310 | 25 | 55 | 28 | 442 | 267 | |||||||||
| 2004 | 9 | 297 | 36 | 2 | — | 344 | 199 | |||||||||
| 2003 and prior | 36 | 220 | 75 | 79 | 37 | 447 | 279 | |||||||||
| Total all other portfolios |
283 | 879 | 245 | 414 | 846 | 2,667 | 1,574 | |||||||||
| Total collateralized by sub-prime mortgages (2) |
1,145 | 1,131 | 441 | 867 | 854 | 4,438 | 3,034 | |||||||||
| Other asset-backed securities: |
||||||||||||||||
| Collateralized by credit cards |
9 | — | — | 444 | — | 453 | 242 | |||||||||
| Collateralized by auto loans |
229 | 4 | — | 37 | — | 270 | 254 | |||||||||
| Externally managed investments in the European market (3) |
— | — | 74 | 74 | — | 148 | 186 | |||||||||
| Collateralized by education loans |
165 | 20 | — | — | 7 | 192 | 178 | |||||||||
| Other (4) |
110 | 21 | 22 | 54 | 29 | 236 | 197 | |||||||||
| Total asset-backed securities |
1,658 | 1,176 | 537 | 1,476 | 890 | 5,737 | 4,091 | |||||||||
| (1) | Our Enhanced Short-term portfolio is used primarily to invest cash proceeds of securities lending and repurchase activities, and cash generated from certain trading and operating activities. The investment policy statement of this portfolio requires that securities purchased for this portfolio have a remaining expected average life of 2 years or less when acquired. |
| (2) | The weighted average estimated subordination percentage of our asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business, excluding those supported by guarantees from monoline bond insurers, was 35% as of December 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. As of December 31, 2008 based on amortized cost, approximately 93% of these asset-backed securities collateralized by sub-prime mortgages have credit estimated subordination percentages of 20% or more, and 57% have estimated credit subordination percentages of 30% or more. |
In addition to subordination, certain securities, referred to as front pay or second pay securities, benefit from the prioritization of principal cash flows within the senior tranches of the structure. In most instances, these shorter duration senior securities have priority to principal cash flows over other securities in the structure, including longer duration senior securities. Included within the $4.438 billion of asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business as of December 31, 2008 were $1.703 million of securities, on an amortized cost basis, that represent front pay or second pay securities, depending on the overall structure of the securities.
| (3) | Externally managed investments in the European markets reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of European fixed income securities and derivatives, including 45% European corporate and bank bonds, 21% bank capital, 14% European asset-backed securities, and 20% other. As of December 31, 2008, the amortized cost and fair value shown in the table above includes the $(133) million impact of a bifurcated embedded derivative. |
| (4) | Includes collateralized debt obligations with amortized cost of $56 million and fair value of $48 million, with none secured by sub-prime mortgages. Also includes asset backed-securities collateralized by equipment leases, timeshares, aircraft, and franchises. |
Excluded from the table above are $25 million of asset-backed securities classified as trading and carried at fair value, all of which have BBB credit ratings or above as of December 31, 2008.
(b) Supplemental information for residential mortgage-backed securities:
As of December 31, 2008, based on amortized cost, 83% of the residential mortgage-backed securities attributable to the Closed Block Business were publicly traded agency pass-through securities, which are supported by implicit or explicit government guarantees and have credit ratings of AAA. Collateralized mortgage obligations, including approximately $146 million secured by "ALT-A" mortgages, represented the remaining $543 million of residential mortgage-backed securities and 96% have credit ratings of AAA and the remaining 4% have BBB credit ratings.
Prudential Financial, Inc.
Closed Block Business
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Mortgage and Other Loans
December 31, 2008
($ millions)
(c) Supplemental information for commercial mortgage-backed securities:
| LOWEST RATING AGENCY RATING (2) | Total Amortized Cost |
Total Fair Value | ||||||||||||
| Vintage |
AAA | AA | A | BBB | BB and below |
|||||||||
| 2008 |
10 | — | — | — | — | 10 | 9 | |||||||
| 2007 |
425 | — | 12 | — | — | 437 | 326 | |||||||
| 2006 |
882 | — | — | — | — | 882 | 689 | |||||||
| 2005 |
1,282 | — | — | — | — | 1,282 | 1,051 | |||||||
| 2004 |
394 | — | — | — | — | 394 | 331 | |||||||
| 2003 and prior |
772 | 37 | 43 | 1 | — | 853 | 782 | |||||||
| Total (1) |
3,765 | 37 | 55 | 1 | — | 3,858 | 3,188 | |||||||
| (1) | As of December 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account commercial mortgage-backed securities attributable to the Closed Block Business is 69% and 1.57 times, respectively. The weighted average estimated subordination percentage of our general account investments in commercial mortgage-backed securities attributable to the Closed Block Business was 32% as of December 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. The weighted average estimated subordination percentage includes an adjustment for that portion of the capital structure which has been effectively defeased by US Treasury securities. As of December 31, 2008, based on amortized cost, approximately 93% of these commercial mortgage-backed securities have estimated credit subordination percentages of 20% or more, and 60% have estimated credit subordination percentages of 30% or more. |
(d) Supplemental information for commercial mortgage and other loans:
| Commercial mortgages by property type: |
Gross Carrying Value |
% of Total | |||
| Industrial buildings |
1,959 | 22.2 | % | ||
| Office buildings |
1,787 | 20.3 | % | ||
| Apartment complexes |
1,727 | 19.6 | % | ||
| Retail stores |
1,578 | 17.9 | % | ||
| Agricultural properties |
769 | 8.7 | % | ||
| Other properties |
518 | 5.9 | % | ||
| Hospitality |
427 | 4.9 | % | ||
| Subtotal of commercial mortgages |
8,765 | 99.5 | % | ||
| Uncollateralized loans |
40 | 0.5 | % | ||
| Collateralized by residential properties |
1 | 0.0 | % | ||
| Other collateralized loans |
— | 0.0 | % | ||
| Total commercial mortgage and other loans |
8,806 | 100.0 | % | ||
| Commercial mortgage and other loans by status: |
Gross Carrying Value | |
| Performing |
8,788 | |
| Delinquent, not in foreclosure |
17 | |
| Delinquent, in foreclosure |
— | |
| Restructured |
1 | |
| Total commercial mortgage and other loans |
8,806 | |
As of December 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account investments in commercial mortgages attributable to the Closed Block Business was 53% and 1.95 times, respectively.