Edgar Filing: PRUDENTIAL FINANCIAL INC

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



¨	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)



New Jersey	22-3703799
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

751 Broad Street

Newark, New Jersey 07102

(973) 802-6000

(Address and Telephone Number of Registrant’s Principal Executive Offices)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨

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 April 30, 2016, 442 million shares of the registrant’s Common Stock (par value $0.01) were outstanding.

Table of Contents

TABLE OF CONTENTS



		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Interim Consolidated Statements of Financial Position as of March 31, 2016 and December 31, 2015	1
	Unaudited Interim Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015	2
	Unaudited Interim Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	3
	Unaudited Interim Consolidated Statements of Equity for the three months ended March 31, 2016 and 2015	4
	Unaudited Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	5
	Notes to Unaudited Interim Consolidated Financial Statements	6
	1. Business and Basis of Presentation	6
	2. Significant Accounting Policies and Pronouncements	7
	3. Acquisitions	10
	4. Investments	10
	5. Variable Interest Entities	28
	6. Closed Block	30
	7. Equity	32
	8. Earnings Per Share	35
	9. Short-Term and Long-Term Debt	37
	10. Employee Benefit Plans	40
	11. Segment Information	40
	12. Income Taxes	46
	13. Fair Value of Assets and Liabilities	46
	14. Derivative Instruments	74
	15. Commitments and Guarantees, Contingent Liabilities and Litigation and Regulatory Matters	82
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	87
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	157
Item 4.	Controls and Procedures	157
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	158
Item 1A.	Risk Factors	158
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	158
Item 6.	Exhibits	159
SIGNATURES		160
EXHIBIT INDEX		161

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Forward-Looking Statements

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) the availability and cost of additional debt or equity capital or external financing for our operations; (3) interest rate fluctuations or prolonged periods of low interest rates; (4) the degree to which we choose not to hedge risks, or the potential ineffectiveness or insufficiency of hedging or risk management strategies we do implement; (5) any inability to access our credit facility; (6) reestimates of our reserves for future policy benefits and claims; (7) differences between actual experience regarding mortality, morbidity, persistency, utilization, interest rates or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (8) changes in our assumptions related to deferred policy acquisition costs, value of business acquired or goodwill; (9) changes in assumptions for our pension and other post-retirement benefit plans; (10) changes in our financial strength or credit ratings; (11) statutory reserve requirements associated with term and universal life insurance policies under Regulation XXX and Guideline AXXX; (12) investment losses, defaults and counterparty non-performance; (13) competition in our product lines and for personnel; (14) difficulties in marketing and distributing products through current or future distribution channels; (15) changes in tax law; (16) economic, political, currency and other risks relating to our international operations; (17) fluctuations in foreign currency exchange rates and foreign securities markets; (18) regulatory or legislative changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the U.S. Department of Labor’s fiduciary rules; (19) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (20) adverse determinations in litigation or regulatory matters, and our exposure to contingent liabilities, including related to the remediation of certain securities lending activities administered by the Company; (21) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (22) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (23) possible difficulties in executing, integrating and realizing projected results of acquisitions, divestitures and restructurings; (24) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; (25) changes in statutory or U.S. GAAP accounting principles, practices or policies; and (26) Prudential Financial, Inc.’s primary reliance, as a holding company, on dividends or distributions from its subsidiaries to meet debt payment obligations and the ability of the subsidiaries to pay such dividends or distributions in light of our ratings objectives and/or applicable regulatory restrictions. Prudential Financial, Inc. does not intend, and is under no obligation, 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, 2015 for discussion of certain risks relating to our businesses and investment in our securities.

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Throughout this Quarterly Report on Form 10-Q, “Prudential Financial” and the “Registrant” refer to Prudential Financial, Inc., the ultimate holding company for all of our companies. “Prudential Insurance” refers to The Prudential Insurance Company of America. “Prudential,” the “Company,” “we” and “our” refer to our consolidated operations.

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

March 31, 2016 and December 31, 2015 (in millions, except share amounts)



	March 31, 2016			December 31, 2015
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost: 2016-$278,000; 2015-$265,416)(1)	$	314,529		$	290,323
Fixed maturities, held-to-maturity, at amortized cost (fair value: 2016-$2,841; 2015-$2,624)(1)	2,411			2,308
Trading account assets supporting insurance liabilities, at fair value(1)	21,447			20,522
Other trading account assets, at fair value(1)	8,052			14,458
Equity securities, available-for-sale, at fair value (cost: 2016-$7,026; 2015-$6,847)	9,400			9,274
Commercial mortgage and other loans (includes $286 and $274 measured at fair value under the fair value option at March 31, 2016 and December 31, 2015, respectively)(1)	50,798			50,559
Policy loans	11,805			11,657
Other long-term investments (includes $1,292 and $1,322 measured at fair value under the fair value option at March 31, 2016 and December 31, 2015, respectively)(1)	10,281			9,986
Short-term investments	3,697			8,105
Total investments	432,420			417,192
Cash and cash equivalents(1)	22,492			17,612
Accrued investment income(1)	3,180			3,110
Deferred policy acquisition costs	15,998			16,718
Value of business acquired	2,582			2,828
Other assets(1)(2)	14,822			14,225
Separate account assets	281,501			285,570
TOTAL ASSETS	$	772,995		$	757,255
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	234,728		$	224,384
Policyholders’ account balances(1)	139,745			136,784
Policyholders’ dividends	6,373			5,578
Securities sold under agreements to repurchase	8,357			7,882
Cash collateral for loaned securities	4,052			3,496
Income taxes	12,128			8,714
Short-term debt	969			1,216
Long-term debt(2)	19,608			19,594
Other liabilities(1)	13,323			13,517
Notes issued by consolidated variable interest entities (includes $2,946 and $8,597 measured at fair value under the fair value option at March 31, 2016 and December 31, 2015, respectively)(1)	2,946			8,597
Separate account liabilities	281,501			285,570
Total liabilities	723,730			715,332
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
EQUITY
Preferred Stock ($.01 par value; 10,000,000 shares authorized; none issued)	0			0
Common Stock ($.01 par value; 1,500,000,000 shares authorized; 660,111,339 shares issued at both March 31, 2016 and December 31, 2015)	6			6
Additional paid-in capital	24,420			24,482
Common Stock held in treasury, at cost (216,964,935 and 213,009,970 shares at March 31, 2016 and December 31, 2015, respectively)	(14,093		)	(13,814		)
Accumulated other comprehensive income (loss)	19,066			12,285
Retained earnings	19,843			18,931
Total Prudential Financial, Inc. equity	49,242			41,890
Noncontrolling interests	23			33
Total equity	49,265			41,923
TOTAL LIABILITIES AND EQUITY	$	772,995		$	757,255

__________


(1)	See Note 5 for details of balances associated with variable interest entities.


(2)	Prior period amounts are presented on a basis consistent with the current period presentation, reflecting the adoption of ASU 2015-03. See Note 2 for additional information.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three Months Ended March 31, 2016 and 2015 (in millions, except per share amounts)



	Three Months Ended March 31,
	2016			2015
REVENUES
Premiums	$	6,297		$	6,647
Policy charges and fee income	1,599			1,608
Net investment income	3,670			3,769
Asset management and service fees	905			952
Other income (loss)	(23		)	215
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(158		)	(14		)
Other-than-temporary impairments on fixed maturity securities transferred to Other comprehensive income	32			6
Other realized investment gains (losses), net	2,007			2,369
Total realized investment gains (losses), net	1,881			2,361
Total revenues	14,329			15,552
BENEFITS AND EXPENSES
Policyholders’ benefits	7,031			7,239
Interest credited to policyholders’ account balances	1,286			1,233
Dividends to policyholders	266			781
Amortization of deferred policy acquisition costs	1,202			789
General and administrative expenses	2,812			2,762
Total benefits and expenses	12,597			12,804
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	1,732			2,748
Total income tax expense (benefit)	368			699
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	1,364			2,049
Equity in earnings of operating joint ventures, net of taxes	5			(3		)
INCOME (LOSS) FROM CONTINUING OPERATIONS	1,369			2,046
Income (loss) from discontinued operations, net of taxes	0			0
NET INCOME (LOSS)	1,369			2,046
Less: Income (loss) attributable to noncontrolling interests	33			10
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	1,336		$	2,036
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Income (loss) from continuing operations attributable to Prudential Financial, Inc.	$	2.97		$	4.44
Income (loss) from discontinued operations, net of taxes	0.00			0.00
Net income (loss) attributable to Prudential Financial, Inc.	$	2.97		$	4.44
Diluted earnings per share-Common Stock:
Income (loss) from continuing operations attributable to Prudential Financial, Inc.	$	2.93		$	4.37
Income (loss) from discontinued operations, net of taxes	0.00			0.00
Net income (loss) attributable to Prudential Financial, Inc.	$	2.93		$	4.37
Dividends declared per share of Common Stock	$	0.70		$	0.58

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2016 and 2015 (in millions)



	Three Months Ended March 31,
	2016		2015
NET INCOME (LOSS)	$	1,369	$	2,046
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	737		(67		)
Net unrealized investment gains (losses)	9,413		2,490
Defined benefit pension and postretirement unrecognized periodic benefit (cost)	34		52
Total	10,184		2,475
Less: Income tax expense (benefit) related to other comprehensive income (loss)	3,399		811
Other comprehensive income (loss), net of taxes	6,785		1,664
Comprehensive income (loss)	8,154		3,710
Less: Comprehensive income (loss) attributable to noncontrolling interests	37		(28		)
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	8,117	$	3,738

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity

Three Months Ended March 31, 2016 and 2015 (in millions)



	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Class B Stock Held in Treasury			Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2015	$	6	$	24,482		$	18,931		$	(13,814	)	$	0		$	12,285	$	41,890		$	33		$	41,923
Cumulative effect of adoption of accounting changes						11											11			(30		)	(19		)
Common Stock acquired									(375		)						(375		)				(375		)
Class B Stock repurchase adjustment						(119		)									(119		)				(119		)
Contributions from noncontrolling interests																				2			2
Distributions to noncontrolling interests																				(19		)	(19		)
Stock-based compensation programs			(62		)				96								34						34
Dividends declared on Common Stock						(316		)									(316		)				(316		)
Comprehensive income:
Net income (loss)						1,336											1,336			33			1,369
Other comprehensive income (loss), net of tax															6,781		6,781			4			6,785
Total comprehensive income (loss)																	8,117			37			8,154
Balance, March 31, 2016	$	6	$	24,420		$	19,843		$	(14,093	)	$	0		$	19,066	$	49,242		$	23		$	49,265

	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Class B Stock Held in Treasury			Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2014	$	6	$	24,565		$	14,888		$	(13,088	)	$	(651	)	$	16,050	$	41,770		$	579		$	42,349
Common Stock acquired									(250		)						(250		)				(250		)
Class B Stock cancelled			(167		)	(484		)				651					0						0
Contributions from noncontrolling interests																				11			11
Distributions to noncontrolling interests																				(32		)	(32		)
Stock-based compensation programs			(52		)				105								53						53
Dividends declared on Common Stock						(267		)									(267		)				(267		)
Comprehensive income:
Net income (loss)						2,036											2,036			10			2,046
Other comprehensive income (loss), net of tax															1,702		1,702			(38		)	1,664
Total comprehensive income (loss)																	3,738			(28		)	3,710
Balance, March 31, 2015	$	6	$	24,346		$	16,173		$	(13,233	)	$	0		$	17,752	$	45,044		$	530		$	45,574

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Three Months Ended March 31, 2016 and 2015 (in millions)



	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	1,369		$	2,046
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses, net	(1,881		)	(2,361		)
Policy charges and fee income	(629		)	(576		)
Interest credited to policyholders’ account balances	1,286			1,233
Depreciation and amortization	167			170
(Gains) losses on trading account assets supporting insurance liabilities, net	(216		)	(85		)
Change in:
Deferred policy acquisition costs	517			142
Future policy benefits and other insurance liabilities	1,741			1,549
Other trading account assets	96			(11		)
Income taxes	122			644
Derivatives, net	4,540			3,261
Other, net	(818		)	(484		)
Cash flows from (used in) operating activities	6,294			5,528
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	9,420			12,313
Fixed maturities, held-to-maturity	50			59
Trading account assets supporting insurance liabilities and other trading account assets	5,558			2,925
Equity securities, available-for-sale	1,014			988
Commercial mortgage and other loans	1,378			968
Policy loans	572			549
Other long-term investments	108			198
Short-term investments	19,710			20,093
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(15,415		)	(10,357		)
Trading account assets supporting insurance liabilities and other trading account assets	(6,080		)	(4,024		)
Equity securities, available-for-sale	(900		)	(974		)
Commercial mortgage and other loans	(1,429		)	(2,096		)
Policy loans	(451		)	(439		)
Other long-term investments	(518		)	(331		)
Short-term investments	(15,401		)	(17,763		)
Acquisition of business, net of cash acquired	(532		)	0
Derivatives, net	107			(366		)
Other, net	61			(95		)
Cash flows from (used in) investing activities	(2,748		)	1,648
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	6,150			5,063
Policyholders’ account withdrawals	(4,686		)	(5,359		)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	1,031			(1,445		)
Cash dividends paid on Common Stock	(318		)	(268		)
Net change in financing arrangements (maturities 90 days or less)	22			135
Common Stock acquired	(357		)	(252		)
Class B stock acquired	(119		)	(651		)
Common Stock reissued for exercise of stock options	23			41
Proceeds from the issuance of debt (maturities longer than 90 days)	53			1,152
Repayments of debt (maturities longer than 90 days)	(340		)	(1,293		)
Excess tax benefits from share-based payment arrangements	2			12
Other, net	(282		)	(221		)
Cash flows from (used in) financing activities	1,179			(3,086		)
Effect of foreign exchange rate changes on cash balances	155			111
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,880			4,201
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	17,612			14,918
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	22,492		$	19,119
NON-CASH TRANSACTIONS DURING THE PERIOD(1)
Treasury Stock shares issued for stock-based compensation programs	$	107		$	106
Significant Pension Risk Transfer transactions:
Assets acquired, excluding cash and cash equivalents acquired	$	0		$	640
Liabilities assumed	0			635
Net cash paid	$	0		$	(5	)

_______

1) See Note 2 for the impact of the adoption of “ASU 2015-02, Consolidation” on the Consolidated Financial Statements.

See Notes to Unaudited Interim Consolidated Financial Statements

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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” or “PFI”) 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.

From December 18, 2001, the date of demutualization, through December 31, 2014, the Company organized its principal operations into the Financial Services Businesses and the Closed Block Business, and had two classes of common stock outstanding. The Common Stock, which is publicly traded (NYSE:PRU), reflected the performance of the Financial Services Businesses, while the Class B Stock, which was issued through a private placement and did not trade on any exchange, reflected the performance of the Closed Block Business.

On January 2, 2015, Prudential Financial repurchased and canceled all of the shares of the Class B Stock (the “Class B Repurchase”). As a result, the Company no longer organizes its principal operations into the Financial Services Businesses and the Closed Block Business. The Company’s principal operations are comprised of four divisions: the U.S. Retirement Solutions and Investment Management division, the U.S. Individual Life and Group Insurance division, the International Insurance division and the Closed Block division. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments and businesses that have been or will be divested, excluding the Closed Block division.

The Closed Block division includes certain in force participating insurance and annuity products and corresponding assets that are used for the payment of benefits and policyholders’ dividends on these products (the “Closed Block”), as well as certain related assets and liabilities. See Note 6 for further information on the Closed Block. In connection with demutualization, the Company ceased offering these participating products. The Closed Block division is accounted for as a divested business that is reported separately from the divested businesses that are included in the Company’s Corporate and Other operations.

Basis of Presentation

As a result of the Class B Repurchase and resulting elimination of the separation of the Financial Services Businesses and the Closed Block Business, these Unaudited Interim Consolidated Financial Statements refer to the divisions and segments of the Company that formerly comprised the Financial Services Businesses as “PFI excluding Closed Block division” and refer to the operations that were formerly included in the Closed Block Business as the “Closed Block division,” except as otherwise noted. Closed Block Business results were associated with the Company’s Class B Stock for periods prior to January 1, 2015.

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 5 for more information on the Company’s consolidated variable interest entities. The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted 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”). 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, 2015.

The Company’s Gibraltar Life Insurance Company, Ltd. (“Gibraltar Life”) consolidated operations use a November 30 fiscal year end for purposes of inclusion in the Company’s Consolidated Financial Statements. The unaudited interim consolidated balance sheet data as of March 31, 2016, include the assets and liabilities of Gibraltar Life as of February 29, 2016. The unaudited interim consolidated income statement data include Gibraltar Life’s results of operations for the three months ended February 29, 2016 and February 28, 2015, respectively.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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; 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 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 matters.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

This section supplements, and should be read in conjunction with, Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Adoption of New Accounting Pronouncements

In May 2015, the Financial Accounting Standards Board (“FASB”) issued guidance (Accounting Standards Update (“ASU”) 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)) to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The new guidance became effective for annual periods and interim periods within those annual periods that began after December 15, 2015, and was applied retrospectively. Adoption of the guidance did not have a significant effect on the Company’s financial statement disclosures. See Note 13.

In April 2015, the FASB issued updated guidance (ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs) that simplifies the presentation of debt issuance costs. The pronouncement requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The Company adopted the guidance effective January 1, 2016. Prior period financial information presented in these financial statements has been adjusted to reflect the retrospective adoption of the amended guidance. “Other assets” and “Long-term debt” as previously reported on the Company’s consolidated statements of financial position as of December 31, 2015 were both reduced by $133 million as a result of this retrospective adoption.

In February 2015, the FASB issued updated guidance (ASU 2015-02, Consolidation (Topic 810): Amendments to Consolidation Analysis) that modifies the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted the updated guidance effective January 1, 2016 and applied the modified retrospective method of adoption, primarily resulting in the deconsolidation of certain of its previously consolidated collateralized loan obligations (“CLOs”), as its fee arrangements are no longer deemed variable interests in these entities. The Company continues to consolidate CLOs where it retains other economic interests which absorb more than an insignificant amount of the CLOs expected variability. The Company also deconsolidated certain investment structures where it is no longer deemed to be the primary beneficiary as the Company, through its equity ownership, no longer has the obligation to absorb losses of the VIE that could be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The impact to the Company’s consolidated statements of financial position upon adoption of the updated guidance is a reduction of $5.5 billion of “Total assets” (including $5.1 billion of “Total investments”) and $5.5 billion of “Total liabilities” (including $5.1 billion of “Notes issued by consolidated variable interest entities”), with a $30 million decrease in “Noncontrolling interests” and a $7 million increase to “Total Prudential Financial, Inc. equity.”

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

In August 2014, the FASB issued updated guidance (ASU 2014-14, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure) requiring that mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The new guidance became effective for annual periods and interim periods within those annual periods that began after December 15, 2014, and was applied prospectively. Adoption of the guidance did not have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures.

In August 2014, the FASB issued updated guidance (ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity) for measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity. Under the guidance, an entity within scope is permitted to measure both the financial assets and financial liabilities of a consolidated collateralized financing entity based on either the fair value of the financial assets or the financial liabilities, whichever is more observable. If adopted, the guidance eliminates the measurement difference that exists when both are measured at fair value. The Company adopted the updated guidance effective January 1, 2016, and applied the modified retrospective method of adoption. The impact to the Company’s consolidated statements of financial position upon adoption of the updated guidance was a $4 million reduction in “Total liabilities” and a $4 million increase to “Total Prudential Financial, Inc. equity.”

In June 2014, the FASB issued updated guidance (ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures) that requires repurchase-to-maturity transactions to be accounted for as secured borrowings and eliminates existing guidance for repurchase financings. The guidance also requires new disclosures for certain transactions accounted for as secured borrowings and for transfers accounted for as sales when the transferor also retains substantially all of the exposure to the economic return on the transferred financial assets. Accounting changes and new disclosures for transfers accounted for as sales under the new guidance were effective for the first interim or annual period beginning after December 15, 2014, and did not have a significant effect on the Company's consolidated financial position, results of operations or financial statement disclosures. Disclosures for certain transactions accounted for as secured borrowings were effective for interim periods beginning after March 15, 2015, and are included in Note 4.

In April 2014, the FASB issued updated guidance (ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity) that changes the criteria for reporting discontinued operations and introduces new disclosures. The new guidance became effective for new disposals and new classifications of disposal groups as held for sale that occur within annual periods that began on or after December 15, 2014, and interim periods within those annual periods. Adoption of the guidance did not have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures.

In January 2014, the FASB issued updated guidance (ASU 2014-04, Receivables—Troubled Debt Restructuring by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure) for troubled debt restructurings clarifying when an in-substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The new guidance became effective for annual periods and interim periods within those annual periods that began after December 15, 2014, and was applied prospectively. Adoption of the guidance did not have a significant effect on the Company’s consolidated financial position, results of operations or financial statement disclosures.

In January 2014, the FASB issued updated guidance (ASU 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects) regarding investments in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. Under the guidance, an entity is permitted to make an accounting policy election to amortize the initial cost of its investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the statement of operations as a component of income tax expense (benefit) if certain conditions are met. The new guidance became effective for annual periods and interim reporting periods within those annual periods that began after December 15, 2014. The Company did not elect the proportional amortization method under this guidance.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Future Adoption of New Accounting Pronouncements

In May 2014, the FASB issued updated guidance (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)) on accounting for revenue recognition. The guidance is based on the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from cost incurred to obtain or fulfill a contract. Revenue recognition for insurance contracts is explicitly scoped out of the guidance. In August 2015, the FASB issued an update to defer the original effective date of this guidance. As a result of the deferral, the new guidance is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017, and must be applied using one of two retrospective application methods. Early adoption is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In May 2015, the FASB issued final guidance (ASU 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts) that aims to enhance disclosures about insurance contracts classified as short-duration. The new disclosure requirements focus on providing users of financial statements with more transparent information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, methodologies and judgments in estimating claims, and timing, frequency and severity of claims as they relate to short-duration insurance contracts. The new guidance is effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016, and is to be applied retrospectively. The Company is currently assessing the impact of the guidance on the Company’s financial statement disclosures but has concluded that this guidance will not impact the Company’s consolidated financial position or results of operations.

In January 2016, the FASB issued updated guidance (ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities) on the recognition and measurement of financial assets and financial liabilities. The guidance revises an entity’s accounting related to the classification and measurement of certain equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The new guidance is effective for annual periods and interim reporting periods within those annual periods beginning after December 15, 2017. Early adoption is not permitted except for the provisions related to the presentation of certain fair value changes for financial liabilities measured at fair value. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued guidance (ASU 2016-02, Leases (Topic 842)) that ensures assets and liabilities from all outstanding lease contracts are recognized on balance sheet (with limited exception). The guidance substantially changes a Lessee’s accounting for leases and requires the recording on balance sheet of a “right-of-use” asset and liability to make lease payments for most leases. A Lessee will continue to recognize expense in its income statement in a manner similar to the requirements under the current lease accounting guidance. For Lessors, the guidance modifies classification criteria and accounting for sales-type and direct financing leases and requires a Lessor to derecognize the carrying value of the leased asset that is considered to have been transferred to a Lessee and record a lease receivable and residual asset (“receivable and residual” approach). The guidance also eliminates the real estate specific provisions of the current guidance (i.e., sale-leaseback). The amendments are effective for financial statements issued for annual reporting periods beginning after December 15, 2018, and for interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance (ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting) to simplify the transition to equity method when an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments are effective for financial statements issued for annual reporting periods beginning after December 15, 2016, and for interim periods within those annual periods. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

In March 2016, the FASB issued guidance (ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting) to simplify and improve employee share-based payment accounting. The areas updated include income tax consequences, a policy election related to forfeitures, classification of awards as either equity or liability, and classification of operating and financing activity on the statement of cash flows. The amendments are effective for financial statements issued for annual reporting periods beginning after December 15, 2016, and for interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

3. ACQUISITIONS

This section supplements, and should be read in conjunction with, the complete descriptions provided in Note 3 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2015.

Acquisition of Deutsche Bank’s India Asset Management Business

In March 2016, the Company and its asset management joint venture partner in India completed the previously announced acquisition of Deutsche Bank’s India asset management business through the joint venture. This acquisition, which will expand the Company’s investment management expertise, distribution platform and product portfolio in India, did not have a material impact on the Company’s financial results.

Acquisition of Administradora de Fondos de Pensiones Habitat S.A.

In March 2016, the Company completed the purchase of an indirect 40% ownership interest in Administradora de Fondos de Pensiones Habitat S.A. (“AFP Habitat”), a leading provider of retirement services in Chile, from Inversiones La Construcción S.A. (“ILC”), the investment subsidiary of the Chilean Construction Chamber. The Company paid 899.90 Chilean pesos per share, for a total purchase price of approximately $532 million based on exchange rates at the share acquisition date. The Company and ILC now equally own an indirect controlling stake in AFP Habitat through a joint holding company. The Company’s investment will be accounted for under the equity method and is recorded within “Other assets.” This acquisition will enable the Company to participate in the growing Chilean pension market.

4. INVESTMENTS

Fixed Maturities and Equity Securities

The following tables provide information relating to fixed maturities and equity securities (excluding investments classified as trading) as of the dates indicated:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	March 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(4)
	(in millions)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	17,364	$	4,681	$	1	$	22,044	$	0
Obligations of U.S. states and their political subdivisions	8,262		1,022		8		9,276		0
Foreign government bonds	77,878		18,662		64		96,476		0
U.S. corporate public securities	74,007		7,661		1,063		80,605		(12		)
U.S. corporate private securities(1)	28,604		2,318		310		30,612		(17		)
Foreign corporate public securities	26,566		3,162		379		29,349		(4		)
Foreign corporate private securities	19,570		797		719		19,648		0
Asset-backed securities(2)	10,577		164		196		10,545		(444		)
Commercial mortgage-backed securities	10,550		461		7		11,004		(1		)
Residential mortgage-backed securities(3)	4,622		350		2		4,970		(3		)
Total fixed maturities, available-for-sale(1)	$	278,000	$	39,278	$	2,749	$	314,529	$	(481	)
Equity securities, available-for-sale	$	7,026	$	2,490	$	116	$	9,400



	March 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities, held-to-maturity
Foreign government bonds	$	872	$	297	$	0	$	1,169
Foreign corporate public securities	663		67		2		728
Foreign corporate private securities(5)	84		4		0		88
Commercial mortgage-backed securities	22		0		0		22
Residential mortgage-backed securities(3)	770		64		0		834
Total fixed maturities, held-to-maturity(5)	$	2,411	$	432	$	2	$	2,841

__________


(1)	Excludes notes with amortized cost of $1,050 million (fair value, $1,050 million) which have been offset with the associated payables under a netting agreement.


(2)	Includes credit-tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans and other asset types.


(3)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.

(4)

Represents the amount of other-than-temporary impairment (“OTTI”) losses in Accumulated Other Comprehensive Income (“AOCI”), which were not included in earnings. Amount excludes $680 million of net unrealized gains on impaired available-for-sale securities and less than $1 million of net unrealized gains on impaired held-to-maturity securities relating to changes in the value of such securities subsequent to the impairment measurement date.


(5)	Excludes notes with amortized cost of $3,990 million (fair value, $3,990 million) which have been offset with the associated payables under a netting agreement.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(4)
	(in millions)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	14,992	$	3,544	$	19	$	18,517	$	0
Obligations of U.S. states and their political subdivisions	8,089		747		41		8,795		0
Foreign government bonds	71,849		12,011		147		83,713		1
U.S. corporate public securities	70,979		6,344		1,955		75,368		(3		)
U.S. corporate private securities(1)	28,525		2,278		359		30,444		0
Foreign corporate public securities	26,354		2,821		621		28,554		0
Foreign corporate private securities	19,393		739		994		19,138		0
Asset-backed securities(2)	10,121		226		121		10,226		(452		)
Commercial mortgage-backed securities	10,337		195		70		10,462		(1		)
Residential mortgage-backed securities(3)	4,777		335		6		5,106		(4		)
Total fixed maturities, available-for-sale(1)	$	265,416	$	29,240	$	4,333	$	290,323	$	(459	)
Equity securities, available-for-sale	$	6,847	$	2,570	$	143	$	9,274



	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities, held-to-maturity
Foreign government bonds	$	816	$	196	$	0	$	1,012
Foreign corporate public securities	625		62		0		687
Foreign corporate private securities(5)	78		4		0		82
Commercial mortgage-backed securities	33		1		0		34
Residential mortgage-backed securities(3)	756		53		0		809
Total fixed maturities, held-to-maturity(5)	$	2,308	$	316	$	0	$	2,624

__________


(1)	Excludes notes with amortized cost of $1,050 million (fair value, $1,039 million) which have been offset with the associated payables under a netting agreement.


(2)	Includes credit-tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans and other asset types.


(3)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


(4)	Represents the amount of OTTI losses in AOCI, which were not included in earnings. Amount excludes $693 million of net unrealized gains on impaired available-for-sale securities and less than $1 million of net unrealized gains on impaired held-to-maturity securities relating to changes in the value of such securities subsequent to the impairment measurement date.


(5)	Excludes notes with amortized cost of $3,850 million (fair value, $4,081 million) which have been offset with the associated payables under a netting agreement.

The amortized cost and fair value of fixed maturities by contractual maturities at March 31, 2016, are as follows:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Due in one year or less	$	14,423	$	15,147	$	7	$	7
Due after one year through five years	49,178		53,605		71		75
Due after five years through ten years	56,420		62,024		673		738
Due after ten years(1)	132,230		157,234		868		1,165
Asset-backed securities	10,577		10,545		0		0
Commercial mortgage-backed securities	10,550		11,004		22		22
Residential mortgage-backed securities	4,622		4,970		770		834
Total	$	278,000	$	314,529	$	2,411	$	2,841

__________


(1)	Excludes available-for-sale notes with amortized cost of $1,050 million (fair value, $1,050 million) and held-to-maturity notes with amortized cost of $3,990 million (fair value, $3,990 million), which have been offset with the associated payables 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 are not due at a single maturity date.

The following table depicts the sources of fixed maturity and equity security proceeds and related investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:



	Three Months Ended March 31,
	2016			2015
	(in millions)
Fixed maturities, available-for-sale
Proceeds from sales	$	5,122		$	7,418
Proceeds from maturities/repayments	4,037			5,095
Gross investment gains from sales, prepayments and maturities	295			532
Gross investment losses from sales and maturities	(242		)	(56		)
Fixed maturities, held-to-maturity
Gross investment gains from prepayments	$	0		$	0
Proceeds from maturities/repayments	50			60
Equity securities, available-for-sale
Proceeds from sales	$	941		$	989
Gross investment gains from sales	110			153
Gross investment losses from sales	(71		)	(26		)
Fixed maturity and equity security impairments
Net writedowns for OTTI losses on fixed maturities recognized in earnings(1)	$	(126	)	$	(8	)
Writedowns for impairments on equity securities	(11		)	(6		)

__________


(1)	Excludes the portion of OTTI recorded in “Other comprehensive income (loss),” representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.

As discussed 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, 2015, a portion of certain OTTI losses on fixed maturity securities is recognized in “Other comprehensive income (loss)” (“OCI”). For these securities, the net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended March 31,
	2016			2015
	(in millions)
Balance, beginning of period	$	532		$	781
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(10		)	(13		)
Credit loss impairments previously recognized on securities impaired to fair value during the period(1)	(2		)	(1		)
Credit loss impairments recognized in the current period on securities not previously impaired	20			2
Additional credit loss impairments recognized in the current period on securities previously impaired	0			0
Increases due to the passage of time on previously recorded credit losses	5			7
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(2		)	(3		)
Balance, end of period	$	543		$	773

__________


(1)	Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

Trading Account Assets Supporting Insurance Liabilities

The following table sets forth the composition of “Trading account assets supporting insurance liabilities” as of the dates indicated:



	March 31, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	888	$	888	$	765	$	765
Fixed maturities:
Corporate securities	13,142		13,450		12,797		12,851
Commercial mortgage-backed securities	1,865		1,922		1,860		1,862
Residential mortgage-backed securities(1)	1,356		1,393		1,411		1,428
Asset-backed securities(2)	1,378		1,377		1,295		1,299
Foreign government bonds	738		773		680		694
U.S. government authorities and agencies and obligations of U.S. states	390		435		326		369
Total fixed maturities	18,869		19,350		18,369		18,503
Equity securities	1,093		1,209		1,030		1,254
Total trading account assets supporting insurance liabilities	$	20,850	$	21,447	$	20,164	$	20,522

__________


(1)	Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.


(2)	Includes credit-tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans and other asset types.

The net change in unrealized gains (losses) from trading account assets supporting insurance liabilities still held at period end, recorded within “Other income,” was $239 million and $10 million during the three months ended March 31, 2016 and 2015, respectively.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Other Trading Account Assets

The following table sets forth the composition of the “Other trading account assets” as of the dates indicated:



	March 31, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	26	$	26	$	26	$	26
Fixed maturities	5,250		4,923		11,132		10,764
Equity securities	967		1,045		1,006		1,098
Other	5		5		12		15
Subtotal	$	6,248	5,999		$	12,176	11,903
Derivative instruments			2,053				2,555
Total other trading account assets			$	8,052			$	14,458

The net change in unrealized gains (losses) from other trading account assets, excluding derivative instruments, still held at period end, recorded within “Other income,” was $24 million and $(52) million during the three months ended March 31, 2016 and 2015, 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 one issuer.

As of both March 31, 2016 and December 31, 2015, the Company’s exposure to concentrations of credit risk of single issuers greater than 10% of the Company’s stockholders’ equity included securities of the U.S. government and certain U.S. government agencies and certain securities guaranteed by the U.S. government, as well as the securities disclosed below.



	March 31, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale	$	59,184	$	73,099	$	53,851	$	61,911
Fixed maturities, held-to-maturity	850		1,141		796		988
Trading account assets supporting insurance liabilities	541		573		492		502
Other trading account assets	33		34		33		33
Short-term investments	0		0		0		0
Cash equivalents	0		0		0		0
Total	$	60,608	$	74,847	$	55,172	$	63,434

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	March 31, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in South Korean government and government agency securities:
Fixed maturities, available-for-sale	$	7,490	$	9,960	$	7,191	$	9,233
Fixed maturities, held-to-maturity	0		0		0		0
Trading account assets supporting insurance liabilities	44		45		44		44
Other trading account assets	7		7		0		0
Short-term investments	0		0		0		0
Cash equivalents	0		0		0		0
Total	$	7,541	$	10,012	$	7,235	$	9,277

Commercial Mortgage and Other Loans

The Company’s commercial mortgage and other loans are comprised as follows, as of the dates indicated:



	March 31, 2016					December 31, 2015
	Amount (in millions)			% of Total		Amount (in millions)			% of Total
Commercial mortgage and agricultural property loans by property type:
Office	$	11,517		23.4	%	$	11,226		22.9	%
Retail	8,493			17.2		8,917			18.2
Apartments/Multi-Family	12,493			25.4		12,034			24.5
Industrial	7,703			15.6		7,775			15.9
Hospitality	2,396			4.9		2,513			5.1
Other	3,811			7.7		3,722			7.6
Total commercial mortgage loans	46,413			94.2		46,187			94.2
Agricultural property loans	2,842			5.8		2,859			5.8
Total commercial mortgage and agricultural property loans by property type	49,255			100.0	%	49,046			100.0	%
Valuation allowance	(89		)			(99		)
Total net commercial mortgage and agricultural property loans by property type	49,166					48,947
Other loans:
Uncollateralized loans	1,022					1,012
Residential property loans	307					301
Other collateralized loans	312					312
Total other loans	1,641					1,625
Valuation allowance	(9		)			(13		)
Total net other loans	1,632					1,612
Total commercial mortgage and other loans(1)	$	50,798				$	50,559

__________


(1)	Includes loans held at fair value.

The commercial mortgage and agricultural property loans are geographically dispersed throughout the United States (with the largest concentrations in California (27%), New York (9%) and Texas (9%)) and include loans secured by properties in Europe (4%) and Asia (1%) at March 31, 2016.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Activity in the allowance for credit losses for all commercial mortgage and other loans, as of the dates indicated, is as follows:



	March 31, 2016
	Commercial Mortgage Loans			Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans			Total
	(in millions)
Allowance for credit losses, beginning of year	$	97		$	2	$	3	$	0	$	10		$	112
Addition to (release of) allowance for losses	(10		)	0		0		0		(5		)	(15		)
Charge-offs, net of recoveries	0			0		0		0		0			0
Change in foreign exchange	0			0		0		0		1			1
Total ending balance	$	87		$	2	$	3	$	0	$	6		$	98



	December 31, 2015
	Commercial Mortgage Loans			Agricultural Property Loans		Residential Property Loans			Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance for credit losses, beginning of year	$	104		$	1	$	5		$	0	$	9	$	119
Addition to (release of) allowance for losses	(7		)	1		(2		)	0		1		(7		)
Charge-offs, net of recoveries	0			0		0			0		0		0
Change in foreign exchange	0			0		0			0		0		0
Total ending balance	$	97		$	2	$	3		$	0	$	10	$	112

The following tables set forth the allowance for credit losses and the recorded investment in commercial mortgage and other loans as of the dates indicated:



	March 31, 2016
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance for Credit Losses:
Individually evaluated for impairment	$	1	$	0	$	0	$	0	$	0	$	1
Collectively evaluated for impairment	86		2		3		0		6		97
Loans acquired with deteriorated credit quality	0		0		0		0		0		0
Total ending balance	$	87	$	2	$	3	$	0	$	6	$	98

Recorded Investment(1):
Gross of r