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 September 30, 2015



¨	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 October 31, 2015, 449 million shares of the registrant’s Common Stock (par value $0.01) were outstanding.

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TABLE OF CONTENTS



		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Interim Consolidated Statements of Financial Position as of September 30, 2015 and December 31, 2014	1
	Unaudited Interim Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014	2
	Unaudited Interim Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014	3
	Unaudited Interim Consolidated Statements of Equity for the nine months ended September 30, 2015 and 2014	4
	Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	5
	Notes to Unaudited Interim Consolidated Financial Statements	7
	1. Business and Basis of Presentation	7
	2. Significant Accounting Policies and Pronouncements	8
	3. Acquisitions	10
	4. Investments	10
	5. Variable Interest Entities	27
	6. Closed Block	29
	7. Equity	31
	8. Earnings Per Share	35
	9. Short-Term and Long-Term Debt	37
	10. Employee Benefit Plans	40
	11. Segment Information	41
	12. Income Taxes	48
	13. Fair Value of Assets and Liabilities	48
	14. Derivative Instruments	79
	15. Commitments and Guarantees, Contingent Liabilities and Litigation and Regulatory Matters	88
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	94
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	175
Item 4.	Controls and Procedures	175
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	177
Item 1A.	Risk Factors	177
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	177
Item 6.	Exhibits	178
SIGNATURES		179
EXHIBIT INDEX		180

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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 facilities; (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; (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 in connection with our divestiture or winding down of businesses; (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) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing projected results of acquisitions; (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, 2014 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

September 30, 2015 and December 31, 2014 (in millions, except share amounts)



	September 30, 2015			December 31, 2014
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost: 2015-$263,281; 2014-$265,116)(1)	$	290,778		$	299,090
Fixed maturities, held-to-maturity, at amortized cost (fair value: 2015-$2,669; 2014-$2,902)(1)	2,380			2,575
Trading account assets supporting insurance liabilities, at fair value(1)	20,408			20,263
Other trading account assets, at fair value(1)	14,075			10,874
Equity securities, available-for-sale, at fair value (cost: 2015-$6,755; 2014-$6,921)	9,109			9,861
Commercial mortgage and other loans (includes $151 and $380 measured at fair value under the fair value option at September 30, 2015 and December 31, 2014, respectively)(1)	50,048			46,432
Policy loans	11,624			11,712
Other long-term investments (includes $1,298 and $1,082 measured at fair value under the fair value option at September 30, 2015 and December 31, 2014, respectively)(1)	10,591			10,921
Short-term investments	7,937			8,258
Total investments	416,950			419,986
Cash and cash equivalents(1)	20,207			14,918
Accrued investment income(1)	3,156			3,130
Deferred policy acquisition costs	16,206			15,971
Value of business acquired	2,847			2,836
Other assets(1)	14,545			13,379
Separate account assets	280,616			296,435
TOTAL ASSETS	$	754,527		$	766,655
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	222,220		$	217,766
Policyholders’ account balances(1)	136,620			136,150
Policyholders’ dividends	6,153			7,661
Securities sold under agreements to repurchase	8,107			9,407
Cash collateral for loaned securities	4,241			4,241
Income taxes	9,644			9,881
Short-term debt	1,833			3,839
Long-term debt	20,329			19,831
Other liabilities(1)	13,624			13,037
Notes issued by consolidated variable interest entities (includes $8,354 and $6,033 measured at fair value under the fair value option at September 30, 2015 and December 31, 2014, respectively)(1)	8,370			6,058
Separate account liabilities	280,616			296,435
Total liabilities	711,757			724,306
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
EQUITY
Preferred Stock ($.01 par value; 10,000,000 shares authorized; none issued)	0			0
Common Stock ($.01 par value; 1,500,000,000 shares authorized; 660,111,339 shares issued at both September 30, 2015 and December 31, 2014)	6			6
Class B Stock ($.01 par value; 0 shares authorized and issued at September 30, 2015; 10,000,000 shares authorized and 2,000,000 shares issued at December 31, 2014)	0			0
Additional paid-in capital	24,348			24,565
Common Stock held in treasury, at cost (210,667,509 and 205,277,862 shares at September 30, 2015 and December 31, 2014, respectively)	(13,612		)	(13,088		)
Class B Stock held in treasury, at cost (0 and 2,000,000 shares at September 30, 2015 and December 31, 2014, respectively)	0			(651		)
Accumulated other comprehensive income (loss)	13,463			16,050
Retained earnings	18,515			14,888
Total Prudential Financial, Inc. equity	42,720			41,770
Noncontrolling interests	50			579
Total equity	42,770			42,349
TOTAL LIABILITIES AND EQUITY	$	754,527		$	766,655

__________


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

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2015 and 2014 (in millions, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
REVENUES
Premiums	$	5,985		$	6,644		$	20,214		$	18,580
Policy charges and fee income	1,624			1,496			4,482			4,517
Net investment income	3,741			3,841			11,181			11,433
Asset management and service fees	946			949			2,854			2,781
Other income (loss)	(397		)	(625		)	(58		)	177
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(81		)	(2		)	(149		)	(113		)
Other-than-temporary impairments on fixed maturity securities transferred to Other comprehensive income	8			(3		)	39			66
Other realized investment gains (losses), net	1,773			80			4,300			939
Total realized investment gains (losses), net	1,700			75			4,190			892
Total revenues	13,599			12,380			42,863			38,380
BENEFITS AND EXPENSES
Policyholders’ benefits	6,648			7,334			21,739			20,186
Interest credited to policyholders’ account balances	840			882			2,749			3,075
Dividends to policyholders	367			745			1,585			2,056
Amortization of deferred policy acquisition costs	922			346			1,846			1,265
General and administrative expenses	2,773			2,789			8,018			8,289
Total benefits and expenses	11,550			12,096			35,937			34,871
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	2,049			284			6,926			3,509
Total income tax expense (benefit)	584			(234		)	1,962			643
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	1,465			518			4,964			2,866
Equity in earnings of operating joint ventures, net of taxes	2			5			8			11
INCOME (LOSS) FROM CONTINUING OPERATIONS	1,467			523			4,972			2,877
Income (loss) from discontinued operations, net of taxes	0			0			0			8
NET INCOME (LOSS)	1,467			523			4,972			2,885
Less: Income (loss) attributable to noncontrolling interests	2			11			65			45
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	1,465		$	512		$	4,907		$	2,840
EARNINGS PER SHARE(1)
Basic earnings per share-Common Stock:
Income (loss) from continuing operations attributable to Prudential Financial, Inc.	$	3.22		$	1.00		$	10.74		$	5.87
Income (loss) from discontinued operations, net of taxes	0.00			0.00			0.00			0.02
Net income (loss) attributable to Prudential Financial, Inc.	$	3.22		$	1.00		$	10.74		$	5.89
Diluted earnings per share-Common Stock:
Income (loss) from continuing operations attributable to Prudential Financial, Inc.	$	3.16		$	0.99		$	10.56		$	5.79
Income (loss) from discontinued operations, net of taxes	0.00			0.00			0.00			0.01
Net income (loss) attributable to Prudential Financial, Inc.	$	3.16		$	0.99		$	10.56		$	5.80
Dividends declared per share of Common Stock	$	0.58		$	0.53		$	1.74		$	1.59

__________


(1)	For the three and nine months ended September 30, 2015, represents consolidated earnings per share of Common Stock. For the three and nine months ended September 30, 2014, represents earnings of the Company’s former Financial Services Businesses per share of Common Stock. See Note 8 for additional information.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, 2015 and 2014 (in millions)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
NET INCOME (LOSS)	$	1,467		$	523		$	4,972		$	2,885
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	(96		)	(498		)	(259		)	(251		)
Net unrealized investment gains (losses)	169			1,331			(4,043		)	7,650
Defined benefit pension and postretirement unrecognized periodic benefit	47			37			153			80
Total	120			870			(4,149		)	7,479
Less: Income tax expense (benefit) related to other comprehensive income (loss)	68			446			(1,501		)	2,651
Other comprehensive income (loss), net of taxes	52			424			(2,648		)	4,828
Comprehensive income (loss)	1,519			947			2,324			7,713
Less: Comprehensive income (loss) attributable to noncontrolling interests	(5		)	11			4			53
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	1,524		$	936		$	2,320		$	7,660

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity

Nine Months Ended September 30, 2015 and 2014 (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, 2014	$	6	$	24,565		$	14,888		$	(13,088	)	$	(651	)	$	16,050		$	41,770		$	579		$	42,349
Common Stock acquired									(750		)							(750		)				(750		)
Class B Stock canceled			(167		)	(484		)				651						0						0
Contributions from noncontrolling interests																					28			28
Distributions to noncontrolling interests																					(416		)	(416		)
Consolidations (deconsolidations) of noncontrolling interests																					(145		)	(145		)
Stock-based compensation programs			(50		)				226									176						176
Dividends declared on Common Stock						(796		)										(796		)				(796		)
Comprehensive income:
Net income (loss)						4,907												4,907			65			4,972
Other comprehensive income (loss), net of tax															(2,587		)	(2,587		)	(61		)	(2,648		)
Total comprehensive income (loss)																		2,320			4			2,324
Balance, September 30, 2015	$	6	$	24,348		$	18,515		$	(13,612	)	$	0		$	13,463		$	42,720		$	50		$	42,770

	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, 2013	$	6	$	24,475		$	14,531		$	(12,415	)	$	0		$	8,681		$	35,278		$	603		$	35,881
Common Stock acquired									(750		)							(750		)				(750		)
Contributions from noncontrolling interests			(4		)													(4		)	73			69
Distributions to noncontrolling interests																					(145		)	(145		)
Consolidations (deconsolidations) of noncontrolling interests																					(1		)	(1		)
Stock-based compensation programs			54						286									340						340
Dividends declared on Common Stock						(741		)										(741		)				(741		)
Dividends declared on Class B Stock						(14		)										(14		)				(14		)
Comprehensive income:
Net income (loss)						2,840												2,840			45			2,885
Other comprehensive income (loss), net of tax															4,820			4,820			8			4,828
Total comprehensive income (loss)																		7,660			53			7,713
Balance, September 30, 2014	$	6	$	24,525		$	16,616		$	(12,879	)	$	0		$	13,501		$	41,769		$	583		$	42,352

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2015 and 2014 (in millions)



	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	4,972		$	2,885
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses, net	(4,190		)	(892		)
Policy charges and fee income	(1,382		)	(1,519		)
Interest credited to policyholders’ account balances	2,749			3,075
Depreciation and amortization	126			454
(Gains) losses on trading account assets supporting insurance liabilities, net	365			(195		)
Change in:
Deferred policy acquisition costs	(115		)	(758		)
Future policy benefits and other insurance liabilities	4,655			5,590
Other trading account assets	118			110
Income taxes	1,295			661
Derivatives, net	3,048			1,534
Other, net	189			477
Cash flows from (used in) operating activities	11,830			11,422
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	35,030			38,541
Fixed maturities, held-to-maturity	179			377
Trading account assets supporting insurance liabilities and other trading account assets	10,620			9,695
Equity securities, available-for-sale	3,707			3,705
Commercial mortgage and other loans	3,904			2,509
Policy loans	1,641			1,623
Other long-term investments	989			290
Short-term investments	57,142			52,817
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(33,792		)	(44,613		)
Fixed maturities, held-to-maturity	0			(22		)
Trading account assets supporting insurance liabilities and other trading account assets	(13,891		)	(11,630		)
Equity securities, available-for-sale	(3,115		)	(3,334		)
Commercial mortgage and other loans	(7,479		)	(6,192		)
Policy loans	(1,320		)	(1,441		)
Other long-term investments	(1,620		)	(1,254		)
Short-term investments	(56,803		)	(50,770		)
Acquisition of business, net of cash acquired	0			(23		)
Derivatives, net	(411		)	(223		)
Other, net	56			268
Cash flows from (used in) investing activities	(5,163		)	(9,677		)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	17,743			18,138
Policyholders’ account withdrawals	(16,322		)	(16,391		)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	(1,300		)	669
Cash dividends paid on Common Stock	(801		)	(741		)
Cash dividends paid on Class B Stock	0			(14		)
Net change in financing arrangements (maturities 90 days or less)	234			352
Common Stock acquired	(744		)	(750		)
Class B stock acquired	(651		)	0
Common Stock reissued for exercise of stock options	158			230
Proceeds from the issuance of debt (maturities longer than 90 days)	4,577			5,273
Repayments of debt (maturities longer than 90 days)	(3,922		)	(2,590		)
Excess tax benefits from share-based payment arrangements	18			24
Other, net	(424		)	(82		)
Cash flows from (used in) financing activities	(1,434		)	4,118
Effect of foreign exchange rate changes on cash balances	56			(80		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	5,289			5,783
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	14,918			11,439
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	20,207		$	17,222

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NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs	$	111	$	95
Significant Pension Risk Transfer transactions:
Assets acquired, excluding cash and cash equivalents acquired	$	1,553	$	0
Liabilities assumed	1,919		0
Net cash received	$	366	$	0
Acquisition of Gibraltar BSN Life Berhad:
Assets acquired, excluding cash and cash equivalents acquired	$	0	$	656
Liabilities assumed	0		586
Noncontrolling Interest assumed	0		47
Net cash paid on acquisition	$	0	$	23

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, businesses that are not sufficiently material to warrant separate disclosure 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 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, 2014.

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; therefore, the Unaudited Interim Consolidated Financial Statements as of September 30, 2015, include the assets and liabilities of Gibraltar Life and its results of operations as of, and for the three and nine months ended, August 31, 2015, respectively.

Use of Estimates

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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 sales inducements; measurement of goodwill and any related impairment; valuation of investments including derivatives and the recognition of other-than-temporary impairments; future policy benefits including guarantees; pension and other postretirement benefits; provision for income taxes and valuation of deferred tax assets; and reserves for contingent liabilities, including reserves for losses in connection with unresolved legal matters.

Out of Period Adjustments

During the third quarter of 2014, the Company recorded out of period adjustments resulting in an aggregate net decrease of $156 million to “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures” for the three and nine months ended September 30, 2014. Such adjustments were primarily comprised of: 1) a charge of $48 million from an increase in reserves for group long-term disability products and 2) a charge of $45 million from an increase in reserves, net of a related increase in deferred policy amortization costs, for certain variable annuities products with optional living benefit guarantees. These items were identified during the Company’s annual review and update of assumptions used in calculating these reserves. Management evaluated the adjustments and concluded that they were not material to the then current quarter or to any previously reported quarterly or annual financial statements.

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, 2014.

Earnings Per Share

As discussed in Note 1, from demutualization through December 31, 2014, the Company had two separate classes of common stock. Basic earnings per share for those periods was computed by dividing available income attributable to each of the two groups of common shareholders by the respective weighted average number of common shares outstanding for the period. Diluted earnings per share included the effect of all dilutive potential common shares that were outstanding during the period.

As a result of the Class B Repurchase, earnings per share of Common Stock for the three and nine months ended September 30, 2015, reflects the consolidated earnings of Prudential Financial. Basic earnings per share is computed by dividing available income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share includes the effect of all dilutive potential common shares that were outstanding during the period. See Note 8 for additional information.

Adoption of New Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance 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.

In January 2014, the FASB issued updated guidance 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

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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 April 2014, the FASB issued updated guidance 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 June 2014, the FASB issued updated guidance 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 August 2014, the FASB issued guidance 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.

Future Adoption of New Accounting Pronouncements

In May 2014, the FASB issued updated guidance 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 August 2014, the FASB issued updated guidance 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 elected, the guidance will eliminate the measurement difference that exists when both are measured at fair value. The new guidance is effective for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted, and can be elected for modified retrospective or full retrospective adoption. 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 2015, the FASB issued updated guidance that changes 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 is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In April 2015, the FASB issued guidance that simplifies 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, consistent with debt discounts. The new guidance is effective for periods beginning after December 15, 2015, with early adoption permitted, and it must be applied retrospectively. The Company does not expect the impact of the guidance to have a significant effect on the Company’s consolidated financial position and financial statement disclosures.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

In May 2015, the FASB issued final guidance 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.

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, 2014.

Acquisition of Deutsche Bank’s India Asset Management Business

In August 2015, the Company and its asset management joint venture partner in India agreed to acquire Deutsche Bank’s India asset management business through the joint venture. The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to close in the first quarter of 2016 and will not have a material impact to the Company’s financial results. This acquisition will expand the Company’s investment management expertise, distribution platform and product portfolio in India.

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

In March 2015, the Company and Inversiones La Construcción S.A. signed definitive documentation related to the Company’s previously disclosed acquisition of an indirect ownership interest in Administradora de Fondos de Pensiones Habitat S.A. (“AFP Habitat”) and filed for regulatory approval. The transaction, which is subject to certain conditions, including receipt of regulatory approvals, is expected to close by the first quarter of 2016.

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:



	September 30, 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	$	13,808	$	3,977	$	4	$	17,781	$	0
Obligations of U.S. states and their political subdivisions	7,826		674		61		8,439		0
Foreign government bonds	70,652		11,318		164		81,806		1
Corporate securities(1)	144,812		13,968		3,064		155,716		(5		)
Asset-backed securities(2)	10,268		244		105		10,407		(465		)
Commercial mortgage-backed securities	10,985		358		16		11,327		(1		)
Residential mortgage-backed securities(3)	4,930		375		3		5,302		(4		)
Total fixed maturities, available-for-sale(1)	$	263,281	$	30,914	$	3,417	$	290,778	$	(474	)
Equity securities, available-for-sale	$	6,755	$	2,530	$	176	$	9,109

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities, held-to-maturity
Foreign government bonds	$	820	$	175	$	0	$	995
Corporate securities(5)	708		59		1		766
Commercial mortgage-backed securities	46		1		0		47
Residential mortgage-backed securities(3)	806		55		0		861
Total fixed maturities, held-to-maturity(5)	$	2,380	$	290	$	1	$	2,669

__________


(1)	Excludes notes with amortized cost of $693 million (fair value, $686 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 $727 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, $4,131 million) which have been offset with the associated payables under a netting agreement.



	December 31, 2014
	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	$	15,807	$	4,321	$	5	$	20,123	$	0
Obligations of U.S. states and their political subdivisions	5,720		814		3		6,531		0
Foreign government bonds	69,894		11,164		117		80,941		(1		)
Corporate securities(1)	143,631		17,799		1,054		160,376		(6		)
Asset-backed securities(2)	10,966		353		134		11,185		(592		)
Commercial mortgage-backed securities	13,486		430		39		13,877		(1		)
Residential mortgage-backed securities(3)	5,612		448		3		6,057		(5		)
Total fixed maturities, available-for-sale(1)	$	265,116	$	35,329	$	1,355	$	299,090	$	(605	)
Equity securities, available-for-sale	$	6,921	$	3,023	$	83	$	9,861



	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities, held-to-maturity
Foreign government bonds	$	821	$	184	$	0	$	1,005
Corporate securities(5)	713		68		1		780
Commercial mortgage-backed securities	78		7		0		85
Residential mortgage-backed securities(3)	963		69		0		1,032
Total fixed maturities, held-to-maturity(5)	$	2,575	$	328	$	1	$	2,902

__________


(1)	Excludes notes with amortized cost of $385 million (fair value, $385 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.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


(4)	Represents the amount of OTTI losses in AOCI, which were not included in earnings. Amount excludes $954 million of net unrealized gains on impaired available-for-sale securities and $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 $3,588 million (fair value, $3,953 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 September 30, 2015, are as follows:



	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Due in one year or less	$	10,199	$	10,904	$	0	$	0
Due after one year through five years	45,200		50,066		74		78
Due after five years through ten years	57,392		62,844		170		179
Due after ten years(1)	124,307		139,928		1,284		1,504
Asset-backed securities	10,268		10,407		0		0
Commercial mortgage-backed securities	10,985		11,327		46		47
Residential mortgage-backed securities	4,930		5,302		806		861
Total	$	263,281	$	290,778	$	2,380	$	2,669

__________


(1)	Excludes available-for-sale notes with amortized cost of $693 million (fair value, $686 million) and held-to-maturity notes with amortized cost of $3,850 million (fair value, $4,131 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 proceeds and related investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Fixed maturities, available-for-sale
Proceeds from sales	$	6,016		$	5,859		$	21,059		$	21,897
Proceeds from maturities/repayments	4,496			5,874			14,209			16,580
Gross investment gains from sales, prepayments and maturities	427			294			1,401			1,195
Gross investment losses from sales and maturities	(73)			(125		)	(170		)	(360		)
Fixed maturities, held-to-maturity
Gross investment gains from prepayments	$	0		$	0		$	0		$	0
Proceeds from maturities/repayments	58			145			181			377
Equity securities, available-for-sale
Proceeds from sales	$	1,181		$	1,456		$	3,734		$	3,937
Gross investment gains from sales	167			224			594			555
Gross investment losses from sales	(61		)	(33		)	(123		)	(92		)
Fixed maturity and equity security impairments
Net writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings(1)	$	(73	)	$	(5	)	$	(110	)	$	(47	)
Writedowns for impairments on equity securities	(60		)	(9		)	(77		)	(26		)

__________


(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.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As discussed in Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, 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:



	Three Months Ended September 30, 2015			Nine Months Ended September 30, 2015
	(in millions)
Balance, beginning of period	$	751		$	781
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(187		)	(215		)
Credit loss impairments previously recognized on securities impaired to fair value during the period(1)	(6		)	(19		)
Credit loss impairments recognized in the current period on securities not previously impaired	0			3
Additional credit loss impairments recognized in the current period on securities previously impaired	1			2
Increases due to the passage of time on previously recorded credit losses	1			14
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(3		)	(9		)
Balance, end of period	$	557		$	557



	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
	(in millions)
Balance, beginning of period	$	794		$	968
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(15		)	(214		)
Credit loss impairments previously recognized on securities impaired to fair value during the period(1)	0			0
Credit loss impairments recognized in the current period on securities not previously impaired	0			12
Additional credit loss impairments recognized in the current period on securities previously impaired	1			5
Increases due to the passage of time on previously recorded credit losses	10			28
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(3		)	(12		)
Balance, end of period	$	787		$	787

__________


(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:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	September 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	971	$	970	$	196	$	196
Fixed maturities:
Corporate securities	12,282		12,483		11,922		12,439
Commercial mortgage-backed securities	1,798		1,836		2,505		2,546
Residential mortgage-backed securities(1)	1,472		1,504		1,640		1,676
Asset-backed securities(2)	1,417		1,432		1,180		1,198
Foreign government bonds	659		674		621		650
U.S. government authorities and agencies and obligations of U.S. states	310		356		303		372
Total fixed maturities	17,938		18,285		18,171		18,881
Equity securities	1,016		1,153		896		1,186
Total trading account assets supporting insurance liabilities	$	19,925	$	20,408	$	19,263	$	20,263

__________


(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 $(251) million and $(194) million during the three months ended September 30, 2015 and 2014, respectively, and $(517) million and $73 million during the nine months ended September 30, 2015 and 2014, respectively.

Other Trading Account Assets

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



	September 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	24	$	24	$	27	$	27
Fixed maturities	10,517		10,326		8,306		8,282
Equity securities	1,068		1,129		992		1,105
Other	5		9		7		11
Subtotal	$	11,614	11,488		$	9,332	9,425
Derivative instruments			2,587				1,449
Total other trading account assets			$	14,075			$	10,874

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 $(227) million and $(66) million during the three months ended September 30, 2015 and 2014, respectively, and $(219) million and $(31) million during the nine months ended September 30, 2015 and 2014, 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 September 30, 2015 and December 31, 2014, 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, certain U.S. government agencies and certain securities guaranteed by the U.S. government, as well as the securities disclosed below.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	September 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale	$	53,360	$	60,732	$	52,703	$	60,379
Fixed maturities, held-to-maturity	799		970		801		981
Trading account assets supporting insurance liabilities	478		487		457		470
Other trading account assets	35		35		36		36
Short-term investments	0		0		0		0
Cash equivalents	0		0		0		0
Total	$	54,672	$	62,224	$	53,997	$	61,866



	September 30, 2015				December 31, 2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in South Korean government and government agency securities:
Fixed maturities, available-for-sale	$	6,880	$	8,877	$	6,927	$	8,438
Fixed maturities, held-to-maturity	0		0		0		0
Trading account assets supporting insurance liabilities	44		45		49		50
Other trading account assets	0		0		0		0
Short-term investments	0		0		0		0
Cash equivalents	0		0		0		0
Total	$	6,924	$	8,922	$	6,976	$	8,488

Commercial Mortgage and Other Loans

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

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	September 30, 2015					December 31, 2014
	Amount (in millions)			% of Total		Amount (in millions)			% of Total
Commercial mortgage and agricultural property loans by property type:
Office	$	11,350		23.4	%	$	9,612		21.5	%
Retail	8,957			18.4		8,765			19.6
Apartments/Multi-Family	11,622			24.0		10,369			23.2
Industrial	7,651			15.8		7,628			16.9
Hospitality	2,506			5.2		2,270			5.1
Other	3,680			7.6		3,659			8.2
Total commercial mortgage loans	45,766			94.4		42,303			94.5
Agricultural property loans	2,736			5.6		2,445			5.5
Total commercial mortgage and agricultural property loans by property type	48,502			100.0	%	44,748			100.0	%
Valuation allowance	(103		)			(105		)
Total net commercial mortgage and agricultural property loans by property type	48,399					44,643
Other loans:
Uncollateralized loans	1,032					1,092
Residential property loans	318					392
Other collateralized loans	313					319
Total other loans	1,663					1,803
Valuation allowance	(14		)			(14		)
Total net other loans	1,649					1,789
Total commercial mortgage and other loans(1)	$	50,048				$	46,432

__________


(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 (26%), New York (8%) and Texas (9%)), and also include loans secured by property in Europe and Asia at September 30, 2015.

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



	September 30, 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	(2		)	1		(2		)	0		2		(1		)
Charge-offs, net of recoveries	0			0		0			0		0		0
Change in foreign exchange	(1		)	0		0			0		0		(1		)
Total ending balance	$	101		$	2	$	3		$	0	$	11	$	117

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	December 31, 2014
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans	Total
	(in millions)
Allowance for credit losses, beginning of year	$	188	$	7	$	6	$	3