Edgar Filing: PRUDENTIAL FINANCIAL INC

Description

Effective date and method of adoption

Effect on the financial statements or other significant matters

ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting

This ASU simplifies and improves 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.

January 1, 2017 using various transition methods as prescribed by the ASU.

Adoption of the ASU did not have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

Document

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, 2017



¨	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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)
			Smaller reporting company	¨
			Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of October 31, 2017, 424 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 September 30, 2017 and December 31, 2016	1
	Unaudited Interim Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016	2
	Unaudited Interim Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016	3
	Unaudited Interim Consolidated Statements of Equity for the nine months ended September 30, 2017 and 2016	4
	Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	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	11
	4. Investments	11
	5. Variable Interest Entities	25
	6. Closed Block	27
	7. Equity	28
	8. Earnings Per Share	32
	9. Short-Term and Long-Term Debt	35
	10. Employee Benefit Plans	37
	11. Segment Information	38
	12. Income Taxes	40
	13. Fair Value of Assets and Liabilities	41
	14. Derivative Instruments	67
	15. Commitments and Guarantees, Contingent Liabilities and Litigation and Regulatory Matters	75
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	80
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	155
Item 4.	Controls and Procedures	155
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	156
Item 1A.	Risk Factors	156
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	156
Item 6.	Exhibits	157
GLOSSARY		158
EXHIBIT INDEX		160
SIGNATURES		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 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, Guideline AXXX and principles-based reserving requirements; (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 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, 2016 for discussion of certain risks relating to our businesses and investment in our securities.

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

September 30, 2017 and December 31, 2016 (in millions, except share amounts)



	September 30, 2017			December 31, 2016
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost: 2017-$307,527; 2016-$292,581)(1)	$	340,100		$	321,419
Fixed maturities, held-to-maturity, at amortized cost (fair value: 2017-$2,475; 2016-$2,524)(1)	2,084			2,144
Trading account assets supporting insurance liabilities, at fair value(1)	22,126			21,840
Other trading account assets, at fair value(1)	6,210			5,764
Equity securities, available-for-sale, at fair value (cost: 2017-$7,145; 2016-$7,149)	9,739			9,748
Commercial mortgage and other loans (includes $340 and $519 measured at fair value under the fair value option at September 30, 2017 and December 31, 2016, respectively)(1)	55,373			52,779
Policy loans	11,765			11,755
Other long-term investments (includes $1,886 and $1,556 measured at fair value under the fair value option at September 30, 2017 and December 31, 2016, respectively)(1)	11,986			11,283
Short-term investments	5,508			7,508
Total investments	464,891			444,240
Cash and cash equivalents(1)	14,541			14,127
Accrued investment income(1)	3,278			3,204
Deferred policy acquisition costs	18,724			17,661
Value of business acquired	1,817			2,314
Other assets(1)	16,770			14,780
Separate account assets	301,110			287,636
TOTAL ASSETS	$	821,131		$	783,962
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	252,339		$	240,908
Policyholders’ account balances	148,342			145,205
Policyholders’ dividends	6,327			5,711
Securities sold under agreements to repurchase	8,145			7,606
Cash collateral for loaned securities	4,697			4,333
Income taxes	12,509			10,412
Short-term debt	2,358			1,133
Long-term debt	17,153			18,041
Other liabilities(1)	16,069			14,739
Notes issued by consolidated variable interest entities (includes $1,194 and $1,839 measured at fair value under the fair value option at September 30, 2017 and December 31, 2016, respectively)(1)	1,517			2,150
Separate account liabilities	301,110			287,636
Total liabilities	770,566			737,874
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
EQUITY
Preferred Stock ($.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, 2017 and December 31, 2016)	6			6
Additional paid-in capital	24,721			24,606
Common Stock held in treasury, at cost (235,378,104 and 230,537,166 shares at September 30, 2017 and December 31, 2016, respectively)	(16,012		)	(15,316		)
Accumulated other comprehensive income (loss)	16,598			14,621
Retained earnings	25,060			21,946
Total Prudential Financial, Inc. equity	50,373			45,863
Noncontrolling interests	192			225
Total equity	50,565			46,088
TOTAL LIABILITIES AND EQUITY	$	821,131		$	783,962

__________


(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, 2017 and 2016 (in millions, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
REVENUES
Premiums	$	7,795		$	9,635		$	22,602		$	22,867
Policy charges and fee income	1,502			1,540			3,760			4,415
Net investment income	4,076			4,073			12,226			11,532
Asset management and service fees	1,005			955			2,929			2,780
Other income (loss)	327			(55		)	964			8
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(22		)	(29		)	(132		)	(204		)
Other-than-temporary impairments on fixed maturity securities transferred to Other comprehensive income	0			0			10			38
Other realized investment gains (losses), net	1,630			842			1,065			4,293
Total realized investment gains (losses), net	1,608			813			943			4,127
Total revenues	16,313			16,961			43,424			45,729
BENEFITS AND EXPENSES
Policyholders’ benefits	8,193			10,155			23,546			25,175
Interest credited to policyholders’ account balances	1,035			824			2,922			3,168
Dividends to policyholders	500			569			1,606			1,433
Amortization of deferred policy acquisition costs	643			115			1,166			1,744
General and administrative expenses	2,921			2,983			8,813			8,821
Total benefits and expenses	13,292			14,646			38,053			40,341
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	3,021			2,315			5,371			5,388
Total income tax expense (benefit)	800			501			1,320			1,300
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	2,221			1,814			4,051			4,088
Equity in earnings of operating joint ventures, net of taxes	20			18			58			38
NET INCOME (LOSS)	2,241			1,832			4,109			4,126
Less: Income (loss) attributable to noncontrolling interests	3			5			11			42
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	2,238		$	1,827		$	4,098		$	4,084
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	5.19		$	4.14		$	9.46		$	9.16
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	5.09		$	4.07		$	9.29		$	9.02
Dividends declared per share of Common Stock	$	0.75		$	0.70		$	2.25		$	2.10

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, 2017 and 2016 (in millions)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
NET INCOME (LOSS)	$	2,241	$	1,832		$	4,109		$	4,126
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	122		697			719			1,980
Net unrealized investment gains (losses)	153		(678		)	1,835			16,642
Defined benefit pension and postretirement unrecognized periodic benefit (cost)	62		44			161			117
Total	337		63			2,715			18,739
Less: Income tax expense (benefit) related to other comprehensive income (loss)	101		(240		)	757			6,051
Other comprehensive income (loss), net of taxes	236		303			1,958			12,688
Comprehensive income (loss)	2,477		2,135			6,067			16,814
Less: Comprehensive income (loss) attributable to noncontrolling interests	3		50			(8		)	90
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	2,474	$	2,085		$	6,075		$	16,724

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, 2017 and 2016 (in millions)



	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2016	$	6	$	24,606	$	21,946		$	(15,316	)	$	14,621	$	45,863		$	225		$	46,088
Cumulative effect of adoption of accounting changes			5		(5		)						0						0
Common Stock acquired								(937		)			(937		)				(937		)
Contributions from noncontrolling interests																7			7
Distributions to noncontrolling interests																(31		)	(31		)
Consolidations/(deconsolidations) of noncontrolling interests																(1		)	(1		)
Stock-based compensation programs			110					241					351						351
Dividends declared on Common Stock					(979		)						(979		)				(979		)
Comprehensive income:
Net income (loss)					4,098								4,098			11			4,109
Other comprehensive income (loss), net of tax											1,977		1,977			(19		)	1,958
Total comprehensive income (loss)													6,075			(8		)	6,067
Balance, September 30, 2017	$	6	$	24,721	$	25,060		$	(16,012	)	$	16,598	$	50,373		$	192		$	50,565

	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2015	$	6	$	24,482	$	18,931		$	(13,814	)	$	12,285	$	41,890		$	33		$	41,923
Cumulative effect of adoption of accounting changes					11								11			(30		)	(19		)
Common Stock acquired								(1,375		)			(1,375		)				(1,375		)
Class B Stock repurchase adjustment					(119		)						(119		)				(119		)
Contributions from noncontrolling interests																9			9
Distributions to noncontrolling interests																(30		)	(30		)
Consolidations (deconsolidations) of noncontrolling interests																471			471
Stock-based compensation programs			38					200					238						238
Dividends declared on Common Stock					(938		)						(938		)				(938		)
Comprehensive income:
Net income (loss)					4,084								4,084			42			4,126
Other comprehensive income (loss), net of tax											12,640		12,640			48			12,688
Total comprehensive income (loss)													16,724			90			16,814
Balance, September 30, 2016	$	6	$	24,520	$	21,969		$	(14,989	)	$	24,925	$	56,431		$	543		$	56,974

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, 2017 and 2016 (in millions)



	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	4,109		$	4,126
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses, net	(943		)	(4,127		)
Policy charges and fee income	(1,880		)	(1,417		)
Interest credited to policyholders’ account balances	2,922			3,168
Depreciation and amortization	271			402
(Gains) losses on trading account assets supporting insurance liabilities, net	(330		)	(361		)
Change in:
Deferred policy acquisition costs	(966		)	(391		)
Future policy benefits and other insurance liabilities	6,465			7,668
Income taxes(1)	1,348			749
Derivatives, net	(2,076		)	7,443
Other, net(1)	(159		)	(186		)
Cash flows from (used in) operating activities(1)	8,761			17,074
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	42,243			36,420
Fixed maturities, held-to-maturity	128			205
Trading account assets supporting insurance liabilities and other trading account assets	30,728			24,720
Equity securities, available-for-sale	3,165			2,798
Commercial mortgage and other loans	3,808			4,522
Policy loans	1,830			1,727
Other long-term investments	948			457
Short-term investments	21,497			35,728
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(50,140		)	(49,467		)
Trading account assets supporting insurance liabilities and other trading account assets	(30,852		)	(26,049		)
Equity securities, available-for-sale	(2,371		)	(2,413		)
Commercial mortgage and other loans	(6,195		)	(6,011		)
Policy loans	(1,392		)	(1,402		)
Other long-term investments	(1,275		)	(1,537		)
Short-term investments	(19,553		)	(33,196		)
Acquisition of business, net of cash acquired	(64		)	(532		)
Derivatives, net	(61		)	718
Other, net	(633		)	228
Cash flows from (used in) investing activities	(8,189		)	(13,084		)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	20,399			22,207
Policyholders’ account withdrawals	(19,798		)	(17,514		)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	903			488
Cash dividends paid on Common Stock	(976		)	(939		)
Net change in financing arrangements (maturities 90 days or less)	31			516
Common Stock acquired	(927		)	(1,339		)
Class B stock acquired	0			(119		)
Common Stock reissued for exercise of stock options	208			112
Proceeds from the issuance of debt (maturities longer than 90 days)	1,189			1,449
Repayments of debt (maturities longer than 90 days)	(860		)	(1,452		)
Excess tax benefits from share-based payment arrangements	0			4
Other, net(1)	(472		)	(647		)
Cash flows from (used in) financing activities(1)	(303		)	2,766
Effect of foreign exchange rate changes on cash balances	145			360
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	414			7,116
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	14,127			17,612
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	14,541		$	24,728
NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs	$	102		$	113
Significant Pension Risk Transfer transactions:
Assets received, excluding cash and cash equivalents	$	2,124		$	2,388
Liabilities assumed	3,066			3,215
Net cash received	$	942		$	827
Acquisition:
Assets acquired, excluding cash and cash equivalents	$	196		$	0
Liabilities assumed	132			0
Net cash paid on acquisition	$	64		$	0

__________


(1)	Prior period amounts have been reclassified to conform to current period presentation.

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”) provide a wide range of insurance, investment management, and other financial products and services to both individual and institutional customers throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities, retirement-related services, mutual funds and investment management.

The Company’s principal operations 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 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. 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.

Basis of Presentation

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. The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries 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.

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, 2016.

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 Company’s unaudited interim consolidated balance sheet data as of September 30, 2017, include the assets and liabilities of Gibraltar Life as of August 31, 2017. The Company’s unaudited interim consolidated income statement data include Gibraltar Life’s results of operations for the three and nine months ended August 31, 2017 and 2016, respectively.

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 and regulatory matters.

Out of Period Adjustments

During the second quarter of 2016, the Company recorded an out of period adjustment resulting in a decrease of $148 million to “Income (loss) before income taxes and equity in earnings of operating joint ventures” for the three-month period ended June 30, 2016, and which is reflected in the nine-month period ended September 30, 2016. The adjustment reflects a charge to increase reserves, net of a related increase in DAC, for certain universal life products within the Individual Life business. Management evaluated the adjustment and concluded it was not material to the then current quarter or to any previously reported quarterly or

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

annual financial statements. See Note 11 for additional information on the impact of this adjustment to the Company’s operating segments.

Reclassifications

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

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Accounting for Certain Reinsurance Contracts in the Individual Life business

During the second quarter of 2017, the Company recognized a charge of $237 million in the Individual Life segment, reflecting a change in estimate of reinsurance cash flows associated with universal life products as well as a change in method of reflecting these cash flows in the financial statements. Under the previous method of accounting, with the exception of recoveries pertaining to no lapse guarantees, reinsurance cash flows (e.g., premiums and recoveries) were generally recognized as they occurred. Under the new method, the expected reinsurance cash flows are recognized more ratably over the life of the underlying reinsured policies. In conjunction with this change, the way in which reinsurance is reflected in estimated gross profits used for the amortization of unearned revenue reserves, DAC and VOBA was also revised. The change represents a change in accounting estimate effected by a change in accounting principle and is included within the Company’s annual reviews and update of assumptions and other refinements. The change in accounting estimate reflected insights gained from revised cashflow modeling enabled by a systems conversion, which prompted the change to a preferable accounting method. This new methodology is viewed as preferable as the Company believes it better reflects the economics of reinsurance transactions by aligning the results of reinsurance activity more closely to the underlying direct insurance activity and by better reflecting the profit pattern of this business for purposes of the amortization of the balances noted above.

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASU”) to the FASB Accounting Standards Codification.

The Company considers the applicability and impact of all ASU. ASU listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of the date of this filing. ASU not listed below were assessed and determined to be either not applicable or not material.

ASU adopted during the nine months ended September 30, 2017

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

ASU issued but not yet adopted as of September 30, 2017

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



Standard	Description	Effective date and method of adoption	Effect on the financial statements or other significant matters

ASU 2016-02, Leases (Topic 842)	This ASU ensures that assets and liabilities from all outstanding lease contracts are recognized on the balance sheet (with limited exception). The ASU 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 standard. For Lessors, the standard 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 standard also eliminates the real estate specific provisions of the current standard (i.e., sale-leaseback).	January 1, 2019 using the modified retrospective method (with early adoption permitted).	The Company is currently assessing the impact of the ASU on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
ASU 2016-13, Financial Instruments-Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments	This ASU provides a new current expected credit loss model to account for credit losses on certain financial assets and off-balance sheet exposures (e.g., loans held for investment, debt securities held to maturity, reinsurance receivables, net investments in leases and loan commitments). The model requires an entity to estimate lifetime credit losses related to such financial assets and exposures based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The standard also modifies the current OTTI standard for available-for-sale debt securities to require the use of an allowance rather than a direct write down of the investment, and replaces the existing standard for purchased credit deteriorated loans and debt securities.	January 1, 2020 using the modified retrospective method, however prospective application is required for purchased credit deteriorated assets previously accounted for under ASU 310-30 and for debt securities for which an OTTI was recognized prior to the date of adoption. Early adoption is permitted beginning January 1, 2019.	The Company is currently assessing the impact of the ASU on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a Consensus of the Emerging Issues Task Force)	This ASU addresses diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard provides clarity on the treatment of eight specifically defined types of cash inflows and outflows.	January 1, 2018 using the retrospective method (with early adoption permitted provided that all amendments are adopted in the same period).	Based on the assessment completed to date, the Company does not expect the adoption of the ASU to have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



Standard	Description	Effective date and method of adoption	Effect on the financial statements or other significant matters

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash	In November 2016, the FASB issued this ASU to address diversity in practice from entities classifying and presenting transfers between cash and restricted cash as operating, investing, or financing activities, or as a combination of those activities in the Statement of Cash Flows. The ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the Statement of Cash Flows. As a result, transfers between such categories will no longer be presented in the Statement of Cash Flows.	January 1, 2018 using the retrospective method (with early adoption permitted).	Based on the assessment completed to date, the Company does not expect the adoption of the ASU to have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business	In January 2017, the FASB issued this ASU to provide a more robust framework to use in determining when a set of assets and activities (“set”) is a business and to address stakeholder feedback that the definition of a business in current GAAP is applied too broadly. The primary amendments in the ASU provide a screen to exclude transactions where substantially all the fair value of the transferred set is concentrated in a single asset, or group of similar assets, from being evaluated as a business.	January 1, 2018 using the prospective method (with early adoption permitted).	Adoption of the ASU will result in general account real estate acquisitions no longer being accounted for as business combinations. As a result, direct transaction costs associated with such transactions will be capitalized. Based on the assessment completed to date, the Company does not expect the adoption of the ASU to have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets	In February 2017, the FASB issued this ASU to clarify the scope and application of ASC 610-20 which provides guidance on accounting for the derecognition of a nonfinancial asset or an in substance nonfinancial asset that is not a business. The ASU defines an in substance nonfinancial asset and requires the application of certain recognition and measurement principles in the new revenue recognition standard when an entity derecognizes nonfinancial assets and in substance nonfinancial assets, and the counterparty is not a customer.	January 1, 2018 using the full or modified retrospective method (with early adoption permitted).	Based on the assessment completed to date, the Company does not expect the adoption of the ASU to have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
ASU 2017-08, Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities	This ASU requires certain premiums on callable debt securities to be amortized to the earliest call date.	January 1, 2019 using the modified retrospective method (with early adoption permitted).	The Company is currently assessing the impact of the ASU on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

3. ACQUISITIONS

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 is accounted for under the equity method and is recorded within “Other assets.” This acquisition enables the Company to participate in the growing Chilean pension market.

4. INVESTMENTS

Fixed Maturities and Equity Securities

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



	September 30, 2017
	Amortized Cost or 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	$	21,951	$	3,729	$	585	$	25,095	$	0
Obligations of U.S. states and their political subdivisions	9,321		970		19		10,272		0
Foreign government bonds	86,965		15,783		441		102,307		0
U.S. corporate public securities	80,324		7,539		480		87,383		(10		)
U.S. corporate private securities(1)	31,453		2,179		179		33,453		(9		)
Foreign corporate public securities	26,494		2,979		103		29,370		(5		)
Foreign corporate private securities	23,231		1,071		460		23,842		0
Asset-backed securities(2)	10,908		223		15		11,116		(242		)
Commercial mortgage-backed securities	13,011		281		79		13,213		0
Residential mortgage-backed securities(3)	3,869		188		8		4,049		(2		)
Total fixed maturities, available-for-sale(1)	$	307,527	$	34,942	$	2,369	$	340,100	$	(268	)
Equity securities, available-for-sale	$	7,145	$	2,623	$	29	$	9,739

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	866	$	265	$	0	$	1,131
Foreign corporate public securities	659		87		0		746
Foreign corporate private securities(5)	84		3		0		87
Commercial mortgage-backed securities	0		0		0		0
Residential mortgage-backed securities(3)	475		36		0		511
Total fixed maturities, held-to-maturity(5)	$	2,084	$	391	$	0	$	2,475

__________


(1)	Excludes notes with amortized cost of $2,310 million (fair value, $2,310 million), which have been offset with the associated payables under a netting agreement.


(2)	Includes credit-tranched securities collateralized by loan obligations, 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 “Accumulated other comprehensive income (loss)” (“AOCI”), which were not included in earnings. Amount excludes $542 million of net unrealized gains on impaired available-for-sale securities and $2 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 $4,627 million (fair value, $4,758 million), which have been offset with the associated payables under a netting agreement.



	December 31, 2016
	Amortized Cost or 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	$	21,505	$	3,280	$	1,001	$	23,784	$	0
Obligations of U.S. states and their political subdivisions	9,060		716		84		9,692		0
Foreign government bonds	79,862		16,748		354		96,256		0
U.S. corporate public securities	76,383		6,460		1,232		81,611		(17		)
U.S. corporate private securities(1)	29,974		2,122		308		31,788		(22		)
Foreign corporate public securities	25,758		2,784		305		28,237		(6		)
Foreign corporate private securities	21,383		646		1,149		20,880		0
Asset-backed securities(2)	11,759		229		53		11,935		(288		)
Commercial mortgage-backed securities	12,589		240		125		12,704		(1		)
Residential mortgage-backed securities(3)	4,308		238		14		4,532		(3		)
Total fixed maturities, available-for-sale(1)	$	292,581	$	33,463	$	4,625	$	321,419	$	(337	)
Equity securities, available-for-sale	$	7,149	$	2,641	$	42	$	9,748

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	839	$	262	$	0	$	1,101
Foreign corporate public securities	651		71		0		722
Foreign corporate private securities(5)	81		4		0		85
Commercial mortgage-backed securities	0		0		0		0
Residential mortgage-backed securities(3)	573		43		0		616
Total fixed maturities, held-to-maturity(5)	$	2,144	$	380	$	0	$	2,524

__________


(1)	Excludes notes with amortized cost of $1,456 million (fair value, $1,456 million), which have been offset with the associated payables under a netting agreement.


(2)	Includes credit-tranched securities collateralized by loan obligations, 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 $649 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 $4,403 million (fair value, $4,403 million), which have been offset with the associated payables under a netting agreement.

The following tables set forth the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturity and equity securities had been in a continuous unrealized loss position, as of the dates indicated:



	September 30, 2017
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities(1):
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	5,087	$	127	$	4,612	$	458	$	9,699	$	585
Obligations of U.S. states and their political subdivisions	600		5		350		14		950		19
Foreign government bonds	6,687		195		2,229		246		8,916		441
U.S. corporate public securities	7,963		107		6,981		373		14,944		480
U.S. corporate private securities	4,679		117		1,224		62		5,903		179
Foreign corporate public securities	2,082		21		1,395		82		3,477		103
Foreign corporate private securities	2,270		36		5,346		424		7,616		460
Asset-backed securities	863		1		428		14		1,291		15
Commercial mortgage-backed securities	2,446		22		1,485		57		3,931		79
Residential mortgage-backed securities	607		4		151		4		758		8
Total	$	33,284	$	635	$	24,201	$	1,734	$	57,485	$	2,369
Equity securities, available-for-sale	$	439	$	28	$	0	$	1	$	439	$	29

__________


(1)	Includes $12 million of fair value and less than $1 million of gross unrealized losses, which are not reflected in AOCI, on securities classified as held-to-maturity, as of September 30, 2017.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	December 31, 2016
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities(1):
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	9,345	$	1,001	$	0	$	0	$	9,345	$	1,001
Obligations of U.S. states and their political subdivisions	2,677		79		19		5		2,696		84
Foreign government bonds	6,076		325		310		29		6,386		354
U.S. corporate public securities	22,803		905		2,943		327		25,746		1,232
U.S. corporate private securities	7,797		228		1,296		80		9,093		308
Foreign corporate public securities	5,196		162		1,047		143		6,243		305
Foreign corporate private securities	6,557		350		4,916		799		11,473		1,149
Asset-backed securities	2,357		20		1,581		33		3,938		53
Commercial mortgage-backed securities	4,879		123		60		2		4,939		125
Residential mortgage-backed securities	926		12		78		2		1,004		14
Total	$	68,613	$	3,205	$	12,250	$	1,420	$	80,863	$	4,625
Equity securities, available-for-sale	$	637	$	41	$	12	$	1	$	649	$	42

__________


(1)	Includes $12 million of fair value and less than $1 million of gross unrealized losses, which are not reflected in AOCI, on securities classified as held-to-maturity, as of December 31, 2016.

As of September 30, 2017 and December 31, 2016, the gross unrealized losses on fixed maturity securities were composed of $2,098 million and $4,233 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $271 million and $392 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of September 30, 2017, the $1,734 million of gross unrealized losses on fixed maturity securities of twelve months or more were concentrated in U.S. and foreign government bonds and in the energy, utility and consumer non-cyclical sectors of the Company’s corporate securities. As of December 31, 2016, the $1,420 million of gross unrealized losses on fixed maturity securities of twelve months or more were concentrated in the energy, utility and capital goods sectors of the Company’s corporate securities. In accordance with its policy described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, the Company concluded that an adjustment to earnings for OTTI for these fixed maturity securities was not warranted at either September 30, 2017 or December 31, 2016. These conclusions were based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to general credit spread widening, increases in interest rates and foreign currency exchange rate movements. As of September 30, 2017, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

As of September 30, 2017, $7 million of the gross unrealized losses on equity securities represented declines in value of 20% or more, $4 million of which had been in a gross unrealized loss position for less than six months. As of December 31, 2016, $9 million of the gross unrealized losses on equity securities represented declines in value of 20% or more, $8 million of which had been in a gross unrealized loss position for less than six months. In accordance with its policy described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, the Company concluded that an adjustment to earnings for OTTI for these equity securities was not warranted at either September 30, 2017 or December 31, 2016.

The following table sets forth the amortized cost and fair value of fixed maturities by contractual maturities, as of the date indicated:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	September 30, 2017
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Fixed maturities:
Due in one year or less	$	10,528	$	11,142	$	0	$	0
Due after one year through five years	47,418		51,382		178		186
Due after five years through ten years	64,610		69,994		568		650
Due after ten years(1)	157,183		179,204		863		1,128
Asset-backed securities	10,908		11,116		0		0
Commercial mortgage-backed securities	13,011		13,213		0		0
Residential mortgage-backed securities	3,869		4,049		475		511
Total	$	307,527	$	340,100	$	2,084	$	2,475

__________


(1)	Excludes available-for-sale notes with amortized cost of $2,310 million (fair value, $2,310 million) and held-to-maturity notes with amortized cost of $4,627 million (fair value, $4,758 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 do not have a single maturity date.

The following table sets forth 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, for the periods indicated:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	7,973		$	7,585		$	23,860		$	21,939
Proceeds from maturities/prepayments	5,068			4,960			18,488			14,583
Gross investment gains from sales and maturities	359			440			1,160			1,234
Gross investment losses from sales and maturities	(109		)	(46		)	(407		)	(343		)
OTTI recognized in earnings(2)	(22		)	(29		)	(122		)	(166		)
Fixed maturities, held-to-maturity:
Proceeds from maturities/prepayments(3)	$	39		$	83		$	128		$	208
Equity securities, available-for-sale:
Proceeds from sales(4)	$	1,421		$	978		$	3,364		$	2,815
Gross investment gains from sales	357			177			829			425
Gross investment losses from sales	(29		)	(30		)	(70		)	(137		)
OTTI recognized in earnings	(12		)	(23		)	(23		)	(65		)

__________


(1)	Includes $105 million and $102 million of non-cash related proceeds for the nine months ended September 30, 2017 and 2016, respectively.


(2)	Excludes the portion of OTTI recorded in “Other comprehensive income (loss)” (“OCI”), 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.


(3)	Includes $(1) million and $3 million of non-cash related proceeds for the nine months ended September 30, 2017 and 2016, respectively.


(4)	Includes $199 million and $17 million of non-cash related proceeds for the nine months ended September 30, 2017 and 2016, respectively.

The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company for which a portion of the OTTI loss was recognized in OCI and the corresponding changes in such amounts, for the periods indicated:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
	(in millions)
Credit loss impairments:
Balance, beginning of period	$	341		$	359		$	424		$	532
New credit loss impairments	3			10			0			27
Additional credit loss impairments on securities previously impaired	0			1			0			0
Increases due to the passage of time on previously recorded credit losses	4			11			5			17
Reductions for securities which matured, paid down, prepaid or were sold during the period	(33		)	(49		)	(76		)	(217		)
Reductions for securities impaired to fair value during the period(1)	0			(14		)	0			(2		)
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(1		)	(4		)	(2		)	(6		)
Balance, end of period	$	314		$	314		$	351		$	351

__________


(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:



	September 30, 2017				December 31, 2016
	Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	626	$	626	$	655	$	655
Fixed maturities:
Corporate securities	13,811		14,115		13,903		13,997
Commercial mortgage-backed securities	2,154		2,183		2,032		2,052
Residential mortgage-backed securities(1)	999		1,010		1,142		1,150
Asset-backed securities(2)	1,190		1,216		1,333		1,349
Foreign government bonds	1,019		1,032		915		926
U.S. government authorities and agencies and obligations of U.S. states	348		398		330		376
Total fixed maturities	19,521		19,954		19,655		19,850
Equity securities	1,251		1,546		1,097		1,335
Total trading account assets supporting insurance liabilities	$	21,398	$	22,126	$	21,407	$	21,840

__________


(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 $66 million and $84 million during the three months ended September 30, 2017 and 2016, respectively, and $295 million and $459 million during the nine months ended September 30, 2017 and 2016, 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 “Other trading account assets,” as of the dates indicated:

September 30, 2017

December 31, 2016

Amortized
Cost or Cost

Fair

Value

Amortized
Cost or Cost

Fair

Value

(in millions)

Short-term investments and cash equivalents