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PRUDENTIAL FINANCIAL INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Online, Inc.
You should read the following analysis of our consolidated financial condition
and results of operations in conjunction with the Forward-Looking Statements
included below the Table of Contents, "Risk Factors," "Selected Financial Data"
and the Consolidated Financial Statements included in this Annual Report on Form
10-K.



                                    Overview



Prudential Financial has two classes of common stock outstanding. The Common
Stock, which is publicly traded (NYSE:PRU), reflects the performance of the
Financial Services Businesses, while the Class B Stock, which was issued through
a private placement and does not trade on any exchange, reflects the performance
of the Closed Block Business. The Financial Services Businesses and the Closed
Block Business are discussed below.



Financial Services Businesses



Our Financial Services Businesses consist of three operating divisions, which
together encompass six segments, and our Corporate and Other operations. The
U.S. Retirement Solutions and Investment Management division consists of our
Individual Annuities, Retirement and Asset Management segments. The U.S.
Individual Life and Group Insurance division consists of our Individual Life and
Group Insurance segments. The International Insurance division consists of our
International Insurance segment. Our Corporate and Other operations include
corporate items and initiatives that are not allocated to business segments, as
well as businesses that have been or will be divested.



We attribute financing costs to each segment based on the amount of financing
used by each segment, excluding financing costs associated with corporate debt
which are reflected in Corporate and Other operations. The net investment income
of each segment includes earnings on the amount of capital that management
believes is necessary to support the risks of that segment.



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We seek growth internally and through acquisitions, joint ventures or other forms of business combinations or investments. Our principal acquisition focus is in our current business lines, both domestic and international.



Closed Block Business



In connection with the demutualization, we ceased offering domestic
participating products. The liabilities for our traditional domestic in force
participating products were segregated, together with assets, in a regulatory
mechanism referred to as the "Closed Block." The Closed Block is designed
generally to provide for the reasonable expectations for future policy dividends
after demutualization of holders of participating individual life insurance
policies and annuities included in the Closed Block by allocating assets that
will be used exclusively for payment of benefits, including policyholder
dividends, expenses and taxes with respect to these products. See Note 12 to the
Consolidated Financial Statements and "Business-Demutualization and Separation
of Business" for more information on the Closed Block.



Revenues and Expenses



We earn our revenues principally from insurance premiums; mortality, expense,
asset management and administrative fees from insurance and investment products;
and investment of general account and other funds. We earn premiums primarily
from the sale of individual life insurance, group life and disability insurance,
and certain annuity contracts. We earn mortality, expense, and asset management
fees primarily from the sale and servicing of separate account products
including variable life insurance and variable annuities, and from the sale and
servicing of other products including universal life insurance. We also earn
asset management and administrative fees from the distribution, servicing and
management of mutual funds, retirement products and other asset management
products and services. Our operating expenses principally consist of insurance
benefits provided and reserves established for anticipated future insurance
benefits, general business expenses, dividends to policyholders, commissions and
other costs of selling and servicing the various products we sell and interest
credited on general account liabilities.



Profitability



Our profitability depends principally on our ability to price our insurance and
annuity products at a level that enables us to earn a margin over the costs
associated with providing benefits and administering those products.
Profitability also depends on, among other items, our actuarial and policyholder
behavior experience on insurance and annuity products, our ability to attract
and retain customer assets, generate and maintain favorable investment results,
effectively deploy capital and utilize our tax capacity, and manage expenses.



Historically, the participating products included in the Closed Block have
yielded lower returns on capital invested than many of our other businesses. As
we have ceased offering domestic participating products, we expect that the
proportion of the traditional participating products in our in force business
will gradually diminish as these older policies age, and we grow other
businesses. However, the relatively lower returns to us on this existing block
of business will continue to affect our consolidated results of operations for
many years. Our Common Stock reflects the performance of our Financial Services
Businesses, but there can be no assurance that the market value of the Common
Stock will reflect solely the performance of these businesses.



See "Risk Factors" for a discussion of risks that have affected and may affect
in the future our business, results of operations or financial condition, cause
the trading price of our Common Stock to decline materially or cause our actual
results to differ materially from those expected or those expressed in any
forward looking statements made by or on behalf of the Company.



                               Executive Summary



Prudential Financial, a financial services leader with approximately $1.060
trillion of assets under management as of December 31, 2012, has operations in
the United States, Asia, Europe and Latin America. Through our subsidiaries and
affiliates, we offer a wide array of financial products and services, including
life



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insurance, annuities, retirement-related services, mutual funds, and investment
management. We offer these products and services to individual and institutional
customers through one of the largest distribution networks in the financial
services industry.



Industry Trends


Our U.S. and international businesses are impacted by financial markets, economic conditions, regulatory oversight, and a variety of trends that affect the industries where we compete.



U.S. Businesses



Financial and Economic Environment.  Although economic and financial conditions
continue to show signs of improvement, global market conditions and uncertainty
continue to be factors in the markets in which we operate. This uncertainty,
particularly in the equity markets, has led to, among other things, increased
demand for guaranteed retirement income, fixed income and stable value products,
and defined benefit risk transfer solutions.



The continued low interest rate environment continues to negatively impact our
portfolio income yields, as discussed further below, and continued high
unemployment rates and limited growth in salaries also continue to be factors
impacting certain business drivers, including contributions to defined
contribution plans and the costs of group disability claims.



Regulatory Environment.  Financial market dislocations have produced, and are
expected to continue to produce, extensive changes in existing laws and
regulations, and regulatory frameworks applicable to our businesses. In
addition, state insurance laws regulate all aspects of our U.S. insurance
businesses and our insurance products are substantially affected by federal and
state tax laws. Insurance regulators have begun to implement significant changes
in the way in which industry participants must determine statutory reserves and
statutory capital, particularly for products with embedded options and
guarantees such as variable annuities and universal life products with secondary
guarantees.



Demographics.  Income protection, wealth accumulation and the needs of retiring
baby boomers continue to shape the insurance industry. Retirement security is
one of the most critical issues in the U.S. for individuals and the investment
professionals and institutions that support them. The risk and responsibility of
retirement savings continues to shift to employees, away from the government and
employers. Life insurance ownership among U.S. households has reached its lowest
point in fifty years, with consumers citing other financial priorities and cost
of insurance as reasons for the lack of coverage.



Competitive Environment.  For the annuities business, traditional competitors
continue to take actions to either exit the marketplace or de-risk products in
response to recent market volatility. New non-traditional competitors are
beginning to enter this marketplace. In 2012, we implemented modifications to
scale back benefits and increase pricing for certain product features. We
believe our current product offerings are competitively positioned and that our
differentiated risk management strategies will provide us with an attractive
risk and profitability profile. All of our new variable annuity sales, as well
as a significant portion of our in force business, where an optional living
benefit has been elected, include an automatic rebalancing feature, which is a
feature that is valued in the variable annuity market.



Our retirement and asset management businesses compete on price, service and
investment performance. The full service retirement markets are mature, with few
dominant players. We have seen a trend toward unbundling of the purchase
decision related to the recordkeeping and investment offerings, where the
variety of available funds and their performance are the key selection criteria
of plan sponsors and intermediaries. Additionally, changes in the regulatory
environment have driven more transparent fee disclosures, which have heightened
pricing pressures and may accelerate the trend toward unbundling of services.
Market disruption and rating agency downgrades have caused some of our
institutional investment product competitors to withdraw from the market,
creating significant growth opportunities for us in certain markets, including
the investment-only stable value market. The recovery of the equity, fixed
income, and commercial real estate markets has positively impacted asset
managers by increasing assets under management and corresponding fee levels. In



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addition, institutional fixed income managers have generally experienced
positive flows as investors have re-allocated assets into fixed income to reduce
risk, including the reduction of risk in pension plans. In 2012, we closed two
significant pension risk transfer transactions, which potentially changes the
landscape for how plan sponsors consider their pension risk alternatives. The
longevity risk associated with these transactions complements our mortality risk
businesses.



The individual life and group life and disability markets are mature and, due to
the large number of competitors, competition is driven mainly by price and
service. The economy has exacerbated pressure on pricing, creating a challenge
of maintaining pricing discipline. In the individual life market, many of our
competitors took pricing actions in 2012 in response to the low interest rate
environment, following our own price increases implemented in 2009 and 2010. Our
individual life sales in 2012 benefited from a strong competitive position as a
result of these competitor actions. Maintaining this competitive positioning is
dependent on sources of financing for the reserves associated with this business
and timely utilization of the associated tax benefits. For group products, rate
guarantees have become the industry norm, with rate guarantee durations trending
upward, primarily for group life insurance, as a general industry practice.
There is also an increased demand from clients for bundling of products and
services to streamline administration and save costs by dealing with fewer
carriers. As employers are attempting to control costs and shift benefit
decisions and funding to employees, who continue to value benefits offered in
the workplace, employee-pay (voluntary) product offerings and services are
becoming increasingly important in the group market. For the long-term care
business, many companies, including Prudential, have taken actions in response
to the continued low interest rate environment including exiting the
marketplace, seeking premium rate increases and changing plan designs. In 2012,
we announced our decision to cease sales of long-term care products reflecting
our desire to focus our efforts on our core group life and disability lines of
business.



International Businesses



Financial and Economic Environment.  Our international insurance operations,
especially in Japan, continue to operate in the low interest rate environment
described below. However, the local market has adapted to the low rate
environment in Japan. The continued low interest rate environment in the U.S.
may impact the attractiveness of U.S. dollar-denominated products in Japan
relative to yen-denominated products. We are also subject to financial impacts
associated with movements in foreign currency rates, particularly the Japanese
yen. Fluctuations in the value of the yen will continue to impact the relative
attractiveness of non-yen products marketed in Japan.



Regulatory Environment.  In April 2012, Japanese tax law changed to reduce
deductibility of premiums on certain insurance products. This resulted in
dislocations in the tax sensitive marketplace and elevated sales of these
products prior to the effective date of the tax law change and reduced sales
thereafter. The Financial Services Agency, the insurance regulator in Japan, has
implemented revisions to the solvency margin requirements for certain assets and
has changed the manner in which an insurance company's core capital is
calculated. These changes were effective for the fiscal year ending March 31,
2012. We anticipate further changes in solvency regulation from jurisdiction to
jurisdiction based on regulatory developments in the U.S., the European Union,
and recommendations by an international standard setting body for the insurance
regulators, as well as regulatory requirements for those companies deemed to be
systemically important financial institutions, or SIFIs, in the U.S. or abroad.
In addition, local regulators, including in Japan, may apply heightened scrutiny
to non-domestic companies. Internationally, regulators are also increasingly
adopting measures to provide greater consumer protection and privacy rights.



Demographics.  Japan has an aging population as well as a large pool of
household assets invested in low yielding deposit and savings vehicles. The
aging of Japan's population as well as strains on government pension programs
have led to a growing demand for insurance products with a significant savings
element to meet savings and retirement needs as the population transitions to
retirement. These products have higher premiums with more of a savings
component. We are seeing a similar shift to retirement oriented products in
Korea and Taiwan, each of which also has an aging population.



Competitive Environment. The life insurance markets in Japan and Korea are mature. We generally compete more on distribution capabilities and service provided to customers than on price. The aging of

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Japan's population creates an increasing need for product innovation,
introducing insurance products which allow for savings and income as the
population transitions to retirement. In our Japanese bank channel we
experienced elevated sales of yen-denominated single premium reduced death
benefit whole life products during periods when competitors capped their sales
of similar investment-oriented products. The ability to sell through multiple
and complementary distribution channels is a competitive advantage. However,
competition for sales personnel as well as access to third party distribution
channels is intense.


Impact of Low Interest Rate Environment

The low interest rate environment in the U.S. has resulted in our current reinvestment yields being lower than the overall portfolio income yield, primarily for our investments in fixed maturity securities and commercial mortgage loans. With the Federal Reserve Board's intention to keep interest rates low through at least 2014, our portfolio income yields are expected to continue to decline in future periods.




For the domestic Financial Services Businesses' general account, we expect
annual scheduled payments and pre-payments to be approximately 10% of the fixed
maturity security and commercial mortgage loan portfolios through 2014. The
domestic Financial Services Businesses' general account has approximately $152
billion of such assets (based on net carrying value) as of December 31, 2012. As
these assets mature, the current average portfolio income yield for fixed
maturities and commercial mortgage loans of approximately 5% is expected to
decline due to reinvesting in a lower interest rate environment.



The reinvestment of scheduled payments and pre-payments at rates below the
current portfolio yield, including in some cases, at rates below those
guaranteed under our insurance contracts, will impact future operating results
to the extent we do not, or are unable to, reduce crediting rates on in-force
blocks of business, or effectively utilize other asset-liability management
strategies described below, in order to maintain current net interest margins.
As of December 31, 2012, our domestic Financial Services Businesses have
approximately $143 billion of insurance liabilities and policyholder account
balances. Of this amount, approximately $41 billion represents contracts with
guaranteed minimum crediting rates. The following table sets forth our contracts
in the domestic Financial Services Businesses with guaranteed minimum crediting
rates, and the related range of the difference between interest rates being
credited to contractholders on these balances as of December 31, 2012 and the
respective minimum guaranteed rates.



                                                                 Account
                                                                  Value              % of Total
                                                              (in billions)
Contracts at guaranteed minimum crediting rate               $          21.9                  53 %
Contracts above guaranteed minimum crediting rate by:
0% - 0.49%                                                               2.8                   7
0.5% - 1%                                                                2.0                   5
greater than 1%                                                         14.3                  35

Total contracts with minimum guaranteed crediting rates $ 41.0

                 100 %





For the contracts above guaranteed minimum crediting rates, although we have the
ability to lower crediting rates, our willingness to do so may be limited by
competitive pressures.



Our domestic Financial Services Businesses also have approximately $14 billion
of insurance liabilities and policyholder account balances representing
participating contracts for which the investment income risk is expected to
ultimately accrue to contractholders. The crediting rates for these contracts
are periodically adjusted based on the yield earned on the related assets. The
remaining $88 billion of the $143 billion of insurance liabilities and
policyholder account balances in our domestic Financial Services Businesses
represents long duration products such as group annuities, structured
settlements and other insurance products that do not have stated crediting rate
guarantees, but have fixed and guaranteed terms, for which underlying assets may
have to be reinvested at interest rates that are lower than portfolio rates. We
seek to mitigate the impact of a prolonged low interest rate environment on
these contracts through asset-liability management, as discussed further below.



For the domestic Financial Services Businesses' general account, assuming a hypothetical scenario where the average 10-year U.S. Treasury rate is 1.75% for the period from January 1, 2013 through December 31, 2014,

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and credit spreads remain unchanged from levels as of December 31, 2012, we
estimate that the unfavorable impact to net interest margins included in pre-tax
adjusted operating income of reinvesting in such an environment, compared to
reinvesting at current average portfolio income yields, would be approximately
$51 million in 2013 and $154 million in 2014. This impact is largely
concentrated in the Retirement and Individual Annuities segments. This
hypothetical scenario only reflects the impact related to the approximately $41
billion of contracts with guaranteed minimum crediting rates shown above, and
does not reflect: i) any benefit from potential changes to the crediting rates
on the corresponding contractholder liabilities where the Company has the
contractual ability to do so, or other potential mitigants such as changes in
investment mix that we may implement as funds are reinvested; ii) any impact
related to assets that do not directly support our liabilities; iii) any impact
from other factors, including but not limited to, new business, contractholder
behavior, changes in competitive conditions, and changes in capital markets;
and/or iv) any impact from other factors described below.



In order to mitigate the unfavorable impact that the current interest rate
environment has on our net interest margins, we employ a proactive
asset-liability management program, which includes strategic asset allocation
and derivative strategies within a disciplined risk management framework. These
strategies seek to match the characteristics of our products, and to closely
approximate the interest rate sensitivity of the assets with the estimated
interest rate sensitivity of the product liabilities. Our asset-liability
management program also helps manage duration gaps, currency and other risks
between assets and liabilities through the use of derivatives. We adjust this
dynamic process as products change, as customer behavior changes and as changes
in the market environment occur. As a result, our asset-liability management
process has permitted us to manage interest-sensitive products successfully
through several market cycles.



Our interest rate exposure is also mitigated by our business mix, as we have
relatively limited exposure to lines of business in which net interest margin
plays a more prominent role in product profitability, such as fixed annuities
and universal life, which represents a limited portion of our individual life
business in force. In addition, within our Retirement business, a substantial
portion of our stable value account values have very low crediting rate floors.



Our Japanese insurance operations have experienced a prolonged low interest rate
environment for many years. These operations issue recurring payment and single
premium products that are denominated in both Japanese yen and U.S. dollars, as
well as fixed annuity products that are denominated in U.S. dollars. For the
Japanese yen-denominated products, the exposure to decreased interest rates is
limited as our Japanese insurance operations have considered the prolonged low
interest rate environment in product pricing, and a rigorous asset-liability
management program, which includes our duration management and crediting rate
strategies, further limits our exposure. For the U.S. dollar-denominated
recurring payment products, our exposure to low interest rates in the U.S. is
also limited by our asset-liability management program. For the U.S.
dollar-denominated single premium and fixed annuity products, the risk of
reduced interest rates is limited, as new fixed annuity contracts are re-priced
frequently and pricing for other products is reviewed and updated regularly to
reflect current market interest rates.



Current Developments



Effective January 1, 2012, the Company adopted, retrospectively, the amended
authoritative guidance issued by the FASB to address which costs relating to the
acquisition of new or renewal insurance contracts qualify for deferral. The
Company has applied the retrospective method of adoption. In addition, in
December 2012, the Company adopted retrospectively a change in method of
applying an accounting principle for the Company's pension plans. The change in
accounting method relates to the calculation of market related value of pension
plan assets used to determine net periodic pension cost. All historical
financial information presented has been revised to reflect these changes. For
further information, see "-Accounting Policies and Pronouncements-Adoption of
New Accounting Pronouncements" and Note 2 to the Consolidated Financial
Statements.



On June 1, 2012, we announced the signing of an agreement with General Motors
Co., pursuant to which we would assume certain of its pension benefit
obligations to U.S. salaried retiree plan participants and beneficiaries that
are covered by the agreement. At closing on November 1, 2012, we issued a
non-participating group annuity



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contract to the General Motors Salaried Employees Pension Trust, and assumed
responsibility for providing specified benefits to certain participants. In
addition, on October 17, 2012, we signed an agreement with Verizon
Communications Inc., pursuant to which we will assume certain of its pension
benefit obligations to U.S. salaried retiree plan participants and beneficiaries
that are covered by the agreement. At closing on December 10, 2012, we issued a
non-participating group annuity contract to the Verizon Management Pension Plan,
and assumed responsibility for providing specified benefits to certain
participants. These pension risk transfer transactions significantly expand the
size of our existing payout annuity business.



On June 12, 2012, Prudential Financial's Board of Directors authorized the
Company to repurchase at management's discretion up to $1.0 billion of its
outstanding Common Stock during the period from July 1, 2012 through June 30,
2013. As of December 31, 2012, 2.7 million shares of our Common Stock were
repurchased under this authorization for a total cost of $150 million. The
Company exhausted an earlier $1.5 billion share repurchase authorization
established in June 2011 including 8.8 million shares purchased in the first six
months of 2012 at a total cost of $500 million.



In July 2012, we announced our decision to cease sales of group long-term care
insurance reflecting the challenging economics of the long-term care market
including the continued low interest rate environment as well as our desire to
focus our resources on our core group life and disability businesses. In March
2012, we also discontinued sales of our individual long-term care products. As a
result of our decision to wind down this business, we have reflected the results
of the long-term care insurance business, previously reported within the Group
Insurance segment, as a divested business for all periods presented.



On September 27, 2012, we announced that Prudential Insurance agreed to acquire
The Hartford's individual life insurance business through a reinsurance
transaction. This transaction closed on January 2, 2013. The total cash
consideration was $615 million consisting primarily of a ceding commission to
provide reinsurance for approximately 700,000 life insurance policies with net
retained face amount in force of approximately $135 billion.



On October 19, 2012, Prudential Financial received notice that it is under
consideration by the Council for a proposed determination that it should be
subject to stricter prudential regulatory standards and supervision by the Board
of Governors of the Federal Reserve System pursuant to the Dodd-Frank Act (as a
"Covered Company"). The notice of consideration indicates that Prudential
Financial is being reviewed in stage 3 of the three-stage process described in
the Council's interpretative guidance for Covered Company determinations and
does not constitute a notice of a proposed determination. The Company is
entitled, under the applicable regulations, to contest such consideration.
Nevertheless, the Council may determine to issue to Prudential Financial a
written notice of determination that it is a Covered Company, in which event we
would be entitled to request a nonpublic evidentiary hearing before the Council.
The prudential standards under the Dodd-Frank Act include requirements regarding
risk-based capital and leverage, liquidity, stress-testing, overall risk
management, resolution plans, early remediation, and credit concentration; and
may also include additional standards regarding capital, public disclosure,
short-term debt limits, and other related subjects as appropriate. See
"Business-Regulation" and "Risk Factors" for more information regarding the
potential impact of the Dodd-Frank Act on the Company, including as a result of
these stricter prudential standards.



Prudential Bank & Trust, FSB has limited its operations to trust services. On
October 31, 2012, the Board of Governors of the Federal Reserve System approved
Prudential Financial's application to deregister as a savings and loan holding
company, effective as of that date.



On November 7, 2012, Prudential Financial declared an annual dividend for 2012
of $1.60 per share of Common Stock, reflecting an increase of approximately 10%
from the 2011 Common Stock dividend. On February 12, 2013, Prudential Financial
declared a dividend for the first quarter of 2013 of $0.40 per share of Common
Stock reflecting our previously announced plan to move to a quarterly Common
Stock dividend schedule in 2013.



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Outlook



Management expects that results in 2013 will continue to reflect the quality of
our individual businesses and their prospects, as well as our overall business
mix and effective capital management. In 2013, we continue to focus on long-term
strategic positioning and growth opportunities, including the following:



• U.S. Retirement and Investment Management Market. We seek to capitalize on

the growing need of baby boomers for products that provide guaranteed

income for longer retirement periods. In addition, we continue to focus on

our clients' increasing needs for retirement income security given

volatility in the financial markets. We also seek to provide products that

        respond to the needs of plan sponsors to manage risk and control their
        benefit costs.



• U.S. Insurance Market. We continue to focus on writing high-quality

business and expect to continue to benefit from expansion of our

distribution channels and deepening our relationships with third-party

distributors. We also seek to capitalize on opportunities for additional

voluntary life purchases in the group insurance market, as institutional

        clients are focused on controlling their benefit costs.




    •   International Markets.  We continue to concentrate on deepening our

presence in the markets in which we currently operate, such as Japan, and

expanding our distribution capabilities, including through the integration

of the acquired Star and Edison Businesses. We seek to capitalize on

opportunities arising in international markets as changing demographics and

        public policy have resulted in a growing demand for retirement income
        products.




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Results of Operations


Net income of our Financial Services Businesses attributable to Prudential Financial, Inc. for the year ended December 31, 2012 was $428 million compared to $3,420 million for 2011.




We analyze performance of the segments and Corporate and Other operations of the
Financial Services Businesses using a measure called adjusted operating income.
See "-Consolidated Results of Operations-Segment Measures" for a discussion of
adjusted operating income and its use as a measure of segment operating
performance.



Pre-tax adjusted operating income for the Financial Services Businesses for the
year ended December 31, 2012 was $3,949 million compared to $3,836 million for
2011. Shown below are the contributions of each segment and Corporate and Other
operations to our adjusted operating income for the years ended December 31,
2012, 2011 and 2010 and a reconciliation of adjusted operating income of our
segments and Corporate and Other operations to income from continuing operations
before income taxes and equity in earnings of operating joint ventures.



                                                                Year ended December 31,
                                                            2012          2011         2010
                                                                     (in millions)
Adjusted operating income before income taxes for
segments of the Financial Services Businesses:
Individual Annuities                                      $  1,039      $    662      $   950
Retirement                                                     638           594          565
Asset Management                                               503           782          506

Total U.S. Retirement Solutions and Investment
Management Division                                          2,180         2,038        2,021

Individual Life                                                384           482          482
Group Insurance                                                 16           163          174

Total U.S. Individual Life and Group Insurance Division 400

 645          656

International Insurance                                      2,704         2,263        1,887

Total International Insurance Division                       2,704         2,263        1,887

Corporate and Other                                         (1,335 )      (1,110 )       (936 )

Adjusted operating income before income taxes for the Financial Services Businesses

                                3,949         3,836        3,628
Reconciling Items:
Realized investment gains (losses), net, and related
adjustments(1)                                              (3,666 )       

2,503 152 Charges related to realized investment gains (losses), net(2)

                                                         857        

(1,656 ) (179 ) Investment gains (losses) on trading account assets supporting insurance liabilities, net(3)

                       610          

223 501 Change in experience-rated contractholder liabilities due to asset value changes(4)

                                 (540 )        (123 )       (631 )
Divested businesses(5)                                        (597 )         101           18

Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(6)

            (1 )        

(189 ) (95 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures for Financial Services Businesses

                                  612         

4,695 3,394 Income (loss) from continuing operations before income taxes for Closed Block Business

                                 64          

214 746

Consolidated income from continuing operations before income taxes and equity in earnings of operating joint ventures

                                                  $    676      $  4,909      $ 4,140





(1)   Revenues exclude Realized investment gains (losses), net, and related
      adjustments. See "-Realized Investment Gains and Losses."

(2) Revenues exclude related charges resulting from payments related to market

value adjustment features of certain of our annuity products and the impact

of Realized investment gains (losses), net, on the amortization of unearned

      revenue reserves. Benefits and expenses exclude related charges that
      represent the impact of Realized investment gains (losses), net, on the
      amortization of deferred policy acquisition costs, and other costs.

(3) Revenues exclude net investment gains and losses on trading account assets

supporting insurance liabilities. See "-Experience-Rated Contractholder

      Liabilities, Trading Account Assets Supporting Insurance Liabilities and
      Other Related Investments."

(4) Benefits and expenses exclude changes in contractholder liabilities due to

      asset value changes in the pool of investments supporting these
      experience-rated contracts. See "-Experience-Rated Contractholder
      Liabilities, Trading Account Assets Supporting Insurance Liabilities and
      Other Related Investments."


(5)   See "-Divested Businesses."




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Table of Contents (6) Equity in earnings of operating joint ventures are included in adjusted

operating income but excluded from income from continuing operations before

income taxes and equity in earnings of operating joint ventures as they are

reflected on a U.S. GAAP basis on an after-tax basis as a separate line in

our Consolidated Statements of Operations. Earnings attributable to

noncontrolling interests are excluded from adjusted operating income but

included in income from continuing operations before taxes and equity

earnings of operating joint ventures as they are reflected on a U.S. GAAP

basis as a separate line in our Consolidated Statements of Operations.

Earnings attributable to noncontrolling interests represent the portion of

earnings from consolidated entities that relates to the equity interests of

      minority investors.



Results for 2012 presented above reflect the following:




Individual Annuities.  Segment results for 2012 increased in comparison to 2011,
reflecting the favorable comparative impact of changes in the estimated
profitability of the business, driven by the net impacts of market performance,
and annual reviews and updates of economic and actuarial assumptions and other
refinements. Excluding these items, results increased in comparison to 2011,
reflecting higher asset-based fee income, driven by higher average variable
annuity account values, net of an increased level of distribution and
amortization costs, partially offset by higher general and administrative
expenses, net of capitalization.



Retirement.  Segment results for 2012 increased in comparison to 2011. The
increase primarily reflects the favorable impact of a legal settlement in 2012,
as well as higher asset-based fee income and net investment spread results.
These increases were partially offset by costs to write-off an intangible asset
related to an acquired business, higher general and administrative expenses, net
of capitalization, and an unfavorable comparative reserve impact from case
experience.



Asset Management.  Segment results declined in 2012 in comparison to 2011
reflecting less favorable results from the segment's strategic investing
activities, which reflect charges for the current year on real estate
investments, compared to a gain in the prior year on the partial sale of a real
estate seed investment. The lower contribution from these activities, as well as
higher expenses in the current year and the comparative impact of a gain on the
sale of an operating joint venture in 2011 offset the benefit from higher asset
management fees.



Individual Life.  Segment results declined from 2011 primarily driven by the
unfavorable comparative impact from our annual reviews and updates of economic
and actuarial assumptions as well as costs incurred in 2012 associated with our
acquisition of The Hartford's individual life insurance business.



Group Insurance. Segment results declined in 2012 in comparison to 2011 primarily due to less favorable group life and disability underwriting results and higher expenses.

International Insurance.  Segment results for 2012 increased in comparison to
2011 in both our Life Planner and Gibraltar Life and Other operations including
a net favorable impact from foreign currency exchange rates. Results from the
segment's Life Planner operations primarily reflect business growth driven by
sales results and continued strong persistency. Improved results from the
segment's Gibraltar Life and Other operations were primarily driven by business
growth, additional synergies and lower integration costs associated with our
acquisition of the former Star and Edison businesses, and the absence of claims
and expenses associated with the 2011 earthquake in Japan. Offsetting these
favorable items was a greater benefit in the prior year from partial sales of
our indirect investment in China Pacific Group.



Corporate and Other operations.  The results for 2012 as compared to 2011
reflect an increased loss primarily due to a higher level of expenses in other
corporate activities and greater interest expense, net of investment income,
driven primarily from higher levels of capital debt.



Closed Block Business.  Income from continuing operations before income taxes
decreased $150 million in 2012 compared to 2011, primarily reflecting lower net
realized investment gains and net investment income, partially offset by a
decline in the policyholder dividend obligation expense.



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                      Accounting Policies & Pronouncements


Application of Critical Accounting Estimates




The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, or U.S. GAAP, requires the
application of accounting policies that often involve a significant degree of
judgment. Management, on an ongoing basis, reviews estimates and assumptions
used in the preparation of financial statements. If management determines that
modifications in assumptions and estimates are appropriate given current facts
and circumstances, results of operations and financial position as reported in
the Consolidated Financial Statements could change significantly.



The following sections discuss the accounting policies applied in preparing our financial statements that management believes are most dependent on the application of estimates and assumptions and require management's most difficult, subjective, or complex judgments.

Deferred Policy Acquisition and Other Costs




We capitalize costs that are directly related to the acquisition or renewal of
insurance and annuity contracts. These costs primarily include commissions, as
well as costs of policy issuance and underwriting and certain other expenses
that are directly related to successfully negotiated contracts. See Note 2 to
our Consolidated Financial Statements for a discussion of the new authoritative
guidance adopted effective January 1, 2012, regarding which costs relating to
the acquisition of new or renewal insurance contracts qualify for deferral. We
have also deferred costs associated with sales inducements related to our
variable and fixed annuity contracts primarily within our Individual Annuities
segment. Sales inducements are amounts that are credited to the policyholder's
account balance as an inducement to purchase the contract. For additional
information about sales inducements, see Note 11 to the Consolidated Financial
Statements. We amortize these deferred policy acquisition costs, or DAC, and
deferred sales inducements, or DSI, over the expected lives of the contracts,
based on our estimates of the level and timing of gross margins, gross profits,
or gross premiums, depending on the type of contract. As described in more
detail below, in calculating DAC and DSI amortization, we are required to make
assumptions about investment returns, mortality, persistency, and other items
that impact our estimates of the level and timing of gross margins, gross
profits, or gross premiums. We also periodically evaluate the recoverability of
our DAC and DSI. For certain contracts, this evaluation is performed as part of
our premium deficiency testing, as discussed further below in "-Policyholder
Liabilities." As of December 31, 2012, DAC and DSI in our Financial Services
Businesses were $13.7 billion and $1.4 billion, respectively, and DAC in our
Closed Block Business was $412 million.



Amortization methodologies



DAC associated with the traditional participating products of our Closed Block
Business is amortized over the expected lives of those contracts in proportion
to estimated gross margins. Gross margins consider premiums, investment returns,
benefit claims, costs for policy administration, changes in reserves, and
dividends to policyholders. We evaluate our estimates of future gross margins
and adjust the related DAC balance with a corresponding charge or credit to
current period earnings for the effects of actual gross margins and changes in
our expected future gross margins. DAC adjustments generally have not created
significant volatility in our results of operations since many of the factors
that affect gross margins are also included in the determination of our
dividends to these policyholders and, during most years, the Closed Block has
recognized a cumulative policyholder dividend obligation expense in
"Policyholders' dividends," for the excess of actual cumulative earnings over
expected cumulative earnings as determined at the time of demutualization.
However, if actual cumulative earnings fall below expected cumulative earnings
in future periods, thereby eliminating the cumulative policyholder dividend
obligation expense, changes in gross margins and DAC amortization would result
in a net impact to the Closed Block Business results of operations. As of
December 31, 2012, the excess of actual cumulative earnings over the expected
cumulative earnings was $885 million.



DAC associated with the non-participating whole life and term life policies of
our Individual Life segment and the whole life, term life, endowment and health
policies of our International Insurance segment is amortized in proportion to
gross premiums.



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DAC and DSI associated with the variable and universal life policies of our
Individual Life and International Insurance segments and the variable and fixed
annuity contracts of our Individual Annuities and International Insurance
segments are amortized over the expected life of these policies in proportion to
total gross profits. In calculating gross profits, we consider mortality,
persistency, and other elements as well as rates of return on investments
associated with these contracts and the costs related to our guaranteed minimum
death and guaranteed minimum income benefits. Total gross profits include both
actual experience and estimates of gross profits for future periods. We
regularly evaluate and adjust the related DAC and DSI balances with a
corresponding charge or credit to current period earnings for the impact of
actual gross profits and changes in our assumptions regarding estimated future
gross profits on our DAC and DSI amortization rates. Adjustments to the DAC and
DSI balances include the impact to our estimate of total gross profits of the
annual review of assumptions, our quarterly adjustments for current period
experience, and our quarterly adjustments for market performance. Each of these
adjustments is further discussed below in "-Annual assumptions review and
quarterly adjustments."



We include the impact of the embedded derivatives associated with certain of the
optional living benefit features of our variable annuity contracts and related
hedging activities in actual gross profits used as the basis for calculating
current period amortization. We include only certain of these impacts in our
best estimate of gross profits used to determine DAC and DSI amortization rates.
Beginning in 2012, we include the difference between the change in the fair
value of hedge positions and the change in the value of an internally-defined
hedge target in our best estimate of total gross profits used for determining
amortization rates each quarter, without regard to the permanence of the
changes. In 2011 and the second half of 2010, we included these impacts only to
the extent this net amount was determined by management to be
other-than-temporary. Prior to changing our hedging strategy to incorporate the
internally-defined hedge target in the second half of 2010, we considered the
change in the fair value of hedge positions and the change in the embedded
derivative liability as defined under U.S. GAAP, excluding the impact of the
market-perceived risk of our own non-performance, each quarter in determining
amortization rates. These changes over time reflect our regular review of the
estimated profitability of our business, changes in our hedging strategy and
other factors. For additional information on our internally-defined hedge
target, as well as the current period impact of resetting amortization rates for
this activity, see "-Results of Operations for Financial Services Businesses by
Segment-U.S. Retirement Solutions and Investment Management Division-Individual
Annuities-Variable Annuity Living Benefits Hedging Program Results."



Annual assumptions review and quarterly adjustments




Annually, during the third quarter, we perform a comprehensive review of the
assumptions used in estimating gross profits for future periods. Although we
review these assumptions on an ongoing basis throughout the year, we generally
only update these assumptions and adjust the DAC and DSI balances during the
third quarter, unless a material change that we feel is indicative of a long
term trend is observed in an interim period. Over the last several years, the
Company's most significant assumption updates resulting in a change to expected
future gross profits and the amortization of DAC and DSI have been related to
lapse experience and other contractholder behavior assumptions, mortality, and
revisions to expected future rates of returns on investments. We expect these
assumptions to be the ones most likely to cause potential significant changes in
the future. The impact on our results of operations of changes in these
assumptions can be offsetting and we are unable to predict their movement or
offsetting impact over time.



The quarterly adjustments for current period experience referred to above
reflect the impact of differences between actual gross profits for a given
period and the previously estimated expected gross profits for that period. To
the extent each period's actual experience differs from the previous estimate
for that period, the assumed level of total gross profits may change. In these
cases, we recognize a cumulative adjustment to all previous periods'
amortization, also referred to as an experience true-up adjustment.



The quarterly adjustments for market performance referred to above reflect the
impact of changes to our estimate of total gross profits to reflect actual fund
performance. A significant portion of gross profits for our variable annuity
contracts and, to a lesser degree, our variable life policies are dependent upon
the total rate of return on assets held in separate account investment options.
This rate of return influences the fees we earn, costs we incur associated with
the guaranteed minimum death and guaranteed minimum income benefit features



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related to our variable annuity contracts, as well as other sources of profit.
Returns that are higher than our expectations for a given period produce higher
than expected account balances, which increase the future fees we expect to earn
and decrease the future costs we expect to incur associated with the guaranteed
minimum death and guaranteed minimum income benefit features related to our
variable annuity contracts. The opposite occurs when returns are lower than our
expectations. The changes in future expected gross profits are used to recognize
a cumulative adjustment to all prior periods' amortization.



The near-term future rate of return assumptions used in evaluating DAC and DSI
for our domestic variable annuity and variable life insurance products are
derived using a reversion to the mean approach, a common industry practice.
Under this approach, we consider the actual historical economic returns over a
period of time and initially adjust future projected returns over the next four
years (the "near-term") so that the assets are projected to grow at the
long-term expected rate of return for the entire period. If the near-term
projected future rate of return is greater than our near-term maximum future
rate of return, we use our maximum future rate of return.



The weighted average rate of return assumptions for these businesses consider
many factors specific to each business, including asset durations, asset
allocations and other factors. We update the near term rates of return and our
estimate of total gross profits each quarter to reflect the result of the
reversion to the mean approach, which assumes a convergence to the long-term
expected rates of return. These market performance related adjustments to our
estimate of total gross profits result in cumulative adjustments to prior
amortization, reflecting the application of the new required rate of
amortization to all prior periods' gross profits. The new required rate of
amortization is also applied prospectively to future gross profits in
calculating amortization in future periods.



As of December 31, 2012, our variable annuities business utilizes distinct rates
of return for equity and fixed income investments. Assumptions for this business
reflect an 8.0% long-term equity expected rate of return and a near-term mean
reversion equity rate of return of 9.1%. As of December 31, 2012, all contract
groups within our variable annuities business utilized these rates, as the
near-term mean reversion equity rate of return was less than our 13% maximum.
Fixed income expected rates of return include a risk-free return plus a credit
spread and consider the duration and credit profile of the respective bond
funds. Fixed income returns reflect a grading from current rates up to long term
rates over a ten year period. The weighted average fixed income expected rate of
return after the ten year grading period is 5.4%.



As of December 31, 2012, our variable life insurance business utilizes blended
rates of return, which are based on a long-term expected distribution of funds
between equity and fixed income funds. Assumptions for this business reflect a
long-term blended expected rate of return of 6.5%, which includes an 8.1%
long-term equity expected rate of return and a 4.5% fixed income expected rate
of return. The 4.5% fixed income expected rate of return is a levelized rate,
which blends current rates and long-term expected returns. Assumptions also
reflect a near-term mean reversion blended rate of return of 5.9%. As of
December 31, 2012, all contract groups within our variable life insurance
business utilize these rates, as the near-term equity rate of return was less
than our 13% maximum.



Sensitivity



For the variable and universal life policies of our Individual Life segment, a
significant portion of our gross profits is derived from mortality margins. As a
result, our estimates of future gross profits are significantly influenced by
our mortality assumptions. Our mortality assumptions represent our expected
claims experience over the life of these policies and are developed based on
Company experience or standard industry tables. Unless a material change in
mortality experience that we feel is indicative of a long term trend is observed
in an interim period, we generally update our mortality assumptions annually in
the third quarter. Updates to our mortality assumptions in future periods could
have a significant adverse or favorable effect on the results of our operations
in the Individual Life segment.



The DAC balance associated with the variable and universal life policies of our
Individual Life segment as of December 31, 2012 was $1.7 billion. The following
table provides a demonstration of the sensitivity of that DAC balance relative
to our future mortality assumptions by quantifying the adjustments that would be
required, assuming both an increase and decrease in our future mortality rate by
1%. While the information below is for



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illustrative purposes only and does not reflect our expectations regarding
future mortality assumptions, it is a near-term, reasonably likely hypothetical
change that illustrates the potential impact of such a change. This information
considers only the direct effect of changes in our mortality assumptions on the
DAC balance, with no changes in any other assumptions such as persistency,
future rate of return, or expenses included in our evaluation of DAC, and does
not reflect changes in reserves, such as the unearned revenue reserve, which
would partially offset the adjustments to the DAC balance reflected below. The
impact of the unearned revenue reserve is discussed in more detail below in
"-Policyholder Liabilities."



                                                  December 31, 2012
                                             Increase/(Reduction) in DAC
                                                    (in millions)
       Decrease in future mortality by 1%   $                          38
       Increase in future mortality by 1%   $                         (38 )




For a discussion of DAC adjustments related to our Individual Life segment for
the years ended December 31, 2012, 2011 and 2010, see "-Results of Operations
for Financial Services Businesses by Segment-U.S. Individual Life and Group
Insurance Division-Individual Life."



For variable annuity contracts, DAC and DSI are more sensitive to changes in our
future rate of return assumptions due primarily to the significant portion of
our gross profits that is dependent upon the total rate of return on assets held
in separate account investment options, and the shorter average life of the
contracts. The DAC and DSI balances associated with our domestic variable
annuity contracts were $3.8 billion and $1.4 billion, respectively, as of
December 31, 2012. The following table provides a demonstration of the
sensitivity of each of these balances relative to our future rate of return
assumptions by quantifying the adjustments to each balance that would be
required assuming both an increase and decrease in our future rate of return by
100 basis points. The sensitivity includes an increase and decrease of 100 basis
points to both the near-term future rate of return assumptions used over the
next four years, and the long-term expected rate of return used thereafter.
While the information below is for illustrative purposes only and does not
reflect our expectations regarding future rate of return assumptions, it is a
near-term, reasonably likely hypothetical change that illustrates the potential
impact of such a change. This information considers only the direct effect of
changes in our future rate of return on the DAC and DSI balances and not changes
in any other assumptions such as persistency, mortality, or expenses included in
our evaluation of DAC and DSI. Further, this information does not reflect
changes in reserves, such as the reserves for the guaranteed minimum death and
optional living benefit features of our variable annuity products, or the impact
that changes in such reserves may have on the DAC and DSI balances.



                                                                 December 31, 2012
                                                    Increase/                          Increase/
                                               (Reduction) in  DAC                (Reduction) in  DSI
                                                                   (in millions)
Decrease in future rate of return by
100 basis points                              $                 (189 )           $                 (80 )
Increase in future rate of return by
100 basis points                              $                  153             $                  66




For a discussion of DAC and DSI adjustments related to our Individual Annuities
segment for the years ended December 31, 2012, 2011 and 2010, see "-Results of
Operations for Financial Services Businesses by Segment-U.S. Retirement
Solutions and Investment Management Division-Individual Annuities."



Value of Business Acquired



In addition to DAC and DSI, we also recognize an asset for value of business
acquired, or VOBA. VOBA includes an explicit adjustment to reflect the cost of
capital attributable to the acquired insurance contracts, and represents an
adjustment to the stated value of inforce insurance contract liabilities to
present them at fair value, determined as of the acquisition date. As of
December 31, 2012, VOBA was $3,248 million, and included $2,865 million related
to the acquisition from AIG of the Star and Edison Businesses on February 1,
2011. See Note 3 to the Consolidated Financial Statements for additional
information on the acquisition from AIG of the Star and Edison Businesses. The
remaining $383 million relates to previously-acquired traditional life, deferred
annuity, defined contribution and defined benefit businesses. VOBA is amortized
over the expected life



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of the acquired contracts. For additional information about VOBA including
details on items included in our estimates of future cash flows for the various
acquired businesses and its bases for amortization, see Note 2 and Note 8 to the
Consolidated Financial Statements. VOBA is also subject to recoverability
testing at the end of each reporting period to ensure that the balance does not
exceed the present value of anticipated gross profits.



Goodwill



As of December 31, 2012, our goodwill balance of $873 million is reflected in
the following four reporting units: $444 million related to our Retirement Full
Service business, $238 million related to our Asset Management business, $171
million related to our Gibraltar Life and Other operations and $20 million
related to our International Insurance Life Planner business.



We test goodwill for impairment on an annual basis, as of December 31 of each
year, or more frequently if events or circumstances indicate the potential for
impairment is more likely than not. The goodwill impairment analysis is
performed at the reporting unit level which is equal to or one level below our
operating segments. This analysis includes a qualitative assessment, for which
reporting units may elect to bypass in accordance with accounting guidance, and
a quantitative analysis consisting of two steps. For additional information on
goodwill and the process for testing goodwill for impairment, see Note 2 and
Note 9 to the Consolidated Financial Statements.



The International Insurance's Life Planner business and the Asset Management
segment elected to bypass the qualitative assessment and complete their
impairment analysis using an earnings multiple approach. The earnings multiple
approach indicates the value of a business based on comparison to
publicly-traded comparable companies in similar lines of business. Each
comparable company is analyzed based on various factors, including, but not
limited to, financial risk, size, geographic diversification, profitability,
adequate financial data, and an actively traded stock price. A multiple of price
to earnings is developed for the comparable companies using independent
analysts' consensus estimates for each company's 2013 forecasted earnings. The
multiples are then aggregated and a mean and median multiple is calculated for
the group. The lower of the mean or median multiple is then applied to the 2013
forecasted earnings of the reporting unit to develop a value. A control premium
is then added to determine a total estimated fair value for the reporting unit.



The Retirement Full Service business and Gibraltar Life and Other operations
also elected to bypass the qualitative assessment and complete their impairment
analysis using a discounted cash flow approach. The discounted cash flow
approach calculates the value of a business by applying a discount rate
reflecting the market expected weighted average rate of return to the projected
future cash flows of the reporting unit. These projected future cash flows were
based on our internal forecasts, an expected growth rate and a terminal value.
The weighted average rate of return, or WARR, represents the required rate of
return on total capitalization. It is comprised of a required rate of return on
equity of a company and the current tax-affected cost of debt, which are then
weighted by the relative percentages of equity and debt assumed in the capital
structure. To estimate the return on equity, we applied the Capital Asset
Pricing Model, or CAPM. The CAPM is a generally accepted method for estimating
an equity investor's return requirement, and hence a company's cost of equity
capital. CAPM is determined by beginning with the long-term risk-free rate of
return then applying adjustments that consider the equity risk premium required
for large company common stock investments as well as company specific
adjustments to address volatility, small company premiums and other risks
particular to a specific company. The WARR calculation is applied to a group of
companies considered peers of the reporting unit to develop a weighted average
rate of return for the peer group which is then used to estimate the market
expected weighted average rate of return for the reporting unit. This process
resulted in a discount rate of 12% which was then applied to the expected future
cash flows of the Retirement Full Service business and Gibraltar Life and Other
operations to estimate its fair value.



After completion of Step 1 of the quantitative tests, it was determined that
fair values exceeded the carrying amounts for each of the four reporting units
and it was concluded there was no impairment as of December 31, 2012. The Asset
Management, International Insurance's Life Planner, Gibraltar Life and Other
operations and Retirement Full Service businesses had estimated fair values that
exceeded their carrying amounts by 460%, 100%, 52%, and 11%, respectively.



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Estimating the fair value of reporting units is a subjective process that
involves the use of significant estimates by management. The Retirement Full
Service business' quantitative test is sensitive to a number of key assumptions.
For example, a decline in its forecasted cash flows of 10%, an increase in the
discount rate above 13.1%, or an increase in the equity attributed to support
this business (representing the carrying value) of 11.1% could result in failing
Step 1 of the quantitative test and therefore require a Step 2 assessment.
Regarding all reporting units tested, further market declines or other events
impacting the fair value of these businesses, including discount rates, interest
rates and growth rate assumptions or increases in the level of equity required
to support these businesses, could result in goodwill impairments, resulting in
a charge to income.



As of December 31, 2012, the Company experienced a market capitalization that
was below its consolidated book value. An analysis was performed in order to
confirm the reasonableness of the reporting unit fair values calculated in the
goodwill impairment tests discussed above. The Company considered the fact that
certain reporting units that do not contain goodwill have lower estimated fair
values due to the nature of the risks in their businesses and also considered
the negative impact of our Corporate & Other operations on the overall fair
value of the Company. The Company also considered the amount of control premium
necessary to estimate a fair value equal to book value. When comparing this
control premium to actual control premiums experienced in recent insurance
company acquisitions, as well as the impact of the lower market environment
which can increase industry control premiums, the Company concluded that the
calculated control premium reflected an amount which we believe is within a
range of reasonableness. Based on these factors, the Company concluded that the
reporting unit fair values calculated in the goodwill impairment test were
reasonable.



Valuation of Investments, Including Derivatives, and the Recognition of Other-than-Temporary Impairments




Our investment portfolio consists of public and private fixed maturity
securities, commercial mortgage and other loans, equity securities, other
invested assets, and derivative financial instruments. Derivatives are financial
instruments whose values are derived from interest rates, foreign exchange
rates, financial indices or the values of securities or commodities. Derivative
financial instruments we generally use include swaps, futures, forwards and
options and may be exchange-traded or contracted in the over-the-counter market.
We are also party to financial instruments that contain derivative instruments
that are "embedded" in the financial instruments. Management believes the
following accounting policies related to investments, including derivatives, are
most dependent on the application of estimates and assumptions. Each of these
policies is discussed further within other relevant disclosures related to the
investments and derivatives, as referenced below.



  •   Valuation of investments, including derivatives




  •   Recognition of other-than-temporary impairments



• Determination of the valuation allowance for losses on commercial mortgage

        and other loans




We present our investments classified as available-for-sale, including fixed
maturity and equity securities, our investments classified as trading, such as
our trading account assets supporting insurance liabilities, our derivatives,
and our embedded derivatives at fair value in the statements of financial
position. For additional information regarding the key estimates and assumptions
surrounding the determination of fair value of fixed maturity and equity
securities, as well as derivative instruments, embedded derivatives and other
investments, see Note 20 to the Consolidated Financial Statements and
"-Valuation of Assets and Liabilities-Fair Value of Assets and Liabilities."



For our investments classified as available-for-sale, the impact of changes in
fair value is recorded as an unrealized gain or loss in "Accumulated other
comprehensive income (loss)," or "AOCI," a separate component of equity. For our
investments classified as trading, the impact of changes in fair value is
recorded within "Asset management fees and other income." In addition,
investments classified as available-for-sale, as well as those classified as
held-to-maturity, are subject to impairment reviews to identify when a decline
in value is other-than-temporary. For a discussion of our policies regarding
other-than-temporary declines in investment value and the related methodology
for recording other-than-temporary impairments of fixed maturity and equity
securities, see Note 2 to the Consolidated Financial Statements, "-Realized
Investment Gains and Losses-Other-than-Temporary Impairments -Fixed Maturity
Securities" and "-Realized Investment Gains and Losses-Other-than-Temporary
Impairments-Equity Securities."



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Commercial mortgage and other loans are carried primarily at unpaid principal
balances, net of unamortized deferred loan origination fees and expenses and
unamortized premiums or discounts and a valuation allowance for losses. For a
discussion of our policies regarding the valuation allowance for commercial
mortgage and other loans see "-General Account Investments-Commercial Mortgage
and Other Loans-Commercial Mortgage and Other Loan Quality."



Policyholder Liabilities


Future Policy Benefit Reserves, other than Unpaid Claims and Claim Adjustment Expenses




We establish reserves for future policy benefits to, or on behalf of,
policyholders in the same period in which the policy is issued, using
methodologies prescribed by U.S. GAAP. In applying these methodologies, we are
required to make certain reserve assumptions. For most contracts, we utilize
best estimate assumptions as of the date the policy is issued or acquired with
provisions for the risk of adverse deviation. After these reserves are initially
established, we perform premium deficiency tests using best estimate assumptions
as of the testing date without provisions for adverse deviation. If reserves
determined based on these best estimate assumptions are greater than the net
liabilities (i.e., reserves net of any DAC asset), the existing net liabilities
are adjusted by first reducing the DAC asset by the amount of the deficiency or
to zero through a charge to current period earnings. If the deficiency is more
than the DAC balance, we then increase the reserve by the excess, again through
a charge to current period earnings. We typically update our actuarial
assumptions, such as mortality, morbidity, retirement and policyholder behavior
assumptions, annually in the third quarter of each year, unless a material
change is observed in an interim period that we feel is indicative of a long
term trend. Generally, we do not expect trends to change significantly in the
short-term and, to the extent these trends may change, we expect such changes to
be gradual over the long-term. In a sustained low interest rate environment,
there is an increased likelihood that the reserves determined based on best
estimate assumptions may be greater than the net liabilities. The following
paragraphs provide additional details about our reserves for our Closed Block
Business and Financial Services Businesses.



The future policy benefit reserves for the traditional participating life
insurance products of our Closed Block Business, which as of December 31, 2012,
represented 24% of our total future policy benefit reserves are determined using
the net level premium method. Under this method, the future policy benefit
reserves are accrued as a level proportion of the premium paid by the
policyholder. In applying this method, we use mortality assumptions to determine
our expected future benefits and expected future premiums, and apply an interest
rate to determine the present value of both the expected future benefit payments
and the expected future premiums. The mortality assumptions are based on data
from the standard industry mortality tables that were used to determine the cash
surrender value of the policies, and the interest rates used are the
contractually guaranteed interest rates used to calculate the cash surrender
value of the policies. Gains or losses in our results of operations resulting
from deviations in actual experience compared to the experience assumed in
establishing our reserves for this business are recognized in the determination
of our annual dividends to these policyholders. These gains or losses generally
have not created significant volatility in our results of operations since,
during most years, the Closed Block has recognized a cumulative policyholder
dividend obligation expense in "Policyholders' dividends," for the excess of
actual cumulative earnings over expected cumulative earnings as determined at
the time of demutualization. However, if actual cumulative earnings fall below
expected cumulative earnings in future periods, thereby eliminating the
cumulative policyholder dividend obligation expense, these gains or losses could
result in greater volatility in the Closed Block Business results of operations.



The future policy benefit reserves for our International Insurance segment and
Individual Life segment, which as of December 31, 2012, represented 47% of our
total future policy benefit reserves combined, relate primarily to
non-participating whole life and term life products and endowment contracts, and
are determined as the present value of expected future benefits to, or on behalf
of, policyholders plus the present value of future maintenance expenses less the
present value of future net premiums. The expected future benefits and expenses
are determined using assumptions about mortality, lapse, and maintenance
expense. These assumptions are determined by product group. Mortality
assumptions are generally based on the Company's historical experience or
standard industry tables, as applicable; our expense assumptions are based on
current levels of maintenance costs, adjusted for the effects of inflation; and
our interest rate assumptions are based on current and expected net investment
returns.



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The reserves for future policy benefits of our Retirement segment, which as of
December 31, 2012 represented 23% of our total future policy benefit reserves,
primarily relate to our non-participating life contingent group annuity and
structured settlement products. These reserves are generally determined as the
present value of expected future benefits and expenses based on assumptions
about mortality, retirement, maintenance expense, and interest rates. These
assumptions are determined by product group. Our mortality and retirement
assumptions are based on Company or industry experience; our expense assumptions
are based on current levels of maintenance costs, adjusted for the effects of
inflation; and our interest rate assumptions are based on current and expected
net investment returns.



The reserves for future policy benefits of our Corporate & Other operations,
which as of December 31, 2012 represented 2% of our total future policy benefit
reserves, primarily relate to our long-term care products. These reserves are
generally determined as the present value of expected future benefits and
expenses less future premiums, based on assumptions about interest rates,
morbidity, mortality, lapses, premium rate increases, and maintenance expenses.
Our morbidity and mortality assumptions are based on industry experience, and
may include certain adjustments for Company experience. Our lapse assumptions
are based upon Company experience, our expense assumptions are based on current
levels of maintenance costs, adjusted for the effects of inflation, and our
interest rate assumptions are based on current and expected net investment
returns. Our premium rate increase assumptions are based on our projected
experience, which considers state regulatory standards for inforce rate
increases, as well as our historical experience with filing for such increases.



The remaining 4% of the reserves for future policy benefits as of December 31,
2012 primarily represent reserves for the guaranteed minimum death benefit
("GMDB") and optional living benefit features of the variable annuity products
in our Individual Annuities segment, and group life and disability benefits in
our Group Insurance segment. The optional living benefits are primarily
accounted for as embedded derivatives, with fair values calculated as the
present value of future expected benefit payments to customers less the present
value of assessed rider fees attributable to the embedded derivative feature.
For additional information regarding the valuation of these optional living
benefit features, see Note 20 to the Consolidated Financial Statements and
"-Valuation of Assets and Liabilities-Fair Value of Assets and
Liabilities-Variable Annuity Optional Living Benefit Features."



In establishing reserves for GMDBs and guaranteed minimum income benefits
("GMIB"s) related to variable annuity contracts, we must make estimates and
assumptions about the timing of annuitization, contract lapses and
contractholder mortality, as well as interest rates and equity market returns.
Assumptions relating to contractholder behavior, such as the timing of
annuitization and contract lapses, are based on our experience by contract
group, and vary by product type and year of issuance. We adjust base lapse rate
assumptions at the contract level based on a comparison of the
actuarially-calculated value and the current policyholder account value, as well
as other factors, such as the applicability of any surrender charges. This
dynamic lapse rate adjustment reduces the base lapse rate when the guaranteed
amount is greater than the account value, as in-the-money contracts are less
likely to lapse. Lapse rates are also generally assumed to be lower for the
period where surrender charges apply. Mortality assumptions are generally based
on standard industry tables, which we adjust based on our historical experience,
and also incorporate a mortality improvement assumption. These mortality
assumptions vary by contract group. Over the last several years, the Company's
most significant assumption updates that have resulted in changes to our
reserves for GMDBs and GMIBs have been related to lapse experience and other
contractholder behavior assumptions and revisions to expected future rates of
returns on investments. The Company expects these assumptions to be the ones
most likely to cause significant changes in the future. Changes in these
assumptions can be offsetting and can also impact our DAC and other balances as
discussed above. For additional information on the calculation of these
reserves, see Note 11 to the Consolidated Financial Statements.



The future rate of return assumptions used in establishing reserves for GMDBs
and GMIBs related to variable annuity contracts are derived using a reversion to
the mean approach, a common industry practice. For additional information
regarding our future expected rate of return assumptions and our reversion to
the mean approach see, "-Deferred Policy Acquisition and Other Costs." The
following table provides a demonstration of the sensitivity of the reserves for
GMDBs and GMIBs related to variable annuity contracts relative to our future
rate of return assumptions by quantifying the adjustments to these reserves that
would be required assuming both a 100 basis point increase and decrease in our
future rate of return. The sensitivity includes an increase and decrease of 100
basis points to both the near-term future rate of return assumptions used over
the next four years,



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and the long-term expected rate of return used thereafter. While the information
below is for illustrative purposes only and does not reflect our expectations
regarding future rate of return assumptions, it is a near-term, reasonably
likely change that illustrates the potential impact of such a change. This
information considers only the direct effect of changes in our future rate of
return on operating results due to the change in the reserve balance and not
changes in any other assumptions such as persistency, mortality, or expenses
included in our evaluation of the reserves, or any changes on DAC or other
balances, discussed above in "-Deferred Policy Acquisition and Other Costs."



                                                                     December 31, 2012
                                                                  Increase/(Reduction) in
                                                                    GMDB/GMIB Reserves
                                                                       (in millions)
Decrease in future rate of return by 100 basis points            $                     154
Increase in future rate of return by 100 basis points            $                    (126 )




For a discussion of adjustments to the reserves for GMDBs and GMIBs related to
our Individual Annuities segment for the years ended December 31, 2012, 2011 and
2010, see "-Results of Operations for Financial Services Businesses by
Segment-U.S. Retirement Solutions and Investment Management Division-Individual
Annuities."


Unpaid claims and claim adjustment expenses




Our liability for unpaid claims and claim adjustment expenses of $2.9 billion as
of December 31, 2012 is reported as a component of "Future policy benefits" and
relates primarily to the group long-term disability products of our Group
Insurance segment. This liability represents our estimate of future disability
claim payments and expenses as well as estimates of claims that we believe have
been incurred, but have not yet been reported as of the balance sheet date. We
do not establish loss liabilities until a loss has occurred. As prescribed by
U.S. GAAP, our liability is determined as the present value of expected future
claim payments and expenses. Expected future claim payments are estimated using
assumed mortality and claim termination factors and an assumed interest rate.
The mortality and claim termination factors are based on standard industry
tables and the Company's historical experience. Our interest rate assumptions
are based on factors such as market conditions and expected investment returns.
Of these assumptions, our claim termination assumptions have historically had
the most significant effect on our level of liability. We compare our claim
termination assumptions to actual terminations annually. These studies review
actual claim termination experience over a number of years with more weight
placed on the actual experience in the more recent years. If actual experience
results in a different assumption, we adjust our liability for unpaid claims and
claims adjustment expenses accordingly with a charge or credit to current period
earnings. In recent years, we have experienced an increase in the volume of new
long-term disability claims, as well as unfavorable claim termination
experience, driven by the economic downturn. During 2012, our claim termination
experience has shown improvement, but has been outpaced by a continued increase
in new claims. We are investing in our claims management process which, over
time, should drive improvements in this area.



Unearned revenue reserves for universal life and investment contracts




Our unearned revenue reserve, or URR, reported as a component of "Policyholders'
account balances," is $1.2 billion as of December 31, 2012. This reserve
primarily relates to variable and universal life products within our Individual
Life segment and represents policy charges for services to be provided in future
periods. The charges are deferred as unearned revenue and amortized over the
expected life of the contract in proportion to the product's estimated gross
profits, similar to DAC as discussed above.



For the variable and universal life policies of our Individual Life segment, a
significant portion of our gross profits is derived from mortality margins. As a
result, our estimates of future gross profits are significantly influenced by
our mortality assumptions. Our mortality assumptions represent our expected
claims experience over the life of these policies and are developed based on
Company experience or standard industry tables. Unless a material change in
mortality experience that we feel is indicative of a long term trend is observed
in an interim period, we generally update our mortality assumptions annually in
the third quarter. Updates to our mortality assumptions in future periods could
have a significant adverse or favorable effect on the results of our operations
in the Individual Life segment.



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The URR balance associated with the variable and universal life policies of our
Individual Life segment as of December 31, 2012 was $0.8 billion. The following
table provides a demonstration of the sensitivity of that URR balance relative
to our future mortality assumptions by quantifying the adjustments that would be
required, assuming both an increase and decrease in our future mortality rate by
1%. While the information below is for illustrative purposes only and does not
reflect our expectations regarding future mortality assumptions, it is a
near-term, reasonably likely hypothetical change that illustrates the potential
impact of such a change on the URR balance and does not reflect the offsetting
impact of such a change on the DAC balance as discussed above in "-Deferred
Policy Acquisition and Other Costs." This information considers only the direct
effect of changes in our mortality assumptions on the URR balance and not
changes in any other assumptions such as persistency, future rate of return, or
expenses included in our evaluation of URR.



                                                  December 31, 2012
                                             Increase/(Reduction) in URR
                                                    (in millions)
       Decrease in future mortality by 1%   $                          32
       Increase in future mortality by 1%   $                         (32 )




For a discussion of URR adjustments related to our Individual Life segment for
the years ended December 31, 2012, 2011, and 2010, see "-Results of Operations
for Financial Services Businesses by Segment-U.S. Individual Life and Group
Insurance Division-Individual Life."



Pension and Other Postretirement Benefits




We sponsor pension and other postretirement benefit plans covering employees who
meet specific eligibility requirements. Our net periodic costs for these plans
consider an assumed discount (interest) rate, an expected rate of return on plan
assets and expected increases in compensation levels and trends in health care
costs. Of these assumptions, our expected rate of return assumptions, and to a
lesser extent our discount rate assumptions, have historically had the most
significant effect on our net period costs associated with these plans.



We determine our expected rate of return on plan assets based upon a building
block approach that considers inflation, real return, term premium, credit
spreads, equity risk premium and capital appreciation as well as expenses,
expected asset manager performance and the effect of rebalancing for the equity,
debt and real estate asset mix applied on a weighted average basis to our
pension asset portfolio. See Note 18 to our Consolidated Financial Statements
for our actual asset allocations by asset category and the asset allocation
ranges prescribed by our investment policy guidelines for both our pension and
other postretirement benefit plans. Our assumed long-term rate of return for
2012 was 6.75% for our domestic pension plans and 7.00% for our other
postretirement benefit plans. Given the amount of plan assets as of December 31,
2011, the beginning of the measurement year, if we had assumed an expected rate
of return for both our pension and other postretirement benefit plans that was
100 basis points higher or 100 basis points lower than the rates we assumed, the
change in our net periodic costs would have been as shown in the table below.
The information provided in the table below considers only changes in our
assumed long-term rate of return given the level and mix of invested assets at
the beginning of the measurement year, without consideration of possible changes
in any of the other assumptions described above that could ultimately accompany
any changes in our assumed long-term rate of return.



                                                        For the year ended December 31, 2012
                                                                                    Increase/(Decrease) in Net
                                     Increase/(Decrease) in Net                    Periodic Other Postretirement
                                       Periodic Pension Cost                                   Cost
                                                                    (in millions)
Increase in expected rate
of return by 100 basis
points                              $                       (117 )                $                           (13 )
Decrease in expected rate
of return by 100 basis
points                              $                        117                  $                            13




We determine our discount rate, used to value the pension and postretirement
benefit obligations, based upon rates commensurate with current yields on high
quality corporate bonds. See Note 18 to our Consolidated Financial Statements
for information regarding the December 31, 2011 methodology we employed to
determine our discount rate for 2012. Our assumed discount rate for 2012 was
4.85% for our domestic pension plans and 4.60% for our other postretirement
benefit plans. Given the amount of pension and postretirement obligations as of
December 31, 2011, the beginning of the measurement year, if we had assumed a
discount rate for both our



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pension and other postretirement benefit plans that was 100 basis points higher
or 100 basis points lower than the rates we assumed, the change in our net
periodic costs would have been as shown in the table below. The information
provided in the table below considers only changes in our assumed discount rate
without consideration of possible changes in any of the other assumptions
described above that could ultimately accompany any changes in our assumed
discount rate.



                                                        For the year ended December 31, 2012
                                                                                   Increase/(Decrease) in Net
                                     Increase/(Decrease) in Net                   Periodic Other Postretirement
                                       Periodic Pension Cost                                  Cost
                                                                   (in millions)
Increase in discount rate
by 100 basis points                 $                          8                 $                            (4 )
Decrease in discount rate
by 100 basis points                 $                         18                 $                             1




Given the application of the authoritative guidance for accounting for pensions,
and the deferral and amortization of actuarial gains and losses arising from
changes in our assumed discount rate, the change in net periodic pension cost
arising from an increase in the assumed discount rate by 100 basis points would
not be expected to equal the change in net periodic pension cost arising from a
decrease in the assumed discount rate by 100 basis points.



For a discussion of our expected rate of return on plan assets and discount rate for our qualified pension plan in 2012, see "-Results of Operations for Financial Services Businesses by Segment-Corporate and Other."




For purposes of calculating pension income from our own qualified pension plan
for the year ended December 31, 2013, we will decrease the discount rate to
4.05% from 4.85% in 2012. The expected rate of return on plan assets will
decrease to 6.25% in 2013 from 6.75% in 2012, and the assumed rate of increase
in compensation will remain unchanged at 4.5%.



In addition to the effect of changes in our assumptions, the net periodic cost
or benefit from our pension and other postretirement benefit plans may change
due to factors such as actual experience being different from our assumptions,
special benefits to terminated employees, or changes in benefits provided under
the plans.


At December 31, 2012, the sensitivity of our pension and postretirement obligations to a 100 basis point change in discount rate was as follows:




                                                                 December 31, 2012
                                                                                     Increase/(Decrease) in
                                        Increase/(Decrease)  in                    Accumulated Postretirement
                                      Pension Benefits Obligation                     Benefits Obligation
Increase in discount rate
by 100 basis points                                            (12) %                                      (9) %
Decrease in discount rate
by 100 basis points                                              14 %                                       10 %




Taxes on Income



Our effective tax rate is based on income, non-taxable and non-deductible items,
statutory tax rates and tax planning opportunities available in the various
jurisdictions in which we operate. Inherent in determining our annual tax rate
are judgments regarding business plans, planning opportunities and expectations
about future outcomes. The Company provides for U.S. income taxes on unremitted
foreign earnings of its operations in Japan and certain operations in India,
Germany and Taiwan. In addition, beginning in 2012, the Company provides for
U.S. income taxes on a portion of the current year foreign earnings for its
insurance operations in Korea.



Items required by tax regulations to be included in the tax return may differ
from the items reflected in the financial statements. As a result, the effective
tax rate reflected in the financial statements may be different than the actual
rate applied on the tax return. Some of these differences are permanent such as
expenses that are not deductible in our tax return, and some differences are
temporary, reversing over time, such as valuation of insurance reserves.
Temporary differences create deferred tax assets and liabilities. Deferred tax
assets generally



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represent items that can be used as a tax deduction or credit in future years
for which we have already recorded the tax benefit in our income statement.
Deferred tax liabilities generally represent tax expense recognized in our
financial statements for which payment has been deferred, or expenditures for
which we have already taken a deduction in our tax return but have not yet been
recognized in our financial statements.



The application of U.S. GAAP requires us to evaluate the recoverability of our
deferred tax assets and establish a valuation allowance if necessary to reduce
our deferred tax assets to an amount that is more likely than not to be
realized. Considerable judgment is required in determining whether a valuation
allowance is necessary, and if so, the amount of such valuation allowance. In
evaluating the need for a valuation allowance we consider many factors,
including: (1) the nature of the deferred tax assets and liabilities;
(2) whether they are ordinary or capital; (3) in which tax jurisdictions they
were generated and the timing of their reversal; (4) taxable income in prior
carryback years as well as projected taxable earnings exclusive of reversing
temporary differences and carryforwards; (5) the length of time that carryovers
can be utilized in the various taxing jurisdictions; (6) any unique tax rules
that would impact the utilization of the deferred tax assets; and (7) any tax
planning strategies that we would employ to avoid a tax benefit from expiring
unused. Although realization is not assured, management believes it is more
likely than not that the deferred tax assets, net of valuation allowances, will
be realized.



An increase or decrease in our effective tax rate by one percent of income
(loss) from continuing operations before income taxes and equity in earnings of
operating joint ventures, would have resulted in an increase or decrease in our
consolidated income from continuing operations before equity in earnings of
operating joint ventures in 2012 of $7 million.



U.S. GAAP prescribes a comprehensive model for how a company should recognize,
measure, present, and disclose in its financial statements uncertain tax
positions that a company has taken or expects to take on tax returns. The
application of this guidance is a two-step process, the first step being
recognition. We determine whether it is more likely than not, based on the
technical merits, that the tax position will be sustained upon examination. If a
tax position does not meet the more likely than not recognition threshold, the
benefit of that position is not recognized in the financial statements. The
second step is measurement. We measure the tax position as the largest amount of
benefit that is greater than 50 percent likely of being realized upon ultimate
resolution with a taxing authority that has full knowledge of all relevant
information. This measurement considers the amounts and probabilities of the
outcomes that could be realized upon ultimate settlement using the facts,
circumstances, and information available at the reporting date.



The Company's liability for income taxes includes the liability for unrecognized
tax benefits and interest that relate to tax years still subject to review by
the Internal Revenue Service ("IRS") or other taxing authorities. See Note 19 to
the Consolidated Financial Statements for a discussion of the impact in 2010,
2011 and 2012 of changes to our total unrecognized tax benefits. We do not
anticipate any significant changes within the next 12 months to our total
unrecognized tax benefits related to tax years for which the statute of
limitations has not expired.



The Company's affiliates in Japan and Korea file separate tax returns and are subject to audits by the local taxing authority. The general statute of limitations for Japan and Korea are five years from when the return is filed.




Reserves for Contingencies



A contingency is an existing condition that involves a degree of uncertainty
that will ultimately be resolved upon the occurrence of future events. Under
U.S. GAAP, reserves for contingencies are required to be established when the
future event is probable and its impact can be reasonably estimated, such as in
connection with an unresolved legal matter. The initial reserve reflects
management's best estimate of the probable cost of ultimate resolution of the
matter and is revised accordingly as facts and circumstances change and,
ultimately, when the matter is brought to closure.



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Adoption of New Accounting Pronouncements




Effective January 1, 2012, the Company adopted, retrospectively, new
authoritative guidance to address which costs relating to the acquisition of new
or renewal insurance contracts qualify for deferral. All prior period financial
information has been revised to reflect the retrospective adoption of the
amended guidance. The impact of the retrospective adoption of this guidance on
previously reported December 31, 2011 balances was a reduction in deferred
policy acquisition costs by $4.1 billion for the Financial Services Businesses
and by $0.2 billion for the Closed Block Business, an increase in policy
reserves for certain limited pay contracts by $0.2 billion for the Financial
Services Businesses, and a reduction in total equity by $2.8 billion for the
Financial Services Businesses and $0.2 billion for the Closed Block Business.
The impact of the retrospective adoption of this guidance on previously reported
income from continuing operations before income taxes for the years ended
December 31, 2011 and 2010 was a decrease of $262 million and $282 million for
the Financial Services Businesses, respectively, and an increase of $17 million
and $21 million for the Closed Block Business, respectively. The lower level of
costs now qualifying for deferral will be only partially offset by a lower level
of amortization of deferred policy acquisition costs, and, as such, will
initially result in lower earnings in future periods, primarily within the
International Insurance and Individual Annuities segments. The impact to the
International Insurance segment largely reflects lower deferrals of allocated
costs of its proprietary distribution system, while the impact to the Individual
Annuities segment mainly reflects lower deferrals of its wholesaler costs. While
the adoption of this amended guidance changes the timing of when certain costs
are reflected in the Company's results of operations, it has no effect on the
total acquisition costs to be recognized over time and will have no impact on
the Company's cash flows.



See Note 2 to the Consolidated Financial Statements for a complete discussion of
newly issued accounting pronouncements, including further discussion of the new
authoritative guidance addressing which costs relating to the acquisition of new
or renewal insurance contracts qualify for deferral, as well as our
retrospective adoption of a change in method of applying an accounting principle
for the Company's pension plans.



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                       Consolidated Results of Operations


The following table summarizes net income for the Financial Services Businesses and the Closed Block Business for the periods presented.



                                                                 Year ended December 31,
                                                            2012           2011          2010
                                                                      (in millions)
Financial Services Businesses:
Revenues                                                  $ 78,558       $ 42,015      $ 31,131
Benefits and expenses                                       77,946         37,320        27,737

Income from continuing operations before income taxes
and equity in earnings of operating joint ventures for
Financial Services Businesses                                  612          4,695         3,394
Income tax expense                                             183          1,420           991

Income from continuing operations before equity in earnings of operating joint ventures for Financial Services Businesses

                                            429          

3,275 2,403 Equity in earnings of operating joint ventures, net of taxes

                                                           60            182            82

Income from continuing operations for Financial
Services Businesses                                            489          3,457         2,485
Income from discontinued operations, net of taxes               17             35            32

Net income-Financial Services Businesses                       506          3,492         2,517
Less: Income attributable to noncontrolling interests           78             72            11

Net income of Financial Services Businesses
attributable to Prudential Financial, Inc.                $    428       $  3,420      $  2,506

Closed Block Business:
Revenues                                                  $  6,257       $  7,015      $  7,086
Benefits and expenses                                        6,193          6,801         6,340

Income from continuing operations before income taxes
for Closed Block Business                                       64            214           746
Income tax expense                                              21             68           252

Income from continuing operations for Closed Block Business

                                                        43            146           494

Income (loss) from discontinued operations, net of taxes

                                                           (2 )            0             1

Net income-Closed Block Business                                41            146           495
Less: Income attributable to noncontrolling interests            0              0             0

Net income of Closed Block Business attributable to
Prudential Financial, Inc.                                $     41       $    146      $    495

Consolidated:

Net income attributable to Prudential Financial, Inc.$ 469$ 3,566$ 3,001

Results of Operations-Financial Services Businesses

2012 to 2011 Annual Comparison. Income from continuing operations for the Financial Services Businesses decreased $2,968 million from 2011 to 2012. Results for 2012 compared to 2011 reflect the following:

• Lower pre-tax earnings of $2,377 million resulting from the impact of

foreign currency exchange rate movements on certain non-yen denominated

assets and liabilities within our Japanese insurance operations which are

economically matched and offset in AOCI, driven by the weakening of the

Japanese yen (see "-Results of Operations for Financial Services Businesses

by Segment-International Insurance Division-Impact of foreign currency

exchange rate movements on earnings-U.S. GAAP earnings impact of products

        denominated in non-local currencies" for additional information);



• A $666 million unfavorable variance, before income taxes, reflecting the

net impact from market value changes on our embedded derivatives and

related hedge positions associated with certain variable annuities,

primarily driven by the impact of non-performance risk, partially offset by

the impact of amortization of deferred policy acquisition and other costs

as well as market value changes associated with certain derivatives under

our capital hedge program (see "-Results of Operations for Financial

Services Businesses by Segment-U.S. Retirement Solutions and Investment

Management Division-Individual Annuities-Variable Annuity Living Benefits

        Hedging Program Results" for additional information);




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• A $639 million unfavorable variance, before taxes, from adjustments to

deferred policy acquisition and other costs and the reserves for our

long-term care products, reflecting updates to the estimated profitability

        of the business, driven by changes to our long-term interest rate and
        morbidity assumptions, partially offset by expected future premium
        increases;



• Lower net pre-tax realized gains of $432 million, excluding the impact of

the hedging program associated with certain variable annuities as described

above, primarily reflecting lower gains from changes in the market value of

derivatives used to manage duration in our general account investment

portfolios as a result of changes in interest rates. Also contributing to

the decline is the comparative impact of changes in the market value of

currency derivatives used to hedge portfolio assets due to foreign currency

        exchange rate movements;




    •   The comparative impact of a $237 million pre-tax benefit in 2011 compared

to a pre-tax benefit of $60 million in 2012 reflecting partial sales of our

        indirect interest in China Pacific Insurance Group; and




    •   The absence of a $96 million pre-tax gain in 2011 reflecting the sale of
        our investment in Afore XXI, an operating joint venture in our Asset
        Management segment.



Partially offsetting these decreases in income from continuing operations were the following items:

• A decrease in income tax expense of $1,237 million primarily reflecting the

        decrease in pre-tax income from continuing operations;




    •   A $303 million favorable variance, before taxes, from adjustments to

deferred policy acquisition and other costs and the reserves for guaranteed

minimum death and income benefit features of our variable annuity products,

reflecting updates to the estimated profitability of the business,

primarily resulting from market performance and the impact of an annual

        review and update of assumptions; and



• The absence of a $93 million pre-tax charge recorded in 2011 for estimated

payments arising from use of new Social Security Master Death File matching

        criteria to identify deceased policy and contract holders.




In addition to the items above, premiums increased $41,154 million, primarily
driven by higher premiums in our Retirement segment reflecting two significant
pension risk transfer transactions in 2012 as well as higher premiums in our
International Insurance segment reflecting sales growth in Gibraltar's bank
distribution channel. These increases are largely offset by corresponding
increases in policyholder benefits, including changes in reserves.



2011 to 2010 Annual Comparison. Income from continuing operations for the Financial Services Businesses increased $972 million from 2010 to 2011. Results for 2011 compared to 2010 reflect the following:

• Higher net pre-tax gains of $717 million associated with our general

account portfolio, excluding the impact of the hedging program associated

with certain variable annuities as discussed below, primarily reflecting

higher gains from changes in the market value of derivatives used to manage

the investment portfolio duration resulting from declining interest rates

in 2011, and higher gains from changes in the market value of currency

derivatives used to hedge portfolio assets due to foreign currency exchange

        rate movements;




    •   Higher net pre-tax earnings of $686 million reflecting the impact of

foreign currency exchange rate movements on certain non-yen denominated

assets and insurance liabilities within our Japanese insurance operations

which are economically matched and the offset is included in "Other

Comprehensive Income (loss)", driven by the strengthening of the yen during

        2011;




    •   A $237 million pre-tax benefit in 2011 compared to a $66 million pre-tax
        benefit in 2010 on sales of portions of our indirect interest in China
        Pacific Insurance (Group) Co., Ltd;



• A $96 million pre-tax gain on the sale of our investment in Afore XXI, an

        operating joint venture in our Asset Management segment; and




    •   A net increase in premiums and policy charges and fee income, net of an

increase in policyholders' benefits, including changes in reserves,

reflecting business growth, as well as the impact of favorable currency

        fluctuations.




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Partially offsetting these increases in income from continuing operations were the following items:

• A $588 million unfavorable variance, before taxes, reflecting the net

impact from market value changes on our embedded derivatives, including the

impact of non-performance risk, and related hedge positions associated with

certain variable annuities, the impact on amortization of deferred policy

acquisition and other costs and the impact of temporarily hedging to an

        amount that differs from our hedge target definition;



• A $558 million unfavorable variance, before taxes, from adjustments to

deferred policy acquisition and other costs and the reserves for guaranteed

minimum death and income benefit features of our variable annuity products,

reflecting updates to the estimated profitability of the business primarily

resulting from market performance and the impact of an annual review and

        update of assumptions;



• Higher income tax expense of $429 million primarily reflecting the increase

        in pre-tax income from continuing operations; and




    •   A $93 million pre-tax expense for estimated payments arising from use of
        new Social Security Master Death File matching criteria to identify
        deceased policy and contract holders.



Results of Operations-Closed Block Business

For a discussion of the results of operations for the Closed Block Business, see "-Results of Operations of Closed Block Business" below.



Segment Measures



Adjusted Operating Income.  In managing our business, we analyze operating
performance separately for our Financial Services Businesses and our Closed
Block Business. For the Financial Services Businesses, we analyze our segments'
operating performance using "adjusted operating income." Results of the Closed
Block Business for all periods are evaluated and presented only in accordance
with U.S. GAAP. Adjusted operating income does not equate to "income (loss) from
continuing operations before income taxes and equity in earnings of operating
joint ventures" or "net income" as determined in accordance with U.S. GAAP but
is the measure of segment profit or loss we use to evaluate segment performance
and allocate resources, and consistent with authoritative guidance, is our
measure of segment performance. The adjustments to derive adjusted operating
income are important to an understanding of our overall results of operations.
Adjusted operating income is not a substitute for income determined in
accordance with U.S. GAAP, and our definition of adjusted operating income may
differ from that used by other companies. However, we believe that the
presentation of adjusted operating income as we measure it for management
purposes enhances understanding of our results of operations by highlighting the
results from ongoing operations and the underlying profitability of the
Financial Services Businesses.



See Note 22 to the Consolidated Financial Statements for further information on
the presentation of segment results and our definition of adjusted operating
income.



Annualized New Business Premiums.  In managing certain of our businesses, we
analyze annualized new business premiums, which do not correspond to revenues
under U.S. GAAP. Annualized new business premiums measure the current sales
performance of the business, while revenues primarily reflect the renewal
persistency of policies written in prior years and net investment income, in
addition to current sales. Annualized new business premiums include 10% of first
year premiums or deposits from single pay products. No other adjustments are
made for limited pay contracts.



Assets Under Management.  In managing our Asset Management business, we analyze
assets under management, which do not correspond to U.S. GAAP assets, because
the principal source of revenues is fees based on assets under management.
Assets under management represents the fair market value or account value of
assets which we manage directly in proprietary products, such as mutual funds
and variable annuities, in separate accounts, wrap-fee products and the general
account, and assets invested in investment options included in our products that
are managed by third party sub-managers (i.e., the non-proprietary investment
options in the Company's products).



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Account Values.  For our Individual Annuity and Retirement businesses, assets
are reported at account value, which do not correspond to U.S. GAAP assets. Net
sales (redemptions) in our Individual Annuity business and net additions
(withdrawals) in our Retirement business do not correspond to revenues under
U.S. GAAP, but are used as a relevant measure of business activity.



       Results of Operations for Financial Services Businesses by Segment


U.S. Retirement Solutions and Investment Management Division



Individual Annuities



The Individual Annuities segment offers variable and fixed annuities that
provide our customers with tax-deferred asset accumulation together with a base
death benefit and a suite of optional guaranteed death and living benefits. As
the investment return on the contractholder funds is generally attributed
directly to the contractholder, we derive our revenue mainly from fee income
generated on variable annuity account values, investment income earned on fixed
annuity account values, and certain other management fees. Our expenses
primarily consist of interest credited and other benefits to contractholders,
amortization of deferred acquisition costs ("DAC") and other costs, expenses
related to the selling and servicing of the various products we offer, costs of
hedging our risk associated with these products and the eventual payment of
benefit guarantees and other general business expenses. These drivers of our
business results are generally included in adjusted operating income, with
exceptions related to certain guarantees, as discussed below.



The U.S. GAAP accounting and our adjusted operating income treatment for our
guarantees differs depending upon the specific feature. The reserves for our
guaranteed minimum death benefit ("GMDB") and guaranteed minimum income benefit
("GMIB") features are calculated based on our best estimate of actuarial and
capital markets return assumptions. The risks associated with these benefit
features are retained and results are included in adjusted operating income. In
contrast, certain of our optional guaranteed living benefit features are
accounted for as embedded derivatives and reported at fair value. Under U.S.
GAAP, the fair values of these benefit features are based on assumptions a
market participant would use in pricing these embedded derivative liabilities.
We hedge or limit our exposure to certain risks associated with these features
through our living benefits hedging program and product design elements.
Adjusted operating income, as discussed below in "-Adjusted Operating Income"
and "-Revenues, Benefits and Expenses" excludes amounts related to these changes
in the market value of the embedded derivatives and related hedge positions, and
the related impact to amortization of DAC and other costs. The items excluded
from adjusted operating income are discussed below in "-Variable Annuity Living
Benefits Hedging Program Results."



Account Values



Account values are a significant driver of our operating results. Since most
policy fees are determined by the level of separate account assets, fee income
varies according to the level of account values. Additionally, our fee income
drives other items such as our pattern of amortization of DAC and other costs.
Account values are primarily driven by net flows from new business sales,
surrenders and withdrawals, and benefit payments, as well as the impact of
market changes on account values. The following tables set forth account value
information for the periods indicated.



                                                               Year ended December 31,
                                                        2012            2011            2010
                                                                    (in millions)
Total Individual Annuities(1):
Beginning total account value                         $ 113,535       $ 106,185       $  83,971
Sales                                                    20,032          20,293          21,754
Surrenders and withdrawals                               (6,806 )        (7,232 )        (7,138 )

Net sales                                                13,226          13,061          14,616
Benefit payments                                         (1,450 )        (1,368 )        (1,248 )

Net flows                                                11,776          11,693          13,368
Change in market value, interest credited and
other activity                                           12,710          (2,104 )        10,514
Policy charges                                           (2,679 )        (2,239 )        (1,668 )

Ending total account value(2)                         $ 135,342       $ 113,535       $ 106,185





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(1) Includes variable and fixed annuities sold as retail investment products.

Investments sold through defined contribution plan products are included

with such products within the Retirement segment. Variable annuity account

values were $131.6 billion, $109.7 billion and $102.3 billion as of

December 31, 2012, 2011 and 2010, respectively. Fixed annuity account values

were $3.7 billion, $3.8 billion and $3.8 billion as of December 31, 2012,

      2011 and 2010, respectively.


(2)   As of December 31, 2012, includes variable annuity account values of $75
      billion, or 57%, invested in equity portfolios, $41 billion, or 31%,

invested in bond portfolios, $8 billion, or 6%, invested in market value

adjusted or fixed-rate accounts and $8 billion, or 6%, invested in money

      market funds.




As shown above, our account values are significantly impacted by net sales and
the impact of market performance on customers' accounts. Our sales levels were
relatively flat between 2012 and 2011, reflecting the dynamic competitive
landscape we have experienced over this period. During 2012, we suspended
additional customer deposits for variable annuities with certain optional living
benefit riders that were no longer being offered and implemented variable
annuity product modifications for new sales to scale back benefits, increase
pricing and close a share class in the third quarter. Certain of our competitors
have taken actions to implement product modifications that scale back benefits
and to exit, or limit their presence in, the variable annuity marketplace. Our
results in future periods may continue to be impacted by the dynamic competitive
landscape. The decrease in surrenders and withdrawals for 2012 compared to 2011
primarily reflects the continued retention of contracts with guarantees that are
in-the-money and the attractiveness of our inforce contracts relative to
substitute products currently available in the marketplace.



The decrease in gross sales for 2011 compared to 2010 reflects the impacts of
modifications we implemented in the first quarter of 2011 to scale back benefits
and increase pricing, and increased competition as certain of our competitors
became more aggressive in product design and pricing. Surrenders and withdrawals
were relatively flat despite the increase in account values, reflecting a
decline in withdrawal rates.



Operating Results


The following table sets forth the Individual Annuities segment's operating results for the periods indicated.



                                                                Year ended December 31,
                                                            2012          2011         2010
                                                                     (in millions)
Operating results:
Revenues                                                  $  3,983      $  3,638      $ 3,195
Benefits and expenses                                        2,944         2,976        2,245

Adjusted operating income                                    1,039           662          950
Realized investment gains (losses), net, and related
adjustments                                                 (1,882 )       3,136          120
Related charges                                                942        (1,686 )       (146 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 99$ 2,112$ 924






Adjusted Operating Income



2012 to 2011 Annual Comparison.  Adjusted operating income increased $377
million. Excluding the impacts of changes in the estimated profitability of the
business, discussed below, adjusted operating income increased $74 million. This
increase was driven by higher asset-based fees due to growth in average variable
annuity account values, as discussed in "-Account Values" above, net of an
increased level of distribution and amortization costs. The increase was
partially offset by higher general and administrative expenses, net of
capitalization, reflecting increased costs to support business initiatives,
including a $9 million charge related to an impairment of capitalized software
costs in the fourth quarter of 2012, based on a review of recoverability.



The impacts of changes in the estimated profitability of the business include
adjustments to the reserves for the GMDB and GMIB features of our variable
annuity products and to the amortization of DAC and other costs. These
adjustments reflect the impacts of market performance, current period experience
and the annual review and update of assumptions performed in the third quarter.
These changes resulted in an $81 million net benefit in 2012, and a $222 million
net charge in 2011. The $81 million net benefit in 2012 was primarily driven by
the impact of positive market performance on customer accounts relative to our
assumptions, partially offset by the



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impact of annual assumption updates. These annual assumption updates were driven
by updates to our economic assumptions, primarily reflecting reductions to our
long-term interest and equity rate of return assumptions, as well as updates to
actuarial assumptions and other refinements. The $222 million net charge in 2011
was primarily driven by the impact of negative market performance on customer
accounts relative to our assumptions.



In addition to these current period impacts, the changes to the estimated
profitability of our business also drive changes in our future accrual rates for
GMDB and GMIB reserves and amortization rates for DAC and other costs, which
will impact results in future periods. Additionally, we include certain results
of our living benefits hedging program in our best estimate of gross profits
used to determine amortization rates, which also drives changes in the
amortization of DAC and other costs in future periods. The results above exclude
the fourth quarter impacts of resetting the amortization rates for this item, as
both the results of our living benefits hedging program and related amortization
of DAC and other costs are excluded from adjusted operating income in the
quarter realized, as described below in "-Variable Annuity Living Benefits
Hedging Program Results." However, adjusted operating income in future periods
includes the impact on amortization of applying the new rates to actual gross
profits. The inclusion of net unfavorable results from our living benefits
hedging program in our best estimate of gross profits drove increases in
amortization rates and, therefore, an increase in amortization expense included
in adjusted operating income in 2012. While a decrease in our best estimate of
total gross profits accelerates amortization and decreases income in a given
period, it does not affect our cash flow or liquidity position.



For weighted average rate of return assumptions and additional information on
our policy for amortizing DAC and other costs, and for estimating future
expected claims costs associated with the GMDB and GMIB features of our variable
annuity products as of December 31, 2012, see "-Accounting Policies &
Pronouncements-Application of Critical Accounting Estimates."



2011 to 2010 Annual Comparison.  Adjusted operating income decreased $288
million. Excluding the impacts of changes in the estimated profitability of the
business on the reserves for the GMDB and GMIB features of our variable annuity
products and on the amortization of DAC and other costs, discussed below,
adjusted operating income increased $270 million. This increase was driven by
higher asset-based fees due to growth in average variable annuity account
values, net of an increased level of distribution costs. The increase was
partially offset by higher general and administrative expenses, net of
capitalization, reflecting increased costs to support business growth and higher
financing expenses, and the impact of a $25 million benefit in 2010 from
refinements based on a review and settlement of reinsurance contracts related to
acquired business.



The impacts of changes in the estimated profitability of the business resulted
in a $222 million net charge in 2011, and a $336 million net benefit in 2010.
The $222 million net charge in 2011 was primarily driven by the impact of
negative market performance on customer accounts relative to our assumptions.
The $336 million net benefit in 2010 reflected the impacts of annual assumption
updates, driven by reductions to lapse rate assumptions and more favorable
assumptions relating to fee income, as well as the impacts of favorable market
performance on customer accounts relative to our assumptions, and favorable
claims, lapse and fee experience.



Revenues, Benefits and Expenses




2012 to 2011 Annual Comparison.  Revenues, as shown in the table above under
"-Operating Results," increased $345 million, primarily driven by a $384 million
increase in policy charges and fee income, and asset management fees and other
income, due to growth in average variable annuity account values.



Benefits and expenses, as shown in the table above under "-Operating Results,"
decreased $32 million. Absent the $303 million net decrease related to the
impacts of certain changes in our estimated profitability of the business,
discussed above, benefits and expenses increased $271 million. General and
administrative expenses, net of capitalization, increased $211 million, driven
by higher asset-based trail commissions, reflecting account value growth, as
well as higher costs to support business initiatives. The amortization of DAC
increased $92 million driven by higher gross profits primarily related to the
increase in fee income discussed above, and higher amortization rates driven
primarily by the inclusion of unfavorable results from our living benefits
hedging program in our best estimate of total gross profits used to determine
amortization rates.


2011 to 2010 Annual Comparison. Revenues increased $443 million. Policy charges and fees and asset management fees and other income increased $576 million driven by growth in average variable annuity account

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values. Partially offsetting the increase in revenues was a decrease in net
investment income of $88 million, reflecting lower average annuity account
values in the general account primarily resulting from net transfers from the
general account to the separate accounts, driven by an automatic rebalancing
element in some of our optional living benefit features.



Benefits and expenses increased $731 million. Absent the $558 million net
increase related to the impacts of certain changes in our estimated
profitability of the business, discussed above, benefits and expenses increased
$173 million. General and administrative expenses, net of capitalization,
increased $195 million, driven by higher distribution and asset management
costs, reflecting business and account value growth. The amortization of DAC
increased $78 million driven by higher gross profits primarily related to the
increase in fee income discussed above. Interest expense also increased $46
million driven by higher borrowings to fund costs related to new business sales.
Interest credited to policyholders' account balances decreased $107 million
primarily due to lower average annuity account values in the general account
partially offset by higher amortization of deferred sales inducements reflecting
the impact of higher gross profits.



Variable Annuity Risks and Risk Mitigants




The primary risk exposures of our variable annuity contracts relate to actual
deviations from, or changes to, the assumptions used in the original pricing of
these products, including capital markets assumptions, such as equity market
returns, interest rates and market volatility, and actuarial assumptions, such
as contractholder longevity/mortality, the timing of annuitization and
withdrawals, and contract lapses. For our actuarial assumptions, we have
retained the risk that actual experience will differ from the assumptions used
in the original pricing of these products. For our capital markets assumptions,
we hedge or limit our exposure to the risk created by capital markets
fluctuations through a combination of product design elements, such as an
automatic rebalancing element, also referred to as an asset transfer feature,
and inclusion of certain optional living benefits in our living benefits hedging
program.



Our automatic rebalancing element occurs at the contractholder level, and
transfers assets between certain variable investments selected by the annuity
contractholder and, depending on the benefit feature, the fixed-rate account in
the general account or a bond portfolio within the separate accounts. The
automatic rebalancing element associated with currently-sold products uses a
designated bond portfolio within the separate accounts. The transfers are based
on the static mathematical formula used with the particular benefit which
considers a number of factors, including, but not limited to, the impact of
investment performance on the contractholder's total account value. The
objective of the automatic rebalancing element is to mitigate our exposure to
equity market risk and market volatility. Other product design elements we
utilize include, among others, asset allocation restrictions and minimum
issuance age requirements. In addition, certain fees are based on a benefit
guarantee amount rather than the account value, which helps preserve certain
revenue streams when market fluctuations cause account values to decline.



We use our living benefits hedging program to manage the risk associated with
certain of our optional living benefit guarantees. This program represents a
balance among three objectives: 1) provide severe scenario protection, 2)
minimize net income volatility associated with an internally-defined hedge
target, and 3) maintain capital efficiency. Through our hedge program, we
purchase derivatives that seek to replicate the net change in our hedge target,
discussed further below. In addition to mitigating capital markets risk and
income statement volatility, the hedging program is also focused on a long-term
goal of accumulating assets that could be used to pay claims under these
benefits irrespective of market path, recognizing that, under the terms of the
contracts, we do not expect to begin substantial payment of such claims until
many years in the future. For additional information regarding this program see
"-Variable Annuities Living Benefits Hedging Program Results" below.



For our optional living benefits features, claims will primarily be paid in the
form of lifetime contractholder withdrawal payments. These payments commence
only after the cumulative withdrawals have first exhausted the policy account
value. Due to the age of the block, no such claims payments have occurred to
date, nor are they expected to occur within the next five years. The timing and
amount of actual future claims depend on actual returns on contractholder
account value and actual policyholder behavior relative to our assumptions.



The majority of our variable annuity contracts with optional living benefit features, and all new contracts sold with these features, include an automatic rebalancing element and are also included in our living benefits

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hedging program. The guaranteed benefit features of certain legacy products that
were sold prior to our implementation of the automatic rebalancing element
product feature are included in our living benefits hedge program. Certain
legacy guaranteed minimum accumulation benefit (GMAB) products include the
automatic rebalancing element, but are not included in the hedging program. Our
contracts with the GMIB feature have neither risk mitigant, as we have retained
the associated risk.



For our GMDBs, we provide a benefit payable in the event of death that, together
with the existing contractholder's account balance, is equal to a return of
cumulative deposits less any partial withdrawals, or the greater of a minimum
return on the contract value or an enhanced value. We have retained the risk
that the total amount of death benefit payable may be greater than the
contractholder account value. However, a substantial portion of the account
values associated with GMDBs are subject to an automatic rebalancing element
because the contractholder also selected a living benefit feature which includes
an automatic rebalancing element. All of the variable annuity account values
with living benefit features also contain GMDBs. The living and death benefit
features for these contracts cover the same insured life, and we have insured
both the mortality and longevity risk on these lives.



The following table sets forth the risk profile of our optional living benefits and GMDB features as of the periods indicated.



                                        December 31, 2012                   December 31, 2011                   December 31, 2010
                                                         % of                                % of                                % of
                                   Account Value         Total         Account Value         Total         Account Value         Total
                                                                              (in millions)
Optional living benefit/GMDB
features(1):
Both risk mitigants               $         89,167           68 %     $         66,853           61 %     $         52,615           51 %
Hedging program only                        11,744            9 %               11,615           11 %               13,203           13 %
Automatic rebalancing only                   2,787            2 %                3,488            3 %                4,722            5 %
Neither risk mitigant                        3,556            3 %                3,685            3 %                4,532            4 %

Total optional living
benefit/GMDB features             $        107,254                    $         85,641                    $         75,072

GMDB features only(2):
Neither risk mitigant                       24,354           18 %               24,102           22 %               27,276           27 %

Total variable annuity account
value                             $        131,608                    $        109,743                    $        102,348





(1)   All contracts with optional living benefit guarantees also contain GMDB
      features, covering the same insured life.


(2)   Reflects contracts that only include a GMDB feature and do not have an
      automatic rebalancing element.



The increase in account values that include both risk mitigants as of December 31, 2012 compared to prior periods primarily reflects sales of our latest product offerings which, include an automatic rebalancing element and are also included in our living benefits hedging program.

Variable Annuity Living Benefits Hedging Program Results




Under U.S. GAAP, the liability for certain optional living benefit features is
accounted for as an embedded derivative and recorded at fair value, based on
assumptions a market participant would use in pricing these features. The fair
value is calculated as the present value of future expected benefit payments to
customers less the present value of assessed rider fees attributable to the
applicable living benefit features using option pricing techniques. See Note 20
to the Consolidated Financial Statements for additional information regarding
the methodology and assumptions used in calculating the fair value under U.S.
GAAP.



As noted within "-Variable Annuity Risks and Risk Mitigants" above, we maintain
a hedge program to manage the risk associated with these guarantees. Prior to
the third quarter of 2010, our hedging strategy sought to generally match
certain estimated capital markets sensitivities of the embedded derivative
liability as defined by U.S. GAAP, excluding the impact of the market's
perception of our own non-performance risk ("NPR"). Since then, our program has
utilized an internally-defined hedge target that is grounded in a U.S.
GAAP/capital markets valuation framework, with three notable modifications.



1. The impact of NPR is excluded to maximize protection against the entire

     projected claim irrespective of the possibility of our own default.




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Table of Contents 2. A credit spread is added to the risk-free rate of return assumption used

under U.S. GAAP to estimate future growth of bond investments in the customer

separate account funds in order to better replicate the projected returns

     within those funds.



3. The equity volatility assumption is adjusted to remove certain risk margins

required under U.S. GAAP valuation which are used in the projection of

customer account values, as we believe the impact of these margins is highly

sensitive to short-term market conditions and does not reflect the long-term

     nature of these guarantees.




Due to these modifications, we expect differences each period between the change
in the value of the embedded derivative as defined by U.S. GAAP and the change
in the value of the hedge positions used to replicate the hedge target, thus
potentially increasing volatility in U.S. GAAP earnings. The following table
provides a reconciliation between the fair value of the embedded derivative as
defined by U.S. GAAP and the value of our hedge target as of the periods
indicated.



                                                                  As of December 31,
                                                                 2012             2011
                                                                    (in billions)

Embedded derivative liability as defined by U.S. GAAP $ 3.3

$  2.8
Less: NPR Adjustment                                                (4.8 )  

(5.5 )

Embedded derivative liability as defined by U.S. GAAP, excluding NPR

                                                        8.1    

8.3

Less: Portion of embedded derivative liability, excluding NPR, excluded from hedge target liability

                            2.3            1.2

Hedge target liability                                         $     5.8         $  7.1





We seek to replicate the changes in our hedge target by entering into a range of
exchange-traded and over the counter equity and interest rate derivatives to
hedge certain capital market risks present in our hedge target. The instruments
include, but are not limited to, interest rate swaps, swaptions, floors and caps
as well as equity options, total return swaps and equity futures. The following
table sets forth the market and notional values of these instruments as of
December 31, 2012.



                                               As of December 31, 2012                                  As of December 31, 2011
                                         Equity                   Interest Rate                   Equity                   Interest Rate
                                                Market                        Market                     Market                        Market
          Instrument              Notional       Value        Notional        Value        Notional       Value        Notional        Value
                                                                                 (in billions)
Futures                          $      6.5     $  (0.2 )    $       0.0     $    0.0     $      2.1     $   0.0      $       0.0     $    0.0
Total return swaps                      5.5        (0.1 )           54.1          3.0            6.7        (0.1 )           31.5          4.0
Options                                10.7         0.5             25.3          0.8            4.3         0.3             15.1          1.1

Total                            $     22.7     $   0.2      $      79.4     $    3.7     $     13.1     $   0.2      $      46.6     $    5.1




Due to cash flow timing differences between our hedging instruments and the corresponding hedge target, as well as other factors, including updates to actuarial valuation assumptions, the amount of hedge assets compared to our hedge target measured as of any specific point in time may be different and is not expected to be fully offsetting.




In addition to the hedge assets held as part of the hedging program, we have
cash, other invested assets and affiliated receivables available to cover the
future claims payable under these guarantees and other liabilities. For
additional information on the liquidity needs associated with our hedging
program, see "-Liquidity and Capital Resources-Liquidity associated with other
activities-Hedging activities associated with living benefit guarantees."



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While we actively manage our hedge positions, changes in the fair value of these
positions may not completely offset changes in the fair value of the hedge
target. Additionally, updates to actuarial valuation assumptions, which
typically occur annually in the third quarter, are generally not hedged and may
result in differences between the hedge positions and the hedge target. The
primary sources of the differences between the changes in the fair value of the
hedge positions and the hedge target, other than actuarial valuation assumption
updates, fall into one of three categories:



• Fund Performance-In order to project future account value growth, we must

make certain assumptions about how each underlying fund will perform. We

map customer funds to indices that we believe are comparable, are readily

tradeable and have active derivative markets. The difference between the

        modeled fund performance and actual fund performance results in basis
        differences that can be either positive or negative.



• Liability Basis-We experience differences between the actual changes in the

        hedge target and the expected changes we have modeled and attempt to
        replicate with the hedge program.




    •   Rebalancing Costs and Volatility-There are costs associated with
        rebalancing hedge positions for basis differences between the hedge

positions and the hedge target. Our hedge program is also subject to the

        impact of realized market volatility in excess of, or lower than, our
        long-term volatility assumptions.




The net impact of both the change in the fair value of the embedded derivative
associated with our living benefit features and the change in the fair value of
the related hedge positions are included in "Realized investment gains (losses),
net, and related adjustments" and the related impact to the amortization of DAC
and other costs is included in "Related charges," both of which are excluded
from adjusted operating income. The following table shows the net impact of
changes in the embedded derivative and related hedge positions, as well as the
related amortization of DAC and other costs, for the periods indicated.



                                                                Year ended December 31,
                                                           2012           2011          2010
                                                                          (1)
                                                                     (in millions)
Hedge Program Results:
Change in fair value of hedge positions                  $ (2,737 )     $  

3,873 $ (224 ) Change in value of hedge target, excluding assumption updates(2)

                                                  3,480         

(5,170 ) 364

Net hedging impact, excluding assumption updates(2) $ 743 $ (1,297 ) $ 140


Impact of assumption updates on hedge target                 (912 )          (17 )        (902 )

Net hedging impact(2)                                    $   (169 )     $ (1,314 )     $  (762 )

Reconciliation of Hedge Program Results to U.S. GAAP Results: Net hedging impact(2) (from above)

                       $   (169 )     $ (1,314 )     $  (762 )
Change in portions of U.S. GAAP liability, before
NPR, excluded from hedge target(3)                         (1,020 )         (457 )         387
Change in the NPR adjustment                                 (754 )        4,786           412

Net impact from changes in the U.S. GAAP embedded derivative and hedge positions-reported in Individual Annuities(2)

                                               (1,943 )        3,015            37

Related benefit (charge) to amortization of DAC and other costs

                                                   981         

(1,591 ) (4 )


Net impact from changes in the U.S. GAAP embedded
derivative and hedge positions, after the impact of
NPR, DAC and other costs-reported in Individual
Annuities(2)                                             $   (962 )     $  1,424       $    33




(1) Positive amount represents income; negative amount represents a loss.

(2) Excludes $101 million, $(1,662) million and $306 million in 2012, 2011 and

2010, respectively, representing the impact of managing interest rate risk

by holding capital against a portion of the interest rate exposure

associated with these contracts. Because this decision is based on the

capital considerations of the Company as a whole, the impact is reported in

Corporate & Other operations. See "-Corporate & Other."

(3) Represents the impact attributable to the difference between the value of

the hedge target and the value of the embedded derivative as defined by U.S.

      GAAP, before adjusting for NPR, as discussed above.




Results for 2012 generally reflected improved capital markets performance, as
well as lower levels of volatility. The $743 million net benefit related to the
net hedging impact, excluding assumption updates, primarily reflected positive
fund performance. The $912 million net charge related to the impact of
assumption



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updates was driven by updates to our policyholder behavior assumptions,
primarily related to lapse and mortality rates, as well as policyholder
utilization assumptions. The $754 million net charge from the change in the NPR
adjustment was primarily driven by a tightening of our NPR credit spreads. We
also included these items in gross profits used to calculate the amortization of
DAC, which resulted in a net benefit of $981 million, including a $388 million
net benefit from the current period impact of incorporating the net hedging
impact into our best estimate of gross profits used to set amortization rates.



Results for 2011 reflected significant capital markets volatility in the second
half of the year. The $1,297 million net charge related to the net hedging
impact, excluding assumption updates, primarily reflected liability basis
differences and rebalancing costs and volatility. The $4,786 million benefit due
to the change in the NPR adjustment was driven by increases in the base embedded
derivative liability before NPR primarily due to significant declines in
risk-free interest rates and the impact of account value performance, as well as
the widening of our NPR credit spreads. We also included these items in gross
profits used to calculate the amortization of DAC, which resulted in a net
charge of $1,591 million, including a $130 million net charge from the current
period impact of incorporating the cumulative net hedging impact into our best
estimate of gross profits used to set amortization rates.



Results for 2010 primarily reflected a $902 million net charge related to the
impact of assumption updates, reflecting reductions in the expected lapse rate
assumption based on actual experience. This net charge was partially offset by a
$412 million benefit due to the change in the NPR adjustment, reflecting
increases in the base embedded derivative liability before NPR primarily due to
lower interest rates.


For information regarding the Capital Protection Framework we use to evaluate and support the risks of our hedging program, see "-Liquidity and Capital Resources-Capital-Capital Protection Framework."



Retirement



Operating Results



The following table sets forth the Retirement segment's operating results for
the periods indicated.



                                                                Year ended December 31,
                                                             2012         2011         2010
                                                                     (in millions)
Operating results:
Revenues                                                   $ 36,595      $ 4,871      $ 5,183
Benefits and expenses                                        35,957        4,277        4,618

Adjusted operating income                                       638        

594 565 Realized investment gains (losses), net, and related adjustments

                                                    (171 )        269          262
Related charges                                                  (1 )       

(9 ) (16 ) Investment gains on trading account assets supporting insurance liabilities, net

                                      406         

383 468 Change in experience-rated contractholder liabilities due to asset value changes

                                     (336 )       

(283 ) (598 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 536 $

 954      $   681





Adjusted Operating Income



2012 to 2011 Annual Comparison.  Adjusted operating income increased $44
million. The increase includes $78 million related to a legal settlement in
2012, in which we recovered losses previously incurred related to reimbursements
of client losses on certain investment funds managed by an unaffiliated asset
manager. The increase also includes a $6 million favorable comparative impact
from certain changes in our estimated profitability of the business on the
amortization of DAC and VOBA, which resulted in net charges of $18 million and
$24 million in 2012 and 2011, respectively. These changes were primarily related
to our annual review and update of assumptions performed in the third quarter,
driven by a reduction to long-term interest and equity rate of return
assumptions in 2012, and driven by changes to expense and net cash flow
assumptions in 2011. Partially offsetting these increases in adjusted operating
income was a $29 million charge in 2012 to write off an intangible asset due to
the impact of the prolonged economic downturn on the expected results of a
business we acquired in 2008, as well as a $9 million charge in 2012 from costs
related to the divestiture of bank deposits in connection with our decision to
limit the operations of Prudential Bank & Trust, FSB ("PB&T") to trust services.



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Excluding these items, adjusted operating income decreased $2 million, as higher
asset-based fee income and net investment spread results were more than offset
by higher general and administrative expenses, net of capitalization, and an
unfavorable comparative reserve impact from case experience. The increase in
asset-based fee income primarily reflects higher investment-only stable value
account values driven by net additions, partially offset by lower full service
fee income primarily due to outflows of contracts earning higher than average
margins. The increase in net investment spread results primarily reflects higher
institutional investment products account values, driven by two significant
pension risk transfer transactions within our non-participating group annuity
product offering in the fourth quarter of 2012. Also contributing to net
investment spread results were increases from the impacts of crediting rate
reductions, higher full service general account stable value account values and
higher income from alternative investments, partially offset by decreases from
the impacts of lower reinvestment rates and the divestiture of bank deposits in
2012. Higher general and administrative expenses, net of capitalization,
primarily reflect increased costs to support strategic initiatives and business
expansion, partially offset by lower costs related to legal matters. The
unfavorable comparative reserve impact from case experience was primarily driven
by unfavorable mortality experience in 2012. For additional information on the
two significant pension risk transfer transactions in the fourth quarter of
2012, see "-Executive Summary-Current Developments."



2011 to 2010 Annual Comparison.  Adjusted operating income increased $29
million. The increase includes a $17 million unfavorable comparative impact from
certain changes in our estimated profitability of the business on the
amortization of DAC and VOBA, which resulted in net charges of $24 million and
$7 million in 2011 and 2010, respectively. These changes were driven by
quarterly adjustments for current period experience, as well our annual review
and update of assumptions performed in the third quarter, driven by changes to
expense and net cash flow assumptions in 2011, and driven by changes in lapse
rate and fee-based profit margin assumptions in 2010.



Excluding these items, AOI increased $46 million, primarily reflecting higher
asset-based fee income, partially offset by lower net investment spread results
and higher general and administrative expenses, net of capitalization. Higher
asset-based fee income was driven by an increase in investment-only stable value
account values driven by net additions, and higher average full service
fee-based account values driven by market appreciation. Lower net investment
spread results were driven by lower reinvestment rates, and the unfavorable
impact of changes in the market values of alternative investments and equity
investments in certain separate accounts. Partially offsetting these declines
were the impacts of crediting rate reductions and higher full service general
account stable value account values. Higher general and administrative expenses,
net of capitalization, were driven by costs related to legal matters and
strategic initiatives, partially offset by a decline in charges related to
certain cost reduction initiatives.



Revenues, Benefits and Expenses




2012 to 2011 Annual Comparison.  Revenues, as shown in the table above under
"-Operating Results," increased $31,724 million. Premiums increased $31,622
million, primarily driven by the significant pension risk transfer transactions
discussed above. The increase in premiums resulted in a corresponding increase
in policyholders' benefits, including the change in policy reserves, discussed
below. Policy charges and fee income, and asset management fees and other income
increased $77 million, primarily from higher asset-based fees on investment-only
stable value account values and higher income from alternative investments
accounted for under the fair value option, partially offset by lower asset-based
fees on full service fee-based account values. Net investment income increased
$25 million primarily reflecting the impacts of higher institutional investment
products account values, driven by the significant pension risk transfer
transactions, higher full service general account stable value account values,
and a favorable impact from changes in the market values of equity-method
alternative investments, partially offset by the impacts of lower portfolio
yields and the divestiture of bank deposits in 2012.



Benefits and expenses, as shown in the table above under "-Operating Results,"
increased $31,680 million. Policyholders' benefits, including the change in
policy reserves, increased $31,723 million, driven by the significant pension
risk transfer transactions associated with the increase in premiums discussed
above. Absent this increase and the $46 million net decrease associated with the
legal settlement, changes in our estimated profitability of the business on the
amortization of DAC and VOBA, intangible asset write off and costs related



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to the divestiture of bank deposits, discussed above, benefits and expenses
increased $3 million. General and administrative expenses, net of
capitalization, increased $12 million, primarily reflecting increased costs to
support strategic initiatives and business expansion, partially offset by lower
costs related to legal matters. The amortization of DAC increased $6 million,
reflecting an increase from the amortization of acquisition costs related to the
significant pension risk transfer transactions, partially offset by a decrease
related to a refinement associated with certain structured settlements recorded
in 2011. Interest credited to policyholders' account balances decreased $20
million primarily driven by the impacts of crediting rate reductions and the
divestiture of bank deposits in 2012, partially offset by the impact of higher
full service general account stable value account values and an increase related
to a refinement associated with certain structured settlements recorded in 2011.



2011 to 2010 Annual Comparison.  Revenues decreased $312 million. Premiums
decreased $286 million, driven by lower life-contingent structured settlement
and single-premium annuity sales, partially offset by higher pension risk
transfer transactions within our non-participating group annuity product
offering. The decrease in premiums resulted in a corresponding decrease in
policyholders' benefits, including the change in policy reserves, discussed
below. Net investment income decreased $60 million primarily reflecting lower
portfolio yields and the unfavorable impact of changes in the market values of
equity-method alternative investments and equity investments in certain separate
accounts, partially offset by higher full service general account stable value
account values. Policy charges and fee income and asset management fees and
other income increased $34 million, primarily driven by an increase in
asset-based fees due to an increase in investment-only stable value account
values and average full service fee-based account values. These increases were
partially offset by the unfavorable impact of changes in the market values of
certain alternative investments accounted for under the fair value option.



Benefits and expenses decreased $341 million. Absent the $17 million increase
from the impact of changes in our estimated profitability of the business on the
amortization of DAC and VOBA discussed above, benefits and expenses decreased
$358 million. Policyholders' benefits, including the change in policy reserves,
decreased $254 million, primarily reflecting a decrease in change in policy
reserves associated with the decrease in premiums discussed above. Interest
credited to policyholders' account balances decreased $119 million including a
refinement associated with certain structured settlements recorded in 2011. Also
contributing to the decrease were the impacts of crediting rate reductions,
partially offset by the impact of higher full service general account stable
value account values. The amortization of DAC increased $22 million primarily
driven by a refinement associated with certain structured settlement contracts
recorded in 2011.



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Account Values



Our account values are a significant driver of our operating results, and are
primarily driven by net additions (withdrawals) and the impact of market
changes. For our fee-based products, the income we earn varies with the level of
fee-based account values, since many policy fees are determined by these values.
For our spread-based products, both the investment income and interest we credit
to policyholders vary with the level of general account values. To a lesser
extent, changes in account values impact our pattern of amortization of DAC and
VOBA, and general and administrative expenses. The following table shows the
changes in the account values and net additions (withdrawals) of Retirement
segment products for the periods indicated. Net additions (withdrawals) are
deposits and sales or additions, as applicable, minus withdrawals and benefits.
Account values include both internally- and externally-managed client balances
as the total balances drive revenue for the Retirement segment. For more
information on internally-managed balances see "-Asset Management."



                                                               Year ended December 31,
                                                        2012            2011            2010
                                                                    (in millions)
Full Service(1):
Beginning total account value                         $ 139,430       $ 141,313       $ 126,345
Deposits and sales                                       16,390          16,821          19,266
Withdrawals and benefits                                (19,223 )       (19,160 )       (16,804 )
Change in market value, interest credited,
interest income and other activity(2)                    11,808             456          12,506

Ending total account value                            $ 148,405       $ 139,430       $ 141,313

Net additions (withdrawals)                           $  (2,833 )     $  (2,339 )     $   2,462

Institutional Investment Products(3):
Beginning total account value                         $  90,089       $  64,183       $  51,908
Additions(4)                                             55,005          27,773          15,298
Withdrawals and benefits(5)                              (8,495 )        (6,150 )        (6,958 )
Change in market value, interest credited and
interest income                                           4,787           4,581           3,370
Other(6)                                                     49            (298 )           565

Ending total account value(7)                         $ 141,435       $  90,089       $  64,183

Net additions(8)                                      $  46,510       $  21,623       $   8,340




(1) Ending total account value for the full service business includes assets of

Prudential's retirement plan of $6.6 billion, $6.3 billion and $5.8 billion

as of December 31, 2012, 2011 and 2010, respectively.

(2) Change in market value, interest credited and interest income and other

activity includes $(1.4) billion for 2012 representing the divestiture of

bank deposits held by PB&T, as a result of our decision to limit its

operations to trust services. Other activity also includes $469 million in

      2011 representing the addition of Prudential's non-qualified pension plan
      transferred from a third-party administrator.


(3)   Ending total account value for the institutional investment products

business includes assets of Prudential's retirement plan of $6.1 billion,

$5.8 billion and $5.4 billion as of December 31, 2012, 2011 and 2010,

respectively. Ending total account value for the institutional investment

products business also includes $1.9 billion, $1.5 billion and $1.5 billion

as of December 31, 2012, 2011 and 2010, respectively, related to

collateralized funding agreements issued to the Federal Home Loan Bank of

New York (FHLBNY), and $0.5 billion and $1.0 billion as of December 31, 2011

and 2010, respectively, related to affiliated funding agreements issued to

Prudential Financial. For additional information, see Note 10 and Note 14 to

the Consolidated Financial Statements.

(4) Additions include $1,008 million in 2012 representing transfers of

externally-managed client balances to accounts we manage. These additions

are offset within Other.

(5) Withdrawals and benefits include $(902) million, $(78) million and $(752)

million for 2012, 2011 and 2010, respectively, representing transfers of

client balances from accounts we manage to externally-managed accounts.

      These withdrawals are offset within Other.


(6)   Other includes $(106) million, $78 million and $752 million for 2012, 2011

and 2010, respectively, representing net transfers of externally-managed

client balances from/(to) accounts we manage. These transfers are offset

      within Additions or Withdrawals and benefits.


(7)   Ending total account value for the institutional investment products

business includes investment-only stable value account values of $60.8

billion, $41.3 billion and $17.7 billion as of December 31, 2012, 2011 and

2010, respectively, and $33.7 billion as of December 31, 2012 related to the

two significant pension risk transfer transactions in the fourth quarter of

2012.

(8) Net additions for the institutional investment products business include

investment-only stable value net additions of $17.5 billion, $22.3 billion

and $12.6 billion for 2012, 2011 and 2010, respectively, and $33.6 billion

for 2012 related to the two significant pension risk transfer transactions

      in the fourth quarter of 2012.




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2012 to 2011 Annual Comparison.  The increase in full service account values
primarily reflects equity market appreciation in 2012, partially offset by net
withdrawals and the divestiture of bank deposits discussed above. The increase
in net withdrawals was primarily due to an increase in the value of participant
withdrawals, driven by the impact of equity market appreciation on account
values.



The increase in institutional investment products account values primarily
reflects net additions and increases in the market value of customer funds
driven by declines in fixed income yields. The increase in net additions was
driven by the two significant pension risk transfer transactions discussed
above, partially offset by a decrease in sales of our investment-only stable
value product, resulting from some of our existing intermediary relationships
nearing saturation levels.



2011 to 2010 Annual Comparison.  The decrease in full service account values was
primarily driven by net withdrawals over the last twelve months. The decrease in
net additions (withdrawals) primarily reflects a lower volume of large new plan
sales and higher plan lapses, driven by higher account values and a higher
volume of large plan lapses.



The increase in institutional investment products account values was driven by
additions of our investment-only stable value and structured settlements
products, as well as sales of our longevity reinsurance product, which we
introduced in 2011. To a lesser extent, the increase in account values was also
driven by increases in the market value of customer funds primarily from
declines in fixed income yields, partially offset by decreases in account values
from declines in general account guaranteed investment product account values.
The increase in net additions primarily reflects higher sales of our
investment-only stable value and longevity reinsurance products, and lower
general account guaranteed investment product scheduled withdrawals.



Asset Management



Operating Results



The following table sets forth the Asset Management segment's operating results
for the periods indicated.



                                                                Year ended December 31,
                                                           2012          2011          2010
                                                                     (in millions)
Operating results:
Revenues                                                  $ 2,398       $ 2,531       $ 2,005
Expenses                                                    1,895         1,749         1,499

Adjusted operating income                                     503           782           506

Realized investment gains (losses), net, and related adjustments

                                                   (47 )         

(1 ) 13 Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

              68            65            (2 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 524$ 846$ 517






Adjusted Operating Income



2012 to 2011 Annual Comparison.  Adjusted operating income decreased $279
million. The decrease reflects a $131 million lower contribution from the
segment's strategic investing activities in 2012 largely due to $69 million of
declines in values in two real estate investments, one of which was sold in
2012, while strategic investing activities in 2011 included a $64 million gain
on a partial sale of a real estate seed investment. The decrease in adjusted
operating income also reflects the absence of a $96 million gain on sale of our
investment in an operating joint venture in 2011, as discussed below.
Additionally, results for 2012 reflect an increase in operating expenses
reflecting business growth, increased expenses related to new fund launches and
increased compensation costs.



These decreases were partially offset by an increase in asset management fees,
before associated expenses, primarily from institutional and retail customer
assets as a result of higher asset values due to positive net asset flows and
market appreciation in 2012.



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2011 to 2010 Annual Comparison.  Adjusted operating income increased $276
million. Results in 2011 reflect an increase in asset management fees, before
associated expenses, of $215 million primarily from retail and institutional
customer assets as a result of higher asset values due to positive net asset
flows primarily into fixed income accounts as well as market appreciation in
2011. Also contributing to the increase was a $96 million gain on sale of our
investment in an operating joint venture, Afore XXI, a pension fund manager in
Mexico. Results from the segment's commercial mortgage activities increased $77
million primarily driven by lower net credit and valuation-related charges on
interim loans of $64 million resulting primarily from loan payoffs in 2011 and
$20 million of higher gains on sales of foreclosed commercial real estate assets
in 2011. Also, results of the segment's strategic investing activities increased
$68 million primarily due to a $64 million gain resulting from the partial sale
of a real estate seed investment in 2011 as discussed above.



These increases were partially offset by increased operating expenses, primarily related to compensation as well as other costs supporting the business.



Revenues and Expenses



The following table sets forth the Asset Management segment's revenues,
presented on a basis consistent with the table above under "-Operating Results,"
by type.



                                                        Year ended December 31,
                                                     2012         2011        2010
                                                             (in millions)
      Revenues by type:
      Asset management fees by source:
      Institutional customers                       $   775      $   729     $   639
      Retail customers(1)                               509          452         372
      General account                                   383          360         315

      Total asset management fees                     1,667        1,541       1,326

      Incentive fees                                     15           50          71
      Transaction fees                                   40           35          23
      Strategic investing                               (12 )        118          49
      Commercial mortgage(2)                            164          136          67

      Other related revenues                            207          339         210

      Service, distribution and other revenues(3)       524          651         469

      Total revenues                                $ 2,398      $ 2,531     $ 2,005





(1)   Consists of fees from: (a) individual mutual funds and both variable
      annuities and variable life insurance asset management revenues from our

separate accounts; (b) funds invested in proprietary mutual funds through

our defined contribution plan products; and (c) third-party sub-advisory

relationships. Revenues from fixed annuities and the fixed-rate accounts of

      both variable annuities and variable life insurance are included in the
      general account.

(2) Includes mortgage origination and spread lending revenues of our commercial

mortgage origination and servicing business.

(3) Includes payments from Wells Fargo under an agreement dated as of July 30,

2004 implementing arrangements with respect to money market mutual funds in

connection with the combination of our retail securities brokerage and

clearing operations with those of Wells Fargo. The agreement extends for ten

years after termination of the Wachovia Securities joint venture, which

occurred on December 31, 2009. The revenue from Wells Fargo under this

agreement was $66 million in 2012, $74 million in 2011 and $66 million in

      2010.




2012 to 2011 Annual Comparison.  Revenues, as shown in the table above under
"-Operating Results," decreased $133 million. Strategic investing revenues
decreased $130 million reflecting $69 million of declines in values in two real
estate investments, one of which was sold in 2012, while strategic investing
activities in 2011 include the gain on a partial sale of a real estate seed
investment, as discussed above. Service, distribution and other revenues
decreased $127 million primarily due to the absence of the gain on the sale of
our investment in Afore XXI in 2011. Performance-based incentive fees decreased
$35 million primarily reflecting lower net asset values from institutional real
estate funds resulting from market value declines. A portion of incentive-based
fees are offset in incentive compensation expense in accordance with the terms
of contractual agreements. Certain of our incentive fees continue to be subject
to positive or negative future adjustment based on cumulative fund performance
in relation to specified benchmarks. As of December 31, 2012, $84 million in
cumulative incentive



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fee revenue, net of compensation, is subject to future adjustment. Future
incentive, transaction, strategic investing and commercial mortgage revenues
will be impacted by the level and diversification of our strategic investments,
the commercial real estate market, and other domestic and international market
conditions.



Partially offsetting the decreases in revenue above was an increase in asset
management fees of $126 million primarily from the management of institutional
and retail customer assets as a result of higher asset values. In addition
commercial mortgage revenues increased $28 million primarily reflecting higher
origination volume.



Expenses, as shown in the table above under "-Operating Results," increased $146
million primarily driven by business growth, increased expenses related to new
fund launches and increased compensation costs.



2011 to 2010 Annual Comparison.  Revenues increased $526 million including a
$215 million increase in asset management fees primarily from institutional and
retail customer assets as a result of higher asset values. Service, distribution
and other revenues increased $182 million primarily from the gain on the sale of
our investment in Afore XXI and higher mutual fund service fees, a portion of
which are offset with a corresponding increase in expenses. Service,
distribution and other revenues also includes higher revenues from certain
consolidated funds, which were fully offset by higher expenses related to
noncontrolling interest in these funds. Commercial mortgage revenues increased
$69 million primarily reflecting lower net credit and valuation-related charges
on interim loans and higher gains on sales of foreclosed real estate assets, as
discussed above. Strategic investing revenues increased $69 million resulting
from the gain on a partial sale of a real estate seed investment discussed
above.



Partially offsetting these increases was a decrease in performance-based
incentive fees of $21 million primarily driven by lower net asset values of
institutional real estate funds reflecting the impact of foreign currency
fluctuations on these funds in the prior year, a portion of which has been
hedged since late 2010, as well as a decline in real estate values in 2011. A
portion of incentive-based fees are offset in incentive compensation expense in
accordance with the terms of contractual agreements.



Expenses increased $250 million primarily driven by increased compensation
costs, from increased revenues, as discussed above, and increased headcount, as
well as increases in other costs supporting the business. In addition, expenses
related to revenues associated with certain consolidated funds and mutual funds
services increased, as discussed above.



Assets Under Management



The following table sets forth assets under management by asset class and source
as of the dates indicated.



                                                               December 31,
                                                       2012        2011        2010
                                                               (in billions)
    Assets Under Management (at fair market value):
    Institutional customers:
    Equity                                            $  51.7     $  46.3     $  53.3
    Fixed income                                        230.8       197.8       160.9
    Real estate                                          31.2        27.7        23.6

    Institutional customers(1)(2)                       313.7       271.8       237.8

    Retail customers:
    Equity                                               86.6        71.7        73.9
    Fixed income                                         50.3        46.2        35.2
    Real estate                                           1.8         1.4         1.5

    Retail customers(3)                                 138.7       119.3       110.6

    General account:
    Equity                                                9.4         8.7         7.7
    Fixed income                                        363.7       316.7       248.8
    Real estate                                           1.5         1.3         0.9

    General account                                     374.6       326.7       257.4

    Total assets under management                     $ 827.0     $ 717.8     $ 605.8





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(1) Consists of third party institutional assets and group insurance contracts.

(2) As of December 31, 2012, 2011, and 2010, includes $37.2 billion, $29.7

billion, and $17.7 billion, respectively, of assets under management related

      to investment-only stable value products.


(3)   Consists of: (a) individual mutual funds and both variable annuities and

variable life insurance assets in our separate accounts; (b) funds invested

in proprietary mutual funds through our defined contribution plan products;

and (c) third-party sub-advisory relationships. Fixed annuities and the

fixed-rate accounts of both variable annuities and variable life insurance

      are included in the general account.



The following table sets forth the component changes in assets under management by asset source for the periods indicated.



                                                 Institutional           Retail           General
                                                   Customers            Customers         Account
                                                                  (in billions)
As of December 31, 2010                         $         237.8        $     110.6        $  257.4
Net additions (withdrawals), excluding
money market activity:
Third party(1)                                             16.9                5.7               0
Affiliated(2)(3)                                           (2.8 )             14.1            42.9

Total                                                      14.1               19.8            42.9
Market appreciation                                        19.7                1.1            22.0
Other increases (decreases)(4)                              0.2              (12.2 )           4.4

As of December 31, 2011                                   271.8              119.3           326.7
Net additions (withdrawals), excluding
money market activity:
Third party(1)                                             17.2               12.8               0
Affiliated(2)(3)                                           (1.5 )             (6.2 )          37.6

Total                                                      15.7                6.6            37.6
Market appreciation                                        26.2               13.4            15.3
Other increases (decreases)(4)                                0               (0.6 )          (5.0 )

As of December 31, 2012                         $         313.7        $     138.7        $  374.6




(1) Institutional third-party net additions include net additions into fixed

income accounts of $6.4 billion and $10.0 billion related to investment-only

      stable value products for the years ended December 31, 2012 and 2011,
      respectively.

(2) Retail affiliated net additions (withdrawals) primarily represent asset

transfers in or (out) of fixed income funds due to the automatic rebalancing

      feature within certain variable annuities products.


(3)   General account affiliated net additions (withdrawals) includes net
      additions of $31.0 billion for the year ended December 31, 2012 from two

significant pension risk transfer transactions in the Retirement segment and

net additions of $40.4 billion for the year ended December 31, 2011 from the

acquisition of the Star and Edison Businesses.

(4) Other includes the effect of foreign exchange rate changes and net money

market activity. Other in 2011 also includes the sale of our investment in

the Afore XXI operating joint venture and transfers from the Retirement

      segment as a result of changes in the client contract form.




Strategic Investments



The following table sets forth the strategic investments of the Asset Management
segment at carrying value (including the value of derivative instruments used to
mitigate equity market and currency risk) by asset class and source as of the
dates indicated.



                                                                    December 31,
                                                                  2012        2011
                                                                    (in millions)
  Co-Investments:
  Real estate                                                    $   437     $   464
  Fixed income                                                        54          30
  Seed Investments:
  Real estate                                                         32          19
  Public equity                                                      230         208
  Fixed income                                                       223         209

Loans Secured by Investor Equity Commitments or Fund Assets:

  Real estate secured by investor equity                              25    

50

  Private equity secured by investor equity                            0    

61

  Real estate secured by fund assets                                   0          99

  Total                                                          $ 1,001     $ 1,140





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In addition to the strategic investments above, the Asset Management segment's commercial mortgage operations maintains an interim loan portfolio. See "-General Account Investments-Invested Assets of Other Entities and Operations-Commercial Mortgage and Other Loans" below for additional details.

U.S. Individual Life and Group Insurance Division



Individual Life



Operating Results



The following table sets forth the Individual Life segment's operating results
for the periods indicated.



                                                                Year ended December 31,
                                                           2012          2011          2010
                                                                     (in millions)
Operating results:
Revenues                                                  $ 3,367       $ 2,900       $ 2,817
Benefits and expenses                                       2,983         2,418         2,335

Adjusted operating income                                     384           482           482

Realized investment gains (losses), net, and related adjustments

                                                   (38 )         

(21 ) (39 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 346$ 461$ 443






Adjusted Operating Income



2012 to 2011 Annual Comparison.  Adjusted operating income decreased $98 million
including a $54 million unfavorable comparative change from the impact of
certain changes in the estimated profitability of the business on the
amortization of DAC and unearned revenue reserves ("URR") as well as the impact
on the reserve for the GMDB feature in certain contracts. These changes were
based on the annual review and update of economic and actuarial assumptions,
which resulted in a net charge of $27 million in 2012 driven by a reduction to
long-term interest rate and equity return assumptions and a net benefit of $27
million in 2011, driven by more favorable lapse and mortality experience.



Absent the effect of these items, adjusted operating income decreased $44
million driven by $20 million of transaction and other costs associated with our
acquisition of The Hartford's individual life insurance business and a $13
million decrease in earnings reflecting the impact of mortality experience, net
of reinsurance, which was more unfavorable in the current period, in comparison
to 2011. Also contributing to the decrease in adjusted operating income was a
decline in earnings from our variable products primarily due to the continued
expected run-off of variable policies in force and lower net investment results
from declines in portfolio reinvestment rates. These unfavorable items were
partially offset by greater contributions from our universal life insurance
products reflecting business growth.



For weighted average rate of return assumptions and additional information on
our policy for amortizing DAC and URR, and for estimating future expected claims
costs associated with the GMDB feature of our variable and universal life
insurance products as of December 31, 2012, see "-Accounting Policies &
Pronouncements-Application of Critical Accounting Estimates."



2011 to 2010 Annual Comparison.  Adjusted operating income was unchanged from
2010 due to a number of offsetting items. Results in 2011 included a $27 million
benefit reflecting the impact of certain changes in the estimated profitability
of the business related to the annual review and update of economic and
actuarial assumptions, as discussed above, compared to a $28 million benefit
from the annual review in 2010. Results for 2011 also benefitted from business
growth associated with our universal life insurance products and mortality
experience, net of reinsurance, which was $12 million less unfavorable compared
to 2010. Partially offsetting these favorable items was an $11 million expense
resulting from changes in our estimates of total gross profits arising from
separate account fund performance, largely reflecting the comparative impact of
equity markets on separate account fund performance. Lower than expected market
returns in 2011 resulted in a net expense of $4 million whereas higher than
expected market returns in 2010 resulted in a $7 million net benefit.



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Revenues, Benefits and Expenses




2012 to 2011 Annual Comparison.  Revenues, as shown in the table above under
"-Operating Results," increased $467 million. This increase was primarily driven
by a $403 million increase in policy charges and fees and asset management fees
and other income including $227 million from higher amortization of URR. The
increase in amortization of URR reflects the impact of the annual reviews and
update of economic and actuarial assumptions partially offset by the impact of
changes in our estimates of total gross profits primarily reflecting more
favorable market conditions on separate account fund performance. The increase
in policy charges and fees and asset management fees and other income also
reflects a $73 million increase in income on an affiliated note received as part
of a financing transaction for certain regulatory capital requirements which was
offset by higher interest expense, as described below, as well as growth in our
universal life insurance business and higher income from alternative
investments. These favorable items were partially offset by the ongoing impact
of run-off of variable life insurance inforce. Net investment income increased
$55 million reflecting business growth, partially offset by the impact of lower
portfolio reinvestment rates.



Benefits and expenses, as shown in the table above under "-Operating Results,"
increased $565 million, including the impact of $300 million associated with
annual reviews conducted in both periods. Absent these annual reviews, the
increase in benefits and expenses was $265 million which includes higher
interest expense of $102 million reflecting higher costs associated with the
financing of regulatory capital requirements, of which $73 million related to a
financing transaction associated with certain universal life insurance policies
is offset in revenues. Policyholders' benefits increased $80 million driven by
growth in our term and universal life blocks of business. The increase in
benefits and expenses also included $52 million of higher general and
administrative expenses, net of capitalization, including the impact of
increased sales and $20 million of transaction and other costs associated with
our acquisition of The Hartford's individual life insurance business. In
addition, interest credited to policyholders' account balances increased $30
million primarily reflecting higher universal life account balances from
policyholder deposits. These unfavorable items were partially offset by a $28
million benefit on DAC amortization resulting from more favorable market
conditions on separate account fund performance in comparison to 2011.



2011 to 2010 Annual Comparison.  Revenues increased $83 million driven by higher
net investment income of $75 million reflecting higher asset balances resulting
from increased policyholder deposits and higher regulatory capital requirements
associated with our universal life insurance product. Policy charges and fees
and asset management fees and other income increased $6 million, including a $24
million reduction in amortization of URR reflecting the impact of the annual
reviews and update of economic and actuarial assumptions, as discussed above.
These favorable items were partially offset by a decline in revenue from our
variable insurance products primarily due to the run-off of variable policies
inforce.



Benefits and expenses increased $83 million driven by higher interest expense of
$52 million primarily reflecting higher borrowings related to the financing of
regulatory capital requirements associated with certain term and universal life
insurance policies which was offset in revenues. Insurance and annuity benefits,
including interest credited to policyholders' account balances, increased $16
million primarily reflecting an increase in interest credited to policyholders
from higher universal life account balances from increased policyholder deposits
and increases in policyholder reserves driven by growth in our term and
universal life blocks of business. This was partially offset by less unfavorable
mortality experience of $12 million in 2011 compared to 2010. Additionally,
amortization of DAC increased $15 million driven by the comparative impact of
less favorable market conditions on separate account fund performance.



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Sales Results


The following table sets forth individual life insurance annualized new business premiums for the periods indicated.



                                                               Year ended December 31,
                                                            2012           2011        2010
                                                                    (in millions)
Annualized New Business Premiums(1):
Variable Life                                             $     21       $     25      $  23
Universal Life                                                 218             95         77
Term Life                                                      173            158        160

Total                                                     $    412       $    278      $ 260

Annualized new business premiums by distribution
channel(1):
Prudential Agents                                         $     90       $     84      $  84
Third party                                                    322            194        176

Total                                                     $    412       $    278      $ 260




(1) Excludes corporate-owned life insurance.





2012 to 2011 Annual Comparison.  Annualized new business premiums increased $134
million primarily driven by increased sales of universal life insurance products
in the third party distribution channel due to a change in the competitive
position of our products.



2011 to 2010 Annual Comparison. Annualized new business premiums increased $18 million primarily driven by increased sales in the third party distribution channel. This increase was attributable to higher sales of universal life insurance products driven by a change in the competitive position of our products.

Group Insurance



Operating Results



The following table sets forth the Group Insurance segment's operating results
for the periods indicated.



                                                                Year ended December 31,
                                                           2012          2011          2010
                                                                     (in millions)
Operating results:
Revenues                                                  $ 5,601       $ 5,606       $ 5,040
Benefits and expenses                                       5,585         5,443         4,866

Adjusted operating income                                      16           163           174
Realized investment gains (losses), net, and related
adjustments                                                    (8 )          11           (42 )
Related charges                                                 0            (2 )          (1 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 8$ 172$ 131






Adjusted Operating Income



2012 to 2011 Annual Comparison.  Adjusted operating income decreased $147
million reflecting higher operating expenses in 2012 primarily from an increase
in legal reserves, updates to premium tax estimates, and costs for strategic
initiatives. Group life underwriting results were less favorable in 2012,
primarily driven by unfavorable claims experience on non-retrospectively
experience-rated contracts resulting from an increase in severity partially
offset by lower claims incidence. The unfavorable underwriting results for group
life also reflect the absence of a benefit from cumulative premium adjustments
in 2011, as discussed below. Group disability underwriting results were less
favorable in 2012. New long term disability claims outpaced an increase in claim
terminations as the economy slowly improves. We are investing in our claims
management process



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which, over time, should drive improvements in this area. Also, reserve
refinements in both group life and group disability businesses, including the
impact of annual actuarial assumption updates, contributed a $7 million benefit
to adjusted operating income in 2012 compared to a benefit of $22 million in
2011. Partially offsetting these unfavorable items was improved investment
income in 2012 primarily from alternative investments.



2011 to 2010 Annual Comparison.  Adjusted operating income decreased $11
million. Reserve refinements in both group life and group disability businesses,
including the impact of annual actuarial assumption updates, contributed a $22
million benefit to adjusted operating income in 2011 compared to a benefit of
$35 million in 2010. Excluding these reserve refinements, adjusted operating
income increased $2 million primarily from more favorable underwriting results
in 2011 in our group life business related to favorable claims experience,
growth in our non-retrospectively experience-rated business and a benefit of $14
million from cumulative premium adjustments relating to prior periods on two
large non-retrospectively experience-rated cases. These increases were partially
offset by less favorable group disability underwriting results in 2011 primarily
related to an increase in the number and severity of long-term disability claims
reflecting the continued economic downturn. In addition, results in 2011 reflect
higher operating expenses due to business growth and strategic initiatives as
well as a decrease in investment results due to less favorable results from
alternative investments and lower reinvestment rates.



Revenues, Benefits and Expenses




2012 to 2011 Annual Comparison.  Revenues, as shown in the table above under
"-Operating Results," decreased $5 million. Group life premiums and policy
charges and fee income decreased $82 million primarily reflecting lower premiums
from retrospectively experience-rated contracts, largely resulting from a
decrease in policyholder benefits. Partially offsetting this decrease are higher
premiums from non-retrospectively experience-rated contracts reflecting growth
in the business, partially offset by the benefit from cumulative premium
adjustments in 2011. Group disability premiums and policy charges and fee income
increased $42 million primarily reflecting growth of business in force and from
new sales. Investment income also increased in 2012 primarily from income on
alternative investments, partially offset by a decline in reinvestment rates.



Benefits and expenses, as shown in the table above under "-Operating Results,"
increased $142 million reflecting higher operating expenses primarily from an
increase in legal reserves, updates to premium tax estimates and costs of
strategic initiatives. This increase also reflects a $54 million increase in
policyholders' benefits, including the change in policy reserves. Our group
disability business reflects an increase in policyholders' benefits primarily
from an increase in the number and severity of long-term disability claims and
growth in the business. Our group life business reflects a decrease in benefits
costs on retrospectively experience-rated business that resulted in decreased
premiums, as discussed above. This is partially offset by unfavorable claims
experience from an increase in severity resulting in an increase in benefits
from growth in the non-retrospectively experience-rated business, as well as the
unfavorable variance from reserve refinements, as discussed above.



2011 to 2010 Annual Comparison.  Revenues increased $566 million. Group life
premiums and policy charges and fee income increased $526 million. This increase
primarily reflects higher premiums from non-retrospectively experience-rated
contracts reflecting growth in the business from new sales and continued strong
persistency of 95.8% in 2011 compared to 92.1% in 2010, as well as higher
premiums from retrospectively experience-rated contracts resulting from the
increase in policyholder benefits on these contracts, as discussed below. 2011
also includes the benefit from cumulative premium adjustments, as discussed
above. In addition, group disability premiums and policy charges and fee income
increased $45 million primarily reflecting growth of business in force and from
new sales.



Benefits and expenses increased $577 million. This increase reflects a $536
million increased in policyholders' benefits, including the change in policy
reserves. Our group life business reflected an increase in policyholders'
benefits primarily from growth in the business, including an increase in
benefits on retrospectively experience-rated business that resulted in increased
premiums, as discussed above. Our group disability business reflected an
increase in policyholders' benefits primarily from an increase in the number and
severity of disability claims, as well as growth in the business. Also
contributing to the increase in benefits and expenses were higher operating
expenses primarily related to business growth and strategic initiatives.



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Benefits and Expense Ratios


The following table sets forth the Group Insurance segment's benefits and administrative operating expense ratios for the periods indicated.




                                                       Year ended December 31,
                                                     2012         2011        2010
      Benefits ratio(1):
      Group life                                       90.9 %      89.5 %      89.7 %
      Group disability                                 98.1 %      94.7 %      91.2 %
      Administrative operating expense ratio(2):
      Group life                                       10.0 %       8.5 %       9.0 %
      Group disability                                 25.3 %      24.8 %      24.2 %




(1)   Ratio of policyholder benefits to earned premiums, policy charges and fee
      income. Group disability ratios include dental products.


(2) Ratio of administrative operating expenses (excluding commissions) to gross

premiums, policy charges and fee income. Group disability ratios include

      dental products.




2012 to 2011 Annual Comparison.  The group life benefits ratio deteriorated 1.4
percentage points primarily due to less favorable claims experience in the
non-retrospectively experience-rated business as well as the unfavorable impact
of the reserve refinements and the cumulative premium adjustment in 2011, as
discussed above. The group disability benefits ratio deteriorated 3.4 percentage
points primarily due to an increase in the number and severity of long-term
disability claims experience. The group life administrative operating expense
ratio deteriorated 1.5 percentage points primarily due to an increase in
operating costs, legal reserves and the unfavorable comparative impact of
updates to premium tax estimates, as discussed above. The group disability
administrative operating expense ratio deteriorated 0.5 due to an increase in
operating costs, as discussed above.



2011 to 2010 Annual Comparison.  The group life benefits ratio improved 0.2
percentage points, primarily due to favorable claims experience, partially
offset by an unfavorable variance from the impact of reserve refinements, as
discussed above. The group disability benefits ratio deteriorated 3.5 percentage
points primarily due to an increase in the number and severity of long-term
disability claims experience. The group life administrative operating expense
ratio improved 0.5 percentage points due to business growth without a
commensurate increase in expenses and a favorable comparative impact from the
refinement of a premium tax estimate. The group disability administrative
operating expense ratio deteriorated 0.6 percentage points reflecting higher
expenses in 2011 primarily from business growth and strategic initiatives.



Sales Results


The following table sets forth the Group Insurance segment's annualized new business premiums for the periods indicated.



                                                     Year ended December 31,
                                                  2012           2011       2010
                                                          (in millions)
         Annualized new business premiums(1):
         Group life                             $    304       $    486     $ 446
         Group disability(2)                         135            149       122

         Total                                  $    439       $    635     $ 568




(1) Amounts exclude new premiums resulting from rate changes on existing

policies, from additional coverage under our Servicemembers' Group Life

      Insurance contract and from excess premiums on group universal life
      insurance that build cash value but do not purchase face amounts, and
      include premiums from the takeover of claim liabilities.

(2) Includes dental products.





2012 to 2011 Annual Comparison.  Total annualized new business premiums
decreased $196 million reflecting the impact of a large market case sale to a
new customer in 2011 in group life, as well as a decrease in sales of long-term
disability to existing clients.



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2011 to 2010 Annual Comparison. Total annualized new business premiums increased $67 million reflecting the impact of the group life large market case sale discussed above as well as increased sales across all disability products.

International Insurance Division

Foreign Currency Exchange Rate Movements and Related Hedging Strategies




As a U.S.-based company with significant business operations outside the U.S.,
particularly in Japan, we are subject to foreign currency exchange rate
movements that could impact our U.S. dollar-equivalent shareholder return on
equity. We seek to mitigate this impact through various hedging strategies,
including the use of derivative contracts and through holding U.S.
dollar-denominated assets in certain of our foreign subsidiaries.



The operations of our International Insurance Division are subject to currency
fluctuations that can materially affect their U.S. dollar-equivalent earnings
from period to period, even if earnings on a local currency basis are relatively
constant. We enter into forward currency derivative contracts, and hold "dual
currency" and "synthetic dual currency" investments, as part of our strategy to
effectively fix the currency exchange rates for a portion of our prospective
non-U.S. dollar-denominated earnings streams, thereby reducing earnings
volatility from foreign currency exchange rate movements. The forward currency
hedging program is primarily associated with our insurance operations in Japan
and Korea. In addition, our Japanese insurance operations offer a variety of
non-yen denominated products which are supported by investments in corresponding
currencies. While these non-yen denominated assets and liabilities are
economically hedged, the accounting for changes in the value of these assets and
liabilities due to changes in foreign currency exchange rate movements differs,
resulting in volatility in reported U.S. GAAP earnings. For further information
on the various hedging strategies used to mitigate the risks of foreign currency
exchange rate movements on earnings, see "-Impact of foreign currency exchange
rate movements on earnings."



We utilize a yen hedging strategy that calibrates the level of hedges to
preserve the relative contribution of our yen-based business to the Company's
overall return on equity. Our hedges include a variety of instruments, including
U.S. dollar-denominated assets held locally by our Japanese insurance
subsidiaries financed by the combination of U.S. GAAP equity and yen-denominated
liabilities. We may also hedge using instruments held in our U.S. domiciled
entities, such as U.S. dollar-denominated debt that has been swapped to yen.



The table below presents the aggregate amount of instruments that serve to hedge
the impact of foreign currency exchange movements on our U.S. dollar-equivalent
shareholder return on equity from our Japanese insurance subsidiaries for the
periods indicated.



                                                                         December 31,
                                                                       2012        2011
                                                                        (in billions)

Instruments hedging foreign currency exchange rate exposure on U.S. dollar-equivalent earnings: Forward currency hedging program(1)

                                   $   2.9     $  2.5
Dual currency and synthetic dual currency investments(2)                  0.9        1.0

                                                                          3.8        3.5

Instruments hedging foreign currency exchange rate exposure on U.S. dollar-equivalent equity: Available-for-sale U.S. dollar-denominated investments, at amortized cost

                                                            7.0        6.8
Held-to-maturity U.S. dollar-denominated investments, at amortized
cost                                                                      0.3        0.3
Other                                                                     0.1        0.1

U.S. dollar-denominated assets held in yen-based entities(3)              7.4        7.2
Yen-denominated liabilities held in U.S. dollar-based entities(4)         0.8        0.8

                                                                          8.2        8.0

Total hedges                                                          $  12.0     $ 11.5




(1) Represents the notional amount of forward currency contracts outstanding.


(2)   Represents the present value of future cash flows, on a U.S.
      dollar-denominated basis.




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Table of Contents (3) Excludes $26.8 billion and $23.7 billion as of December 31, 2012 and 2011,

respectively, of U.S. dollar assets supporting U.S. dollar liabilities

related to U.S. dollar-denominated products issued by our Japanese insurance

      operations.


(4)   The yen-denominated liabilities are reported in Corporate and Other
      operations.




The U.S. dollar-denominated investments that hedge the U.S. dollar-equivalent
shareholder return on equity from our Japanese insurance operations are recorded
on the books of yen-based entities and, as a result, foreign currency exchange
rate movements will impact their value on the local books of our yen-based
Japanese insurance entities. We seek to mitigate the risk that future
unfavorable foreign currency exchange rate movements will decrease the value of
these U.S. dollar-denominated investments on the local books of our yen-based
Japanese insurance entities and therefore negatively impact their equity and
regulatory solvency margins by employing internal hedging strategies between a
subsidiary of Prudential Financial and these yen-based entities. These internal
hedging strategies have the economic effect of moving the change in value of
these U.S. dollar-denominated investments due to foreign currency exchange rate
movements from our Japanese yen-based entities to our U.S. dollar-based
entities. See "-Liquidity and Capital Resources-Liquidity-Liquidity associated
with other activities-Foreign exchange hedging activities" for a discussion of
our internal hedging strategies.



These U.S. dollar-denominated investments also pay a coupon which is generally
higher than what a similar yen-denominated investment would pay. The incremental
impact of this higher yield on our U.S. dollar-denominated investments, as well
as our dual currency and synthetic dual currency investments discussed below,
will vary over time, and is dependent on the duration of the underlying
investments, as well as interest rate environments in the U.S. and Japan at the
time of the investments. See "-General Account Investments-Investment Results"
for a discussion of the investment yields generated by our Japanese insurance
operations.


Impact of foreign currency exchange rate movements on earnings

Forward currency hedging program




The financial results of our International Insurance segment reflect the impact
of an intercompany arrangement with Corporate and Other operations pursuant to
which the segment's non-U.S. dollar-denominated earnings are translated at fixed
currency exchange rates. The fixed rates are determined in connection with a
foreign currency income hedging program designed to mitigate the impact of
exchange rate changes on the segment's U.S. dollar-equivalent earnings. Pursuant
to this program, Corporate and Other operations execute forward currency
contracts with third parties to sell the net exposure of projected earnings for
certain currencies in exchange for U.S. dollars at specified exchange rates. The
maturities of these contracts correspond with the future periods (typically on a
three-year rolling basis) in which the identified non-U.S. dollar-denominated
earnings are expected to be generated. In establishing the level of non-U.S.
dollar-denominated earnings that will be hedged through this program, we exclude
the anticipated level of U.S. dollar-denominated earnings that will be generated
by dual currency and synthetic dual currency investments, as well as the
anticipated level of non-yen denominated earnings that will be generated by
non-yen denominated products and investments, both of which are discussed in
greater detail below.



As a result of this intercompany arrangement, our International Insurance
segment's results for 2012 and 2011 reflect the impact of translating
yen-denominated earnings at fixed currency exchange rates of 85 and 92 yen per
U.S. dollar, respectively, and 1180 and 1190 Korean won per U.S. dollar,
respectively. Results for 2013 will reflect the impact of translating yen and
Korean won-denominated earnings at fixed currency exchange rates of 80 yen per
U.S. dollar and 1160 Korean won per U.S. dollar.



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Results of Corporate and Other operations include any differences between the
translation adjustments recorded by the segment at the fixed currency exchange
rate versus the actual average rate during the period, and the gains or losses
recorded from the forward currency contracts that settled during the period,
which include the impact of any over or under hedging of actual earnings that
differ from projected earnings. The table below presents, for the periods
indicated, the increase (decrease) to revenues and adjusted operating income for
the International Insurance segment and for Corporate and Other operations,
reflecting the impact of this intercompany arrangement.



                                                              Year ended December 31,
                                                         2012           2011          2010
                                                                   (in millions)
International Insurance Segment:
Impact of intercompany arrangement(1)                   $   (92 )      $  (178 )     $  (102 )
Corporate and Other operations:
Impact of intercompany arrangement(1)                        92            178           102
Settlement losses on forward currency contracts             (72 )         

(137 ) (97 )


Net benefit to Corporate and Other operations                20             41             5

Net impact on consolidated revenues and adjusted
operating income                                        $   (72 )      $  (137 )     $   (97 )




(1) Represents the difference between non-U.S. dollar-denominated earnings

translated on the basis of weighted average monthly currency exchange rates

      versus fixed currency exchange rates determined in connection with the
      forward currency hedging program.




As of December 31, 2012 and 2011, the notional amounts of these forward currency
contracts were $3.4 billion and $3.0 billion, respectively, of which $2.9
billion and $2.5 billion, respectively, were related to our Japanese insurance
operations.


Dual currency and synthetic dual currency investments hedging program




In addition, our Japanese insurance operations hold dual currency investments in
the form of fixed maturities and loans. The principal of these dual currency
investments is yen-denominated while the related interest income is U.S.
dollar-denominated. These investments are the economic equivalent of exchanging
what would otherwise be fixed streams of yen-denominated interest income for
fixed streams of U.S. dollar-denominated interest income. Our Japanese insurance
operations also hold yen-denominated investments that have been coupled with
cross-currency coupon swap agreements, creating synthetic dual currency
investments. The yen/U.S. dollar exchange rate is effectively fixed, as we are
obligated in future periods to exchange fixed amounts of yen interest payments
generated by the yen-denominated investments for fixed amounts of U.S. dollar
interest payments at the yen/U.S. dollar exchange rates specified by the
cross-currency coupon swap agreements. As of December 31, 2012 and 2011, the
notional amount of these investments was ¥235 billion, or $2.2 billion, and ¥280
billion, or $2.5 billion, respectively, based upon the foreign currency exchange
rates applicable at the time these investments were acquired. The table below
sets forth the fair value of these instruments as reflected on our balance sheet
for the periods indicated.



                                                                      December 31,
                                                                   2012           2011
                                                                      (in millions)
Cross-currency coupon swap agreements                            $     (7 )      $  (105 )
Foreign exchange component of interest on dual currency
investments                                                           (92 )         (128 )

Total                                                            $    (99 )      $  (233 )




U.S. GAAP earnings impact of products denominated in non-local currencies




Our international insurance operations primarily offer products denominated in
local currency. However, several of our international insurance operations, most
notably our Japanese operations, also offer products denominated in non-local
currencies, primarily comprised of U.S. and Australian dollar-denominated
products. The non-yen denominated insurance liabilities related to these
products are supported by investments denominated in corresponding currencies,
including a significant portion designated as available-for-sale. While



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the impact from foreign currency exchange rate movements on these non-yen
denominated assets and liabilities is economically matched, the accounting for
changes in the value of these assets and liabilities due to changes in foreign
currency exchange rate movements differs, resulting in volatility in U.S. GAAP
earnings. For example, unrealized gains and losses on available-for-sale
investments, including those arising from foreign currency exchange rate
movements, are recorded in AOCI, whereas the non-yen denominated liabilities are
remeasured for foreign currency exchange rate movements, and the related changes
in value are recorded in earnings within "Asset management fees and other
income." Investments designated as held-to-maturity under U.S. GAAP are recorded
at amortized cost on the balance sheet, but are remeasured for foreign currency
exchange rate movements, with the related change in value recorded in earnings
within "Asset management fees and other income." Due to this non-economic
volatility that is reflected in U.S. GAAP earnings, the gains and losses
resulting from the remeasurement of these non-yen denominated liabilities, and
certain related non-yen denominated assets, are excluded from adjusted operating
income and included in "Realized investment gains (losses), net, and related
adjustments." For the years ended December 31, 2012, 2011 and 2010, "Realized
investment gains (losses), net, and related adjustments" includes net losses of
$1,570 million, net gains of $807 million, and net gains of $121 million,
respectively, reflecting the remeasurement of these non-yen denominated
insurance liabilities, which are presented in the table below, and the
remeasurement of certain related non-yen denominated assets.



We continue to expect volatility in U.S. GAAP earnings resulting from the
remeasurement mismatch described above. For example, based on the December 31,
2012 non-yen denominated balances subject to remeasurement (including those
presented in the table below), if we applied a hypothetical 5% depreciation in
value of the yen relative to the U.S. and Australian dollar, we estimate this
would result in net losses of approximately $1.2 billion reflected in U.S. GAAP
earnings. These net losses would largely be offset by a corresponding increase
in unrealized gains in AOCI. Conversely, a 5% appreciation in value of the yen
relative to these currencies would have an equal but opposite effect.



The table below presents the carrying value of non-yen denominated insurance
liabilities within our Japanese insurance operations as of the periods
indicated.



                                                         December 31,
                                                       2012        2011
                                                        (in billions)
             U.S. dollar-denominated products         $  19.9     $ 18.9
             Australian dollar-denominated products       7.9        6.2
             Euro-denominated products                    0.4        0.2

             Total                                    $  28.2     $ 25.3




1. Excludes $5.7 billion and $4.5 billion of insurance liabilities for U.S.

dollar-denominated products as of December 31, 2012 and 2011, respectively,

that are associated with Prudential of Japan. These liabilities are coinsured

to our U.S. domiciled insurance entities and supported by U.S.

     dollar-denominated assets and are not subject to the remeasurement mismatch
     described above.




International Insurance



Operating Results



The results of our International Insurance operations are translated on the
basis of weighted average monthly exchange rates, inclusive of the effects of
the intercompany arrangement discussed above. To provide a better understanding
of operating performance within the International Insurance segment, where
indicated below, we have analyzed our results of operations excluding the effect
of the year over year change in foreign currency exchange rates. Our results of
operations excluding the effect of foreign currency fluctuations were derived by
translating foreign currencies to U.S. dollars at uniform exchange rates for all
periods presented, including for constant dollar information discussed below.
The exchange rates used were Japanese yen at a rate of 80 yen per U.S. dollar
and Korean won at a rate of 1160 won per U.S. dollar, both of which were
determined in connection with the foreign currency income hedging program
discussed above. In addition, for constant dollar information discussed below,
activity denominated in U.S. dollars is generally reported based on the amounts
as transacted in U.S. dollars. Annualized new business premiums presented on a
constant exchange rate basis in the "Sales Results" section below reflect
translation based on these same uniform exchange rates.



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The following table sets forth the International Insurance segment's operating results for the periods indicated.



                                                                Year ended December 31,
                                                            2012          2011          2010
                                                                     (in millions)
Operating results:
Revenues:
Life Planner operations                                   $  9,002      $  8,202      $  7,252
Gibraltar Life and Other operations                         20,584        11,365         4,819

                                                            29,586        19,567        12,071

Benefits and expenses:
Life Planner operations                                      7,521         6,956         6,103
Gibraltar Life and Other operations                         19,361        10,348         4,081

                                                            26,882        17,304        10,184

Adjusted operating income:
Life Planner operations                                      1,481         1,246         1,149
Gibraltar Life and Other operations                          1,223         1,017           738

                                                             2,704         2,263         1,887

Realized investment gains (losses), net, and related adjustments(1)

                                              (1,989 )         596          (281 )
Related charges                                                (60 )        

(18 ) (13 ) Investment gains (losses) on trading account assets supporting insurance liabilities, net

                          204          

(160 ) 33 Change in experience-rated contractholder liabilities due to asset value changes

                                    (204 )         160           (33 )

Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

              (58 )        

(244 ) (65 )

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 597$ 2,597$ 1,528





(1)   Includes gains and losses from changes in value of certain assets and
      liabilities relating to foreign currency exchange movements that are
      economically matched, as discussed above.



Acquisition and Integration of the former Star and Edison Businesses




On February 1, 2011, Prudential Financial completed the acquisition from AIG of
the Star and Edison Businesses pursuant to the stock purchase agreement dated
September 30, 2010 between Prudential Financial and AIG. The Star and Edison
companies were merged into Gibraltar Life on January 1, 2012. See Note 3 to the
Consolidated Financial Statements for further information.



We have made significant progress integrating the acquired former Star and
Edison businesses with Gibraltar Life and, as a result, anticipate incurring
approximately $450 million of total integration costs, which is lower than our
original expectations. In aggregate, we have incurred $312 million of pre-tax
integration costs, of which, $138 million was in 2012 and $174 million was in
2011. After integration is complete, we continue to expect annual cost savings
of approximately $250 million and, as of December 31, 2012, have already
achieved approximately 80% of this annual savings. Actual integration costs may
exceed, and actual cost savings may fall short of, such expectations.



Adjusted Operating Income



2012 to 2011 Annual Comparison.  Adjusted operating income from Life Planner
operations increased $235 million including a net favorable impact of $54
million from currency fluctuations. The current year benefited $20 million from
a reduction in the amortization of deferred policy acquisition costs and lower
reserves, reflecting the impact of our annual review and update of assumptions
used in estimating the profitability of the business. In addition, the increase
in adjusted operating income reflects the comparative impact of a $12 million
charge associated with estimated claims and expenses arising from the 2011
earthquake in Japan, and a $6 million benefit in 2012 resulting from a cash
distribution received from the Japan Financial Stability Fund. Excluding the
impact of these items, adjusted operating income for our Life Planner operations
increased $143 million, primarily reflecting the growth of business in force
driven by sales results and continued strong persistency in our Japanese Life
Planner operation, partly offset by the impact of lower reinvestment rates.



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Adjusted operating income from our Gibraltar Life and Other operations increased
$206 million including a favorable impact of $51 million from currency
fluctuations and the absence of a $49 million charge associated with claims and
expenses arising from the 2011 earthquake in Japan. Additionally, results for
2012 include $138 million of integration costs relating to the acquisition of
the Star and Edison Businesses compared to $213 million of integration and
transaction costs in 2011. Partly offsetting these favorable variances is a $15
million net charge in the current year reflecting the impact of certain charges
related to our life insurance joint venture in India offset by a cash
distribution received from the Japan Financial Stability Fund. Both periods
benefited from the impact of partial sales of our investment, through a
consortium, in China Pacific Group, which contributed a $60 million benefit to
2012 results compared to a $237 million benefit in 2011.



Excluding the effect of the items discussed above, adjusted operating income
from our Gibraltar Life and Other operations increased $223 million, primarily
reflecting cost savings of $165 million resulting from Star and Edison
integration synergies, compared to $21 million of cost savings in 2011, as well
as business growth, particularly in the bank distribution channel, and the
impact of including two additional months of earnings from the former Star and
Edison Businesses. These favorable items were partly offset by higher benefits
and expenses, including costs supporting distribution channel growth, less
favorable mortality in comparison to the prior year and the impact of lower
reinvestment rates.



2011 to 2010 Annual Comparison.  Adjusted operating income from our Life Planner
operations increased $97 million including a net favorable impact of $11 million
from currency fluctuations. Excluding currency fluctuations, adjusted operating
income increased $86 million primarily reflecting the growth of business in
force driven by sales and continued strong persistency in our Japanese Life
Planner operation and to a lesser extent, lower administrative expenses due in
part to the absence of certain costs incurred in 2010. Partially offsetting
these favorable variances were charges of $12 million associated with claims and
expenses arising from the March 2011 earthquake in Japan and less favorable
mortality experience in Japan and Korea.



Adjusted operating income from our Gibraltar Life and Other operations increased
$279 million including a favorable impact of $25 million from currency
fluctuations. Excluding currency fluctuations, adjusted operating income
increased $254 million. Results for 2011 benefitted from $224 million of
earnings from the acquired Star and Edison Businesses, excluding the impact of
estimated claims associated with the earthquake in Japan. Adjusted operating
income for both 2011 and 2010 reflect the impact of partial sales of our
investment, through a consortium, in China Pacific Group, which contributed a
$237 million benefit to 2011 results compared to a $66 million benefit to 2010
results. These favorable items were partially offset by transaction and
integration costs of $213 million in 2011 relating to the Star and Edison
acquisition and $49 million of charges associated with claims and expenses
arising from the March 2011 earthquake in Japan.



Excluding the effect of the items discussed above, adjusted operating income
from our Gibraltar Life and Other operations increased $121 million reflecting
business growth, including expanding sales of protection products, and improved
investment results, including a greater contribution from our fixed annuity
products reflecting growth of that business and lower amortization of deferred
policy acquisition costs. Partially offsetting these favorable variances were
higher development costs supporting bank and agency distribution channel growth
and unfavorable results from our insurance joint venture in India.



Revenues, Benefits and Expenses




2012 to 2011 Annual Comparison.  Revenues from our Life Planner operations, as
shown in the table above under "-Operating Results," increased $800 million
including a net unfavorable impact of $2 million from currency fluctuations.
Excluding currency fluctuations, revenues increased $802 million primarily
reflecting increases in premiums and policy charges and fee income of $616
million driven by growth of business in force and continued strong persistency
in our Japanese Life Planner operation. Net investment income increased $158
million reflecting investment portfolio growth, partially offset by the impact
of lower reinvestment rates.



Benefits and expenses from our Life Planner operations, as shown in the table
above under "-Operating Results," increased $565 million including a net
favorable impact of $56 million from currency fluctuations. Excluding currency
fluctuations, benefits and expenses increased $621 million. Benefits and
expenses of our



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Japanese Life Planner operation increased $513 million, primarily reflecting an
increase in policyholder benefits due to changes in reserves driven by the
growth in business in force, partially offset by the absence of charges
recognized in the prior year period associated with claims from the 2011
earthquake in Japan. Additionally, 2012 includes a $20 million benefit from a
reduction in the amortization of deferred policy acquisition costs and lower
reserves, reflecting the impact of our annual review and update of assumptions
used in estimating the profitability of the business.



Revenues from our Gibraltar Life and Other operations increased $9,219 million,
including a net favorable impact of $159 million from currency fluctuations.
Excluding currency fluctuations, revenues increased $9,060 million. This
increase is driven by an $8,884 million increase in premiums and policy charges
and fee income reflecting growth in the bank distribution channel, including
$7,619 million of higher premiums from sales of yen-denominated single premium
reduced death benefit whole life policies, as well as higher premiums of $1,074
million in the Life Consultant distribution channel driven by increased sales of
cancer whole life and U.S. dollar-denominated retirement income products. Also
contributing to the increase in revenues is higher net investment income of $353
million primarily reflecting investment portfolio growth, partially offset by
the impact of lower reinvestment rates. Asset management fees and other income
declined driven by the comparative impact of partial sales of our indirect
investment in China Pacific Group, as discussed above, resulting in a $60
million gain in 2012 compared to a $237 million gain in 2011, partially offset
by the distribution received in 2012 from the Japan Financial Stability Fund.



Benefits and expenses of our Gibraltar Life and Other operations increased
$9,013 million, including an unfavorable impact of $108 million from currency
fluctuations. Excluding currency fluctuations, benefits and expenses increased
$8,905 million. Policyholder benefits, including changes in reserves, increased
$8,461 million primarily driven by higher sales of yen-denominated single
premium reduced death benefit whole life, cancer whole life and U.S.
dollar-denominated retirement income products in 2012, partially offset by the
absence of charges recognized in the prior year associated with claims from the
2011 earthquake in Japan. General and administrative expenses, net of
capitalization, and DAC amortization increased primarily due to increased costs
supporting business growth and charges associated with our life insurance joint
venture in India, partially offset by additional synergies and lower integration
costs associated with the Star and Edison acquisition.



2011 to 2010 Annual Comparison.  Revenues from our Life Planner operations
increased $950 million including a net favorable impact of $398 million from
currency fluctuations. Excluding currency fluctuations, revenues increased $552
million primarily reflecting higher premiums and policy charges and fee income
of $392 million driven by a $341 million increase from our Japanese Life Planner
operation reflecting growth of business in force and continued strong
persistency. Net investment income increased $118 million primarily due to
investment portfolio growth, partially offset by lower yields in our investment
portfolio.



Benefits and expenses of our Life Planner operations increased $853 million
including a net unfavorable impact of $387 million from currency fluctuations.
Excluding currency fluctuations, benefits and expenses increased $466 million
primarily reflecting $396 million of higher benefits and expenses in our
Japanese Life Planner operation which was primarily driven by higher
policyholder benefits due to changes in reserves reflecting growth in business
in force and to a lesser extent, the impact of the charges associated with
claims resulting from the Japanese earthquake and less favorable mortality
experience.



Revenues from our Gibraltar Life and Other operations increased $6,546 million
including a favorable impact of $331 million from currency fluctuations.
Excluding currency fluctuations, revenues increased $6,215 million. Premiums and
policy charges and fee income increased $4,933 million, of which $2,920 million
was associated with the acquired Star and Edison Businesses. Excluding Star and
Edison, the increase in premiums and policy charges and fee income was primarily
driven by growth within the bank distribution channel including $1,062 million
higher sales of single premium reduced death benefit whole life policies. Net
investment income increased $1,028 million primarily reflecting income on the
acquired assets from Star and Edison and to a lesser extent, continued growth of
our fixed annuity products. Also contributing to the increase in revenues is
higher other income, primarily reflecting the impact of the partial sales of our
indirect investment in China Pacific Group as discussed above.



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Benefits and expenses of our Gibraltar Life and Other operations increased
$6,267 million, including an unfavorable impact of $306 million from currency
fluctuations. Excluding currency fluctuations, benefits and expenses increased
$5,961 million. Policyholder benefits, including changes in reserves, increased
$3,866 million and was primarily driven by the acquisition of the Star and
Edison Businesses, higher single premium reduced death benefit whole life sales
in 2011 and $37 million of charges associated with claims resulting from the
March 2011 earthquake in Japan. General and administrative expenses, net of
capitalization, increased $1,350 million primarily driven by the impact of the
Star and Edison acquisition including $213 million of transaction and
integration costs related to the acquisition, higher development costs
supporting bank and agency distribution channel growth and $12 million of
expenses resulting from the earthquake in Japan. Also contributing to the
increase in benefits and expenses is higher amortization of deferred policy
acquisition costs and interest credited to policyholders' account balances
primarily reflecting the impact of the Star and Edison acquisition.



Sales Results


The following table sets forth annualized new business premiums on an actual and constant exchange rate basis for the periods indicated.



                                                   Year ended December 31,
                                                 2012        2011        2010
                                                        (in millions)
          Annualized new business premiums:
          On an actual exchange rate basis:
          Life Planner operations              $  1,354     $ 1,150     $   964
          Gibraltar Life                          2,724       2,042         874

          Total                                $  4,078     $ 3,192     $ 1,838

          On a constant exchange rate basis:
          Life Planner operations              $  1,347     $ 1,126     $ 1,001
          Gibraltar Life                          2,704       2,031         928

          Total                                $  4,051     $ 3,157     $ 1,929





Historically, growth in annualized new business premiums was closely correlated
to growth of our Life Planner and Gibraltar Life Consultant distribution force.
Recently, growth in annualized new business premiums is being driven by
increased average premium per new policy resulting in part from the growing
demand for retirement-oriented products, as well as expanded distribution
through third party channels, especially banks. As noted in the table below,
bank channel sales contain a disproportionate number of single pay or limited
pay contracts which tend to be larger policies and therefore have higher average
premiums per policy.



The amount of annualized new business premiums for any given period can be
significantly impacted by several factors, including but not limited to, changes
in credited interest rates for certain products and other product modifications,
changes in tax laws, changes in life insurance regulations or changes in the
competitive environment. Sales volume may increase or decrease prior to such
changes becoming effective, and then fluctuate in the other direction following
such changes.


The tables below present annualized new business premiums on a constant exchange rate basis, by product and distribution channel, for the periods indicated.



                                                       Year Ended December 31, 2012                                           Year Ended December 31, 2011
                                                 Accident                                                               Accident
                                                     &           Retirement                                                 &           Retirement
                                     Life        Health(1)          (2)           Annuity       Total       Life        Health(1)          (2)           Annuity       Total
                                                                                                  (in millions)
Life Planners                       $   492     $       195     $        588     $      72     $ 1,347     $   437     $       183     $        454     $      52     $ 1,126
Gibraltar Life:
Life Consultants                        446             155              179           142         922         434             206              127           205         972
Banks(3)                              1,253              37               13           119       1,422         382              46               23           149         600
Independent Agency                       79             202               50            29         360         179             189               18            73         459

Subtotal                              1,778             394              242           290       2,704         995             441              168           427       2,031

Total                               $ 2,270     $       589     $        830     $     362     $ 4,051     $ 1,432     $       624     $        622     $     479     $ 3,157





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(1) Includes medical insurance, cancer insurance and accident & sickness riders.

The years ended December 31, 2012 and 2011 include $325 million and $230

million, respectively, of annualized new business premiums from cancer whole

life insurance products.

(2) Includes retirement income, endowment and savings variable universal life.

(3) Single pay life annualized new business premiums, which include 10% of first

year premiums, and 3-year limited pay annualized new business premiums,

which include 100% of new business premiums, represented 74% and 19%,

respectively, of total bank distribution channel annualized new business

premiums, excluding annuity products, for the year ended December 31, 2012,

and 31% and 50%, respectively, of total bank distribution channel annualized

new business premiums, excluding annuity products, for the year ended

December 31, 2011. Single pay and limited pay products generally have less

death benefit protection per premium paid than more traditional recurring

      premium products.




2012 to 2011 Annual Comparison.  Annualized new business premiums, on a constant
exchange rate basis, from our Life Planner operations increased $221 million
driven by higher sales in Japan of $177 million reflecting increased demand for
U.S. dollar-denominated retirement income products driven by a change in
crediting rate that became effective in June 2012 and higher demand for
yen-denominated retirement income products in the corporate market. To a lesser
extent, sales in Brazil, Korea, Taiwan and Italy increased due to growth and the
introduction of new products into these markets.



Annualized new business premiums, on a constant exchange rate basis, from our
Gibraltar Life operations increased $673 million driven by increased sales of
$822 million in the bank channel distribution. Bank channel sales largely
reflect higher sales of yen-denominated single premium reduced death benefit
whole life policies in anticipation of pricing changes effective January 2013 as
well as the benefit from actions taken by certain of our competitors to limit
sales and lower crediting rates on similar products. Independent Agency and Life
Consultant sales declined $99 million and $50 million, respectively, driven by
the discontinuation of certain products previously offered by the former Star
and Edison businesses and the expected attrition of former Star and Edison Life
Consultants. These decreases were partly offset by higher sales of cancer whole
life products prior to a tax law change in April 2012 as well as increased
demand for U.S. dollar-denominated retirement income products prior to pricing
changes in April 2012.


The table below present annualized new business premiums on a constant exchange rate basis, by product and distribution channel, for the periods indicated.




                                                        Year Ended December 31, 2011                                          Year Ended December 31, 2010
                                                  Accident                                                             Accident
                                                      &           Retirement                                               &           Retirement
                                      Life        Health(1)          (2)           Annuity       Total      Life       Health(1)          (2)           Annuity       Total
                                                                                                  (in millions)
Life Planners                        $   437     $       183     $        454     $      52     $ 1,126     $ 430     $       171     $        366     $      34     $ 1,001
Gibraltar Life:
Life Consultants                         434             206              127           205         972       280              74               67           108         529
Banks(3)                                 382              46               23           149         600       186              45               35            75         341
Independent Agency                       179             189               18            73         459         4              51                2             1          58

Subtotal                                 995             441              168           427       2,031       470             170              104           184         928

Total                                $ 1,432     $       624     $        622     $     479     $ 3,157     $ 900     $       341     $        470     $     218     $ 1,929




(1) Includes medical insurance, cancer insurance and accident & sickness riders.

(2) Includes retirement income, endowment and savings variable universal life.

(3) Single pay life annualized new business premiums, which include 10% of first

year premiums, and 3-year limited pay annualized new business premiums,

which include 100% of new business premiums, represented 30% and 50%,

respectively, of total bank distribution channel annualized new business

premiums, excluding annuity products, for the year ended December 31, 2011,

and 1% and 64%, respectively, of total bank distribution channel annualized

new business premiums, excluding annuity products, for the year ended

December 31, 2010. Single pay and limited pay products generally have less

death benefit protection per premium paid than more traditional recurring

      premium products.




2011 to 2010 Annual Comparison.  Annualized new business premiums, on a constant
exchange rate basis, from our Life Planner operations increased $125 million,
including $84 million of higher sales in Japan driven by growth in average
premium per policy reflecting the increasing demand for both yen and
U.S. dollar-denominated retirement income products. Sales in Korea increased $21
million driven by growth in



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average premium per policy resulting from increased sales of retirement income
products and variable annuity products. In Brazil, sales increased $11 million
primarily driven by sales of whole life products due in part to an increase in
the number of Life Planners.



Annualized new business premiums, on a constant exchange rate basis, from our
Gibraltar Life operations increased $1,103 million, with Star and Edison
contributing $763 million to this increase. Annualized new business premiums for
Star include approximately $128 million of sales from an increasing term product
that was discontinued upon completion of the merger with Gibraltar. Excluding
Star and Edison, the increase in annualized new business premiums was driven by
higher bank channel sales of $233 million primarily due to increased sales of
protection products including $137 million from single premium reduced death
benefit whole life sales due in part to increased sales in advance of a premium
increase on our yen-denominated product effective early February 2011 and $55
million in whole life products. Excluding Star and Edison, independent agency
distribution sales increased $86 million with the vast majority from sales of
cancer insurance products and Life Consultant sales increased $21 million
primarily reflecting higher sales of retirement income and annuity products.



Salesforce



The following table sets forth the number of Life Planners and Life Consultants
for the periods indicated.



                                                  As of December 31,
                                            2012         2011         2010
             Life Planners:
             Japan                           3,216        3,137        3,122
             All other countries             3,842        3,655        3,443
             Gibraltar Life Consultants     11,333       12,791        6,281

             Total                          18,391       19,583       12,846





2012 to 2011 Comparison.  The number of Life Planners increased by 266 from
December 31, 2011 driven by increases of 96 and 79 in Korea and Japan,
respectively, reflecting recruitment and retention initiatives and 69 in Brazil
due to agency growth. Also contributing to the increase in Life Planners over
the past year were increases of 61 in Poland and 22 in Italy, partly offset by
declines of 37 in Taiwan and 26 in Mexico.



The number of Gibraltar Life Consultants decreased by 1,458 from December 31,
2011, including anticipated resignations and terminations of Life Consultants,
due in part to their failure to meet minimum sales production standards.



2011 to 2010 Comparison.  The number of Life Planners increased by 227 from
December 31, 2010 driven by an increase of 84 in Brazil due to stronger
recruitment, as well as increases of 62 in Korea, 32 in Poland, 31 in Italy and
15 in Japan. Over this twelve month period, there were 35 Japanese Life Planners
transferred to Gibraltar Life, primarily in support of our efforts to expand our
bank channel distribution and to service orphaned policyholders.



The number of Gibraltar Life Consultants increased by 6,510 from December 31,
2010 driven by the Star and Edison acquisition. As of December 31, 2011, 6,550
Life Consultants were associated with the former acquired businesses of Star and
Edison, reflecting a decrease of 719 from the 7,269 Life Consultants as of the
February 1, 2011 date of acquisition, as recruitments were more than offset by
terminations and resignations.



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Corporate and Other


Corporate and Other includes corporate operations, after allocations to our business segments, and divested businesses except those that qualify for "discontinued operations" accounting treatment under U.S. GAAP.



                                                                Year ended December 31,
                                                             2012          2011         2010
                                                                     (in millions)
Operating results:
Capital debt interest expense                              $   (699 )    $   (621 )    $ (554 )
Net investment income, net of interest expense,
excluding capital debt interest expense                         (53 )         (26 )       (63 )
Pension income and employee benefits                            162           210         215
Other corporate activities(1)                                  (745 )        (673 )      (534 )

Adjusted operating income                                    (1,335 )      (1,110 )      (936 )

Realized investment gains (losses), net, and related
adjustments                                                     469        (1,487 )       119
Related charges                                                 (24 )          59          (3 )
Divested businesses                                            (597 )      

101 18 Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

               (11 )       

(10 ) (28 )

Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures $ (1,498 ) $ (2,447 ) $ (830 )





(1)   Includes consolidating adjustments.




In December 2012, the Company adopted retrospectively a change in method of
applying an accounting principle for the Company's pension plans. The change in
accounting method relates to the calculation of market related value of pension
plan assets, used to determine net periodic pension cost. As a result of this
change, Corporate and Other results have been revised for all historical periods
presented. For additional information on the change in accounting method for the
Company's pension plans, see Notes 2 and 18 to our Consolidated Financial
Statements.



2012 to 2011 Annual Comparison.  The loss from Corporate and Other operations,
on an adjusted operating income basis, increased $225 million. Capital debt
interest expense increased $78 million primarily due to higher levels of capital
debt. Net investment income, net of interest expense, excluding capital debt
interest expense, decreased $27 million reflecting less favorable results from
equity method investments and higher levels of operating debt. Net charges from
other corporate activities for 2012 include a $78 million charge from the impact
of an annual review and update of assumptions on the reserves for certain
retained obligations relating to pre-demutualization policyholders to whom we
had previously agreed to provide insurance for reduced or no premium in
accordance with contractual settlements related to prior individual life
insurance sales practices remediation. In addition, retained corporate expenses
increased in 2012 primarily from an increase in corporate advertising, the
results of our corporate foreign exchange hedging activities and the costs
related to the prepayment of outstanding debt. These increases are partially
offset by a favorable comparative impact for our estimate of payments arising
from the use of new Social Security Master Death File matching criteria to
identify deceased policy and contract holders and the absence of a $20 million
expense accrued in 2011 related to a voluntary contribution to be made to the
insurance industry insolvency fund, related to Executive Life Insurance.



Results from Corporate and Other operations pension income and employee benefits
decreased $48 million primarily due to an increase in recorded liabilities for
certain employee benefits and higher postretirement costs. Income from our
qualified pension plan partially offset these unfavorable items reflecting
better than expected growth in plan assets partially offset by a decrease in the
expected rate of return on plan assets from 7.00% in 2011 to 6.75% in 2012.



For purposes of calculating pension income from our own qualified pension plan
for the year ended December 31, 2013, we will decrease the discount rate to
4.05% from 4.85% in 2012. The expected rate of return on plan assets will
decrease to 6.25% in 2013 from 6.75% in 2012, and the assumed rate of increase
in compensation will remain unchanged at 4.5%. We determined our expected rate
of return on plan assets based upon a building block approach that considers
inflation, real return, term premium, credit spreads, equity risk premium and
capital appreciation as well as expenses, expected asset manager performance and
the effect of



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rebalancing for the equity, debt and real estate asset mix applied on a weighted
average basis to our pension asset portfolio. Giving effect to the foregoing
assumptions and other factors, we expect, on a consolidated basis, income from
our own qualified pension plan will continue to contribute to adjusted operating
income in 2013, but at a level of about $15 million to $25 million lower than in
2012. Other postretirement benefit expenses will decrease in a range of $5
million to $15 million. The decrease is driven primarily by favorable
demographic updates and claims experience, offset by a decrease in the discount
rate to 3.85% from 4.60%. In 2013, pension and other postretirement benefit
service costs related to active employees will continue to be allocated to our
business segments.



2011 to 2010 Annual Comparison.  The loss from Corporate and Other operations,
on an adjusted operating income basis, increased $174 million. Corporate and
Other operations recorded a $93 million increase in reserves for estimated
payments arising from use of new Social Security Master Death file criteria to
identify deceased policy and contract holders. Corporate and Other operations
also recorded a $20 million charge related to a voluntary contribution to be
made to an insurance industry insolvency fund, related to Executive Life
Insurance Company of New York. Greater net charges from other corporate
activities, primarily reflecting increased retained corporate expenses,
including corporate advertising, contributed to the increased loss. The increase
in net charges from other corporate activities was partially offset by more
favorable results from corporate foreign currency hedging activities and reduced
charges compared to the prior period for certain retained obligations relating
to pre-demutualization policyholders to whom we had previously agreed to provide
insurance for reduced or no premium in accordance with contractual settlements
related to prior individual life insurance sales practices remediation. Capital
debt interest expense increased $67 million due to a greater level of capital
debt, which includes the issuance in November 2010 of $1 billion of debt for the
acquisition of the Star and Edison Businesses. Investment income, net of
interest expense, excluding capital debt interest expense, increased $37 million
due to higher income in our corporate investment portfolio including higher
income on equity method investments.



Results from Corporate and Other operations pension income and employee benefits
decreased $5 million primarily due to a decrease in income from our qualified
pension plan resulting from a decrease in the expected rate of return on plan
assets from 7.50% in 2010 to 7.00% in 2011, partially offset by better than
expected growth in plan assets.



Capital Protection Framework



Corporate and Other operations includes the results of our Capital Protection
Framework, which includes, among other initiatives, the capital hedge program.
The capital hedge program broadly addresses the equity market exposure of the
statutory capital of the Company as a whole, under stress scenarios, as
described under "-Liquidity and Capital Resources-Capital-Capital Protection
Framework." This hedge program resulted in charges for amortization of
derivative costs of $40 million, $21 million and $8 million for the years ended
December 31, 2012, 2011 and 2010, respectively. The impact of the market value
changes of these derivatives included in "Realized investment gains (losses),
net and related adjustments" was a loss of $15 million, a gain of $9 million and
a loss of $7 million for the years ended December 31, 2012, 2011 and 2010,
respectively.



In addition to hedging equity market exposure, we may choose to manage the
interest rate risk associated with various operations of the Financial Services
Businesses by holding capital against a portion of the interest rate exposure
rather than fully hedging the risk. "Realized investment gains (losses), net and
related adjustments" includes net gains of $184 million, net losses of $1,662
million and net gains of $306 million for the years ended December 31, 2012,
2011 and 2010 respectively, resulting from our decision to utilize this strategy
to manage a portion of our interest rate risk. The $1,662 million net loss in
2011 was driven by significant declines in risk-free interest rates during the
year. The capital consequences associated with our decision to hold capital
against a portion of our interest rate exposure have been factored into our
Capital Protection Framework.



In addition, we manage certain of the risks associated with our variable annuity
products through our living benefit hedging program, which is described under
"-U.S. Retirement Solutions and Investment Management Division-Individual
Annuities." Through our Capital Protection Framework, we maintain access to
on-balance sheet capital and contingent sources of capital that are available to
meet capital needs that may arise related to this hedging program.



For more information on our Capital Protection Framework, see "-Liquidity and Capital Resources."




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                 Results of Operations of Closed Block Business



We established the Closed Block Business effective as of the date of
demutualization. The Closed Block Business includes our in force traditional
domestic participating life insurance and annuity products and assets that are
used for the payment of benefits and policyholder dividends on these policies,
as well as other assets and equity and related liabilities that support these
policies. We no longer offer these traditional domestic participating policies.
See Note 12 to the Consolidated Financial Statements and "-Closed Block
Business" for additional details.



Each year, the Board of Directors of Prudential Insurance determines the
dividends payable on participating policies for the following year based on the
experience of the Closed Block, including investment income, net realized and
unrealized investment gains, mortality experience and other factors. Although
Closed Block experience for dividend action decisions is based upon statutory
results, at the time the Closed Block was established, we developed, as required
by U.S. GAAP, an actuarial calculation of the timing of the maximum future
earnings from the policies included in the Closed Block. If actual cumulative
earnings in any given period are greater than the cumulative earnings we
expected, we will record this excess as a policyholder dividend obligation. We
will subsequently pay this excess to Closed Block policyholders as an additional
dividend unless it is otherwise offset by future Closed Block performance that
is less favorable than we originally expected. The policyholder dividends we
charge to expense within the Closed Block Business will include any change in
our policyholder dividend obligation that we recognize for the excess of actual
cumulative earnings in any given period over the cumulative earnings we expected
in addition to the actual policyholder dividends declared by the Board of
Directors of Prudential Insurance.



As of December 31, 2012, the excess of actual cumulative earnings over the
expected cumulative earnings was $885 million, which was recorded as a
policyholder dividend obligation. Actual cumulative earnings, as required by
U.S. GAAP, reflect the recognition of realized investment gains and losses in
the current period, as well as changes in assets and related liabilities that
support the Closed Block policies. Additionally, the accumulation of net
unrealized investment gains that have arisen subsequent to the establishment of
the Closed Block have been reflected as a policyholder dividend obligation of
$5,478 million at December 31, 2012, to be paid to Closed Block policyholders
unless offset by future experience, with an offsetting amount reported in AOCI.



Operating Results



Management does not consider adjusted operating income to assess the operating
performance of the Closed Block Business. Consequently, results of the Closed
Block Business for all periods are presented only in accordance with U.S. GAAP.
The following table sets forth the Closed Block Business U.S. GAAP results for
the periods indicated.



                                                                Year ended December 31,
                                                             2012         2011         2010
                                                                     (in millions)
U.S. GAAP results:
Revenues                                                   $  6,257      $ 7,015      $ 7,086
Benefits and expenses                                         6,193        6,801        6,340

Income from continuing operations before income taxes and equity in earnings of operating joint ventures $ 64 $

 214      $   746




Income from Continuing Operations Before Income Taxes and Equity in Earnings of Operating Joint Ventures




2012 to 2011 Annual Comparison.  Income from continuing operations before income
taxes and equity in earnings of operating joint ventures decreased $150 million.
Results for 2012 include $602 million of lower net realized investment gains,
primarily due to lower trading gains on fixed maturities and equity investments,
as well as unfavorable changes in the value of derivatives. For a discussion of
Closed Block Business realized investment gains (losses), net, see "-Realized
Investment Gains and Losses." Also contributing to the decline in results was a
$61 million decrease in net investment income primarily reflecting the impact of
lower



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reinvestment rates and lower asset balances as the business runs off. As a
result of the above and other variances, a $123 million policyholder dividend
obligation expense was recorded in 2012, compared to $636 million in 2011. As
noted above, as of December 31, 2012, the excess of actual cumulative earnings
over the expected cumulative earnings was $885 million. If actual cumulative
earnings fall below expected cumulative earnings in future periods, earnings
volatility in the Closed Block Business, which is primarily due to changes in
investment results, may not be offset by changes in the cumulative policyholder
dividend obligation.



2011 to 2010 Annual Comparison.  Income from continuing operations before income
taxes and equity in earnings of operating joint ventures decreased $532 million.
Results for 2011 include a $40 million increase in reserves for estimated
payments arising from use of new Social Security Master Death File matching
criteria to identify deceased policy and contract holders, as well as a decrease
in net investment income of $33 million primarily due to lower portfolio yields.
These unfavorable items were partially offset by an increase of $51 million in
net realized investment gains primarily resulting from higher trading gains as
part of a change in asset allocation of the portfolios and lower impairment
losses, partially offset by lower investment gains from the change in value of
derivatives, including interest rate swaps and futures. As a result of the above
and other variances, a $636 million policyholder dividend obligation expense was
recorded in 2011, compared to $126 million in 2010.



Revenues, Benefits and Expenses




2012 to 2011 Annual Comparison.  Revenues, as shown in the table above under
"-Operating Results," decreased $758 million principally driven by the $602
million decrease in net realized investment gains, as discussed above. Premiums
declined by $101 million, with a related decrease in changes in reserves,
primarily due to the expected in force decline as policies terminate. Also
contributing to the decline in revenues was a $61 million decrease in net
investment income, as discussed above.



Benefits and expenses, as shown in the table above under "-Operating Results,"
decreased $608 million primarily driven by a $550 million decline in dividends
to policyholders including a $513 million decrease in the policyholder dividend
obligation expense reflecting a lower increase in cumulative earnings. In
addition, policyholders' benefits, including changes in reserves, decreased $37
million primarily due to the expected in force decline as policies terminate,
partially offset by an increase in reserves for estimated payments arising from
use of new Social Security Master Death File matching criteria to identify
deceased policy and contract holders.



2011 to 2010 Annual Comparison.  Revenues decreased $71 million principally
driven by an $89 million decrease in premiums, with a related decrease in
changes in reserves, primarily due to the expected in force decline as policies
terminate, as well as a $33 million decrease in net investment income primarily
due to lower portfolio yields, as discussed above. Partially offsetting these
unfavorable items was an increase of $51 million in net realized investment
gains, as discussed above.



Benefits and expenses increased $461 million primarily driven by a $500 million
increase in dividends to policyholders including a $510 million increase in the
policyholder dividend obligation expense reflecting an increase in cumulative
earnings. This unfavorable item was partially offset by a decrease in
policyholders' benefits, including changes in reserves of $30 million reflecting
the expected in force decline, partially offset by an increase in reserves for
estimated payments arising from use of new Social Security Master Death File
matching criteria to identify deceased policy and contract holders, as discussed
above.



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                                  Income Taxes



Shown below is our income tax provision for the years ended December 31, 2012,
2011 and 2010, separately reflecting the impact of certain significant items.
Also presented below is the income tax provision that would have resulted from
application of the statutory 35% federal income tax rate in each of these
periods.



                                                                Year ended December 31,
                                                           2012          2011          2010
                                                                     (in millions)
Tax provision                                             $   204       $ 1,488       $ 1,243
Impact of:
Reversal of acquisition opening balance sheet deferred
tax items                                                    (384 )        (221 )          (6 )
Non-taxable investment income                                 302           247           214
Low income housing and other tax credits                       78            80            58
Foreign taxes at other than U.S. rate                          41            30            46
Minority interest                                              27            24             4
State and local taxes                                         (16 )           2            (4 )
Uncertain tax positions and interest                           (8 )          57            (9 )
Non-deductible expenses                                        (7 )         (17 )         (10 )
Change in tax rate                                             (1 )         (18 )         (91 )
Repatriation assumption change                                 (6 )          11             0
Change in valuation allowance                                   1            (8 )         (29 )
Other                                                           6            43            33

Tax provision excluding these items                       $   237       $ 

1,718 $ 1,449


Tax provision at statutory rate                           $   237       $ 1,718       $ 1,449





Our income tax provision amounted to an income tax expense of $204 million in
2012 compared to $1,488 million in 2011. Our income tax provision for 2012 and
2011 includes $333 million and $214 million, respectively, of an additional U.S.
tax related to the realization of a portion of the local deferred tax assets
existing on the opening day balance sheet for the Star and Edison Businesses.
The increase in the additional U.S. tax is a result of the merger of Star and
Edison Businesses into the Gibraltar Life Insurance Company, Ltd. It represents
the recomputed U.S. tax liability on Gibraltar's prior earnings as a result of
the repatriation assumption and the merger of the entities. The local
utilization of the deferred tax asset coupled with the repatriation assumption
with respect to the applicable earnings of our Japanese entities creates the
effect of a "double tax" for U.S. GAAP purposes, whereas only one incidence of
tax will ever be paid. In addition, 2011 income tax expense includes a $42
million tax benefit from the release of a valuation allowance related to a
foreign subsidiary. Excluding the impact of the "double tax" and the release of
the valuation allowance, the income tax expense decreased primarily due to the
decrease in pre-tax income from continuing operations before income taxes and
equity in earnings of operating joint ventures and increase in non-taxable
investment income for the year ended December 31, 2012.



Our income tax provision related to foreign operations amounted to an income tax
benefit of $90 million in 2012 compared to income tax expense of $644 million in
2011. Our foreign operations income tax provision for 2012 and 2011 includes $73
million of an additional tax expense and $435 million of an additional tax
benefit, respectively, from the re-measurement of deferred tax liabilities
resulting from the Japan corporate income tax rate reduction. However, since we
assume repatriation of earnings from our Japanese operations, our domestic tax
provision in 2012 and 2011 includes $73 million of an additional tax benefit and
$435 million of an additional tax expense, respectively, resulting from the
increase or decrease in the future foreign tax credit benefit and, as a result,
the reduction in the Japan corporate tax rate had no impact on our overall
income tax provision. Excluding the impact from the Japan corporate income tax
rate reduction, the foreign operations income tax provision decreased primarily
due to the decrease in foreign operations pre-tax income from continuing
operations before income taxes and equity in earnings of operating joint
ventures.



We employ various tax strategies, including strategies to minimize the amount of taxes resulting from realized capital gains.

For additional information regarding income taxes, see Note 19 to the Consolidated Financial Statements.

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                            Discontinued Operations



Included within net income are the results of businesses which are reflected as
discontinued operations under U.S. GAAP. Income (loss) from discontinued
operations, net of taxes, was $15 million, $35 million and $33 million for the
years ended December 31, 2012, 2011 and 2010, respectively.



For additional information regarding discontinued operations see Note 3 to the Consolidated Financial Statements.



                              Divested Businesses



Our income from continuing operations includes results from several businesses
that have been or will be sold or exited, including businesses that have been
placed in wind down, but that do not qualify for "discontinued operations"
accounting treatment under U.S. GAAP. The results of these divested businesses
are reflected in our Corporate and Other operations, but are excluded from
adjusted operating income. For a further description of these divested
businesses, see "Business-Corporate and Other." A summary of the results of
these divested businesses that have been excluded from adjusted operating income
is as follows for the periods indicated:



                                                                Year ended December 31,
                                                          2012            2011           2010
                                                                     (in millions)
Long-Term Care                                          $   (608 )      $     47       $     43
Real Estate and Relocation Services                           26              81             47
Property and Casualty Insurance                              (10 )            (8 )          (33 )
Individual Health Insurance                                   (6 )           (15 )          (17 )
Financial Advisory                                            (5 )            (7 )          (19 )
Other                                                          6               3             (3 )

Total divested businesses excluded from adjusted
operating income                                        $   (597 )      $    101       $     18





Long-Term Care.  Results for the year ended December 31, 2012, as presented in
the table above, include a $639 million net charge, before taxes, from an
increase in reserves for our long-term care products and adjustments to deferred
policy acquisition and other costs, reflecting updates to the estimated
profitability of the business, driven by changes to our long-term interest rate
and morbidity assumptions, partially offset by expected future premium
increases. We have factored into our assumptions our best estimate of the timing
and amount of anticipated and yet-to-be-filed premium increases which will
require state approval. Our actual experience obtaining pricing increases could
be materially different than what we have assumed, resulting in further policy
liability increases which could be material.



Real Estate and Relocation Services.  Results for the year ended December 31,
2011 include a pre-tax gain of $49 million reflecting the sale of our real
estate brokerage franchise and relocation services business. We retained
ownership of a financing subsidiary with debt and equity investments in a
limited number of real estate brokerage franchises. The results of these
operations are reflected in the table above. For additional information on the
sale of our real estate brokerage franchise and relocation services business,
see Note 3 to the Consolidated Financial Statements.



                  Experience-Rated Contractholder Liabilities,

Trading Account Assets Supporting Insurance Liabilities and Other Related

                                  Investments



Certain products included in the Retirement and International Insurance segments
are experience-rated in that investment results associated with these products
are expected to ultimately accrue to contractholders. The majority of
investments supporting these experience-rated products are classified as trading
and are carried at fair value. These trading investments are reflected on the
statements of financial position as "Trading account assets supporting insurance
liabilities, at fair value" ("TAASIL"). Realized and unrealized gains and losses
for these investments are reported in "Asset management fees and other income."
Interest and dividend income for these



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investments is reported in "Net investment income." To a lesser extent, these
experience-rated products are also supported by derivatives and commercial
mortgage and other loans. The derivatives that support these experience-rated
products are reflected on the statement of financial position as "Other
long-term investments" and are carried at fair value, and the realized and
unrealized gains and losses are reported in "Realized investment gains (losses),
net." The commercial mortgage and other loans that support these
experience-rated products are carried at unpaid principal, net of unamortized
discounts and an allowance for losses, and are reflected on the statements of
financial position as "Commercial mortgage and other loans." Gains and losses on
sales and changes in the valuation allowance for commercial mortgage and other
loans are reported in "Realized investment gains (losses), net."



Our Retirement segment has two types of experience-rated products that are
supported by TAASIL and other related investments. Fully participating products
are those for which the entire return on underlying investments is passed back
to the policyholders through a corresponding adjustment to the related
liability. The adjustment to the liability is based on changes in the fair value
of all of the related assets, including commercial mortgage and other loans,
which are carried at amortized cost, less any valuation allowance. Partially
participating products are those for which only a portion of the return on
underlying investments is passed back to the policyholders over time through
changes to the contractual crediting rates. The crediting rates are typically
reset semiannually, often subject to a minimum crediting rate, and returns are
required to be passed back within ten years.



In our International Insurance segment, the experience-rated products are fully
participating. As a result, the entire return on the underlying investments is
passed back to policyholders through a corresponding adjustment to the related
liability.



Adjusted operating income excludes net investment gains and losses on TAASIL,
related derivatives and commercial mortgage and other loans. This is consistent
with the exclusion of realized investment gains and losses with respect to other
investments supporting insurance liabilities managed on a consistent basis. In
addition, to be consistent with the historical treatment of charges related to
realized investment gains and losses on investments, adjusted operating income
also excludes the change in contractholder liabilities due to asset value
changes in the pool of investments (including changes in the fair value of
commercial mortgage and other loans) supporting these experience-rated
contracts, which are reflected in "Interest credited to policyholders' account
balances." The result of this approach is that adjusted operating income for
these products includes net fee revenue and interest spread we earn on these
experience-rated contracts, and excludes changes in fair value of the pool of
investments, both realized and unrealized, that we expect will ultimately accrue
to the contractholders.



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The following tables set forth the impact of these items on results that are excluded from adjusted operating income for the periods indicated:



                                                               Year ended December 31,
                                                           2012          2011          2010
                                                                    (in millions)
Retirement Segment:
Investment gains (losses) on:
Trading account assets supporting insurance
liabilities, net                                         $    406       $   383       $   468
Derivatives                                                   (86 )        (160 )          50
Commercial mortgages and other loans                            5             9             6

Change in experience-rated contractholder liabilities due to asset value changes(1)(2)

                             (336 )        (283 )        (598 )

Net gains (losses)                                       $    (11 )     $   (51 )     $   (74 )

International Insurance Segment: Investment gains (losses) on trading account assets supporting insurance liabilities, net

                    $    204       $  (160 )     $    33
Change in experience-rated contractholder liabilities
due to asset value changes                                   (204 )         160           (33 )

Net gains (losses)                                       $      0       $     0       $     0

Total:
Investment gains (losses) on:
Trading account assets supporting insurance
liabilities, net                                         $    610       $   223       $   501
Derivatives                                                   (86 )        (160 )          50
Commercial mortgages and other loans                            5             9             6

Change in experience-rated contractholder liabilities due to asset value changes(1)(2)

                             (540 )        (123 )        (631 )

Net gains (losses)                                       $    (11 )     $   (51 )     $   (74 )




(1) Decreases to contractholder liabilities due to asset value changes are

limited by certain floors and therefore do not reflect cumulative declines

in recorded asset values of $3 million, $7 million and $9 million as of

December 31, 2012, 2011 and 2010, respectively. We have recovered and expect

to recover in future periods these declines in recorded asset values through

subsequent increases in recorded asset values or reductions in crediting

      rates on contractholder liabilities.


(2)   Included in the amounts above related to the change in the liability to
      contractholders as a result of commercial mortgage and other loans are

increases of $18 million, $55 million and $108 million for the years ended

December 31, 2012, 2011 and 2010, respectively. As prescribed by U.S. GAAP,

changes in the fair value of commercial mortgage and other loans held for

investment in our general account, other than when associated with

impairments, are not recognized in income in the current period, while the

impact of these changes in fair value are reflected as a change in the

liability to fully participating contractholders in the current period.





As shown in the table above, the net impacts for the Retirement segment of
changes in experience-rated contractholder liabilities and investment gains and
losses on trading account assets supporting insurance liabilities and other
related investments were net losses of $11 million, $51 million and $74 million
for the years ended December 31, 2012, 2011 and 2010, respectively. These
impacts primarily reflect timing differences between the recognition of the
mark-to-market adjustments and the recognition of the recovery of these
adjustments in future periods through subsequent increases in asset values or
reductions in crediting rates on contractholder liabilities for partially
participating products. These impacts also reflect the difference between the
fair value of the underlying commercial mortgage and other loans and the
amortized cost, less any valuation allowance, of these loans, as described
above.



                      Valuation of Assets and Liabilities


Fair Value of Assets and Liabilities




The authoritative guidance related to fair value measurement establishes a
framework that includes a three-level hierarchy used to classify the inputs used
in measuring fair value. The level in the hierarchy within which the fair value
falls is determined based on the lowest level input that is significant to the
measurement. The fair values of assets and liabilities classified as Level 3
include at least one or more significant unobservable input in the measurement.
See Note 20 to the Consolidated Financial Statements for an additional
description of the valuation hierarchy levels.



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The tables below present the balances of assets and liabilities measured at fair
value on a recurring basis, as of the periods indicated, split between the
Financial Services Businesses and Closed Block Business, and the portion of such
assets and liabilities that are classified in Level 3 of the valuation
hierarchy. See Note 20 to the Consolidated Financial Statements for the balances
of assets and liabilities measured at fair value on a recurring basis by
hierarchy level presented on a consolidated basis.



                                                                 As of December 31, 2012                                                   As of December 31, 2011
                                                 Financial Services                      Closed Block                      Financial Services                      Closed Block
                                                     Businesses                            Business                            Businesses                            Business
                                             Total at            Total            Total at            Total            Total at            Total            Total at           Total
                                            Fair Value         Level 3(1)        Fair Value         Level 3(1)        Fair Value         Level 3(1)        Fair Value        Level 3(1)
                                                                                                           (in millions)

Fixed maturities, available-for-sale $ 254,917 $ 4,261

    $     46,419       $      1,207      $    208,132       $      3,098      $     46,516      $      1,132
Trading account assets:
Fixed maturities                                  20,605               565               139                 10            18,921                612               189                 0
Equity securities                                  2,341               987               136                111             2,404              1,173               128               123
All other(2)                                       3,697                25                 0                  0             3,384                 93                 0                 0

Subtotal                                          26,643             1,577               275                121            24,709              1,878               317               123
Equity securities, available-for-sale              5,052               321             3,225                  9             4,413                333             3,122                27
Commercial mortgage and other loans                  162                48                 0                  0               600                 86                 0                 0
Other long-term investments                        1,478             1,053               (95 )                0             1,107              1,110               185                 0
Short-term investments                             5,130                 0             1,260                  0             8,232                  0               528                 0
Cash equivalents                                  13,063                 0               537                  0             8,392                  0             1,037                 0
Other assets                                          98                 8                97                  0               (13 )                9               111                 0

Subtotal excluding separate account
assets                                           306,543             7,268            51,718              1,337           255,572              6,514            51,816             1,282
Separate account assets                          253,254            21,132                 0                  0           218,380             19,358                 0                 0

Total assets                               $     559,797      $     28,400      $     51,718       $      1,337      $    473,952       $     25,872      $     51,816      $      1,282

Future policy benefits                     $       3,348      $      3,348      $          0       $          0      $      2,886       $      2,886      $          0      $          0
Other liabilities and notes of
consolidated VIEs(2)                               1,496             1,406                 0                  0               444                285                 0                 0

Total liabilities                          $       4,844      $      4,754      $          0       $          0      $      3,330       $      3,171      $          0      $          0




(1) The amount of Level 3 assets taken as a percentage of total assets measured

at fair value on a recurring basis totaled 5.1% and 5.5% as of December 31,

2012 and 2011, respectively, for the Financial Services Businesses, and 2.6%

and 2.5% as of December 31, 2012 and 2011, respectively, for the Closed

      Block Business. The amount of Level 3 liabilities was immaterial to our
      balance sheet.

(2) "All other" and "Other liabilities" included within "Other liabilities and

notes of consolidated VIEs" primarily include derivatives. The amounts

      classified as Level 3 for the Financial Services Businesses exclude the
      impact of netting.




The determination of fair value, which for certain assets and liabilities is
dependent on the application of estimates and assumptions, can have a
significant impact on our results of operations and may require the application
of a greater degree of judgment depending on market conditions, as the ability
to value assets and liabilities can be significantly impacted by a decrease in
market activity or a lack of transactions executed in an orderly manner. The
following sections provide information regarding certain assets and liabilities
of our Financial Services Businesses and our Closed Block Business which are
valued using Level 3 inputs and could have a significant impact on our results
of operations.


Fixed Maturity and Equity Securities




Fixed maturity securities included in Level 3 in our fair value hierarchy are
generally priced based on internally-developed valuations or indicative broker
quotes. For certain private fixed maturity and equity securities, the
internally-developed valuation model uses significant unobservable inputs and,
accordingly, such securities are included in Level 3 in our fair value
hierarchy. Level 3 fixed maturity securities included approximately $4.5 billion
as of December 31, 2012 and $3.2 billion as of December 31, 2011 of public fixed
maturities, with values primarily based on indicative broker quotes, and
approximately $1.5 billion as of December 31, 2012 and $1.6 billion as of
December 31, 2011 of private fixed maturities, with values primarily based on
internally-developed models. Significant unobservable inputs used included:
issue specific credit



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adjustments, material non-public financial information, management judgment,
estimation of future earnings and cash flows, default rate assumptions,
liquidity assumptions and indicative quotes from market makers. These inputs are
usually considered unobservable, as not all market participants will have access
to this data.



The impact our determination of fair value for fixed maturity and equity
securities has on our results of operations is dependent on our classification
of the security as either trading, available-for-sale, or held-to-maturity. For
our investments classified as trading, the impact of changes in fair value is
recorded within "Asset management fees and other income." For our investments
classified as available-for-sale, the impact of changes in fair value is
recorded as an unrealized gain or loss in AOCI, a separate component of equity.
Our investments classified as held-to-maturity are carried at amortized cost.



Other Long-Term Investments




Other long-term investments classified in Level 3 primarily include real estate
held in consolidated investment funds and fund investments where the fair value
option has been elected. The fair value of real estate held in consolidated
investment funds is determined through an independent appraisal process. The
appraisals generally utilize a discounted cash flow model. The appraisals also
include replacement cost estimates and recent sales data as alternate methods of
fair value. These appraisals and the related assumptions are updated at least
annually. Since many of the assumptions utilized are unobservable and are
considered to be significant inputs to the valuation, the real estate
investments within other long-term investments are reflected within Level 3.
Consolidated real estate investment funds classified as Level 3 totaled
approximately $0.5 billion and $0.4 billion as of December 31, 2012 and 2011,
respectively. The fair value of fund investments, where the fair value option
has been elected, is primarily determined by the fund managers. Since the
valuations may be based on unobservable market inputs and cannot be validated by
the Company, these investments are included within Level 3. Investments in these
funds included in Level 3 totaled approximately $0.5 billion and $0.4 billion as
of December 31, 2012 and 2011, respectively.



Derivative Instruments



Derivatives classified as Level 3, excluding embedded derivatives which are
discussed in "-Variable Annuity Optional Living Benefit Features" below, include
look-back equity options and other structured products. These derivatives are
recorded at fair value either as assets, within "Other trading account assets,"
or "Other long-term investments," or as liabilities, within "Other liabilities,"
and are valued based upon models with some significant unobservable market
inputs or inputs from less actively traded markets. We validate these values
through periodic comparison of our fair values to broker-dealer values. The fair
values of OTC derivative assets and liabilities classified as Level 3 totaled
approximately $19 million and $0 million, respectively, as of December 31, 2012
and $84 million and $3 million, respectively, as of December 31, 2011, without
giving consideration to the impact of netting.



All realized and unrealized changes in fair value of these derivatives, with the
exception of the effective portion of qualifying cash flow hedges and hedges of
net investments in foreign operations, are recorded in current earnings.
Generally, the changes in fair value of these derivatives, excluding those that
qualify for hedge accounting, are recorded in "Realized investment gains
(losses), net." For additional information regarding the impact of changes in
fair value of derivative instruments on our results of operations see "-Realized
Investment Gains and Losses" below.



Separate Account Assets


Separate account assets included in Level 3 primarily include real estate investments for which values are determined as described above under "Other Long-Term Investments." Separate account liabilities are reported at contract value and not fair value.

Variable Annuity Optional Living Benefit Features

Future policy benefits classified in Level 3 primarily include liabilities related to guarantees associated with the optional living benefit features of certain variable annuity contracts offered by our Individual Annuities

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segment, including guaranteed minimum accumulation benefits ("GMAB"), guaranteed
minimum withdrawal benefits ("GMWB") and guaranteed minimum income and
withdrawal benefits ("GMIWB"). These benefits are accounted for as embedded
derivatives and carried at fair value with changes in fair value included in
"Realized investment gains (losses), net." The fair values of the GMAB, GMWB and
GMIWB liabilities are calculated as the present value of future expected benefit
payments to customers less the present value of assessed rider fees attributable
to the embedded derivative feature. This methodology could result in either a
liability or contra-liability balance, given changing capital market conditions
and various policyholder behavior assumptions. Since there is no observable
active market for the transfer of these obligations, the valuations are
calculated using internally-developed models with option pricing techniques.
These models utilize significant assumptions that are primarily unobservable,
including assumptions as to lapse rates, NPR, utilization rates, withdrawal
rates, mortality rates and equity market volatility. Future policy benefits
classified as Level 3 were net liabilities of $3.3 billion and $2.9 billion as
of December 31, 2012 and 2011, respectively. For additional information see
"-Results of Operations for Financial Services Businesses by Segment-U.S.
Retirement Solutions and Investment Management Division-Individual Annuities."



For additional information about the key estimates and assumptions used in our determination of fair value, see Note 20 to the Consolidated Financial Statements.



                      Realized Investment Gains and Losses


Realized investment gains and losses are generated from numerous sources, including the following significant items:



  •   sale of investments



• adjustments to the cost basis of investments for other-than-temporary

        impairments




    •   recognition of other-than-temporary impairments in earnings for foreign

denominated securities that are approaching maturity and are in an

unrealized loss position due to foreign currency exchange rate movements





  •   prepayment premiums received on private fixed maturity securities




    •   net changes in the allowance for losses, certain restructurings and
        foreclosures on commercial mortgage and other loans




  •   fair value changes on commercial mortgage loans carried at fair value



• fair value changes on embedded derivatives and free-standing derivatives

        that do not qualify for hedge accounting treatment (except those
        derivatives used in our capacity as a broker or dealer).




The level of other-than-temporary impairments generally reflects economic
conditions and is expected to increase when economic conditions worsen and to
decrease when economic conditions improve. Historically, the causes of
other-than-temporary impairments have been specific to each individual issuer
and have not directly resulted in impairments to other securities within the
same industry or geographic region. We may also realize additional credit and
interest rate related losses through sales of investments pursuant to our credit
risk and portfolio management objectives. For a discussion of our policies
regarding other-than-temporary impairments see "-General Account
Investments-Fixed Maturity Securities-Other-Than-Temporary Impairments of Fixed
Maturity Securities" and "-General Account Investments-Equity
Securities-Other-Than-Temporary Impairments of Equity Securities" below.



We use interest rate and currency swaps and other derivatives to manage interest
and currency exchange rate exposures arising from mismatches between assets and
liabilities, including duration mismatches. We use derivative contracts to
mitigate the risk that unfavorable changes in currency exchange rates will
materially affect U.S. dollar equivalent earnings generated by certain of our
non-U.S. businesses. We also use equity-based and interest rate derivatives to
hedge a portion of the risks embedded in some of our annuity products.
Derivative contracts also include forward purchases and sales of to-be-announced
mortgage-backed securities primarily related to our dollar roll program. Many of
these derivative contracts do not qualify for hedge accounting, and
consequently, we recognize the changes in fair value of such contracts from
period to period in current earnings,



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although we do not necessarily account for the related assets or liabilities the
same way. Accordingly, realized investment gains and losses from our derivative
activities can contribute significantly to fluctuations in net income. For a
further discussion of optional living benefit guarantees and related hedge
positions in our Individual Annuities segment, see "-Results of Operations for
Financial Services Businesses by Segment-U.S. Retirement Solutions and
Investment Management Division-Individual Annuities."



Adjusted operating income generally excludes "Realized investment gains
(losses), net," subject to certain exceptions. These exceptions primarily
include realized investment gains or losses within certain of our businesses for
which such gains or losses are a principal source of earnings, gains or losses
associated with terminating hedges of foreign currency earnings and current
period yield adjustments, and related charges and adjustments.
Other-than-temporary impairments, interest rate related losses and credit
related losses on sales (other than those related to certain of our businesses
which primarily originate investments for sale or syndication to unrelated
investors) are excluded from adjusted operating income.



The following tables set forth "Realized investment gains (losses), net," by
investment type for the Financial Services Businesses and Closed Block Business,
as well as related charges and adjustments associated with the Financial
Services Businesses, for the periods indicated. For additional details regarding
adjusted operating income, which is our measure of performance for the segments
of our Financial Services Businesses, see Note 22 to the Consolidated Financial
Statements.



                                                             Year Ended December 31,
                                                      2012            2011             2010
                                                                  (in millions)
Realized investment gains (losses), net:
Financial Services Businesses                       $  (1,684 )     $   1,986       $      256
Closed Block Business                                     243             845              794

Consolidated realized investment gains (losses),
net                                                 $  (1,441 )     $   

2,831 $ 1,050


Financial Services Businesses:
Realized investment gains (losses), net:
Fixed maturity securities                           $    (140 )     $    (125 )     $     (361 )
Equity securities                                         (54 )          (120 )             11
Commercial mortgage and other loans                        92              89               35
Derivative instruments                                 (1,552 )         2,095              601
Other                                                     (30 )            47              (30 )

Total                                               $  (1,684 )     $   1,986       $      256

Related adjustments                                    (1,982 )           517             (104 )

Realized investment gains (losses), net, and
related adjustments                                    (3,666 )         2,503              152

Related charges                                           857          (1,656 )           (179 )

Realized investment gains (losses), net, and
related charges and adjustments                     $  (2,809 )     $     

847 $ (27 )


Closed Block Business:
Realized investment gains (losses), net:
Fixed maturity securities                           $     103       $     355       $      117
Equity securities                                          78             265              174
Commercial mortgage and other loans                         2              33               18
Derivative instruments                                     52             199              489
Other                                                       8              (7 )             (4 )

Total                                               $     243       $     845       $      794




2012 to 2011 Annual Comparison

Financial Services Businesses




The Financial Services Businesses' net realized investment losses in 2012 were
$1,684 million, compared to net realized investment gains of $1,986 million in
2011.



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Net realized losses on fixed maturity securities were $140 million in 2012,
compared to net realized losses of $125 million in 2011, as set forth in the
following table:



                                                              Year Ended December 31,
                                                            2012                  2011
                                                                   (in millions)
Realized investment gains (losses), net-Fixed
Maturity Securities-Financial Services Businesses
Gross realized investment gains:
Gross gains on sales and maturities(1)                   $       375           $       527
Private bond prepayment premiums                                  23                    36

Total gross realized investment gains                            398                   563

Gross realized investment losses: Net other-than-temporary impairments recognized in earnings(2)

                                                     (263 )                (431 )
Gross losses on sales and maturities(1)                         (247 )                (250 )
Credit related losses on sales                                   (28 )                  (7 )

Total gross realized investment losses                          (538 )      

(688 )


Realized investment gains (losses), net-Fixed
Maturity Securities                                      $      (140 )      

$ (125 )


Net gains (losses) on sales and maturities-Fixed
Maturity Securities(1)                                   $       128           $       277




(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and

credit related losses through sales of investments pursuant to our credit

risk objectives.

(2) Excludes the portion of other-than-temporary impairments 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.




Net trading gains on sales and maturities of fixed maturity securities of $128
million in 2012 were primarily due to sales within our International Insurance,
Retirement and Individual Annuities segments. Net trading gains on sales and
maturities of fixed maturity securities of $277 million in 2011 were primarily
due to sales within our Retirement and Individual Annuities segments. These
gains also included $35 million of gross gains related to the sale of
asset-backed securities collateralized by sub-prime mortgages. Sales of fixed
maturity securities in our Individual Annuities segment in both years were
primarily due to transfers of investments out of our general account and into
separate accounts relating to an automatic rebalancing element embedded in the
living benefit features of some of our variable annuity products. See below for
information regarding the other-than-temporary impairments of fixed maturity
securities in 2012 and 2011.



Net realized losses on equity securities were $54 million in 2012, including
other-than-temporary impairments of $104 million, partially offset by net
trading gains on sales of equity securities of $50 million, which were primarily
due to sales within our Corporate and Other operations. Net realized losses on
equity securities were $120 million in 2011, including other-than-temporary
impairments of $94 million and net trading losses on sales of equity securities
of $26 million. Net trading losses in 2011 were primarily due to public equity
sales within our International Insurance operations. See below for additional
information regarding the other-than-temporary impairments of equity securities
in 2012 and 2011.



Net realized gains on commercial mortgage and other loans in 2012 were $92
million, primarily related to a net decrease in the loan loss reserves primarily
driven by payoffs and quality rating upgrades. Net realized gains on commercial
mortgage and other loans in 2011 were $89 million, primarily related to $32
million of mark-to-market gains on our interim loan portfolio, a net decrease of
$30 million in the loan loss reserves primarily driven by quality rating
upgrades, and $27 million of gains within our Asset Management business. For
additional information regarding our commercial mortgage and other loan loss
reserves see "-General Account Investments-Commercial Mortgage and Other
Loans-Commercial Mortgage and Other Loan Quality."



Net realized losses on derivatives were $1,552 million in 2012, compared to net
realized gains of $2,095 million in 2011. The net derivative losses in 2012
primarily reflect net losses of $1,829 million on product related embedded
derivatives and related hedge positions primarily associated with certain
variable annuity contracts. Also, contributing to the net derivative losses were
net losses of $254 million on foreign currency forward contracts used to hedge
portfolio assets in our Japan business primarily due to the weakening of the
Japanese yen against the U.S. dollar, Australian dollar, euro, and British
pound. Partially offsetting these losses were net gains



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of $121 million primarily representing risk fees earned on synthetic guaranteed
investment contracts in our Retirement businesses which are accounted for as
derivatives under U.S. GAAP, and net gains of $342 million on foreign currency
forward contracts used to hedge the future income of non-U.S. businesses,
primarily in Japan due to the strengthening of the U.S. dollar against the
Japanese yen. The net derivative gains in 2011 primarily reflect net gains of
$1,375 million on embedded derivatives and related hedge positions associated
with certain variable annuity contracts. Also, contributing to the net
derivative gains were net mark-to-market gains of $498 million on interest rate
derivatives used to manage duration as interest rates declined, and net gains of
$214 million on foreign currency forward contracts used in our Japan business to
hedge portfolio assets primarily due to the strengthening of the Japanese yen
against the U.S. dollar and Australian dollar. See "-Results of Operations for
Financial Services Businesses by Segment-U.S. Retirement Solutions and
Investment Management Division-Individual Annuities" for additional information
regarding the product related embedded derivatives and related hedge positions
associated with certain variable annuity contracts.



Net realized losses on other investments were $30 million in 2012, which
included other-than-temporary impairments of $74 million on real estate and
joint ventures and partnership investments, partially offset by a $41 million
gain related to the sale of a real estate investment. Net realized gains on
other investments were $47 million in 2011, which primarily included a $64
million gain on the partial sale of a real estate seed investment, partially
offset by $33 million of other other-than-temporary impairments on real estate,
joint ventures and partnership investments.



Related adjustments include that portion of "Realized investment gains (losses),
net" that are included in adjusted operating income and that portion of "Asset
management fees and other income" and "Net investment income" that are excluded
from adjusted operating income. These adjustments are made to arrive at
"Realized investment gains (losses), net, and related adjustments" which are
excluded from adjusted operating income. Results for 2012 include net negative
related adjustments of $1,982 million, compared to net positive related
adjustments of $517 million for 2011. This unfavorable variance is primarily
driven by the comparative impact of foreign currency exchange rate movements on
certain non-yen denominated assets and liabilities within our Japanese insurance
operations, for which the foreign currency exposure is economically matched and
offset in AOCI. For additional information, see "-Results of Operations for
Financial Services Businesses by Segment-International Insurance Division-Impact
of foreign currency exchange rate movements on earnings-U.S. GAAP earnings
impact of products denominated in non-local currencies."



Charges that relate to "Realized investment gains (losses), net" are also
excluded from adjusted operating income. Results for 2012 include net positive
related charges of $857 million, primarily driven by that portion of
amortization of deferred policy acquisition and other costs relating to net
losses on embedded derivatives and related hedge positions associated with
certain variable annuity contracts. Results for 2011 include net negative
related charges of $1,656 million, primarily driven by that portion of
amortization of deferred policy acquisition and other costs relating to net
gains on embedded derivatives and related hedge positions associated with
certain variable annuity contracts. For additional information, see Note 22 to
the Consolidated Financial Statements.



During 2012, we recorded other-than-temporary impairments of $441 million in
earnings, compared to other-than-temporary impairments of $558 million recorded
in earnings in 2011. The following tables set forth, for the periods indicated,
the composition of other-than-temporary impairments recorded in earnings
attributable to the Financial Services Businesses by asset type, and for fixed
maturity securities, by reason.



                                                               Year Ended December 31,
                                                             2012                  2011
                                                                    (in millions)
Other-than-temporary impairments recorded in
earnings-Financial Services Businesses(1)
Public fixed maturity securities                          $       219           $       314
Private fixed maturity securities                                  44                   117
Total fixed maturity securities                                   263                   431
Equity securities                                                 104                    94
Other invested assets(2)                                           74                    33

Total                                                     $       441           $       558





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(1) Excludes the portion of other-than-temporary impairments 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.

(2) Includes other-than-temporary impairments relating to investments in joint

      ventures and partnerships and real estate investments.




                                                             Year Ended December 31, 2012
                                      Asset-Backed Securities             All Other Fixed             Total Fixed
                                         Collateralized By                   Maturity                  Maturity
                                        Sub-Prime Mortgages                 Securities                Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Financial Services
Businesses(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                 $                      54           $              54           $         108
Due to other accounting
guidelines(3)                                                2                         153                     155

Total                                $                      56           $             207           $         263


                                                             Year Ended December 31, 2011
                                      Asset-Backed Securities             All Other Fixed             Total Fixed
                                         Collateralized By                   Maturity                  Maturity
                                        Sub-Prime Mortgages                 Securities                Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Financial Services
Businesses(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                 $                     106           $             117           $         223
Due to other accounting
guidelines(3)                                               12                         196                     208

Total                                $                     118           $             313           $         431




(1) Excludes the portion of other-than-temporary impairment 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.

(2) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused, or will lead to, a

deficiency in the contractual cash flows related to the investment. The

amount of the impairment recorded in earnings is the difference between the

      amortized cost of the debt 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.

(3) Primarily represents circumstances where securities with losses from foreign

      currency exchange rate movements approach maturity.




During 2012, we recorded other-than-temporary impairments of $144 million in
earnings related to securities with unrealized losses from foreign currency
exchange rate movements that are approaching maturity. Fixed maturity
other-than-temporary impairments in 2012 were concentrated in the consumer
non-cyclical, technology, and utility sectors of our corporate securities, and
to a lesser extent within asset-backed securities collateralized by sub-prime
mortgages. These other-than-temporary impairments were primarily related to
securities with unrealized losses from foreign currency exchange rate movements
that are approaching maturity or related to securities with liquidity concerns,
downgrades in credit, bankruptcy or other adverse financial conditions of the
respective issuers, which have caused, or we believe will lead to, a deficiency
in the contractual cash flows related to the investment. Our Japanese insurance
operations hold non-yen denominated investments which in some cases, due
primarily to the strengthening of the yen against the U.S. dollar, as of year
end are in an unrealized loss position. As the securities approach maturity and
remain in an unrealized loss position, it becomes less likely that the exchange
rates will recover and more likely that losses will be realized upon maturity.
Accordingly, additional impairments will be recorded in earnings as they
approach maturity. As of December 31, 2012, gross unrealized losses related to
those securities maturing between January 1, 2013 and December 31, 2015 are $206
million. Absent a change in currency rates, impairments of approximately $45
million would be recorded in earnings in 2013 and approximately $45 million in
2014 on these securities. Fixed maturity other-than-temporary impairments in
2011 were concentrated in the utility, finance, and consumer non-cyclical
sectors of our corporate securities, asset-backed securities collateralized by
sub-prime mortgages, and Japanese commercial mortgage-backed securities. These
other-than-temporary impairments were primarily related to securities with
unrealized foreign currency translation losses that are approaching maturity or
related to securities with liquidity concerns, downgrades in credit, bankruptcy
or other adverse financial conditions of the respective issuers, which have
caused, or we believe will lead to, a deficiency in the contractual cash flows
related to the investment.



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Equity security other-than-temporary impairments in 2012 and 2011 were primarily
in our Japanese insurance operations where the securities' decline in value has
been maintained for one year or greater or where we intend to sell the security.



Other invested assets other-than-temporary impairments in 2012 and 2011 were
mainly driven by a decline in value on certain real estate, joint ventures and
partnership investments.



For a further discussion of our policies regarding other-than-temporary
impairments see "-General Account Investments-Fixed Maturity
Securities-Other-Than-Temporary Impairments of Fixed Maturity Securities" and
"-General Account Investments-Equity Securities-Other-Than-Temporary Impairments
of Equity Securities" below.



Closed Block Business


For the Closed Block Business, net realized investment gains in 2012 were $243 million, compared to net realized investment gains of $845 million in 2011.




Net realized gains on fixed maturity securities were $103 million in 2012,
compared to net realized gains of $355 million in 2011, as set forth in the
following table:



                                                              Year Ended December 31,
                                                            2012                   2011
                                                                   (in millions)
Realized investment gains (losses), net-Fixed
Maturity Securities-Closed Block Business
Gross realized investment gains:
Gross gains on sales and maturities(1)                   $       243            $       516
Private bond prepayment premiums                                  18                     21

Total gross realized investment gains                            261                    537

Gross realized investment losses: Net other-than-temporary impairments recognized in earnings(2)

                                                      (74 )                 (104 )
Gross losses on sales and maturities(1)                          (56 )                  (75 )
Credit related losses on sales                                   (28 )                   (3 )

Total gross realized investment losses                          (158 )                 (182 )

Realized investment gains (losses), net-Fixed
Maturity Securities                                      $       103        

$ 355


Net gains (losses) on sales and maturities-Fixed
Maturity Securities(1)                                   $       187            $       441




(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and

credit related losses through sales of investments pursuant to our credit

risk and portfolio management objectives.

(2) Excludes the portion of other-than-temporary impairments 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.




Net trading gains on sales and maturities of fixed maturity securities were $187
million in 2012 and $441 million in 2011, and both years included net realized
losses on other-than-temporary impairments of $74 million in 2012 and $104
million in 2011 respectively. See below for additional information regarding the
other-than-temporary impairments of fixed maturity securities in 2012 and 2011.



Net realized gains on equity securities were $78 million in 2012, which included
net trading gains on sales of equity securities of $99 million, partially offset
by other-than-temporary impairments of $21 million. Net realized gains on equity
securities were $265 million in 2011, which included net trading gains on sales
of equity securities of $283 million, partially offset by other-than-temporary
impairments of $18 million. See below for additional information regarding the
other-than-temporary impairments of equity securities in 2012 and 2011.



Net realized gains on commercial mortgage and other loans in 2012 were $2
million related to a net decrease in the loan loss reserve. Net realized gains
on commercial mortgage and other loans in 2011 were $33 million, primarily
related to a net decrease in the loan loss reserve of $42 million, partially
offset by net realized



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losses on related foreclosures. For additional information regarding our loan
loss reserves see "-General Account Investments-Commercial Mortgage and Other
Loans-Commercial Mortgage and Other Loan Quality."



Net realized gains on derivatives were $52 million in 2012, compared to net
realized gains of $199 million in 2011. Derivative gains in 2012 primarily
reflect net gains of $80 million on interest rate derivatives primarily used to
manage duration and net gains of $26 million on "to be announced" ("TBA")
forward contracts as interest rates declined, partially offset by net losses of
$16 million on credit default swaps as credit spreads tightened and net losses
of $42 million on currency derivatives used to hedge foreign denominated
investments as the U.S. dollar weakened against the Euro and other currencies.
The net derivative gains in 2011 primarily reflect net gains of $135 million on
interest rate derivatives used to manage duration, and $53 million on TBA
forward contracts as interest rates declined. Also, contributing to these gains
are net derivative gains of $23 million on currency derivatives used to hedge
foreign denominated investments as the U.S. dollar strengthened against the
Euro. Partially offsetting these gains were net derivative losses of $11 million
on embedded derivatives associated with certain externally-managed investments
in the European market.



During 2012, we recorded other-than-temporary impairments of $99 million in
earnings, compared to other-than-temporary impairments of $127 million recorded
in earnings in 2011. The following tables set forth, for the periods indicated,
the composition of other-than-temporary impairments recorded in earnings
attributable to the Closed Block Business by asset type, and for fixed maturity
securities, by reason.



                                                             Year Ended December 31,
                                                           2012                   2011
                                                                  (in millions)
Other-than-temporary impairments recorded in
earnings-Closed Block Business(1)
Public fixed maturity securities                        $        56           $         90
Private fixed maturity securities                                18                     14

Total fixed maturity securities                                  74                    104
Equity securities                                                21                     18
Other invested assets(2)                                          4                      5

Total                                                   $        99           $        127




(1) Excludes the portion of other-than-temporary impairments 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.

(2) Includes other-than-temporary impairments relating to investments in joint

      ventures and partnerships.




                                                              Year Ended December 31, 2012
                                     Asset-Backed Securities               All Other Fixed              Total Fixed
                                        Collateralized By                     Maturity                   Maturity
                                       Sub-Prime Mortgages                   Securities                 Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed
maturity securities recorded
in earnings-Closed Block
Business(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                $                       39            $              33            $          72
Due to other accounting
guidelines(3)                                                1                            1                        2

Total                               $                       40            $              34            $          74





                                                              Year Ended December 31, 2011
                                       Asset-Backed Securities            All Other Fixed             Total Fixed
                                          Collateralized By                   Maturity                 Maturity
                                         Sub-Prime Mortgages                 Securities               Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Closed Block
Business(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                  $                      61           $             36           $          97
Due to other accounting
guidelines(3)                                                 6                          1                       7

Total                                 $                      67           $             37           $         104





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(1) Excludes the portion of other-than-temporary impairment 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.

(2) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused, or will lead to, a

deficiency in the contractual cash flows related to the investment. The

amount of the impairment recorded in earnings is the difference between the

      amortized cost of the debt 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.

(3) Primarily represents circumstances where we intend to sell the security or

more likely than not will be required to sell the security before recovery

      of its amortized cost basis.




Fixed maturity other-than-temporary impairments of $74 million in 2012 were
concentrated in asset-backed securities collateralized by sub-prime mortgages,
and the utility and capital goods sectors of our corporate securities and were
primarily driven by liquidity concerns, downgrades in credit, bankruptcy or
other adverse financial conditions of the respective issuers, which have caused,
or we believe will lead to, a deficiency in the contractual cash flows related
to the investment. Fixed maturity other-than-temporary impairments of $104
million in 2011 were concentrated in asset-backed securities collateralized by
sub-prime mortgages, and the utility and consumer cyclical sectors of our
corporate securities and were primarily driven by liquidity concerns, downgrades
in credit, bankruptcy or other adverse financial conditions of the respective
issuers, which have caused, or we believe will lead to, a deficiency in the
contractual cash flows related to the investment.



Equity security other-than-temporary impairments in 2012 and 2011 were primarily
due to circumstances where the decline in value was maintained for one year or
greater.



For a further discussion of our policies regarding other-than-temporary
impairments see "-General Account Investments-Fixed Maturity
Securities-Other-Than-Temporary Impairments of Fixed Maturity Securities" and
"-General Account Investments-Equity Securities-Other-Than-Temporary Impairments
of Equity Securities" below.


2011 to 2010 Annual Comparison

Financial Services Businesses




The Financial Services Businesses' net realized investment gains in 2011 were
$1,986 million, compared to net realized investment gains of $256 million in
2010.



Net realized losses on fixed maturity securities were $125 million in 2011,
compared to net realized losses of $361 million in 2010, as set forth in the
following table:



                                                              Year Ended December 31,
                                                            2011                  2010
                                                                   (in millions)
Realized investment gains (losses), net-Fixed
Maturity Securities-Financial Services Businesses
Gross realized investment gains:
Gross gains on sales and maturities(1)                   $       527           $       380
Private bond prepayment premiums                                  36                    37

Total gross realized investment gains                            563                   417

Gross realized investment losses: Net other-than-temporary impairments recognized in earnings(2)

                                                     (431 )                (564 )
Gross losses on sales and maturities(1)                         (250 )                (173 )
Credit related losses on sales                                    (7 )                 (41 )

Total gross realized investment losses                          (688 )      

(778 )


Realized investment gains (losses), net-Fixed
Maturity Securities                                      $      (125 )      

$ (361 )


Net gains (losses) on sales and maturities-Fixed
Maturity Securities(1)                                   $       277           $       207




(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and

credit related losses through sales of investments pursuant to our credit

risk objectives.

(2) Excludes the portion of other-than-temporary impairments 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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Net trading gains on sales and maturities of fixed maturity securities of $277
million in 2011 were primarily due to sales within our Retirement and Individual
Annuities segments. These gains also included $35 million of gross gains related
to the sale of asset-backed securities collateralized by sub-prime mortgages.
Net trading gains on sales and maturities of fixed maturity securities of $207
million in 2010 were primarily due to sales within our Retirement and Individual
Annuities segments. Sales of fixed maturity securities in our Individual
Annuities segment in both years were primarily due to transfers of investments
out of our general account and into separate accounts relating to an automatic
rebalancing element embedded in the living benefit features of some of our
variable annuity products. See below for additional information regarding the
other-than-temporary impairments of fixed maturity securities in 2011 and 2010.



Net realized losses on equity securities were $120 million in 2011, including
other-than-temporary impairments of $94 million and net trading losses on sales
of equity securities of $26 million. Net trading losses in 2011 were primarily
due to public equity sales within our International Insurance operations. Net
realized gains on equity securities were $11 million in 2010, including net
trading gains on sales of equity securities of $89 million, partially offset by
other-than-temporary impairments of $78 million. Net trading gains in 2010 were
primarily due to private equity sales within our Corporate and Other business
and sales within our International Insurance operations. See below for
additional information regarding the other-than-temporary impairments of equity
securities in 2011 and 2010.



Net realized gains on commercial mortgage and other loans in 2011 were $89
million, primarily related to $32 million of mark-to-market gains on our interim
loan portfolio, a net decrease of $30 million in the loan loss reserves
primarily driven by quality rating upgrades, and $27 million of gains within our
Asset Management business. Net realized gains on commercial mortgage and other
loans in 2010 were $35 million and primarily related to a net decrease in the
loan loss reserves of $103 million and mark-to-market net gains on our interim
loan portfolio of $81 million. These net gains were partially offset by net
realized losses of $149 million on loan modifications, payoffs, and foreclosures
within our Asset Management business. For additional information regarding our
commercial mortgage and other loan loss reserves see "-General Account
Investments-Commercial Mortgage and Other Loans-Commercial Mortgage and Other
Loan Quality."



Net realized gains on derivatives were $2,095 million in 2011, compared to net
realized gains of $601 million in 2010. The net derivative gains in 2011 include
net gains of $1,375 million related to product embedded derivatives and related
hedge positions primarily associated with certain variable annuity contracts.
Also, contributing to the net derivative gains were net mark-to-market gains of
$498 million on interest rate derivatives used to manage duration as interest
rates declined during 2011, and net gains of $214 million on foreign currency
forward contracts used in our Star and Edison businesses to hedge portfolio
assets primarily due to the strengthening of the Japanese yen against the U.S.
dollar and Australian dollar. The net derivative gains in 2010 primarily reflect
net gains of $521 million on interest rate derivatives used to manage duration
as interest rates declined and net gains of $325 million primarily related to
embedded derivatives and related hedge positions associated with certain
variable annuity contracts. Also contributing to the 2010 gains are net
derivative gains of $99 million on currency derivatives used to hedge
foreign-denominated investments and net gains of $43 million on embedded
derivatives associated with certain externally-managed investments in the
European market. Partially offsetting the 2010 gains were net derivative losses
of $319 million on foreign currency forward contracts used to hedge the future
income of non-U.S. businesses primarily in Japan and net losses of $75 million
on credit derivatives as credit spreads tightened. See "-Results of Operations
for Financial Services Businesses by Segment-U.S. Retirement Solutions and
Investment Management Division-Individual Annuities" for additional information
regarding the product related embedded derivatives and related hedge positions
associated with certain variable annuity contracts.



Net realized gains on other investments were $47 million in 2011, which
primarily included a $64 million gain on the partial sale of a real estate seed
investment, partially offset by $33 million of other other-than-temporary
impairments on joint ventures and partnerships and real estate investments. Net
realized losses on other investments were $30 million in 2010, which reflected
$30 million of other other-than-temporary impairments on joint ventures and
partnerships and real estate investments.



Related adjustments include that portion of "Realized investment gains (losses),
net" that are included in adjusted operating income and that portion of "Asset
management fees and other income" and "Net investment income" that are excluded
from adjusted operating income. These adjustments are made to arrive at
"Realized



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investment gains (losses), net, and related adjustments" which are excluded from
adjusted operating income. Results for 2011 include net positive related
adjustments of $517 million, driven by gains related to changes in foreign
currency exchange rates on certain assets and liabilities for which we
economically hedge the foreign currency exposure. Results for 2010 include net
negative related adjustments of $104 million, primarily related to settlements
of currency and interest rates derivatives.



Charges that relate to "Realized investment gains (losses), net" are also
excluded from adjusted operating income. Results for 2011 include net negative
related charges of $1,656 million, primarily driven by that portion of
amortization of deferred policy acquisition and other costs relating to net
gains on embedded derivatives and related hedge positions associated with
certain variable annuity contracts. Results for 2010 include net negative
related charges of $179 million, primarily driven by payments associated with
the market value adjustment features related to certain variable annuity
products we sell. For additional information, see Note 22 to the Consolidated
Financial Statements.



During 2011 we recorded other-than-temporary impairments of $558 million in
earnings, compared to total other-than-temporary impairments of $672 million
recorded in earnings in 2010. The following tables set forth, for the periods
indicated, the composition of other-than-temporary impairments recorded in
earnings attributable to the Financial Services Businesses by asset type, and
for fixed maturity securities, by reason.



                                                               Year Ended December 31,
                                                             2011                  2010
                                                                    (in millions)
Other-than-temporary impairments recorded in
earnings-Financial Services Businesses(1)
Public fixed maturity securities                          $       314           $       422
Private fixed maturity securities                                 117                   142

Total fixed maturity securities                                   431                   564
Equity securities                                                  94                    78
Other invested assets(2)                                           33                    30

Total                                                     $       558           $       672




(1) Excludes the portion of other-than-temporary impairments 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.

(2) Includes other-than-temporary impairments relating to investments in joint

      ventures and partnerships and real estate investments.




                                                             Year Ended December 31, 2011
                                      Asset-Backed Securities             All Other Fixed             Total Fixed
                                         Collateralized By                   Maturity                  Maturity
                                        Sub-Prime Mortgages                 Securities                Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Financial Services
Businesses(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                 $                     106           $             117           $         223
Due to other accounting
guidelines(3)                                               12                         196                     208

Total                                $                     118           $             313           $         431


                                                             Year Ended December 31, 2010
                                      Asset-Backed Securities             All Other Fixed             Total Fixed
                                         Collateralized By                   Maturity                  Maturity
                                        Sub-Prime Mortgages                 Securities                Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Financial Services
Businesses(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                 $                     140           $             185           $         325
Due to other accounting
guidelines(3)                                               69                         170                     239

Total                                $                     209           $             355           $         564




(1) Excludes the portion of other-than-temporary impairments 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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Table of Contents (2) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused, or will lead to, a

deficiency in the contractual cash flows related to the investment. The

amount of the impairment recorded in earnings is the difference between the

      amortized cost of the debt 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.

(3) Primarily represents circumstances where securities with losses from foreign

      currency exchange rate movements approach maturity or where we intend to
      sell the security or more likely than not will be required to sell the
      security before recovery of its amortized cost basis.




During 2011, we recorded other-than-temporary impairments of $184 million in
earnings related to securities with unrealized losses from foreign currency
exchange rate movements that are approaching maturity. Fixed maturity
other-than-temporary impairments in 2011 were concentrated in the utility,
finance, and consumer non-cyclical sectors of our corporate securities,
asset-backed securities collateralized by sub-prime mortgages, and Japanese
commercial mortgage-backed securities. These other-than-temporary impairments
were primarily related to securities with unrealized losses from foreign
currency exchange rate movements that are approaching maturity or related to
securities with liquidity concerns, downgrades in credit, bankruptcy or other
adverse financial conditions of the respective issuers, which have caused, or we
believe will lead to, a deficiency in the contractual cash flows related to the
investment. Our Japanese insurance operations hold non-yen denominated
investments which in some cases, due primarily to the strengthening of the yen
against the U.S. dollar, as of year end are in an unrealized loss position. As
the securities approach maturity and remain in an unrealized loss position, it
becomes less likely that the exchange rates will recover and more likely that
losses will be realized upon maturity. Accordingly, additional impairments will
be recorded in earnings as they approach maturity. As of December 31, 2011,
gross unrealized losses related to those securities maturing between January 1,
2012 and December 31, 2014 are $625 million. Absent a change in currency rates,
impairments of approximately $191 million would be recorded in 2012. Fixed
maturity other-than-temporary impairments in 2010 were concentrated in the
finance, consumer cyclical, and communications sectors of our corporate
securities, asset-backed securities collateralized by sub-prime mortgages that
reflect adverse financial conditions of the respective issuers, the impact of
the rising forward LIBOR curve and the intent to sell securities. Additionally,
other-than-temporary impairments were driven by Japanese commercial
mortgage-backed securities that reflect adverse financial conditions of the
respective issuers, and foreign currency translation losses related to foreign
denominated securities that are approaching maturity.



Equity security other-than-temporary impairments in 2011 and 2010 were primarily
in our Japanese insurance operations where the securities' decline in value has
been was maintained for one year or greater or where we intend to sell the
security.



For a further discussion of our policies regarding other-than-temporary
impairments see "-General Account Investments-Fixed Maturity
Securities-Other-Than-Temporary Impairments of Fixed Maturity Securities" and
"-General Account Investments-Equity Securities-Other-Than-Temporary Impairments
of Equity Securities" below.



Closed Block Business


For the Closed Block Business, net realized investment gains in 2011 were $845 million, compared to net realized investment gains of $794 million in 2010.

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Net realized gains on fixed maturity securities were $355 million in 2011,
compared to net realized gains of $117 million in 2010, as set forth in the
following table:



                                                              Year Ended December 31,
                                                            2011                   2010
                                                                   (in millions)
Realized investment gains (losses), net-Fixed
Maturity Securities-Closed Block Business
Gross realized investment gains:
Gross gains on sales and maturities(1)                   $       516            $       273
Private bond prepayment premiums                                  21                     24

Total gross realized investment gains                            537                    297

Gross realized investment losses: Net other-than-temporary impairments recognized in earnings(2)

                                                     (104 )                 (168 )
Gross losses on sales and maturities(1)                          (75 )                  (10 )
Credit related losses on sales                                    (3 )                   (2 )

Total gross realized investment losses                          (182 )                 (180 )

Realized investment gains (losses), net-Fixed
Maturity Securities                                      $       355        

$ 117


Net gains (losses) on sales and maturities-Fixed
Maturity Securities(1)                                   $       441            $       263




(1) Amounts exclude prepayment premiums, other-than-temporary impairments, and

credit related losses through sales of investments pursuant to our credit

risk and portfolio management objectives.

(2) Excludes the portion of other-than-temporary impairments 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.




Net trading gains on sales and maturities of fixed maturity securities were $441
million in 2011 and $263 million in 2010, which included net realized losses on
other-than-temporary impairments of $104 million and $168 million respectively.
See below for additional information regarding the other-than-temporary
impairments of fixed maturity securities in 2011 and 2010.



Net realized gains on equity securities were $265 million in 2011, which
included net trading gains on sales of equity securities of $283 million,
partially offset by other-than-temporary impairments of $18 million. Net
realized gains on equity securities were $174 million in 2010, which included
net trading gains on sales of equity securities of $208 million, partially
offset by other-than-temporary impairments of $34 million. See below for
additional information regarding the other-than-temporary impairments of equity
securities in 2011 and 2010.



Net realized gains on commercial mortgage and other loans in 2011 were $33
million, primarily related to a net decrease in the loan loss reserve of $42
million. Net realized gains on commercial mortgage and other loans in 2010 were
$18 million, primarily related to a net decrease in the loan loss reserve of $22
million. For additional information regarding our loan loss reserves see
"-General Account Investments-Commercial Mortgage and Other Loans-Commercial
Mortgage and Other Loan Quality."



Net realized gains on derivatives were $199 million in 2011, compared to net
realized gains of $489 million in 2010. Derivative gains in 2011 primarily
reflect net gains of $135 million on interest rate derivatives used to manage
duration as interest rates declined, and $53 million on TBA forward contracts as
interest rates declined. Also, contributing to the net derivative gains were net
realized gains of $23 million on currency derivatives used to hedge foreign
denominated investments as the U.S. dollar strengthened against the euro.
Derivative gains in 2010 primarily reflect net mark-to-market gains of $404
million on interest rate derivatives used to manage the duration as interest
rates declined and net derivative gains of $74 million on currency derivatives
used to hedge foreign denominated investments. Also, contributing to the net
derivative gains in 2010 were net realized gains of $17 million on embedded
derivatives associated with certain externally-managed investments in the
European market.



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During 2011 we recorded other-than-temporary impairments of $127 million in
earnings, compared to other-than-temporary impairments of $208 million recorded
in earnings in 2010. The following tables set forth, for the periods indicated,
the composition of other-than-temporary impairments recorded in earnings
attributable to the Closed Block Business by asset type, and for fixed maturity
securities, by reason.



                                                               Year Ended December 31,
                                                             2011                  2010
                                                                    (in millions)
Other-than-temporary impairments recorded in
earnings-Closed Block Business(1)
Public fixed maturity securities                          $        90           $       158
Private fixed maturity securities                                  14                    10

Total fixed maturity securities                                   104                   168
Equity securities                                                  18                    34
Other invested assets(2)                                            5                     6

Total                                                     $       127           $       208




(1) Excludes the portion of other-than-temporary impairments 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.

(2) Includes other-than-temporary impairments relating to investments in joint

      ventures and partnerships.




                                                              Year Ended December 31, 2011
                                       Asset-Backed Securities            All Other Fixed             Total Fixed
                                          Collateralized By                   Maturity                 Maturity
                                         Sub-Prime Mortgages                 Securities               Securities
                                                                     (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Closed Block
Business(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                  $                      61           $             36           $          97
Due to other accounting
guidelines(3)                                                 6                          1                       7

Total                                 $                      67           $             37           $         104





                                                             Year Ended December 31, 2010
                                      Asset-Backed Securities            All Other Fixed             Total Fixed
                                         Collateralized By                   Maturity                 Maturity
                                        Sub-Prime Mortgages                 Securities               Securities
                                                                    (in millions)
Other-than-temporary
impairments on fixed maturity
securities recorded in
earnings-Closed Block
Business(1)
Due to credit events or
adverse conditions of the
respective issuer(2)                 $                      66           $             28           $          94
Due to other accounting
guidelines(3)                                               67                          7                      74

Total                                $                     133           $             35           $         168




(1) Excludes the portion of other-than-temporary impairments 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.

(2) Represents circumstances where we believe credit events or other adverse

conditions of the respective issuers have caused, or will lead to, a

deficiency in the contractual cash flows related to the investment. The

amount of the impairment recorded in earnings is the difference between the

      amortized cost of the debt 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.

(3) Primarily represents circumstances where we intend to sell the security or

more likely than not will be required to sell the security before recovery

      of its amortized cost basis.




Fixed maturity other-than-temporary impairments in 2011 were concentrated in
asset-backed securities collateralized by sub-prime mortgages, and the utility
and consumer cyclical sectors of our corporate securities and were primarily
driven by liquidity concerns, downgrades in credit, bankruptcy or other adverse
financial conditions of the respective issuers, which have caused, or we believe
will lead to, a deficiency in the contractual cash flows related to the
investment. Fixed maturity other-than-temporary impairments in 2010 were
concentrated in asset-backed securities collateralized by sub-prime mortgages
that reflect adverse financial conditions of the respective issuers as well as
our intent to sell certain asset-backed securities collateralized by sub-prime
mortgages.



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Equity security other-than-temporary impairments in 2011 and 2010 were primarily
due to circumstances where the decline in value was maintained for one year or
greater.



For a further discussion of our policies regarding other-than-temporary
impairments see "-General Account Investments-Fixed Maturity
Securities-Other-Than-Temporary Impairments of Fixed Maturity Securities" and
"-General Account Investments-Equity Securities-Other-Than-Temporary Impairments
of Equity Securities" below.



                          General Account Investments



We maintain diversified investment portfolios in our general account to support
our liabilities to customers in our Financial Services Businesses and the Closed
Block Business, as well as our other general liabilities. Our general account
does not include: (1) assets of our trading and banking operations; (2) assets
of our asset management operations, including assets managed for third parties;
and (3) those assets classified as "Separate account assets" on our balance
sheet.



The general account portfolios are managed pursuant to the distinct objectives
and investment policy statements of the Financial Services Businesses and the
Closed Block Business. The primary investment objectives of the Financial
Services Businesses include:



• hedging the market risk characteristics of the major product liabilities

        and other obligations of the Company;



• optimizing investment income yield within risk constraints over time; and

• for certain portfolios, optimizing total return, including both investment

income yield and capital appreciation, within risk constraints over time,

while managing the market risk exposures associated with the corresponding

        product liabilities.




We pursue our objective to optimize investment income yield for the Financial
Services Businesses over time through: (1) the investment of net operating cash
flow, including new product premium inflows, and proceeds from investment sales,
repayments and prepayments, into investments with attractive risk-adjusted
yields, and (2) where appropriate, the sale of lower yielding investments,
either to meet various cash flow needs or to manage the portfolio's risk
exposure profile with respect to duration, credit, currency and other risk
factors, while considering the impact on taxes and capital.



The primary investment objectives of the Closed Block Business include:

• providing for the reasonable dividend expectations of the participating

        policyholders within the Closed Block Business and the Class B
        shareholders; and



• optimizing total return, including both investment income yield and capital

appreciation, within risk constraints, while managing the market risk

exposures associated with the major products in the Closed Block Business.





Our portfolio management approach, while emphasizing our investment income yield
and asset/liability risk management objectives, also takes into account the
capital and tax implications of portfolio activity, our assertions regarding our
ability and intent to hold equity securities to recovery, and our lack of any
intention or requirement to sell debt securities before anticipated recovery.
For a further discussion of our policies regarding other-than-temporary
impairments, including our assertions regarding our ability and intent to hold
equity securities to recovery and any intention or requirement to sell debt
securities before anticipated recovery, see "-Fixed Maturity
Securities-Other-than-Temporary Impairments of Fixed Maturity Securities" and
"-Equity Securities-Other-than-Temporary Impairments of Equity Securities,"
below.



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Management of Investments



The Investment Committee of our Board of Directors oversees our proprietary
investments, including our general account portfolios. It also regularly reviews
performance and risk positions. Our Chief Investment Officer Organization ("CIO
Organization") works with our Risk Management group to develop the investment
policies for the general account portfolios of our domestic and international
insurance subsidiaries, and directs and oversees management of the general
account portfolios within risk limits and exposure ranges approved annually by
the Investment Committee.



The CIO Organization, including related functions within our insurance
subsidiaries, works closely with product actuaries and Risk Management to
understand the characteristics of our products and their associated market risk
exposures. This information is incorporated into the development of target asset
portfolios that hedge market risk exposures associated with the liability
characteristics and establish investment risk exposures, within tolerances
proscribed by Prudential's investment risk limits, on which we expect to earn an
attractive risk-adjusted return. We develop asset strategies for specific
classes of product liabilities and attributed or accumulated surplus, each with
distinct risk characteristics. Market risk exposures associated with the
liabilities include interest rate risk which is addressed through the duration
characteristics of the target asset mix, and currency risk which is addressed by
the currency profile of the target asset mix. In certain of our smaller markets,
outside of the U.S. and Japan, capital markets limitations hinder our ability to
hedge interest rate exposure to the same extent we do for our U.S. and Japan
businesses and lead us to accept a higher degree of interest rate risk in these
smaller portfolios. General account portfolios typically include allocations to
credit and other investment risks as a means to enhance investment yields and
returns over time.


Most of our products can be categorized into the following three classes:

• interest-crediting products for which the rates credited to customers are

periodically adjusted to reflect market and competitive forces and actual

        investment experience, such as fixed annuities and universal life
        insurance;



• participating individual and experience-rated group products in which

customers participate in actual investment and business results through

        annual dividends, interest or return of premium; and




    •   guaranteed products for which there are price or rate guarantees for the
        life of the contract, such as traditional whole life and endowment
        products, guaranteed investment contracts and funding agreements.




Our total investment portfolio is composed of a number of operating portfolios.
Each operating portfolio backs a specific set of liabilities and the portfolios
have a target asset mix that supports the liability characteristics, including
duration, cash flow, liquidity needs and other criteria. As of December 31,
2012, the average duration of our general account investment portfolios
attributable to the domestic Financial Services Businesses, including the impact
of derivatives, is between 5 and 6 years. As of December 31, 2012, the average
duration of our general account portfolios attributable to our Japanese
insurance operations, including the impact of derivatives, is approximately 10
years, which represents a blend of yen-denominated and U.S. and Australian
dollar-denominated investments, which have distinct average durations. Our
asset/liability management process has enabled us to successfully manage our
portfolios through several market cycles.



We implement our portfolio strategies primarily through investment in a broad
range of fixed income assets, including government and agency securities, public
and private corporate bonds and structured securities, and commercial mortgage
loans. In addition, we hold small allocations to alternative assets and other
equities.



We manage our public fixed maturity portfolio to a risk profile directed or
overseen by the CIO Organization and Risk Management groups and to a profile
that also reflects the local market environments impacting both our domestic and
international insurance portfolios. The return that we earn on the portfolio
will be reflected both as investment income and also as realized gains or losses
on investments.



We use privately-placed corporate debt securities and commercial mortgage loans,
which consist of well-underwritten mortgages on diversified properties in terms
of geography, property type and borrowers, to enhance the yield on our portfolio
and to improve the overall diversification of the portfolios. Private placements
typically offer enhanced yields due to an illiquidity premium and generally
offer enhanced credit protection in the form of covenants. Our origination
capability offers the opportunity to lead transactions and gives us the
opportunity for better terms, including covenants and call protection, and to
take advantage of innovative deal structures.



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Derivative strategies are employed in the context of our risk management
framework to enhance our ability to manage interest rate and currency risk
exposures of the asset portfolio relative to the liabilities and to manage
credit and equity positions in the investment portfolios. For a discussion of
our risk management process see "Quantitative and Qualitative Disclosures About
Market Risk" below.



Our portfolio asset allocation reflects our emphasis on diversification across
asset classes, sectors, and issuers. The CIO Organization, directly and through
related functions within the insurance subsidiaries, implements portfolio
strategies primarily through various asset management units within Prudential's
Asset Management segment. Activities of the Asset Management segment on behalf
of the general account portfolios are directed and overseen by the CIO
Organization and monitored by Risk Management for compliance with investment
risk limits.



Portfolio Composition



Our investment portfolio consists of public and private fixed maturity
securities, commercial mortgage and other loans, equity securities and other
invested assets. The composition of our general account reflects, within the
discipline provided by our risk management approach, our need for competitive
results and the selection of diverse investment alternatives available primarily
through our Asset Management segment. The size of our portfolio enables us to
invest in asset classes that may be unavailable to the typical investor.



In the fourth quarter of 2012, our Retirement segment completed two significant
pension risk transfer transactions, in which we issued non-participating group
annuity contracts to two unaffiliated pension plan sponsors, and assumed
responsibility for certain pension benefit obligations for participants covered
by the agreements. In return for assuming these obligations, we received
approximately $33 billion of in-kind assets, consisting of approximately $31
billion of fixed maturity securities and approximately $2 billion of private
equity partnership assets. The addition of these assets to our portfolio
increased our investments in fixed maturity securities and other long-term
investments by approximately 11%, and 30%, respectively. For additional
information on these transactions, see "-Executive Summary-Current Developments"
above.



The following tables set forth the composition of the investments of our general
account apportioned between the Financial Services Businesses and the Closed
Block Business as of the dates indicated.



                                                                 December 31, 2012
                                         Financial
                                          Services          Closed Block
                                         Businesses           Business            Total          % of Total
                                                                  ($ in millions)
Fixed maturities:
Public, available-for-sale, at fair
value                                   $    225,306       $       28,790       $ 254,096               63.7 %
Public, held-to-maturity, at
amortized cost                                 3,116                    0           3,116                0.8
Private, available-for-sale, at
fair value                                    29,246               17,629          46,875               11.7
Private, held-to-maturity, at
amortized cost                                 1,152                    0           1,152                0.3
Trading account assets supporting
insurance liabilities, at fair
value                                         20,590                    0          20,590                5.2
Other trading account assets, at
fair value                                     1,426                  275           1,701                0.4
Equity securities,
available-for-sale, at fair value              5,031                3,225           8,256                2.1
Commercial mortgage and other
loans, at book value                          26,623                9,608          36,231                9.1
Policy loans, at outstanding
balance                                        6,455                5,120          11,575                2.9
Other long-term investments(1)                 6,665                2,012           8,677                2.2
Short-term investments                         5,124                1,261           6,385                1.6

Total general account investments            330,734               67,920         398,654              100.0 %

Invested assets of other entities
and operations(2)                              6,928                    0           6,928

Total investments                       $    337,662       $       67,920       $ 405,582





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                                                                 December 31, 2011
                                         Financial
                                          Services          Closed Block
                                         Businesses           Business            Total          % of Total
                                                                  ($ in millions)
Fixed maturities:
Public, available-for-sale, at fair
value                                   $    179,086       $       30,211       $ 209,297               60.6 %
Public, held-to-maturity, at
amortized cost                                 3,743                    0           3,743                1.1
Private, available-for-sale, at
fair value                                    26,938               16,305          43,243               12.5
Private, held-to-maturity, at
amortized cost                                 1,364                    0           1,364                0.4
Trading account assets supporting
insurance liabilities, at fair
value                                         19,481                    0          19,481                5.6
Other trading account assets, at
fair value                                     2,104                  317           2,421                0.7
Equity securities,
available-for-sale, at fair value              4,401                3,122           7,523                2.2
Commercial mortgage and other
loans, at book value                          25,073                9,040          34,113                9.9
Policy loans, at outstanding
balance                                        6,263                5,296          11,559                3.3
Other long-term investments(1)                 4,481                1,990           6,471                1.9
Short-term investments                         5,609                  528           6,137                1.8

Total general account investments            278,543               66,809         345,352              100.0 %

Invested assets of other entities
and operations(2)                             10,895                    0          10,895

Total investments                       $    289,438       $       66,809       $ 356,247




(1) Other long-term investments consist of real estate and non-real

estate-related investments in joint ventures and partnerships, investment

      real estate held through direct ownership and other miscellaneous
      investments. For additional information regarding these investments, see
      "-Other Long-Term Investments" below.

(2) Includes invested assets of our trading, banking, and asset management

operations. Excludes assets of our asset management operations managed for

third parties and those assets classified as "Separate account assets" on

our balance sheet. For additional information regarding these investments,

      see "-Invested Assets of Other Entities and Operations" below.




The increase in general account investments attributable to the Financial
Services Businesses in 2012 was primarily due to the pension risk transfer
transactions as discussed above, portfolio growth as a result of reinvestment of
net investment income and net operating inflows, and a net increase in fair
value driven by a decrease in interest rates. The general account investments
attributable to the Closed Block Business also increased in 2012, primarily due
to portfolio growth as a result of reinvestment of net investment income and a
net increase in fair value driven by a decrease in interest rates, partially
offset by net operating outflows. For information regarding the methodology used
in determining the fair value of our fixed maturities, see Note 20 to the
Consolidated Financial Statements.



We have substantial insurance operations in Japan, with 46% and 50% of our Financial Services Businesses' general account investments relating to our Japanese insurance operations as of December 31, 2012 and December 31, 2011, respectively.

The following table sets forth the composition of the investments of our Japanese insurance operations' general account as of the dates indicated.



                                                                      December 31,
                                                                  2012           2011
                                                                     (in millions)
Fixed maturities:
Public, available-for-sale, at fair value                       $ 124,710      $ 111,857
Public, held-to-maturity, at amortized cost                         3,116   

3,743

Private, available-for-sale, at fair value                          6,252   

5,020

Private, held-to-maturity, at amortized cost                        1,152   

1,364

Trading account assets supporting insurance liabilities, at fair value

                                                          1,838   

1,732

Other trading account assets, at fair value                         1,195   

1,496

Equity securities, available-for-sale, at fair value                2,126   

1,932

Commercial mortgage and other loans, at book value                  6,156   

5,672

Policy loans, at outstanding balance                                2,665   

2,873

Other long-term investments(1)                                      2,215   

2,892

Short-term investments                                                318   

719


Total Japanese general account investments(2)                   $ 151,743      $ 139,300





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(1) Other long-term investments consist of real estate and non-real

estate-related investments in joint ventures and partnerships, investment

      real estate held through direct ownership, derivatives, and other
      miscellaneous investments.

(2) Excludes assets classified as "Separate accounts assets" on our balance

      sheet.




The increase in general account investments related to our Japanese insurance
operations in 2012 was primarily attributable to portfolio growth as a result of
business inflows and the reinvestment of net investment income, as well as a net
increase in fair value primarily driven by declining interest rates, partially
offset by the weakening of the yen against the U.S. dollar.



The functional currency of our Japanese insurance subsidiaries is the yen and, although the majority of the Japanese general account is invested in yen-denominated investments, our Japanese insurance operations also hold significant investments denominated in U.S. and Australian dollars.




As of December 31, 2012, our Japanese insurance operations had $44.9 billion, at
fair value, of investments denominated in U.S. dollars, including $4.4 billion
that were hedged to yen through third party derivative contracts and $31.6
billion that support liabilities denominated in U.S. dollars. As of December 31,
2011, our Japanese insurance operations had $38.9 billion, at fair value, of
investments denominated in U.S. dollars, including $4.4 billion that were hedged
to yen through third party derivative contracts and $25.9 billion that support
liabilities denominated in U.S. dollars. The $6.0 billion increase of U.S.
dollar investments from December 31, 2011 is primarily driven by portfolio
growth as a result of business inflows and an increase in fair value driven by a
decrease in interest rates.



Our Japanese insurance operations had $8.6 billion and $6.4 billion, at fair
value, of investments denominated in Australian dollars that support liabilities
denominated in Australian dollars as of December 31, 2012 and December 31, 2011,
respectively. The $2.2 billion increase of Australian dollar investments from
December 31, 2011 is primarily driven by portfolio growth as a result of
business inflows and an increase in fair value driven by a decrease in interest
rates.



For additional information regarding U.S. and Australian dollar investments held
in our Japanese insurance operations, see "-Results of Operations for Financial
Services Businesses by Segment-International Insurance Division," above.



Eurozone Exposure



Our investment portfolio includes direct investment exposure to the Eurozone
region. We define this region as consisting of those countries within the
European Union that have adopted the euro as their sole legal currency. The
Eurozone region currently consists of seventeen countries, including Austria,
Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
Included in this region are peripheral countries, which we currently define as
consisting of Portugal, Italy, Ireland, Greece and Spain. Specific country
exposure is determined based on the issuer's country of incorporation.



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The following table sets forth the composition of our gross direct exposure to
the Eurozone region, by country of incorporation, attributable to the Financial
Services Businesses, as of December 31, 2012.



Eurozone Gross Direct Exposure-Financial Services Businesses



                                                                                                       December 31, 2012
                                                            Amortized Cost                                                                Fair Value
                                                                                       All             Total                                                        All          Total
                                                                 Financial            Other          Amortized                                Financial            Other          Fair
              Country                    Sovereigns(6)        Institutions(7)        Exposure          Cost           Sovereigns(6)       

Institutions(7) Exposure Value

                                                                                                         (in millions)
Non-peripheral countries:
France                                  $           345      $             656      $    2,363      $     3,364      $           385      $             634      $   2,594      $  3,613
Netherlands                                          25                    744           2,668            3,437                   26                    802          2,822         3,650
Germany                                             639                    281             903            1,823                  727                    303            951         1,981
Luxembourg                                            0                    398             949            1,347                    0                    422          1,008         1,430
Other non-peripheral(1)                             132                    123             545              800                  139                    123            579           841

Total non-peripheral exposure                     1,141                  2,202           7,428           10,771                1,277                  2,284          7,954        11,515
Peripheral countries:
Italy(2)                                            534                     28             234              796                  564                     31            233           828
Ireland                                               0                    120             467              587                    0                    127            495           622
Spain                                                31                     15             115              161                   32                     15            110           157
Other peripheral(3)                                   0                      0               0                0                    0                      0              0             0

Total peripheral exposure                           565                    163             816            1,544                  596                    173            838         1,607
International agencies(4)                           436                    117           1,538            2,091                  450                    119          1,735         2,304

Total exposure(5)                       $         2,142      $           2,482      $    9,782      $    14,406      $         2,323      $           2,576      $  10,527      $ 15,426




(1) Other non-peripheral countries include Austria, Belgium, Cyprus, Estonia,

Finland, Malta, Slovakia, and Slovenia.

(2) Principally represents Italian government securities owned by our Italian

      insurance operations.


(3)   Other peripheral countries include Greece and Portugal.


(4)   International agencies include agencies such as Eurofima, European

Investment Bank, Council of Europe Development, and Nordic Investment Bank,

where a single country of incorporation could not be determined.

(5) Of the $14,406 million of amortized cost represented above, 87% is related

to fixed maturities, 8% is related to trading account assets supporting

insurance liabilities, and the remaining 5% is related to all other asset

      types.


(6)   Sovereigns include local governments.

(7) Financial institutions include banking, brokerage, non-captive consumer and

diversified finance, health insurance, life insurance, property and casualty

      insurance, other finance and real estate investment trusts.




Our gross direct exposure to the Eurozone region attributable to the Closed
Block Business was $4,241 million of amortized cost (fair value, $4,688
million), as of December 31, 2012, of which $3,659 million (fair value, $4,068
million) represented non-peripheral exposure and $582 million (fair value, $620
million) represented peripheral exposure. Approximately 12% and 13% of the
non-peripheral and peripheral exposure, respectively, was related to financial
institutions, and less than 1% of each of the non-peripheral and peripheral
exposures was related to sovereigns. Of the $4,241 million of amortized cost
represented above, 94% was related to fixed maturities, and the remaining 6% was
related to all other asset types.



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Investment Results



The following tables set forth the income yield and investment income for each
major investment category of our general account for the periods indicated. The
yields are based on net investment income as reported under U.S. GAAP and do not
include adjustments, such as settlements of duration management swaps that are
included in adjusted operating income.



                                                             Year Ended December 31, 2012
                                     Financial Services              Closed Block
                                         Businesses                    Business                      Combined
                                   Yield(1)        Amount        Yield(1)       Amount        Yield(1)        Amount
                                                                    ($ in millions)
Fixed maturities                        3.72 %    $  7,645            5.52 %    $ 2,143            3.64 %    $  9,788
Trading account assets
supporting insurance
liabilities                             3.98           778            0.00            0            3.98           778
Equity securities                       6.14           249            3.34           84            5.07           333
Commercial mortgage and other
loans                                   5.48         1,375            6.38          589            5.72         1,964
Policy loans                            4.73           293            6.03          304            5.31           597
Short-term investments and cash
equivalents                             0.23            33            1.24            7            0.24            40
Other investments                       4.04           268            8.31          183            5.12           451

Gross investment income before
investment expenses                     3.79        10,641            5.68        3,310            4.12        13,951
Investment expenses                    (0.12 )        (273 )         (0.27 )       (157 )         (0.15 )        (430 )

Investment income after
investment expenses                     3.67 %      10,368            5.41 %      3,153            3.97 %      13,521

Investment results of other
entities and operations(2)                             140                            0                           140

Total investment income                           $ 10,508                      $ 3,153                      $ 13,661





                                                                  Year Ended December 31, 2011
                                      Financial Services                   Closed Block
                                          Businesses                         Business                         Combined
                                  Yield(1)(3)          Amount         Yield(1)        Amount         Yield(1)(3)         Amount
                                                                         ($ in millions)
Fixed maturities                           3.91 %      $ 7,063             5.67 %     $ 2,232                4.22 %     $  9,295
Trading account assets
supporting insurance
liabilities                                4.23            776             0.00             0                4.23            776
Equity securities                          6.01            240             2.75            75                4.68            315
Commercial mortgage and other
loans                                      5.64          1,295             6.47           553                5.86          1,848
Policy loans                               4.75            277             6.22           322                5.44            599
Short-term investments and
cash equivalents                           0.39             49             0.73             4                0.40             53
Other investments                          3.77            243             8.81           174                4.97            417

Gross investment income
before investment expenses                 3.96          9,943             5.77         3,360                4.30         13,303
Investment expenses                       (0.12 )         (230 )          (0.25 )        (146 )             (0.14 )         (376 )

Investment income after
investment expenses                        3.84 %        9,713             5.52 %       3,214                4.16 %       12,927

Investment results of other
entities and operations(2)                                 197                              0                                197

Total investment income                                $ 9,910                        $ 3,214                           $ 13,124





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                                                             Year Ended December 31, 2010
                                    Financial  Services              Closed Block
                                         Businesses                    Business                      Combined
                                   Yield(1)        Amount        Yield(1)       Amount        Yield(1)        Amount
                                                                    ($ in millions)
Fixed maturities                        4.33 %     $ 5,927            5.91 %    $ 2,326            4.69 %    $  8,253
Trading account assets
supporting insurance
liabilities                             4.51           750            0.00            0            4.51           750
Equity securities                       6.33           212            2.70           74            4.70           286
Commercial mortgage and other
loans                                   6.01         1,256            6.61          536            6.18         1,792
Policy loans                            5.00           243            6.38          334            5.71           577
Short-term investments and cash
equivalents                             0.32            40            0.52            5            0.33            45
Other investments                       4.65           191            6.66          115            5.24           306

Gross investment income before
investment expenses                     4.34         8,619            5.88        3,390            4.69        12,009
Investment expenses                    (0.13 )        (208 )         (0.24 )       (143 )         (0.15 )        (351 )

Investment income after
investment expenses                     4.21 %       8,411            5.64 %      3,247            4.54 %      11,658

Investment results of other
entities and operations(2)                             209                            0                           209

Total investment income                            $ 8,620                      $ 3,247                      $ 11,867




(1) Yields are based on quarterly average carrying values except for fixed

maturities, equity securities and securities lending activity. Yields for

fixed maturities are based on amortized cost. Yields for equity securities

are based on cost. Yields for fixed maturities and short-term investments

and cash equivalents are calculated net of liabilities and rebate expenses

corresponding to securities lending activity. Yields exclude investment

income on assets other than those included in invested assets. Prior

period's yields are presented on a basis consistent with the current period

presentation.

(2) Includes investment income of our trading, banking, and asset management

operations.

(3) Yields for the year ended December 31, 2011 are weighted for ten months of

      income and assets related to the Star and Edison Businesses.




See below for a discussion of the change in the Financial Services Businesses'
yields. The decrease in net investment income yield attributable to the Closed
Block Business's portfolio for 2012, compared to 2011, was primarily due to the
impact of lower interest rates on floating rate investments due to rate resets
and lower fixed income reinvestment rates.



The decrease in net investment income yield attributable to the Closed Block
Business for 2011, compared to 2010, was primarily due to lower interest rates
on floating rate investments due to rate resets and lower fixed income
reinvestment rates.



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The following table sets forth the income yield and investment income for each
major investment category of the Financial Services Businesses' general account,
excluding the Japanese insurance operations' portion of the general account
which is presented separately below, for the periods indicated. The yields are
based on net investment income as reported under U.S. GAAP and do not include
adjustments, such as settlements of duration management swaps that are included
in adjusted operating income.



                                                                Year Ended December 31,
                                            2012                         2011                         2010
                                    Yield(1)       Amount        Yield(1)       Amount        Yield(1)       Amount
                                                                    ($ in millions)
Fixed maturities                         5.09 %    $ 4,328            5.44 %    $ 4,219            5.57 %    $ 4,194
Trading account assets
supporting insurance liabilities         4.18          742            4.45          742            4.73          724
Equity securities                        8.70          184            9.04          167            9.29          168
Commercial mortgage and other
loans                                    5.87        1,138            6.06        1,083            6.32        1,081
Policy loans                             5.62          194            5.81          187            5.72          171
Short-term investments and cash
equivalents                              0.25           28            0.28           26            0.33           36
Other investments                        3.13           87            3.86           80            3.04           59

Gross investment income before
investment expenses                      4.76        6,701            5.06        6,504            5.16        6,433
Investment expenses                     (0.11 )        (89 )         (0.10 )        (71 )         (0.12 )        (96 )

Investment income after
investment expenses                      4.65 %      6,612            4.96 %      6,433            5.04 %      6,337

Investment results of other
entities and operations(2)                             140                          197                          209

Total investment income                            $ 6,752                      $ 6,630                      $ 6,546




(1) Yields are based on quarterly average carrying values except for fixed

maturities, equity securities and securities lending activity. Yields for

fixed maturities are based on amortized cost. Yields for equity securities

are based on cost. Yields for fixed maturities and short-term investments

and cash equivalents are calculated net of liabilities and rebate expenses

corresponding to securities lending activity. Yields exclude investment

income on assets other than those included in invested assets. Prior

period's yields are presented on a basis consistent with the current period

presentation.

(2) Includes investment income of our trading, banking, and asset management

      operations.



The decrease in net investment income yield attributable to the Financial Services Businesses' general account, excluding the Japanese operations' portfolio, for 2012, compared to 2011, was primarily the result of lower interest rates on floating rate investments due to rate resets, lower fixed maturity reinvestment rates, and the addition of assets from the pension risk transfer transactions at current market yields.




The decrease in net investment income yield attributable to the Financial
Services Businesses' general account, excluding the Japanese operations'
portfolio, for 2011, compared to 2010, was primarily the result of lower
interest rates on floating rate investments due to rate resets and lower fixed
maturity reinvestment rates, partially offset by higher income from our joint
ventures and limited partnerships, driven by appreciation and gains on the
underlying assets.



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The following tables set forth the income yield and investment income for each
major investment category of our Japanese operations' general account for the
periods indicated. The yields are based on net investment income as reported
under U.S. GAAP and do not include adjustments, such as settlements of duration
management swaps that are included in adjusted operating income.



                                                                Year Ended December 31,
                                           2012                           2011                          2010
                                   Yield(1)       Amount        Yield(1)(2)       Amount        Yield(1)       Amount
                                                                    ($ in millions)
Fixed maturities                        2.75 %    $ 3,317               2.75 %    $ 2,844            2.82 %    $ 1,733
Trading account assets
supporting insurance
liabilities                             2.04           36               2.02           34            1.95           26
Equity securities                       3.36           65               3.42           73            2.84           44
Commercial mortgage and other
loans                                   4.15          237               4.16          212            4.63          175
Policy loans                            3.60           99               3.44           90            3.85           72
Short-term investments and cash
equivalents                             0.16            5               0.68           23            0.22            4
Other investments                       4.71          181               3.72          163            6.06          132

Gross investment income before
investment expenses                     2.82        3,940               2.81        3,439            2.96        2,186
Investment expenses                    (0.13 )       (184 )            (0.13 )       (159 )         (0.14 )       (112 )

Total investment income                 2.69 %    $ 3,756               2.68 %    $ 3,280            2.82 %    $ 2,074




(1) Yields are based on quarterly average carrying values except for fixed

maturities, equity securities and securities lending activity. Yields for

fixed maturities are based on amortized cost. Yields for equity securities

are based on cost. Yields for fixed maturities and short-term investments

and cash equivalents are calculated net of liabilities and rebate expenses

corresponding to securities lending activity. Yields exclude investment

income on assets other than those included in invested assets. Prior

period's yields are presented on a basis consistent with the current period

presentation.

(2) Yields for the year ended December 31, 2011 are weighted for ten months of

      income and assets related to the Star and Edison Businesses.




The increase in net investment income yield on the Japanese insurance portfolio
for 2012, compared to 2011, is primarily attributable to more favorable results
from alternative investments and asset growth supporting both U.S. and
Australian dollar-denominated products, partially offset by lower fixed maturity
reinvestment rates in both the U.S. and Japan.



The decrease in net investment income yield on the Japanese insurance portfolio
for 2011, compared to 2010, is primarily attributable to lower fixed maturity
reinvestment rates in both the U.S. and Japan, and the impact of the Star and
Edison portfolios.



Both the U.S. dollar-denominated and Australian dollar-denominated fixed
maturities that are not hedged to yen through third party derivative contracts
provide a yield that is substantially higher than the yield on comparable
yen-denominated fixed maturities. The average amortized cost of U.S.
dollar-denominated fixed maturities that are not hedged to yen through third
party derivative contracts for the years ended December 31, 2012 and 2011, was
approximately $29.4 billion and $24.2 billion, respectively. The majority of
U.S. dollar-denominated fixed maturities support liabilities that are
denominated in U.S. dollars. The average amortized cost of Australian
dollar-denominated fixed maturities that are not hedged to yen through third
party derivative contracts for the years ended December 31, 2012 and 2011, was
approximately $7.0 billion and $4.8 billion, respectively. The Australian
dollar-denominated fixed maturities support liabilities that are denominated in
Australian dollars.



For additional information regarding U.S. and Australian dollar investments held
in our Japanese insurance operations see, "-Results of Operations for Financial
Services Businesses by Segment-International Insurance Division" above.



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Fixed Maturity Securities

Fixed Maturity Securities by Contractual Maturity Date




The following table sets forth the breakdown of the amortized cost of our fixed
maturity securities portfolio in total by contractual maturity as of
December 31, 2012.



                                                                   December 31, 2012
                                         Financial Services Businesses                 Closed Block Business
                                        Amortized                                  Amortized
                                           Cost               % of Total              Cost             % of Total
                                                                    ($ in millions)
Corporate & government
securities:
Maturing in 2013                     $          9,622                  4.0 %      $      2,226                 5.4 %
Maturing in 2014                               10,140                  4.2               1,306                 3.2
Maturing in 2015                                9,835                  4.1               1,477                 3.6
Maturing in 2016                                9,985                  4.1               1,421                 3.5
Maturing in 2017                               12,513                  5.2               1,578                 3.8
Maturing in 2018                               10,984                  4.6               1,993                 4.8
Maturing in 2019                               11,906                  4.9               1,577                 3.8
Maturing in 2020                               10,875                  4.5               1,429                 3.5
Maturing in 2021                               11,028                  4.6               1,950                 4.7
Maturing in 2022                               10,276                  4.3               1,776                 4.3
Maturing in 2023                                4,226                  1.8               1,245                 3.0
Maturing in 2024 and beyond                   105,085                 43.7              13,018                31.7

Total corporate & government
securities                                    216,475                 90.0              30,996                75.3
Asset-backed securities                         8,209                  3.4               4,592                11.2
Commercial mortgage-backed
securities                                      7,413                  3.1               4,029                 9.8
Residential mortgage-backed
securities                                      8,360                  3.5               1,520                 3.7

Total fixed maturities               $        240,457                100.0 %      $     41,137               100.0 %





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Fixed Maturity Securities and Unrealized Gains and Losses by Industry Category

The following table sets forth the composition of the portion of our fixed maturity securities portfolio by industry category attributable to the Financial Services Businesses as of the dates indicated and the associated gross unrealized gains and losses.

Fixed Maturity Securities-Financial Services Businesses




                                                       December 31, 2012                                             December 31, 2011(7)
                                                     Gross            Gross                                         Gross            Gross
                                   Amortized       Unrealized       Unrealized        Fair        Amortized       Unrealized       Unrealized        Fair
          Industry(1)                 Cost          Gains(2)        Losses(2)         Value          Cost          Gains(2)        Losses(2)         Value
                                                                                         (in millions)
Corporate securities:
Finance                            $   21,772     $      1,279     $        285     $  22,766     $   18,336     $        653     $        775     $  18,214
Consumer non-cyclical                  21,727            1,898              269        23,356         16,064            1,501              373        17,192
Utility                                17,993            1,601              344        19,250         13,350            1,188              569        13,969
Capital goods                          10,251              896              144        11,003          6,795              561              207         7,149
Consumer cyclical                       9,927              756              147        10,536          7,173              507              228         7,452
Foreign agencies                        5,706              732                8         6,430          5,371              191              141         5,421
Energy                                  7,923              745               83         8,585          5,582              548               98         6,032
Communications                          7,552              610              119         8,043          5,350              401              224         5,527
Basic industry                          6,215              416               69         6,562          4,429              299              112         4,616
Transportation                          5,288              478               43         5,723          5,094              370               78         5,386
Technology                              4,656              279               77         4,858          3,468              230               95         3,603
Industrial other                        2,261              196                3         2,454          3,027              248               22         3,253

Total corporate securities            121,271            9,886            1,591       129,566         94,039            6,697            2,922        97,814
Foreign government(3)                  82,376            6,782               65        89,093         73,418            4,749              165        78,002
Residential mortgage-backed             8,360              435               30         8,765          7,569              425               59         

7,935

Asset-backed securities(4)              8,209              202              407         8,004          8,319              150              988         

7,481

Commercial mortgage-backed              7,413              595               14         7,994          8,197              573              104         8,666
U.S. Government                        10,525            2,474               34        12,965          7,592            1,920               17         9,495
State & Municipal(5)                    2,303              378                5         2,676          1,751              235                1         1,985

Total(6)                           $  240,457     $     20,752     $      2,146     $ 259,063     $  200,885     $     14,749     $      4,256     $ 211,378





(1)   Investment data has been classified based on standard industry

categorizations for domestic public holdings and similar classifications by

industry for all other holdings.

(2) Includes $310 million of gross unrealized gains and $67 million of gross

unrealized losses as of December 31, 2012, compared to $345 million of gross

      unrealized gains and $98 million of gross unrealized losses as of
      December 31, 2011 on securities classified as held-to-maturity.


(3)   As of December 31, 2012 and 2011, based on amortized cost, 82% and 84%,

respectively, represent Japanese government bonds held by our Japanese

      insurance operations, with no other individual country representing more
      than 7% and 6%, respectively, of the balance.


(4)   Includes securities collateralized by sub-prime mortgages. See
      "-Asset-Backed Securities" below.


(5)   Includes securities related to the Build America Bonds program.


(6)   Excluded from the table above are securities held outside the general
      account in other entities and operations. For additional information

regarding investments held outside the general account, see "-Invested

Assets of Other Entities and Operations" below. Also excluded from the table

above are fixed maturity securities classified as trading. See "-Trading

Account Assets Supporting Insurance Liabilities" and "-Other Trading Account

Assets" for additional information.

(7) Prior period's amounts are presented on a basis consistent with the current

      period presentation.



The increase in net unrealized gains from December 31, 2011 to December 31, 2012, was primarily due to a net decrease in interest rates in both the U.S. and Japan.




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The following table sets forth the composition of the portion of our fixed
maturity securities portfolio by industry category attributable to the Closed
Block Business as of the dates indicated and the associated gross unrealized
gains and losses.


Fixed Maturity Securities-Closed Block Business



                                                        December 31, 2012                                                December 31, 2011(5)
                                                      Gross             Gross                                            Gross             Gross
                                   Amortized        Unrealized        Unrealized         Fair         Amortized        Unrealized        Unrealized         Fair
         Industry(1)                 Cost             Gains             Losses          Value           Cost             Gains             Losses          Value
                                                                                           (in millions)
Corporate securities:
Utility                           $     4,773      $        862      $         12      $  5,623      $     4,440      $        771      $         38      $  5,173
Consumer non-cyclical                   4,419               750                 5         5,164            4,757               761                11         5,507
Finance                                 3,728               442                17         4,153            3,968               259                82         4,145
Consumer cyclical                       3,003               477                10         3,470            2,782               390                20         3,152
Capital goods                           2,523               376                 1         2,898            1,800               251                 7         2,044
Energy                                  1,879               305                 0         2,184            1,813               260                 4         2,069
Communications                          1,513               268                 4         1,777            1,793               208                24         1,977
Basic industry                          1,324               186                 3         1,507            1,184               134                10         1,308
Transportation                          1,386               186                 4         1,568            1,338               153                13         1,478
Industrial other                        1,074               110                 2         1,182            1,648               165                 4         1,809
Technology                                626               103                 7           722              764                93                15           842
Foreign agencies                          355                68                 0           423              358                45                 3           400

Total corporate securities             26,603             4,133                65        30,671           26,645             3,490               231        29,904
Asset-backed securities(2)              4,592                71               320         4,343            4,935                56               819         4,172
Commercial mortgage-backed              4,029               179                 2         4,206            3,559               158                 2         3,715
U.S. Government                         3,401               966                 0         4,367            4,615               951                 0         5,566
Residential mortgage-backed             1,520                97                 3         1,614            1,880               125                19         1,986
Foreign government(3)                     345               103                 2           446              349                75                 4           420
State & Municipal                         647               126                 1           772              657                96                 0           753

Total(4)                          $    41,137      $      5,675      $        393      $ 46,419      $    42,640      $      4,951      $      1,075      $ 46,516





(1)   Investment data has been classified based on standard industry

categorizations for domestic public holdings and similar classifications by

      industry for all other holdings.


(2)   Includes securities collateralized by sub-prime mortgages. See
      "-Asset-Backed Securities" below.

(3) As of December 31, 2012 and 2011, based on amortized cost, no individual

foreign country represented more than 13% and 8%, respectively.

(4) The table above excludes fixed maturity securities classified as trading.

See "-Other Trading Account Assets" for additional information.

(5) Prior period's amounts are presented on a basis consistent with the current

      period presentation.



The increase in net unrealized gains from December 31, 2011 to December 31, 2012, was primarily due to a net decrease in interest rates.

Asset-Backed Securities



Included within asset-backed securities attributable to both the Financial
Services Businesses and the Closed Block Business are securities collateralized
by sub-prime mortgages. While there is no market standard definition, we define
sub-prime mortgages as residential mortgages that are originated to weaker
quality obligors as indicated by weaker credit scores, as well as mortgages with
higher loan-to-value ratios or limited documentation. The deterioration of the
U.S. housing market and higher unemployment levels over the past several years,
coupled with relaxed underwriting standards for some originators of sub-prime
mortgages through 2007, have led to higher delinquency rates, particularly for
those mortgages issued in 2006 and 2007. This has resulted in increased
attention given to potential deficiencies in lenders' foreclosure documentation,
causing delays in the foreclosure process. From the perspective of an investor
in securities backed by sub-prime collateral, significant delays in foreclosure
proceedings have resulted in increased servicing costs which negatively affect
the value of the impacted securities. Separately, as an investor in sub-prime
securities, we are pursuing legal and other actions with respect to potential
remedies arising from any potential deficiencies related to the original lending
and securitization practices.



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The following tables set forth the amortized cost and fair value of our asset-backed securities attributable to the Financial Services Businesses as of the dates indicated, by credit quality, and for asset-backed securities collateralized by sub-prime mortgages, by year of issuance (vintage).

Asset-Backed Securities at Amortized Cost-Financial Services Businesses



                                                             December 31, 2012
                                                Lowest Rating Agency Rating
                                                                                                Total             Total
                                                                                 BB and       Amortized       December  31,
Vintage                               AAA         AA          A        BBB        below         Cost              2011
                                                                        (in millions)
Collateralized by sub-prime
mortgages:
2012-2008                           $     0     $     0     $   0     $    0     $     0     $         0     $             0
2007                                      1           0         0          0         429             430                 497
2006                                      5           0        49         49         725             828               1,019
2005                                      0           3         8         17         265             293                 343
2004 & Prior                              0          24        34         50         583             691                 775

Total collateralized by sub-prime
mortgages(1)                              6          27        91        116       2,002           2,242               2,634

Other asset-backed securities:
Externally-managed investments in
the European market                       0           0         0        108           0             108                 452
Collateralized by auto loans            693           0         0          0           1             694                 841
Collateralized by credit cards          500           5        48        142           0             695                 761
Collateralized by non-sub-prime
mortgages                             1,344          63         7         22           8           1,444               1,707

Other asset-backed securities(2) 1,479 1,270 113 23 141

           3,026               1,924

Total asset-backed securities(3) $ 4,022$ 1,365$ 259$ 411$ 2,152$ 8,209 $ 8,319

(1) Included within the $2.2 billion of asset-backed securities collateralized

      by sub-prime mortgages as of December 31, 2012, are $30 million of
      securities collateralized by second-lien exposures.


(2)   As of December 31, 2012, includes collateralized loan obligations with

amortized cost of $1,858 million, with none secured by sub-prime mortgages.

Also includes asset-backed securities collateralized by education loans,

aircraft, equipment leases, franchises, and timeshares.

(3) Excluded from the table above are asset-backed securities held outside the

      general account in other entities and operations. Also excluded from the
      table above are asset-backed securities classified as trading.



Asset-Backed Securities at Fair Value-Financial Services Businesses



                                                               December 31, 2012
                                                 Lowest Rating Agency Rating
                                                                                                                    Total
                                                                                  BB and         Total          December  31,
Vintage                                AAA         AA          A        BBB        below       Fair Value           2011
                                                                         (in millions)
Collateralized by sub-prime
mortgages:
2012-2008                            $     0     $     0     $   0     $    0     $     0     $          0     $             0
2007                                       1           0         0          0         338              339                 283
2006                                       4           0        42         41         611              698                 664
2005                                       0           3         7         17         224              251                 238
2004 & Prior                               0          22        33         45         494              594                 546

Total collateralized by sub-prime
mortgages                                  5          25        82        103       1,667            1,882               1,731

Other asset-backed securities:
Externally-managed investments in
the European market                        0           0         0        126           0              126                 471
Collateralized by auto loans             700           0         0          1           1              702                 842
Collateralized by credit cards           521           5        48        140           0              714                 783
Collateralized by non-sub-prime
mortgages                              1,424          64         7         21           8            1,524               1,776

Other asset-backed securities(1) 1,487 1,276 116 24 153

            3,056               1,878

Total asset-backed securities(2) $ 4,137$ 1,370$ 253$ 415$ 1,829 $ 8,004 $ 7,481





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(1) As of December 31, 2012, includes collateralized loan obligations with fair

value of $1,871 million, with none secured by sub-prime mortgages. Also

includes asset-backed securities collateralized by education loans,

aircraft, franchises, equipment leases, and timeshares.

(2) Excluded from the table above are asset-backed securities held outside the

      general account in other entities and operations. Also excluded from the
      table above are asset-backed securities classified as trading.




The tables above provide ratings as assigned by nationally recognized rating
agencies as of December 31, 2012, including Standard & Poor's, Moody's and
Fitch. In making our investment decisions, rather than relying solely on the
rating agencies' evaluations, we assign internal ratings to our asset-backed
securities based upon our dedicated asset-backed securities unit's independent
evaluation of the underlying collateral and securitization structure, including
any guarantees from monoline bond insurers.



On an amortized cost basis, asset-backed securities collateralized by sub-prime
mortgages attributable to the Financial Services Businesses decreased from
$2.634 billion as of December 31, 2011, to $2.242 billion as of December 31,
2012, primarily reflecting sales, principal paydowns and other-than-temporary
impairments recognized. Gross unrealized losses related to our asset-backed
securities collateralized by sub-prime mortgages attributable to the Financial
Services Businesses were $390 million as of December 31, 2012, and $906 million
as of December 31, 2011. For additional information regarding
other-than-temporary impairments of asset-backed securities collateralized by
sub-prime mortgages see "-Realized Investment Gains and Losses" above. For
information regarding the methodology used in determining the fair value of our
asset-backed securities collateralized by sub-prime mortgages, see Note 20 to
the Consolidated Financial Statements.



The weighted average estimated subordination percentage of our asset-backed
securities collateralized by sub-prime mortgages attributable to the Financial
Services Businesses, excluding those supported by guarantees from monoline bond
insurers, was 28% as of December 31, 2012. The subordination percentage
represents the current weighted average estimated percentage of the capital
structure subordinated to our investment holding that is available to absorb
losses before the security incurs the first dollar loss of principal. As of
December 31, 2012, based on amortized cost, approximately 57% of the
asset-backed securities collateralized by sub-prime mortgages attributable to
the Financial Services Businesses have estimated credit subordination
percentages of 20% or more, and 39% have estimated credit subordination
percentages of 30% or more.



In addition to subordination, certain securities, referred to as front pay or
second pay securities, benefit from the prioritization of principal cash flows
within the senior tranches of the structure. In most instances, these shorter
duration senior securities have priority to principal cash flows over other
securities in the structure, including longer duration senior securities.
Included within the $2.242 billion of asset-backed securities collateralized by
sub-prime mortgages attributable to the Financial Services Businesses as of
December 31, 2012 were $405 million of securities, on an amortized cost basis,
that represent front pay or second pay securities, depending on the overall
structure of the securities.



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The following tables set forth the amortized cost and fair value of our asset-backed securities attributable to the Closed Block Business as of the dates indicated, by credit quality, and for asset-backed securities collateralized by sub-prime mortgages, by year of issuance (vintage).

Asset-Backed Securities at Amortized Cost-Closed Block Business



                                                             December 31, 2012
                                                Lowest Rating Agency Rating
                                                                                              Total             Total
                                                                               BB and       Amortized       December  31,
Vintage                                AAA        AA         A        BBB       below         Cost              2011
                                                                         (in millions)
Collateralized by sub-prime
mortgages:
2012-2008                            $     0     $   0     $   0     $   0     $     0     $         0     $             0
2007                                       1         5         1        19         298             324                 431
2006                                       8        83         3         0         617             711                 994
2005                                       8        33        63        19         110             233                 296
2004 & Prior                               0         5        11        21         466             503                 569

Total collateralized by sub-prime
mortgages(1)                              17       126        78        59       1,491           1,771               2,290

Other asset-backed securities:
Collateralized by credit cards           299         5         0       144           2             450                 659
Collateralized by auto loans             892         0         0         0           0             892                 739
Externally-managed investments in
the European market                        0         0         0       206           0             206                 199

Collateralized by education loans 18 432 0 0

          0             450                 485

Other asset-backed securities(2) 449 291 59 1

         23             823                 563

Total asset-backed securities(3) $ 1,675$ 854$ 137$ 410

   $ 1,516     $     4,592     $         4,935




(1) Included within the $1.8 billion of asset-backed securities collateralized

by sub-prime mortgages as of December 31, 2012, are $2 million of securities

      collateralized by second-lien exposures.


(2)   As of December 31, 2012, includes collateralized loan obligations with

amortized cost of $599 million, with none secured by sub-prime mortgages.

      Also includes asset-backed securities collateralized by franchises,
      equipment leases, aircraft, manufacturing and timeshares.


(3)   Excluded from the table above are asset-backed securities classified as
      trading.



Asset-Backed Securities at Fair Value-Closed Block Business



                                                             December 31, 2012
                                                Lowest Rating Agency Rating
                                                                                                                 Total
                                                                               BB and         Total          December  31,
Vintage                                AAA        AA         A        BBB       below       Fair Value           2011
                                                                         (in millions)
Collateralized by sub-prime
mortgages:
2012-2008                            $     0     $   0     $   0     $   0     $     0     $          0     $             0
2007                                       1         5         1        18         244              269                 267
2006                                       7        80         3         0         453              543                 597
2005                                       8        32        59        19          87              205                 216
2004 & Prior                               0         4        11        19         408              442                 421

Total collateralized by sub-prime
mortgages                                 16       121        74        56       1,192            1,459               1,501

Other asset-backed securities:
Collateralized by credit cards           303         5         0       144           2              454                 669
Collateralized by auto loans             896         0         0         0           0              896                 739
Externally-managed investments in
the European market                        0         0         0       239           0              239                 233

Collateralized by education loans 18 435 0 0

          0              453                 474

Other asset-backed securities(1) 453 296 61 1

         31              842                 556

Total asset-backed securities(2) $ 1,686$ 857$ 135$ 440

   $ 1,225     $      4,343     $         4,172




(1) As of December 31, 2012, includes collateralized loan obligations with fair

value of $605 million, with none secured by sub-prime mortgages. Also

includes asset-backed securities collateralized by franchises, equipment

      leases, aircraft, manufacturing, and timeshares.


(2)   Excluded from the table above are asset-backed securities classified as
      trading.




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On an amortized cost basis, asset-backed securities collateralized by sub-prime
mortgages attributable to the Closed Block Business decreased from $2.290
billion as of December 31, 2011, to $1.771 billion as of December 31, 2012,
primarily reflecting sales, principal paydowns and other-than-temporary
impairments recognized. Gross unrealized losses related to our asset-backed
securities collateralized by sub-prime mortgages attributable to the Closed
Block Business were $315 million as of December 31, 2012, and $789 million as of
December 31, 2011. For additional information regarding other-than-temporary
impairments of asset-backed securities collateralized by sub-prime mortgages see
"-Realized Investment Gains and Losses" above. For information regarding the
methodology used in determining the fair value of our asset-backed securities
collateralized by sub-prime mortgages, see Note 20 to the Consolidated Financial
Statements.



The weighted average estimated subordination percentage of asset-backed
securities collateralized by sub-prime mortgages attributable to the Closed
Block Business, excluding those supported by guarantees from monoline bond
insurers, was 32% as of December 31, 2012. The subordination percentage
represents the current weighted average estimated percentage of the capital
structure subordinated to our investment holding that is available to absorb
losses before the security incurs the first dollar loss of principal. As of
December 31, 2012, based on amortized cost, approximately 67% of the
asset-backed securities collateralized by sub-prime mortgages attributable to
the Closed Block Business have estimated credit subordination percentages of 20%
or more, and 46% have estimated credit subordination percentages of 30% or more.



In addition to subordination, certain securities, referred to as front pay or
second pay securities, benefit from the prioritization of principal cash flows
within the senior tranches of the structure. In most instances, these shorter
duration senior securities have priority to principal cash flows over other
securities in the structure, including longer duration senior securities.
Included within the $1.771 billion of asset-backed securities collateralized by
sub-prime mortgages attributable to the Closed Block Business as of December 31,
2012, were $348 million of securities, on an amortized cost basis, that
represent front pay or second pay securities, depending on the overall structure
of the securities.


Residential Mortgage-Backed Securities

The following tables set forth the amortized cost of our residential mortgage-backed securities attributable to the Financial Services Businesses and Closed Block Business as of the dates indicated.

Residential Mortgage-Backed Securities at Amortized Cost




                                                                    December 31, 2012
                                           Financial Services Businesses                  Closed Block Business
                                         Amortized                                    Amortized
                                           Cost                 % of Total              Cost             % of Total
                                                                     ($ in millions)
By security type:
Agency pass-through securities(1)     $         8,183                    97.9 %      $     1,364                89.7 %
Collateralized mortgage
obligations(2)(3)                                 177                     2.1                156                10.3

Total residential mortgage-backed
securities                            $         8,360                   100.0 %      $     1,520               100.0 %

Portion rated AA or higher(4)         $         8,247                    98.7 %      $     1,364                89.7 %




                                                                    December 31, 2011
                                           Financial Services Businesses                  Closed Block Business
                                         Amortized                                    Amortized
                                           Cost                 % of Total              Cost             % of Total
                                                                     ($ in millions)
By security type:
Agency pass-through securities(1)     $         7,339                    97.0 %      $     1,664                88.5 %
Collateralized mortgage
obligations(2)(3)                                 230                     3.0                216                11.5

Total residential mortgage-backed
securities                            $         7,569                   100.0 %      $     1,880               100.0 %

Portion rated AA or higher(4)         $         7,489                    99.0 %      $     1,664                88.5 %




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(1) As of December 31, 2012, of these securities, for the Financial Services

Businesses, $6.359 billion are supported by U.S. government and $1.824

billion are supported by foreign governments. As of December 31, 2011, of

these securities, for the Financial Services Businesses, $5.408 billion were

supported by the U.S. government and $1.931 billion were supported by

foreign governments. For the Closed Block Business, all of the securities

are supported by the U.S. government as of both December 31, 2012 and 2011.


(2)   Includes alternative residential mortgage loans of $36 million and $38
      million in the Financial Services Businesses, and $76 million and $93

million in the Closed Block Business, as of December 31, 2012 and 2011,

respectively.

(3) As of December 31, 2012, of these collateralized mortgage obligations, for

the Financial Services Businesses, 57% have credit ratings of A or above, 5%

have BBB credit ratings and the remaining 38% have below investment grade

ratings, and as of December 31, 2011, 68% have credit ratings of A or above,

7% have BBB credit ratings and the remaining 25% have below investment grade

ratings. As of December 31, 2012, for the Closed Block Business, 13% have

BBB credit ratings, and 87% have below investment grade ratings and, as of

December 31, 2011, 16% have A credit ratings or above, 34% have BBB credit

      ratings, and 50% have below investment grade ratings.


(4)   Based on lowest external rating agency rating.



Commercial Mortgage-Backed Securities




The commercial real estate market was severely impacted by the financial crisis
and the subsequent recession; however, market fundamentals appear to have
bottomed and have shown signs of improvement since late 2010. Commercial real
estate vacancy rates have declined from their peak, rent growth has turned
positive, and prices of commercial real estate have stabilized. Additionally,
the elevated delinquency rate on mortgages in the commercial mortgage-backed
securities market has slowed and refinancing activity has increased, reflecting
the improvement in these fundamentals. The loans included in new issues seem to
reflect better underwriting and lower levels of leverage compared to 2007.



Although there are positive signs in commercial real estate, there are still some significant challenges for this market, including numerous future loan workouts, a large wave of refinancings for over-leveraged properties and numerous legislative changes. To ensure our investment objectives and asset strategies are maintained, we consider these market factors in making our investment decisions on commercial mortgage-backed securities.




The following tables set forth the amortized cost and fair value of our
commercial mortgage-backed securities attributable to the Financial Services
Businesses as of the dates indicated, by credit quality and by year of issuance
(vintage).



Commercial Mortgage-Backed Securities at Amortized Cost-Financial Services
Businesses



                                                            December 31, 2012
                                              Lowest Rating Agency Rating(1)
                                                                                              Total            Total
                                                                               BB and       Amortized      December 31,
Vintage                                AAA          AA        A       BBB       below         Cost             2011
                                                                       (in millions)
2012-2008                           $     298      $ 248     $  0     $  3     $    17     $       566     $         418
2007                                    1,148         35       12        0           1           1,196             1,887
2006                                    2,676        101        0        4           0           2,781             2,955
2005                                    2,036         67       10        0           0           2,113             1,804
2004 & Prior                              605        103       30       12           7             757             1,133

Total commercial mortgage-backed
securities(2)(3)(4)                 $   6,763      $ 554     $ 52     $ 19     $    25     $     7,413     $       8,197




(1) The table above provides ratings as assigned by nationally recognized rating

agencies as of December 31, 2012, including Standard & Poor's, Moody's,

Fitch and Realpoint.

(2) Excluded from the table above are commercial mortgage-backed securities held

outside the general account in other entities and operations. Also excluded

from the table above are commercial mortgage-backed securities classified as

trading.

(3) Included in the table above, as of December 31, 2012, are downgraded super

senior securities with amortized cost of $134 million in AA, $42 million in

A and $3 million in BBB.

(4) Included in the table above, as of December 31, 2012, are agency commercial

mortgage-backed securities with amortized cost of $283 million, all rated

      AA.




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Commercial Mortgage-Backed Securities at Fair Value-Financial Services
Businesses



                                                            December 31, 2012
                                             Lowest Rating Agency Rating(1)
                                                                                                               Total
                                                                              BB and       Total Fair      December 31,
Vintage                               AAA          AA        A       BBB       below         Value             2011
                                                                       (in millions)
2012-2008                          $     306      $ 283     $  0     $  4     $    16     $        609     $         447
2007                                   1,202         39       12        0          22            1,275             1,958
2006                                   2,943        114        0        5           0            3,062             3,214
2005                                   2,179         72       10        0           0            2,261             1,930
2004 & Prior                             633        105       31       11           7              787             1,117

Total commercial mortgage-backed
securities(2)(3)                   $   7,263      $ 613     $ 53     $ 20     $    45     $      7,994     $       8,666




(1) The table above provides ratings as assigned by nationally recognized rating

agencies as of December 31, 2012, including Standard & Poor's, Moody's,

Fitch and Realpoint.

(2) Excluded from the table above are commercial mortgage-backed securities held

outside the general account in other entities and operations. Also excluded

from the table above are commercial mortgage-backed securities classified as

trading.

(3) Included in the table above, as of December 31, 2012, are agency commercial

      mortgage-backed securities with fair value of $322 million, all rated AA.




Included in the tables above are commercial mortgage-backed securities
collateralized by non-U.S. properties, all related to Japanese commercial
mortgage-backed securities held by our Japanese insurance operations, with an
amortized cost of $12 million in AAA, $4 million in BBB and $18 million in BB
and below as of December 31, 2012, and $13 million in AAA, $4 million in A, $17
million in BBB and $13 million in BB and below as of December 31, 2011.



Included in the tables above are commercial mortgage-backed securities
collateralized by U.S. properties, all related to commercial mortgage-backed
securities held by our Japanese insurance operations, with an amortized cost of
$674 million in AAA, $116 million in AA, $40 million in A and $9 million in BBB
as of December 31, 2012, and $875 million in AAA, $190 million in AA, $125
million in A, and $5 million in BBB as of December 31, 2011.



The following table sets forth the amortized cost of our AAA commercial mortgage-backed securities attributable to the Financial Services Businesses as of the dates indicated, by type and by year of issuance (vintage).

AAA Rated Commercial Mortgage-Backed Securities-Amortized Cost by Type and Vintage-Financial Services Businesses




                                                                                  December 31, 2012
                                           Super Senior AAA Structures                                  Other AAA
                            Super               Super
                            Senior             Senior                                                                                            Total AAA
                           (shorter           (longest                                                                                         Securities at
                           duration           duration                                          Other             Other                          Amortized
Vintage                   tranches)           tranches)         Mezzanine        Junior         Senior         Subordinate       Other             Cost
                                                                                    (in millions)
2012-2008                $        298        $         0       $         0       $     0       $      0       $           0     $     0       $           298
2007                            1,148                  0                 0             0              0                   0           0                 1,148
2006                            1,285              1,379                 0             0              0                   0          12                 2,676
2005                              320              1,705                 0             5              0                   5           1                 2,036
2004 & Prior                       21                196                 0            52            237                  99           0                   605

Total                    $      3,072        $     3,280       $         0       $    57       $    237       $         104     $    13       $         6,763





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The following tables set forth the amortized cost and fair value of our commercial mortgage-backed securities attributable to the Closed Block Business as of the dates indicated, by credit quality and by year of issuance (vintage).

Commercial Mortgage-Backed Securities at Amortized Cost-Closed Block Business



                                                             December 31, 2012
                                               Lowest Rating Agency Rating(1)
                                                                                                Total            Total
                                                                                 BB and       Amortized      December 31,
Vintage                                AAA             AA        A      BBB       below         Cost             2011
                                                                        (in millions)
2012-2008                           $      321       $  526     $ 0     $  0     $     0     $       847     $          61
2007                                       506           42       0        0           4             552               831
2006                                     1,170          131       0        0           0           1,301               933
2005                                     1,066           25       0        0           0           1,091             1,307
2004 & Prior                               203           27       0        5           3             238               427

Total commercial mortgage-backed
securities(2)(3)                    $    3,266       $  751     $ 0     $  5     $     7     $     4,029     $       3,559




(1) The table above provides ratings as assigned by nationally recognized rating

agencies as of December 31, 2012, including Standard & Poor's, Moody's,

Fitch and Realpoint.

(2) Included in the table above, as of December 31, 2012, are downgraded super

senior securities with amortized cost of $156 million in AA.

(3) Included in the table above, as of December 31, 2012, are agency commercial

mortgage-backed securities with amortized cost of $568 million, all rated

      AA.



Commercial Mortgage-Backed Securities at Fair Value-Closed Block Business



                                                             December 31, 2012
                                              Lowest Rating Agency Rating(1)
                                                                                                                 Total
                                                                                BB and         Total         December 31,
Vintage                                AAA            AA        A      BBB       below       Fair Value          2011
                                                                        (in millions)
2012-2008                           $     330       $  539     $ 0     $  0     $     0     $        869     $          66
2007                                      521           45       0        0          13              579               860
2006                                    1,235          140       0        0           0            1,375               986
2005                                    1,113           28       0        0           0            1,141             1,365
2004 & Prior                              207           27       0        5           3              242               438

Total commercial mortgage-backed
securities(2)                       $   3,406       $  779     $ 0     $  5     $    16     $      4,206     $       3,715




(1) The table above provides ratings as assigned by nationally recognized rating

agencies as of December 31, 2012, including Standard & Poor's, Moody's,

Fitch and Realpoint.

(2) Included in the table above, as of December 31, 2012, are agency commercial

      mortgage-backed securities with fair value of $584 million, all rated AA.




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The following table sets forth the amortized cost of our AAA commercial mortgage-backed securities attributable to the Closed Block Business as of the dates indicated, by type and by year of issuance (vintage).

AAA Rated Commercial Mortgage-Backed Securities-Amortized Cost by Type and
Vintage-Closed Block Business



                                                                                   December 31, 2012
                                           Super Senior AAA Structures                                        Other AAA
                             Super              Super
                            Senior             Senior                                                                                            Total AAA
                           (shorter           (longest                                                                                         Securities at
                           duration           duration                                          Other             Other                          Amortized
Vintage                    tranches)          tranches)         Mezzanine        Junior         Senior         Subordinate       Other             Cost
                                                                                     (in millions)
2012-2008                 $       321        $         0       $         0       $     0       $      0       $           0     $     0       $           321
2007                              506                  0                 0             0              0                   0           0                   506
2006                              479                688                 0             0              0                   0           3                 1,170
2005                              542                524                 0             0              0                   0           0                 1,066
2004 & Prior                       39                 14                 0             0            125                  25           0                   203

Total                     $     1,887        $     1,226       $         0       $     0       $    125       $          25     $     3       $         3,266




Fixed Maturity Securities Credit Quality




The Securities Valuation Office, or SVO, of the NAIC, evaluates the investments
of insurers for statutory reporting purposes and assigns fixed maturity
securities to one of six categories called "NAIC Designations." In general, NAIC
Designations of "1" highest quality, or "2" high quality, include fixed
maturities considered investment grade, which include securities rated Baa3 or
higher by Moody's or BBB- or higher by Standard & Poor's. NAIC Designations of
"3" through "6" generally include fixed maturities referred to as below
investment grade, which include securities rated Ba1 or lower by Moody's and BB+
or lower by Standard & Poor's. The NAIC Designations for commercial
mortgage-backed securities and non-agency residential mortgage-backed
securities, including our asset-backed securities collateralized by sub-prime
mortgages, are based on security level expected losses as modeled by an
independent third party (engaged by the NAIC) and the statutory carrying value
of the security, including any purchase discounts or impairment charges
previously recognized.



As a result of time lags between the funding of investments, the finalization of
legal documents, and the completion of the SVO filing process, the fixed
maturity portfolio generally includes securities that have not yet been rated by
the SVO as of each balance sheet date. Pending receipt of SVO ratings, the
categorization of these securities by NAIC Designation is based on the expected
ratings indicated by internal analysis.



Investments of our international insurance companies are not subject to NAIC
guidelines. Investments of our Japanese insurance operations are regulated
locally by the Financial Services Agency, an agency of the Japanese government.
The Financial Services Agency has its own investment quality criteria and risk
control standards. Our Japanese insurance companies comply with the Financial
Services Agency's credit quality review and risk monitoring guidelines. The
credit quality ratings of the investments of our Japanese insurance companies
are based on ratings assigned by nationally recognized credit rating agencies,
including Moody's, Standard & Poor's, or rating equivalents based on ratings
assigned by Japanese credit ratings agencies.



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The following table sets forth our fixed maturity portfolio by NAIC Designation attributable to the Financial Services Businesses as of the dates indicated.

Fixed Maturity Securities-Financial Services Businesses



             (1)(2)                                        December 31, 2012                                                   December 31, 2011
                                                        Gross              Gross                                            Gross              Gross
                                     Amortized        Unrealized        Unrealized          Fair         Amortized        Unrealized        Unrealized          Fair
        NAIC Designation                Cost           Gains(3)        Losses(3)(4)         Value           Cost           Gains(3)        Losses(3)(4)         Value
                                                                                               (in millions)
                1                    $  189,129      $     16,564      $       1,037      $ 204,656      $  158,718      $     11,873      $       1,840      $ 168,751
                2                        42,424             3,688                656         45,456          32,864             2,571              1,159         34,276

Subtotal High or Highest Quality
Securities(5)                           231,553            20,252              1,693        250,112         191,582            14,444              2,999        203,027
                3                         6,086               301                233          6,154           5,978               200                617          5,561
                4                         1,982               133                129          1,986           2,043                48                316          1,775
                5                           650                27                 74            603             933                11                216            728
                6                           186                39                 17            208             349                46                108            287

Subtotal Other Securities(6)(7)           8,904               500                453          8,951           9,303               305              1,257          8,351

Total Fixed Maturities               $  240,457      $     20,752      $       2,146      $ 259,063      $  200,885      $     14,749      $       4,256      $ 211,378




(1) Reflects equivalent ratings for investments of the international insurance

operations.

(2) Includes, as of December 31, 2012 and 2011, 104 securities with amortized

cost of $793 million (fair value, $847 million) and 110 securities with

amortized cost of $817 million (fair value, $852 million), respectively,

that have been categorized based on expected NAIC Designations pending

      receipt of SVO ratings.


(3)   Includes $310 million of gross unrealized gains and $67 million gross

unrealized losses as of December 31, 2012, compared to $345 million of gross

      unrealized gains and $98 million of gross unrealized losses as of
      December 31, 2011, on securities classified as held-to-maturity.

(4) As of December 31, 2012, includes gross unrealized losses of $401 million on

public fixed maturities and $52 million on private fixed maturities

considered to be other than high or highest quality and, as of December 31,

2011, includes gross unrealized losses of $1,149 million on public fixed

      maturities and $108 million on private fixed maturities considered to be
      other than high or highest quality.

(5) On an amortized cost basis, as of December 31, 2012, includes $206,966

million of public fixed maturities and $24,587 million of private fixed

maturities and, as of December 31, 2011, includes $168,717 million of public

fixed maturities and $22,865 million of private fixed maturities.

(6) On an amortized cost basis, as of December 31, 2012, includes $5,416 million

of public fixed maturities and $3,488 million of private fixed maturities

      and, as of December 31, 2011, includes $5,436 million of public fixed
      maturities and $3,867 million of private fixed maturities.

(7) On an amortized cost basis, as of December 31, 2012, securities considered

below investment grade based on lowest of external rating agency ratings,

totaled $11.0 billion, or 5% of the total fixed maturities, and include

securities considered high or highest quality by the NAIC based on the rules

      described above.




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The following table sets forth our fixed maturity portfolio by NAIC Designation attributable to the Closed Block Business as of the dates indicated.

Fixed Maturity Securities-Closed Block Business



                (1)                                        December 31, 2012                                              December 31, 2011
                                                          Gross            Gross                                         Gross            Gross
                                        Amortized       Unrealized       Unrealized        Fair        Amortized       Unrealized       Unrealized        Fair
          NAIC Designation                Cost            Gains          Losses(2)        Value          Cost            Gains          Losses(2)        Value
                                                                                             (in millions)
                 1                     $    23,197     $      3,353     $        114     $ 26,436     $    24,749     $      3,084     $        381     $ 27,452
                 2                          14,581            2,091               58       16,614          13,499            1,698              150       15,047

Subtotal High or Highest Quality
Securities(3)                               37,778            5,444              172       43,050          38,248            4,782              531       42,499
                 3                           1,989              156               94        2,051           2,164              125               92        2,197
                 4                           1,015               35               92          958           1,426               25              261        1,190
                 5                             271               13               34          250             584                6              174          416
                 6                              84               27                1          110             218               13               17          214

Subtotal Other Securities(4)(5)              3,359              231              221        3,369           4,392              169              544        4,017

Total Fixed Maturities                 $    41,137     $      5,675     $        393     $ 46,419     $    42,640     $      4,951     $      1,075     $ 46,516




(1) Includes, as of December 31, 2012 and 2011, 51 securities with amortized

cost of $885 million (fair value, $941 million) and 67 securities with

amortized cost of $937 million (fair value, $981 million), respectively,

that have been categorized based on expected NAIC Designations pending

receipt of SVO ratings.

(2) As of December 31, 2012, includes gross unrealized losses of $207 million on

public fixed maturities and $14 million on private fixed maturities

considered to be other than high or highest quality and, as of December 31,

2011, includes gross unrealized losses of $497 million on public fixed

      maturities and $47 million on private fixed maturities considered to be
      other than high or highest quality.


(3)   On an amortized cost basis, as of December 31, 2012, includes $23,884

million of public fixed maturities and $13,894 million of private fixed

maturities and, as of December 31, 2011, includes $25,736 million of public

fixed maturities and $12,512 million of private fixed maturities.

(4) On an amortized cost basis, as of December 31, 2012, includes $1,603 million

of public fixed maturities and $1,756 million of private fixed maturities

      and, as of December 31, 2011, includes $2,346 million of public fixed
      maturities and $2,046 million of private fixed maturities.

(5) On an amortized cost basis, as of December 31, 2012, securities considered

below investment grade based on lowest of external rating agency ratings,

totaled $4.4 billion, or 11% of the total fixed maturities, and include

securities considered high or highest quality by the NAIC based on the rules

      described above.



Credit Derivative Exposure to Public Fixed Maturities




In addition to the credit exposure from public fixed maturities noted above, we
sell credit derivatives to enhance the return on our investment portfolio by
creating credit exposure similar to an investment in public fixed maturity cash
instruments.



In a credit derivative, we sell credit protection on an identified name or a
broad-based index, and in return receive a quarterly premium. This premium or
credit spread generally corresponds to the difference between the yield on the
referenced name's (or an index's underlying reference names) public fixed
maturity cash instruments and swap rates at the time the agreement is executed.



The majority of the underlying reference names in single name and index credit
derivatives where we have sold credit protection, as well as all the
counterparties to these agreements, are investment grade credit quality and our
credit derivatives have a remaining term to maturity of five years or less.
Credit derivative contracts are recorded at fair value with changes in fair
value, including the premium received, recorded in "Realized investment gains
(losses), net." The premium received for the credit derivatives we sell
attributable to the Financial Services Businesses was $3 million and $6 million
for the years ended December 31, 2012 and 2011, respectively, and is included in
adjusted operating income as an adjustment to "Realized investment gains
(losses), net."



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As of December 31, 2012 and 2011, the Financial Services Businesses had $1,065
million and $770 million of outstanding notional amounts, respectively, each
reported at fair value as an asset of $2 million, where we have sold credit
protection through credit derivatives. These amounts exclude a credit derivative
related to surplus notes issued by a subsidiary of Prudential Insurance and
embedded derivatives contained in certain externally-managed investments in the
European market. See Note 21 to the Consolidated Financial Statements for
additional information regarding these derivatives.



As of December 31, 2012 and 2011, the Closed Block Business had $5 million and
$50 million of outstanding notional amounts, respectively, each reported at fair
value as an asset of less than $1 million of exposure where we have sold credit
protection through credit derivatives.



In addition to selling credit protection, we have purchased credit protection
using credit derivatives in order to hedge specific credit exposures in our
investment portfolio, including exposures relating to certain guarantees from
monoline bond insurers. As of December 31, 2012 and 2011, the Financial Services
Businesses had $1,370 million and $1,598 million of outstanding notional
amounts, reported at fair value as a liability of $27 million and an asset of $2
million, respectively. As of December 31, 2012 and 2011, the Closed Block
Business had $309 million and $381 million of outstanding notional amounts,
reported at fair value as a liability of $8 million and an asset of less than $1
million, respectively. The premium paid for the credit derivatives we purchase
attributable to the Financial Services Businesses was $38 million and $43
million for the years ended December 31, 2012 and 2011, respectively, and is
included in adjusted operating income as an adjustment to "Realized investment
gains (losses), net." See Note 21 to the Consolidated Financial Statements for
additional information regarding credit derivatives and an overall description
of our derivative activities.


Other-Than-Temporary Impairments of Fixed Maturity Securities




We maintain separate monitoring processes for public and private fixed
maturities and create watch lists to highlight securities that require special
scrutiny and management. Our public fixed maturity asset managers formally
review all public fixed maturity holdings on a quarterly basis and more
frequently when necessary to identify potential credit deterioration whether due
to ratings downgrades, unexpected price variances, and/or company or industry
specific concerns.



For private placements, our credit and portfolio management processes help
ensure prudent controls over valuation and management. We have separate pricing
and authorization processes to establish "checks and balances" for new
investments. We apply consistent standards of credit analysis and due diligence
for all transactions, whether they originate through our own in-house
origination staff or through agents. Our regional offices closely monitor the
portfolios in their regions. We set all valuation standards centrally, and we
assess the fair value of all investments quarterly. Our private fixed maturity
asset managers formally review all private fixed maturity holdings on a
quarterly basis and more frequently when necessary to identify potential credit
deterioration whether due to ratings downgrades, unexpected price variances,
and/or company or industry specific concerns.



Fixed maturity securities classified as held-to-maturity are those securities
where we have the intent and ability to hold the securities until maturity.
These securities are reflected at amortized cost in our consolidated statements
of financial position. Other fixed maturity securities are considered
available-for-sale and, as a result, we record unrealized gains and losses to
the extent that amortized cost is different from estimated fair value. All
held-to-maturity securities and all available-for-sale securities with
unrealized losses are subject to our review to identify other-than-temporary
impairments in value.


In evaluating whether a decline in value is other-than-temporary, we consistently consider several factors including, but not limited to, the following:

• the reasons for the decline in value (credit event, currency or interest

        rate related, including general credit spread widening);




  •   the financial condition of and near-term prospects of the issuer; and




  •   the extent and duration of the decline.




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In determining whether a decline in value is other-than-temporary, we place
greater emphasis on our analysis of the underlying credit versus the extent and
duration of a decline in value. Our credit analysis of an investment includes
determining whether the issuer is current on its contractual payments,
evaluating whether it is probable that we will be able to collect all amounts
due according to the contractual terms of the security, and analyzing our
overall ability to recover the amortized cost of the investment. We continue to
utilize valuation declines as a potential indicator of credit deterioration, and
apply additional levels of scrutiny in our analysis as the severity and duration
of the decline increases.



In addition, we recognize an other-than-temporary impairment in earnings for a
debt security in an unrealized loss position when (a) we have the intent to sell
the debt security, or (b) it is more likely than not we will be required to sell
the debt security before its anticipated recovery or (c) a foreign currency
denominated security with a foreign currency translation loss approaches
maturity. For all debt securities in unrealized loss positions that do not meet
any of these criteria, we analyze our ability to recover the amortized cost by
comparing the net present value of our best estimate of projected future cash
flows with the amortized cost of the security. If the net present value is less
than the amortized cost of the investment, an other-than-temporary impairment is
recorded. The determination of the assumptions used in these projections
requires the use of significant management judgment. See Note 2 to the
Consolidated Financial Statements for additional information regarding these
assumptions and our policies for recognizing other-than-temporary impairments
for debt securities.



Other-than-temporary impairments of general account fixed maturity securities
attributable to the Financial Services Businesses that were recognized in
earnings were $253 million and $431 million for the years ended December 31,
2012 and 2011, respectively. Included in the other-than-temporary impairments of
general account fixed maturities attributable to the Financial Services
Businesses for the years ended December 31, 2012 and 2011, were $56 million and
$118 million, respectively, of other-than-temporary impairments on asset-backed
securities collateralized by sub-prime mortgages.



Other-than-temporary impairments of fixed maturity securities attributable to
the Closed Block Business that were recognized in earnings were $74 million and
$104 million for the years ended December 31, 2012 and 2011, respectively.
Included in the other-than-temporary impairments of fixed maturities
attributable to the Closed Block Business for the years ended December 31, 2012
and 2011, were $40 million and $67 million, respectively, of
other-than-temporary impairments on asset-backed securities collateralized by
sub-prime mortgages. For a further discussion of other-than-temporary
impairments, see "-Realized Investment Gains and Losses" above.



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Trading Account Assets Supporting Insurance Liabilities




Certain products included in the Retirement and International Insurance segments
are experience-rated, meaning that we expect the investment results associated
with these products will ultimately accrue to contractholders. The investments
supporting these experience-rated products, excluding commercial mortgage and
other loans, are primarily classified as trading and are reflected on the
balance sheet as "Trading account assets supporting insurance liabilities, at
fair value." Realized and unrealized gains and losses for these investments are
reported in "Asset management fees and other income," and excluded from adjusted
operating income. Investment income for these investments is reported in "Net
investment income," and is included in adjusted operating income. The following
table sets forth the composition of this portfolio as of the dates indicated.



                                                 December 31, 2012             December 31, 2011(1)
                                              Amortized         Fair         Amortized          Fair
                                                 Cost          Value           Cost            Value
                                                                   (in millions)
Short-term investments and cash
equivalents                                   $      938      $    938      $       951       $    951
Fixed maturities:
Corporate securities                              11,076        12,107           10,369         11,113
Commercial mortgage-backed securities              2,096         2,229            2,157          2,247
Residential mortgage-backed securities             1,965         2,026            1,786          1,844
Asset-backed securities                            1,179         1,116            1,504          1,367
Foreign government bonds                             683           708              599            608
U.S. government authorities and agencies
and obligations of U.S. states                       369           426              413            440

Total fixed maturities                            17,368        18,612           16,828         17,619
Equity securities                                    943         1,040            1,050            911

Total trading account assets supporting
insurance liabilities                         $   19,249      $ 20,590      $    18,829       $ 19,481




(1) Prior period's amounts are presented on a basis consistent with the current

      period presentation.




As a percentage of amortized cost, 75% of the portfolio was publicly-traded as
of both December 31, 2012 and 2011, respectively. As of December 31, 2012 and
2011, 93% and 92%, respectively, of the fixed maturity portfolio was considered
high or highest quality based on NAIC or equivalent rating. As of December 31,
2012, $1.867 billion of the residential mortgage-backed securities were
publicly-traded agency pass-through securities, which are supported by implicit
or explicit government guarantees, of which 99% have credit ratings of A or
higher. Collateralized mortgage obligations, including approximately $73 million
secured by "ALT-A" mortgages, represented the remaining $98 million of
residential mortgage-backed securities, of which 29% have credit ratings of A or
better and 71% are BBB and below. For a discussion of changes in the fair value
of our trading account assets supporting insurance liabilities see
"-Experience-Rated Contractholder Liabilities, Trading Account Assets Supporting
Insurance Liabilities and Other Related Investments," above.



Other Trading Account Assets



Other trading account assets consist primarily of certain financial instruments
that contain an embedded derivative where we elected to classify the entire
instrument as a trading account asset rather than bifurcate. These instruments
are carried at fair value, with realized and unrealized gains and losses
reported in "Asset management fees and other income," and excluded from adjusted
operating income. Interest and dividend income from these investments is
reported in "Net investment income," and is included in adjusted operating
income.



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The following table sets forth the composition of our other trading account assets as of the dates indicated.



                                                December 31, 2012                                       December 31, 2011
                                  Financial Services             Closed Block             Financial Services             Closed Block
                                      Businesses                   Business                   Businesses                   Business
                                Amortized        Fair        Amortized       Fair       Amortized        Fair        Amortized       Fair
                                  Cost           Value         Cost         Value         Cost           Value         Cost         Value
                                                                              (in millions)
Short-term investments and
cash equivalents               $         1      $     1     $         0     $    0     $         4      $     4     $         0     $    0
Fixed maturities                       533          452             127        139           1,105          912             179        189
Equity securities(1)                   933          973             123        136           1,226        1,177             133        128
Other                                    0            0               0          0              11           11               0          0

Total other trading account
assets                         $     1,467      $ 1,426     $       250     $  275     $     2,346      $ 2,104     $       312     $  317




(1) Included in equity securities are perpetual preferred stock securities that

      have characteristics of both debt and equity securities.




As of December 31, 2012, on an amortized cost basis, 67% of asset-backed
securities classified as "Other trading account assets" attributable to the
Financial Services Businesses have credit ratings of A or above, 18% have BBB
credit ratings, and the remaining 15% have BB or below credit ratings. As of
December 31, 2012, on an amortized cost basis, 100% of asset-backed securities
classified as "Other trading account assets" attributable to the Closed Block
Business have credit ratings of A or above.



Commercial Mortgage and Other Loans



Investment Mix


As of December 31, 2012 and 2011, we held approximately 9% and 10%, respectively, of our general account investments in commercial mortgage and other loans. This percentage is net of a $244 million and $310 million allowance for losses as of December 31, 2012 and 2011, respectively.

The following table sets forth the composition of our commercial mortgage and other loans portfolio, before the allowance for losses, as of the dates indicated.



                                                      December 31, 2012                  December 31, 2011
                                                  Financial          Closed          Financial          Closed
                                                  Services           Block           Services           Block
                                                 Businesses        

Business Businesses Business

                                                                         (in millions)
Commercial and agricultural mortgage loans      $      24,139      $    9,666      $      21,988      $    9,100
Uncollateralized loans                                  1,833               0              2,236               0
Residential property loans                                790               0              1,033               0
Other collateralized loans                                 47               0                 66               0

Total commercial mortgage and other loans(1) $ 26,809 $ 9,666 $ 25,323 $ 9,100

(1) Excluded from the table above are commercial mortgage loans held outside the

general account in other entities and operations. For additional information

      regarding commercial mortgage loans held outside the general account, see
      "-Invested Assets of Other Entities and Operations" below.




We originate commercial and agricultural mortgage loans using a dedicated
investment staff and a network of independent companies through our various
regional offices. All loans are underwritten consistently to our standards using
a proprietary quality rating system that has been developed from our experience
in real estate and mortgage lending.



Uncollateralized loans primarily represent reverse dual currency loans and corporate loans which do not meet the definition of a security under authoritative accounting guidance.

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Residential property loans primarily include Japanese recourse loans. Upon
default of these recourse loans we can make a claim against the personal assets
of the property owner, in addition to the mortgaged property. These loans are
also backed by third party guarantors.



Other collateralized loans attributable to the Financial Services Businesses include $45 million and $63 million of collateralized consumer loans as of December 31, 2012 and 2011, respectively.

Composition of Commercial and Agricultural Mortgage Loans




The commercial real estate market was severely impacted by the financial crisis
and the subsequent recession, though the flow of capital to commercial real
estate has been strong since 2010. Portfolio lenders have been actively
originating loans, focusing primarily on the highest quality properties in major
markets, resulting in an increase in the liquidity and availability of capital
in the commercial mortgage loan market. For most property types, the market
fundamentals have stabilized or are improving. In addition, the commercial banks
are active and there has been increased loan origination activity by
securitization lenders as market spreads have tightened. These conditions have
led to greater competition for portfolio lenders such as our general account,
though underwriting remains conservative. While there is still some weakness in
commercial real estate fundamentals that are dependent on employment recovery,
delinquency rates on our commercial mortgage loans remain stable. For additional
information see "-Realized Investment Gains and Losses," above.



Our commercial and agricultural mortgage loan portfolio strategy emphasizes
diversification by property type and geographic location. The following tables
set forth the breakdown of the gross carrying values of our general account
investments in commercial and agricultural mortgage loans by geographic region
and property type as of the dates indicated.



                                                         December 31, 2012                                        December 31, 2011
                                          Financial Services              Closed Block             Financial Services              Closed Block
                                              Businesses                    Business                   Businesses                    Business
                                           Gross                       Gross                        Gross                       Gross
                                         Carrying        % of         Carrying       % of         Carrying        % of         Carrying       % of
                                           Value         Total         Value         Total          Value         Total         Value         Total
                                                                                      ($ in millions)
Commercial and agricultural mortgage loans by region:
U.S. Regions:
Pacific                                 $     7,600        31.5 %    $    3,423        35.4 %    $     7,136        32.5 %    $    3,118        34.3 %
South Atlantic                                4,846        20.1           1,814        18.8            4,568        20.8           1,868        20.5
Middle Atlantic                               3,706        15.3           2,050        21.2            3,221        14.6           2,109        23.2
East North Central                            2,000         8.3             570         5.9            1,579         7.2             336         3.7
West South Central                            2,220         9.2             730         7.6            1,858         8.4             688         7.6
Mountain                                      1,254         5.2             350         3.6            1,181         5.4             356         3.9
New England                                     638         2.6             323         3.3              637         2.9             257         2.8
West North Central                              466         1.9             137         1.4              576         2.6             185         2.0
East South Central                              305         1.3             142         1.5              307         1.4             152         1.7

Subtotal-U.S.                                23,035        95.4           9,539        98.7           21,063        95.8           9,069        99.7
Asia                                            648         2.7               0         0.0              519         2.4               0         0.0
Other                                           456         1.9             127         1.3              406         1.8              31         0.3

Total commercial and agricultural
mortgage loans                          $    24,139       100.0 %    $    9,666       100.0 %    $    21,988       100.0 %    $    9,100       100.0 %





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                                                             December 31, 2012                                        December 31, 2011
                                              Financial Services              Closed Block             Financial Services              Closed Block
                                                  Businesses                    Business                   Businesses                    Business
                                               Gross                       Gross                        Gross                       Gross
                                             Carrying        % of         Carrying       % of         Carrying        % of         Carrying       % of
                                               Value         Total         Value         Total          Value         Total         Value         Total
                                                                                          ($ in millions)
Commercial and agricultural mortgage
loans by property type:
Industrial                                  $     5,832        24.1 %    $    1,804        18.7 %    $     5,234        23.8 %    $    1,804        19.8 %
Retail                                            5,449        22.6           2,658        27.5            4,988        22.7           2,207        24.2
Office                                            4,459        18.5           2,363        24.4            4,043        18.4           2,216        24.4
Apartments/Multi-Family                           3,879        16.1           1,159        12.0            3,263        14.8           1,254        13.8
Other                                             2,203         9.1             598         6.2            2,079         9.5             517         5.7
Agricultural properties                           1,468         6.1             645         6.7            1,363         6.2             674         7.4
Hospitality                                         849         3.5             439         4.5            1,018         4.6             428         4.7

Total commercial and agricultural
mortgage loans                              $    24,139       100.0 %    $    9,666       100.0 %    $    21,988       100.0 %    $    9,100       100.0 %





Loan-to-value and debt service coverage ratios are measures commonly used to
assess the quality of commercial and agricultural mortgage loans. The
loan-to-value ratio compares the amount of the loan to the fair value of the
underlying property collateralizing the loan, and is commonly expressed as a
percentage. Loan-to-value ratios greater than 100% indicate that the loan amount
is greater than the collateral value. A smaller loan-to-value ratio indicates a
greater excess of collateral value over the loan amount. The debt service
coverage ratio compares a property's net operating income to its debt service
payments. Debt service coverage ratios less than 1.0 times indicate that
property operations do not generate enough income to cover the loan's current
debt payments. A larger debt service coverage ratio indicates a greater excess
of net operating income over the debt service payments.



As of December 31, 2012, our general account investments in commercial and
agricultural mortgage loans attributable to the Financial Services Businesses
had a weighted average debt service coverage ratio of 2.07 times, and a weighted
average loan-to-value ratio of 57%. As of December 31, 2012, approximately 97%
of commercial and agricultural mortgage loans attributable to the Financial
Services Businesses were fixed rate loans. As of December 31, 2012, our general
account investments in commercial and agricultural mortgage loans attributable
to the Closed Block Business had a weighted average debt service coverage ratio
of 2.0 times, and a weighted average loan-to-value ratio of 54%. As of
December 31, 2012, approximately 99% of commercial and agricultural mortgage
loans attributable to the Closed Block Business were fixed rate loans. For those
general account commercial and agricultural mortgage loans attributable to the
Financial Services Businesses that were originated in 2012, the weighted average
debt service coverage ratio was 2.51 times and the weighted average
loan-to-value ratio was 64%.



The values utilized in calculating these loan-to-value ratios are developed as
part of our periodic review of the commercial and agricultural mortgage loan
portfolio, which includes an internal evaluation of the underlying collateral
value. Our periodic review also includes a quality re-rating process, whereby we
update the internal quality rating originally assigned at underwriting based on
the proprietary quality rating system mentioned above. As discussed below, the
internal quality rating is a key input in determining our allowance for loan
losses.



For loans with collateral under construction, renovation or lease-up, a
stabilized value and projected net operating income are used in the calculation
of the loan-to-value and debt service coverage ratios. Our commercial and
agricultural mortgage loan portfolio attributable to the Financial Services
Businesses included approximately $0.5 billion of such loans as of both
December 31, 2012 and 2011, and our commercial and agricultural mortgage loan
portfolio attributable to the Closed Block Business included approximately $0.1
billion and $0.2 billion of such loans as of December 31, 2012 and 2011,
respectively. All else being equal, these loans are inherently more risky than
those collateralized by properties that have already stabilized. As of
December 31, 2012, there are no loan-specific reserves related to these loans
attributable to either the Financial Services Businesses or the Closed Block
Business. In addition, these unstabilized loans are included in the calculation
of our portfolio reserve as discussed below. For information regarding similar
loans we hold as part of our commercial and agricultural mortgage operations,
see "-Invested Assets of Other Entities and Operations," below.



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The following tables set forth the gross carrying value of our general account
investments in commercial and agricultural mortgage loans attributable to the
Financial Services Businesses and the Closed Block Business as of the dates
indicated by loan-to-value and debt service coverage ratios.



Commercial and Agricultural Mortgage Loans by Loan-to-Value and Debt Service Coverage Ratios-Financial Services Businesses



                                                                     December 31, 2012
                                                                Debt Service Coverage Ratio
                                                                                              Total
                                                                                            Commercial
                                                                                               and
                                                    Greater        1.0x        Less        Agricultural
                                                      than          to         than          Mortgage
                                                      1.2x         <1.2x       1.0x           Loans
Loan-to-Value Ratio                                                    (in millions)
0%-59.99%                                           $ 11,441      $   438      $ 193      $       12,072
60%-69.99%                                             6,836          539         36               7,411
70%-79.99%                                             2,776          623         97               3,496
Greater than 80%                                         155          536        469               1,160

Total commercial and agricultural mortgage loans $ 21,208$ 2,136

   $ 795      $       24,139




Commercial and Agricultural Mortgage Loans by Loan-to-Value and Debt Service Coverage Ratios-Closed Block Business



                                                                    December 31, 2012
                                                               Debt Service Coverage Ratio
                                                                                             Total
                                                                                          Commercial
                                                                                              and
                                                    Greater        1.0x       Less       Agricultural
                                                      than          to        than         Mortgage
                                                      1.2x        <1.2x       1.0x           Loans
Loan-to-Value Ratio                                                   (in millions)
0%-59.99%                                           $  5,196      $  235      $  40      $       5,471
60%-69.99%                                             2,607         263          0              2,870
70%-79.99%                                               753         153        120              1,026
Greater than 80%                                          32         168         99                299

Total commercial and agricultural mortgage loans $ 8,588$ 819

  $ 259      $       9,666




The following table sets forth the breakdown of our commercial and agricultural mortgage loans by year of origination as of December 31, 2012.




                                                                   December 31, 2012
                                         Financial Services Businesses                 Closed Block Business
                                           Gross                                     Gross
                                         Carrying                                  Carrying
Year of Origination                        Value              % of Total             Value            % of Total
                                                                    ($ in millions)
2012                                  $         5,009                 20.8 %      $     1,830                18.9 %
2011                                            4,957                 20.5              1,449                15.0
2010                                            3,216                 13.3              1,070                11.1
2009                                            1,181                  4.9                398                 4.1
2008                                            2,588                 10.7              1,080                11.2
2007 & Prior                                    7,188                 29.8              3,839                39.7

Total commercial and agricultural
mortgage loans                        $        24,139                100.0 %      $     9,666               100.0 %





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Commercial Mortgage and Other Loans by Contractual Maturity Date

The following table sets forth the breakdown of our commercial mortgage and other loan portfolio by contractual maturity as of December 31, 2012.




                                                                   December 31, 2012
                                         Financial Services Businesses                 Closed Block Business
                                         Amortized                                 Amortized
                                           Cost               % of Total             Cost             % of Total
                                                                    ($ in millions)
Vintage
Maturing in 2013                      $         2,106                  7.9 %      $       583                 6.0 %
Maturing in 2014                                1,292                  4.8                846                 8.8
Maturing in 2015                                2,364                  8.8                720                 7.4
Maturing in 2016                                3,068                 11.4                928                 9.6
Maturing in 2017                                2,837                 10.6                666                 6.9
Maturing in 2018                                3,368                 12.6              1,119                11.6
Maturing in 2019                                1,849                  6.9                555                 5.7
Maturing in 2020                                1,938                  7.2                880                 9.1
Maturing in 2021                                2,270                  8.5              1,002                10.4
Maturing in 2022                                1,858                  6.9                984                10.2
Maturing in 2023                                  479                  1.8                252                 2.6
Maturing in 2024 and beyond                     3,380                 12.6              1,131                11.7

Total commercial mortgage and
other loans                           $        26,809                100.0 %      $     9,666               100.0 %




Commercial Mortgage and Other Loan Quality




Ongoing review of the portfolio is performed and loans are placed on watch list
status based on a predefined set of criteria, where they are assigned to one of
the following categories. We place loans on early warning status in cases where,
based on our analysis of the loan's collateral, the financial situation of the
borrower or tenants or other market factors, we believe a loss of principal or
interest could occur. We classify loans as closely monitored when we determine
there is a collateral deficiency or other credit events that may lead to a
potential loss of principal or interest. Loans not in good standing are those
loans where we have concluded that there is a high probability of loss of
principal, such as when the loan is in the process of foreclosure or the
borrower is in bankruptcy. In our domestic operations, our workout and special
servicing professionals manage the loans on the watch list. As described below,
in determining our allowance for losses we evaluate each loan on the watch list
to determine if it is probable that amounts due according to the contractual
terms of the loan agreement will not be collected. In our international
portfolios, we monitor delinquency in consumer loans on a pool basis and
evaluate any servicing relationship and guarantees the same way we do for
commercial mortgage loans.



We establish an allowance for losses to provide for the risk of credit losses
inherent in the lending process. The allowance includes loan specific reserves
for loans that are determined to be impaired as a result of our loan review
process, and a portfolio reserve for probable incurred but not specifically
identified losses for loans which are not on the watch list. We define an
impaired loan as a loan for which we estimate it is probable that amounts due
according to the contractual terms of the loan agreement will not be collected.
The loan specific portion of the loss allowance is based on our assessment as to
ultimate collectability of loan principal and interest. Valuation allowances for
an impaired loan are recorded based on the present value of expected future cash
flows discounted at the loan's effective interest rate or based on the fair
value of the collateral if the loan is collateral dependent. The portfolio
reserve for incurred but not specifically identified losses considers the
current credit composition of the portfolio based on the internal quality
ratings mentioned above. The portfolio reserves are determined using past loan
experience, including historical credit migration, loss probability, and loss
severity factors by property type. These factors are reviewed and updated as
appropriate. The valuation allowance for commercial mortgage and other loans can
increase or decrease from period to period based on these factors.



Our general account investments in commercial mortgage and other loans
attributable to the Financial Services Businesses, based upon the recorded
investment gross of allowance for credit losses, was $26,809 million and $25,323
million as of December 31, 2012 and 2011, respectively. As a percentage of
recorded investment gross of allowance, 99% of the assets were current for both
periods.



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Our general account investments in commercial mortgage and other loans
attributable to the Closed Block Business, based upon the recorded investment
gross of allowance for credit losses, was $9,666 million and $9,100 million as
of December 31, 2012 and 2011, respectively. As a percentage of recorded
investment gross of allowance, more than 99% of the assets were current for both
periods.


The following table sets forth the change in valuation allowances for our commercial mortgage and other loan portfolio as of the dates indicated:




                                                  December 31, 2012                       December 31, 2011
                                            Financial              Closed            Financial             Closed
                                            Services               Block             Services               Block
                                           Businesses             Business          Businesses            Business
                                                                        (in millions)
Allowance, beginning of year              $         250          $       60        $         333          $     102
Addition to/(release of) allowance
for losses                                          (11 )                (2 )                (71 )              (34 )
Charge-offs, net of recoveries                      (51 )                 0                  (15 )               (8 )
Change in foreign exchange                           (2 )                 0                    3                  0

Allowance, end of period                  $         186          $       58        $         250          $      60

Loan specific reserve                                41                   7                   91                  2
Portfolio reserve                                   145                  51                  159                 58




Equity Securities



Investment Mix



The equity securities attributable to the Financial Services Businesses consist
principally of investments in common and preferred stock of publicly-traded
companies, as well as mutual fund shares. The following table sets forth the
composition of our equity securities portfolio attributable to the Financial
Services Businesses and the associated gross unrealized gains and losses as of
the dates indicated.


Equity Securities-Financial Services Businesses



                                                     December 31, 2012                                         December 31, 2011
                                                  Gross            Gross                                    Gross            Gross
                                                Unrealized       Unrealized       Fair                    Unrealized       Unrealized       Fair
                                    Cost          Gains            Losses         Value       Cost          Gains            Losses         Value
                                                                                    (in millions)
Non-redeemable preferred stocks    $    15     $          2     $          0     $    17     $    19     $          1     $          1     $    19
Mutual fund common stocks(1)         1,874              516                0       2,390       1,708              428                2       2,134
Other common stocks                  2,392              274               42       2,624       2,428               92              272       2,248

Total equity securities(2)         $ 4,281     $        792     $         42     $ 5,031     $ 4,155     $        521     $        275     $ 4,401




(1) Includes mutual fund shares representing our interest in the underlying

assets of certain of our separate account investments supporting

corporate-owned life insurance. These mutual funds invest primarily in high

yield bonds.

(2) Amounts presented exclude hedge funds and other alternative investments

      which are reported in "Other long-term investments."




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The following table sets forth the composition of our equity securities portfolio attributable to the Closed Block Business and the associated gross unrealized gains and losses as of the dates indicated.

Equity Securities-Closed Block Business



                                                     December 31, 2012                                         December 31, 2011
                                                  Gross            Gross                                    Gross            Gross
                                                Unrealized       Unrealized       Fair                    Unrealized       Unrealized       Fair
                                    Cost          Gains            Losses         Value       Cost          Gains            Losses         Value
                                                                                    (in millions)
Non-redeemable preferred stocks    $    10     $          2     $          0     $    12     $    11     $          0     $          0     $    11
Common stocks                        2,447              779               13       3,213       2,746              538              173       3,111

Total equity securities            $ 2,457     $        781     $         13     $ 3,225     $ 2,757     $        538     $        173     $ 3,122




Other-Than-Temporary Impairments of Equity Securities

For those equity securities classified as available-for-sale, we record unrealized gains and losses to the extent cost is different from estimated fair value. All securities with unrealized losses are subject to our review to identify other-than-temporary impairments in value. In evaluating whether a decline in value is other-than-temporary, we consistently consider several factors including, but not limited to, the following:

• the extent and the duration of the decline; including, but not limited to,

        the following general guidelines:



• declines in value greater than 20%, maintained for six months or greater;




  •   declines in value maintained for one year or greater; and




  •   declines in value greater than 50%;



• the reasons for the decline in value (issuer specific event, currency or

        market fluctuation);



• our ability and intent to hold the investment for a period of time to allow

for a recovery of value, including certain equity securities managed by

independent third parties where we do not exercise management discretion

        concerning individual buy or sell decisions; and




  •   the financial condition of and near-term prospects of the issuer.




We generally recognize other-than-temporary impairments for securities with
declines in value greater than 50% maintained for six months or greater or with
any decline in value maintained for one year or greater. In addition, in making
our determinations we continue to analyze the financial condition and near-term
prospects of the issuer, including an assessment of the issuer's capital
position, and consider our ability and intent to hold the investment for a
period of time to allow for a recovery of value.



For those securities that have declines in value that are deemed to be only
temporary, we make an assertion as to our ability and intent to retain the
security until recovery. Once identified, these securities are restricted from
trading unless authorized based upon events that could not have been foreseen at
the time we asserted our ability and intent to retain the security until
recovery. Examples of such events include, but are not limited to, the
deterioration of the issuer's creditworthiness, a major business combination or
disposition, a change in regulatory requirements, certain other portfolio
actions or other similar events. For those securities that have declines in
value for which we cannot assert our ability and intent to retain until
recovery, including certain equity securities managed by independent third
parties where we do not exercise management discretion concerning individual buy
or sell decisions, impairments are recognized as other-than-temporary regardless
of the reason for, or the extent of, the decline. For perpetual preferred
securities, which have characteristics of both debt and equity securities, we
apply an impairment model similar to our fixed maturity securities, factoring in
the position of the security in the capital structure and the lack of a formal
maturity date. For additional discussion of our policies regarding
other-than-temporary impairments of fixed maturity securities, see "-Fixed
Maturity Securities-Other-than-Temporary Impairments of Fixed Maturity
Securities" above.



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When we determine that there is an other-than-temporary impairment, we record a
writedown to estimated fair value, which reduces the cost basis and is included
in "Realized investment gains (losses), net." See Note 2 to the Consolidated
Financial Statements for additional information regarding our policies around
other-than-temporary impairments for equity securities. See Note 20 to the
Consolidated Financial Statements for information regarding the fair value
methodology used for equity securities.



Impairments of equity securities attributable to the Financial Services
Businesses were $104 million and $94 million for the years ended December 31,
2012 and 2011, respectively. Impairments of equity securities attributable to
the Closed Block Business were $21 million and $18 million for years ended
December 31, 2012 and 2011, respectively. For a further discussion of
impairments, see "-Realized Investment Gains and Losses" above.



Other Long-Term Investments

"Other long-term investments" are comprised as follows:



                                                      December 31, 2012                   December 31, 2011
                                                  Financial          Closed           Financial          Closed
                                                  Services           Block            Services           Block
                                                 Businesses         Business         Businesses         Business
                                                                          (in millions)
Joint ventures and limited partnerships:
Real estate-related                             $         320      $      504       $         360      $      413
Non-real estate-related                                 3,861           1,538               1,733           1,284
Real estate held through direct ownership(1)            1,602               0               1,956              10
Other(2)                                                  882             (30 )               432             283

Total other long-term investments               $       6,665      $    2,012       $       4,481      $    1,990




(1) Primarily includes investments in office buildings within our Japanese

      insurance operations.


(2)   Primarily includes derivatives and member and activity stock held in the

Federal Home Loan Banks of New York and Boston. For additional information

      regarding our holdings in the Federal Home Loan Banks of New York and
      Boston, see Note 14 to the Consolidated Financial Statements.




The increase in non-real estate-related joint venture and limited partnership
assets is due to private equity partnership assets acquired from the two pension
risk transfer transactions completed in the fourth quarter of 2012.



Invested Assets of Other Entities and Operations




The following table sets forth the composition of investments held outside the
general account in other entities and operations, including the invested assets
of our trading, banking and asset management operations, as of the dates
indicated. Assets of our asset management operations managed for third parties
and those assets classified as "Separate account assets" on our balance sheet
are not included.



                                                                 December 31,
                                                              2012         2011
                                                                (in millions)
     Fixed maturities:
     Public, available-for-sale, at fair value               $   272     $ 

2,026

     Private, available-for-sale, at fair value                   93       

82

     Other trading account assets, at fair value(1)            4,627       

3,124

Equity securities, available-for-sale, at fair value 21

12

Commercial mortgage and other loans, at book value(2) 502 1,318

     Other long-term investments                               1,351        1,349
     Short-term investments                                       62        2,984

     Total investments                                       $ 6,928     $ 10,895





(1)   Includes trading positions held by our derivatives trading operations used
      in a non-dealer capacity to manage interest rate, currency, credit and
      equity exposures.


(2)   Book value is generally based on unpaid principal balance net of any
      allowance for losses, the lower of cost or fair value, or fair value,
      depending on the loan.




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Commercial Mortgage and Other Loans




Our asset management operations include our commercial mortgage operations,
which provide mortgage origination, asset management and servicing for our
general account, institutional clients, and government sponsored entities such
as Fannie Mae, the Federal Housing Administration, and Freddie Mac. We also
originate shorter-term interim loans for spread lending that are collateralized
by assets generally under renovation or lease up. All else being equal, these
interim loans are inherently more risky than those collateralized by properties
that have already stabilized. Our interim loans are generally paid off through
refinancing or the sale of the underlying collateral by the borrower.



The following table sets forth information regarding the interim loan portfolio
held outside the general account in other entities and operations as of the
dates indicated.



                                                December 31, 2012               December 31, 2011
                                                                 ($ in millions)
Interim Loan Portfolio:
Principal balance of loans
outstanding                                    $               239             $               648
Allowance for credit or
valuation-related losses                       $                14             $                44
Weighted average loan-to-value
ratio(1)                                                        91 %                            93 %
Weighted average debt service
coverage ratio(1)                                             1.25                            1.52




(1)   A stabilized value and projected net operating income are used in the
      calculation of the loan-to-value and debt service coverage ratios.




As of December 31, 2012, we hold no commercial real estate held-for-sale related
to foreclosed interim loans. The mortgage loans of our commercial mortgage
operations are included in "Commercial mortgage and other loans," with related
derivatives and other hedging instruments primarily included in "Other trading
account assets" and "Other long-term investments."



Other Long-Term Investments



Other long-term investments primarily include strategic investments made as part
of our asset management operations. We make these strategic investments in real
estate, as well as fixed income, public equity and real estate securities,
including controlling interests. Certain of these investments are made primarily
for purposes of co-investment in our managed funds and structured products.
Other strategic investments are made with the intention to sell or syndicate to
investors, including our general account, or for placement in funds and
structured products that we offer and manage (seed investments). As part of our
asset management operations, we also make loans to our managed funds that are
secured by equity commitments from investors or assets of the funds.



                        Liquidity and Capital Resources



Overview



Liquidity refers to the ability to generate sufficient cash resources to meet
the payment obligations of the Company. Capital refers to the long term
financial resources available to support the operations of our businesses, fund
business growth, and provide a cushion to withstand adverse circumstances. Our
ability to generate and maintain sufficient liquidity and capital depends on the
profitability of our businesses, general economic conditions and our access to
the capital markets and the alternate sources of liquidity and capital described
herein.



Effective and prudent liquidity and capital management is a priority across the
organization. Management monitors the liquidity of Prudential Financial and its
subsidiaries on a daily basis and projects borrowing and capital needs over a
multi-year time horizon through our quarterly planning process. We believe that
cash flows from the sources of funds available to us are sufficient to satisfy
the current liquidity requirements of Prudential Financial and its subsidiaries,
including under reasonably foreseeable stress scenarios. We have a capital
management framework in place that facilitates the allocation of capital and
approval of capital uses, and we forecast capital sources and uses on a
quarterly basis. Furthermore, we employ a "Capital Protection Framework"



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to ensure the availability of sufficient capital resources to maintain adequate
capitalization on a consolidated basis and competitive risk-based capital ratios
and solvency margins for our insurance subsidiaries under reasonably foreseeable
stress scenarios.



The Dodd-Frank Act may result in the imposition on us of new capital and
liquidity standards, including requirements regarding risk-based capital,
leverage, liquidity, stress-testing and other matters. We are currently under
consideration by the Financial Stability Oversight Council for a proposed
determination that we should be subject to these and other regulatory standards
and to supervision by the Board of Governors of the Federal Reserve System under
the Dodd Frank Act. See "Business-Regulation" and "Risk Factors" for information
regarding the potential impact of the Dodd-Frank Act.



During 2012, we took the following significant actions that impacted our liquidity and capital position:

• We repositioned our capital structure by issuing an aggregate of $3.1

        billion of junior subordinated debt in public offerings;



• In addition to maturing debt, we repaid $1.6 billion of senior debt through

        optional redemptions of retail notes;




    •   We repurchased $650 million of shares of our Common Stock and paid
        shareholder dividends of $749 million; and



• We made substantial investments in our businesses, including the expansion

of our Retirement business through two significant pension risk transfer

        transactions and an agreement to acquire The Hartford's Individual Life
        Insurance Business, which closed in January 2013.




Capital



Our capital management framework is primarily based on statutory risk-based
capital and solvency margin measures. Due to our diverse mix of businesses and
applicable regulatory requirements, we apply certain refinements to the
framework that are designed to more appropriately reflect risks associated with
our businesses on a consistent basis across the Company. In addition, we use an
economic capital framework to inform capital decisions.



We seek to capitalize all of our subsidiaries and businesses in accordance with
their ratings targets, and we believe Prudential Financial's capitalization and
use of financial leverage are consistent with those ratings targets. Our
long-term senior debt rating targets for Prudential Financial are "A" for
Standard & Poor's Rating Services, or S&P, Moody's Investors Service, Inc., or
Moody's, and Fitch Ratings Ltd., or Fitch, and "a" for A.M. Best Company, or
A.M. Best. Our financial strength rating targets for our life insurance
companies are "AA/Aa/AA" for S&P, Moody's and Fitch, respectively, and "A+" for
A.M. Best. Currently, some of our ratings are below these targets. For a
description of the potential impacts of ratings downgrades, see "-Ratings."



Capital Governance



Our capital management framework is ultimately reviewed and approved by the
Company's Board of Directors. Prior to Board review, our Capital and Financial
Controls Committee ("CFCC") reviews the use and allocation of capital above
certain threshold amounts to ensure that capital is efficiently deployed and
earns returns consistent with our strategic objectives, ratings aspirations and
other goals and targets. This management committee provides a multi-disciplinary
due diligence review of specific initiatives or transactions requiring the use
of capital, including all mergers and acquisitions, as well as new products,
initiatives and transactions that present substantial reputational, legal,
regulatory, operating, accounting or tax risk. The CFCC also evaluates the
Company's Annual Capital and Financing Plan (and quarterly updates to this plan)
and the Company's capital, liquidity and financial position, borrowing plans,
and related matters prior to the discussion of these items with the Company's
Board of Directors.



Under our capital management policy approved by the Board of Directors, our
Chairman and Chief Executive Officer and Vice Chairman are authorized to approve
capital actions on behalf of the Company and to further delegate authority with
respect to capital actions to appropriate officers. Any capital commitment that
exceeds the authority granted to senior management is separately authorized by
the Board.



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Capitalization



The primary components of capitalization for the Financial Services Businesses
consist of the equity we attribute to the Financial Services Businesses and
outstanding capital debt, including junior subordinated debt, of the Financial
Services Businesses. As shown in the table below, as of December 31, 2012, the
Financial Services Businesses had $37.9 billion in capital, all of which was
available to support the aggregate capital requirements of its three divisions
and its Corporate and Other operations. Based on our assessment of these
businesses and operations, we believe this level of capital is consistent with
our ratings targets.



                                                              December 31,
                                                            2012         2011
                                                              (in millions)
      Attributed Equity(1)                                $ 27,088     $ 27,740
      Junior subordinated debt (i.e. hybrid securities)      4,594        1,519
      Other capital debt                                     6,049        9,705

      Total capital                                       $ 37,731     $ 38,964




(1) Excludes AOCI. This amount may be subject to volatility due to, among other

things, the impact of foreign currency exchange rate movements on certain

non-yen denominated assets and liabilities within our Japanese insurance

operations, for which the foreign currency exposure is economically matched

and offset in AOCI (see "-Results of Operations for Financial Services

Businesses by Segment-International Insurance Division-Impact of foreign

currency exchange rate movements on earnings-U.S. GAAP earnings impact of

products denominated in non-local currencies" for additional information).

Regulatory Capital



We manage Prudential Insurance, Gibraltar, Prudential of Japan, and our other
domestic and international insurance subsidiaries to regulatory capital levels
consistent with our "AA" ratings targets.



The Risk-Based Capital, or RBC, ratio is a primary measure of the capital
adequacy of Prudential Insurance, which includes businesses in both the
Financial Services Businesses and the Closed Block Business, and our other
domestic insurance subsidiaries. RBC is calculated based on statutory financial
statements and risk formulas consistent with National Association of Insurance
Commissioners, or NAIC, practices. RBC considers, among other things, risks
related to the type and quality of the invested assets, insurance-related risks
associated with an insurer's products and liabilities, interest rate risks and
general business risks. The RBC ratio calculations are intended to assist
insurance regulators in measuring the insurer's solvency and ability to pay
future claims. The reporting of RBC measures is not intended for the purpose of
ranking any insurance company or for use in connection with any marketing,
advertising or promotional activities but is available to the public. All of our
domestic insurance companies have RBC ratios that exceed the minimum level
required by applicable insurance regulations. The table below presents the RBC
ratios of certain of our domestic insurance subsidiaries as of the periods
indicated:



                                                               December 31,
                                                            2012          2011
     Prudential Insurance                                     >400 %         491 %

Prudential Annuities and Life Assurance Corporation >400 %

 564 %




Similar to the RBC ratios that are employed by U.S. insurance regulators,
regulatory authorities in the international jurisdictions in which we operate
generally establish some form of minimum solvency margin requirements for
insurance companies based on local statutory accounting practices. These
solvency margins are a primary measure of the capital adequacy of our
international insurance operations. Maintenance of our solvency margins at
certain levels is also important to our competitive positioning, as in certain
jurisdictions, such as Japan, these solvency margins are required to be
disclosed to the public and therefore impact the public perception of an
insurer's financial strength. The table below presents the solvency margins of
our most significant international insurance subsidiaries as of the periods
indicated:



                                       December 31, 2012        March 31, 2012
     Prudential of Japan                             >800 %                 721 %
     Gibraltar Life consolidated(1)                  >800 %                
810 %



(1) Reflects the merger of the acquired Star and Edison entities with Gibraltar,

which became effective January 1, 2012, and includes Prudential Gibraltar

Financial Life Insurance Company, Ltd., or Prudential Gibraltar, a
      wholly-owned subsidiary of Gibraltar.




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The regulatory capital levels of our domestic and international insurance
subsidiaries can be materially impacted by interest rates, equity market and
real estate market fluctuations, changes in the values of derivatives, the level
of impairments recorded, credit quality migration of the investment portfolio,
foreign exchange rate movements and business growth, among other items. In
addition, particularly for our domestic insurance subsidiaries, the recapture of
business subject to reinsurance arrangements due to defaults by, or credit
quality migration affecting, the reinsurers could result in higher required
statutory capital levels. Our regulatory capital levels are also affected by
statutory accounting rules, which are subject to change by each applicable
insurance regulator.



We evaluate the regulatory capital levels of our domestic and international
insurance operations under reasonably foreseeable stress scenarios and believe
we have adequate resources to maintain our capital levels comfortably above
regulatory requirements under these scenarios. For further information on the
calculation of RBC and solvency margin ratios, as well as regulatory minimums,
see Note 15 to the Consolidated Financial Statements.



Capital Protection Framework



We employ a "Capital Protection Framework" to ensure sufficient capital
resources are available to maintain adequate capitalization on a consolidated
basis and competitive RBC ratios and solvency margins for our insurance
subsidiaries under reasonably foreseeable stress scenarios. The Capital
Protection Framework incorporates the potential impact from market related
stresses, including equity markets, interest rates, credit losses, and foreign
currency exchange rates. Potential sources of capital include on-balance sheet
capital, derivatives, reinsurance and contingent sources of capital. Although we
continue to enhance our approach, we believe we currently have sufficient
resources to maintain adequate capitalization and competitive RBC ratios and
solvency margins under reasonably foreseeable stress scenarios. See
"Business-Corporate and Other" for further information on our Capital Protection
Framework.



Shareholder Distributions



Share Repurchase Program



In June 2012, our Board of Directors authorized the Company to repurchase at
management's discretion up to $1.0 billion of its outstanding Common Stock
during the period from July 1, 2012 through June 30, 2013. As of December 31,
2012, 2.7 million shares of our Common Stock were repurchased under this
authorization for a total cost of $150 million. The Company exhausted the
Board's previous $1.5 billion repurchase authority which covered the prior
twelve-month period. During 2012, 11.5 million shares of our Common Stock were
repurchased, for a total cost of $650 million. The timing and amount of any
future share repurchases will be determined by management based on market
conditions and other considerations. Repurchases may be effected in the open
market, through derivative, accelerated repurchase and other negotiated
transactions and through plans designed to comply with Rule 10b5-1(c) under the
Exchange Act. Numerous factors could affect the timing and amount of any future
repurchases under the share repurchase program, including increased capital
needs of our businesses due to opportunities for growth and acquisitions, as
well as adverse market conditions.



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Shareholder Dividends



On November 7, 2012, Prudential Financial declared an annual dividend for 2012
of $1.60 per share of Common Stock, representing an increase of approximately
10% from the 2011 Common Stock dividend. On February 12, 2013, Prudential
Financial declared a dividend for the first quarter of 2013 of $0.40 per share
of Common Stock reflecting our plan to move to a quarterly Common Stock dividend
schedule in 2013. The table below presents declaration, record, and payment
dates, as well as per share and aggregate dividend amounts, for the Common Stock
dividend for the last five years.



                                                                                  Dividend Amount
Declaration Date         Record Date          Payment Date             Per Share                    Aggregate
                                                                        (in millions, except per share data)
November 7, 2012      November 20, 2012     December 14, 2012     $               1.60          $              749
November 8, 2011      November 22, 2011     December 16, 2011     $               1.45          $              689
November 9, 2010      November 23, 2010     December 17, 2010     $               1.15          $              564
November 10, 2009     November 24, 2009     December 18, 2009     $               0.70          $              327
November 11, 2008     November 24, 2008     December 19, 2008     $               0.58          $              246



Captive Reinsurance Companies




We use captive reinsurance companies in our domestic insurance operations to
more effectively manage our capital on an economic basis and to enable the
aggregation and transfer of risks. To support the risks they assume, our
captives are capitalized to a level consistent with the "AA" financial strength
rating targets of our issuing insurance entities. All of our captive reinsurance
companies are wholly-owned subsidiaries and are located domestically, typically
in the state of domicile of our direct writing entity that cedes business to the
captive. In addition to governance by U.S. regulators, our captives are subject
to internal policies governing their activities. In the normal course of
business, Prudential Financial provides support to these captives through net
worth maintenance agreements and/or guarantees of certain of the captives'
obligations.



Our domestic life insurance subsidiaries are subject to a regulation entitled
"Valuation of Life Insurance Policies," commonly known as "Regulation XXX," and
a supporting guideline entitled "The Application of the Valuation of Life
Insurance Policies," commonly known as "Guideline AXXX." The regulation and
supporting guideline require insurers to establish statutory reserves for term
and universal life insurance policies with long-term premium guarantees that are
consistent with the statutory reserves required for other individual life
insurance policies with similar guarantees. Many market participants believe
that these levels of reserves are non-economic. We use captive reinsurance
companies to implement reinsurance and capital management actions to satisfy
these reserves requirements, including financing the non-economic reserves
through internal and external solutions. See "-Financing Activities-Subsidiary
borrowings-Financing of regulatory reserves associated with domestic life
insurance products" below for additional information on our financing activities
related to Regulation XXX and Guideline AXXX.



We reinsure living benefit guarantees on certain variable annuity and retirement
products from our domestic life insurance companies to a domestic captive
reinsurance company, Pruco Reinsurance, Ltd., or Pruco Re. This enables us to
execute our living benefit hedging program primarily within one legal entity,
Pruco Re. As part of the living benefit hedging program, we enter into a range
of exchange-traded and over the counter equity and interest rate derivatives to
hedge certain optional living benefit features accounted for as embedded
derivatives against changes in certain capital market conditions such as
interest rate and equity market exposures. For a full discussion of our living
benefits hedging program, see "-Results of Operations for Financial Services
Businesses by Segment-U.S. Retirement Solutions and Investment Management
Division-Individual Annuities." We believe Pruco Re maintains an adequate level
of capital and liquidity to support this hedging program. However, as discussed
below under "Liquidity associated with other activities-Hedging activities
associated with living benefit guarantees," Pruco Re's capital and liquidity
needs can vary significantly due to, among other things, changes in equity
markets, interest rates, mortality and policyholder behavior. Through our
Capital Protection Framework, we maintain access to on-balance sheet and
contingent sources of capital and liquidity that are available to meet any needs
as they arise.



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We reinsure 90% of the short-term risks of Prudential Insurance's Closed Block
Business to a captive reinsurance company domiciled in New Jersey. These
short-term risks represent the impact of variations in experience of the Closed
Block that are expected to be recovered over time as a result of corresponding
adjustments to policyholder dividends. The reinsurance arrangement is intended
to alleviate the short-term surplus volatility within Prudential Insurance
resulting from the Closed Block Business, including volatility caused by the
impact of any unrealized mark-to-market losses and realized credit losses within
the investment portfolio. In October 2011, in connection with the Closed Block
reinsurance arrangement, we entered into a $2 billion letter of credit facility
with certain financial institutions, pursuant to which the New Jersey captive
can obtain a letter of credit during a 3-year availability period to support its
funding obligations under the reinsurance arrangement. Prudential Financial
guarantees all obligations of the New Jersey captive under the facility,
including its obligation to reimburse any draws made under a letter of credit.
Because experience of the Closed Block is ultimately passed along to
policyholders over time through the annual policyholder dividend, we believe
that any draw under a letter of credit is unlikely. Our ability to obtain a
letter of credit under the facility is subject to the continued satisfaction of
customary conditions similar to those described under "Credit Facilities" below.



Insurance regulators are reviewing life insurers' use of captive reinsurance
companies. We cannot predict what, if any, changes may result from this review.
If applicable insurance laws are changed in a way that impairs the use of
captive reinsurance companies, our financial results, liquidity and capital
position may be adversely affected.



Liquidity



Liquidity management and stress testing are performed on a legal entity basis as
the ability to transfer funds between subsidiaries is limited due in part to
regulatory restrictions. Liquidity needs are determined through daily and
quarterly cash flow forecasting at the holding company and within our operating
subsidiaries. A target cash balance of $1.2 billion is maintained to ensure
adequate liquidity is available at Prudential Financial to cover fixed expenses
in the event that we experience reduced cash flows from our operating
subsidiaries. This target balance is reviewed and approved annually by the
Finance Committee of the Board of Directors.



To mitigate the risk of having limited or no access to financing due to stressed
market conditions, we aim to prefund capital debt in advance of maturity. We
mitigate the refinancing risk associated with our debt that is used to fund
operating needs by matching the term of debt with the assets financed. Short
term financing, such as commercial paper, is used to fund short term needs only.
To ensure adequate liquidity in stress scenarios, stress testing is performed on
a quarterly basis for our major operating subsidiaries. Risks to liquidity are
further mitigated by our access to alternative sources of liquidity discussed
below.


Liquidity of Prudential Financial




The principal sources of funds available to Prudential Financial, the parent
holding company, are dividends and returns of capital from its subsidiaries,
repayments of operating loans from subsidiaries and cash and short-term
investments. These sources of funds may be supplemented by Prudential
Financial's access to the capital markets as well as the "-Alternative Sources
of Liquidity" described below.



The primary uses of funds at Prudential Financial include servicing debt, operating expenses, capital contributions and loans to subsidiaries, the payment of declared shareholder dividends, and repurchases of outstanding shares of Common Stock executed under Board authority.




As of December 31, 2012, Prudential Financial had cash and short-term
investments of $8,563 million, an increase of $3,619 million from 2011. Included
in the cash and short-term investments of Prudential Financial is $3,136 million
held in an intercompany liquidity account that is designed to optimize the use
of cash by facilitating the lending and borrowing of funds between Prudential
Financial and its subsidiaries on a daily basis.



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The following table sets forth Prudential Financial's principal sources and uses of cash and short-term investments for the periods indicated.



                                                              Year Ended December 31,
                                                               2012              2011
                                                                   (in millions)
Sources:
Dividends and/or returns of capital from
subsidiaries(1)                                            $      2,862     

$ 3,242 Proceeds from the issuance of junior subordinated debt (hybrid securities)

                                               3,075                0
Net receipts under intercompany loan agreements(2)                2,933     

34

Repayment of funding agreements from Prudential
Insurance                                                           525     

468

Interest income from subsidiaries on intercompany
agreements, net of interest paid                                    406     

223

Proceeds from stock-based compensation and exercise of stock options

                                                       308     

270

Net proceeds under external financing agreement(3)                  244                0
Proceeds from the issuance of long-term senior debt                   0     

1,516

Proceeds from sale of real estate and relocation
business                                                              0               91
Other, net(4)                                                       197                0

Total sources                                                    10,550            5,844

Uses:
Capital contributions to subsidiaries(5)                          1,912     

1,176

Repayment of retail medium-term notes                             1,741     

154

Interest paid on external debt                                    1,010     

987

Maturities of long term senior debt, excluding retail
medium-term notes                                                   850              350
Common Stock dividends                                              749              685
Share repurchases                                                   650              999
Class B Stock dividends                                              19               19
Capital transactions to fund Star Edison acquisition                  0     

2,922

Net payment under external financing agreement(3)                     0              244
Other, net                                                            0               36

Total uses                                                        6,931            7,572

Net increase (decrease) in cash and short-term
investments                                                $      3,619        $  (1,728 )





(1)   2012 includes dividends and/or returns of capital of $865 million from

international subsidiaries, $646 million from asset management subsidiaries,

$600 million from Prudential Insurance, $408 million from Prudential

Annuities Life Assurance Corporation, $230 million from Prudential Bank &

Trust and $113 million from other subsidiaries. 2011 includes dividends

and/or returns of capital of $1,592 million from Prudential Insurance, $478

million from international subsidiaries, $588 million from Prudential

Annuities Life Assurance Corporation, $468 million from asset management

      subsidiaries and $116 million from other subsidiaries.


(2)   2012 includes an increase in net borrowings by Prudential Financial of
      $1,727 million in our intercompany liquidity account and $395 million from
      Prudential of Japan, partially offset by a repayment of $20 million to

Prudential Holdings, LLC. 2012 also includes net repayments by subsidiaries

of $558 million by asset management subsidiaries, $200 million by Prudential

Annuities Life Assurance Corporation, $188 million by Pruco Re and $42
      million by other subsidiaries, partially offset by net borrowings of $164
      million by Pruco Life Insurance Company. 2011 includes an increase of $395
      million in net borrowings by Prudential Financial in our intercompany
      liquidity account and net repayments of $322 million by Prudential

Securities Group (previously supporting the global commodities business),

$282 million by Prudential Real Estate and Relocation, $175 million by

Prudential Annuities Life Assurance Corporation, $169 million by our asset

management subsidiaries and $100 million by Prudential Arizona Reinsurance

Term Company (previously funding statutory reserves required under

Regulation XXX), partially offset by net borrowings of $1,030 million by

Pruco Re, $336 million by Pruco Life Insurance and $43 million from other

subsidiaries.

(3) Represents payments in 2011 and subsequent repayments in 2012 associated

with transitional financing agreements provided in connection with the sale

of the real estate brokerage franchise and relocation business in 2011.

(4) Primarily includes tax settlements pursuant to the tax allocation agreement

      between Prudential Financial and its subsidiaries, net of estimated tax
      payments to the Internal Revenue Service.


(5)   2012 includes capital contributions of $1,431 million to Pruco Re, $406
      million to international insurance subsidiaries, $31 million to asset

management subsidiaries and $44 million to other subsidiaries. Subsequent to

      2012, Prudential Financial made a $712 million capital contribution to
      Prudential Insurance, of which $615 million was paid to The Hartford in

connection with our acquisition of its Individual Life Insurance Business.

2011 includes capital contributions of $1,005 million to international

insurance subsidiaries, $64 million to Pruco Re, and $62 million to asset

      management subsidiaries and $45 million to an investment subsidiary.




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Restrictions on Dividends and Returns of Capital from Subsidiaries




Our insurance companies are subject to regulatory limitations on the payment of
dividends and other transfers of funds to Prudential Financial and other
affiliates. The payment of dividends by any of our subsidiaries is subject to
declaration by their Board of Directors and can be affected by market conditions
and other factors. See Note 15 to the Consolidated Financial Statements for
details on specific dividend restrictions.



Domestic insurance subsidiaries.  Prudential Insurance is permitted to pay
ordinary dividends based on calculations specified under New Jersey insurance
law, subject to prior notification to NJDOBI. Any distributions above this
amount in any 12-month period are considered to be "extraordinary" dividends,
and the approval of NJDOBI is required prior to payment. In 2012, Prudential
Insurance paid an ordinary dividend of $316 million and an extraordinary
dividend of $284 million to its parent, Prudential Holdings, LLC, all of which
was in turn distributed to Prudential Financial. In 2013, Prudential Insurance
is permitted to pay an ordinary dividend of $893 million under New Jersey
insurance law.



The laws regulating dividends of the states where our other domestic insurance
companies are domiciled are similar, but not identical, to New Jersey's. In
2012, Prudential Annuities Life Assurance Corporation, or PALAC, did not have
ordinary dividend capacity but paid an extraordinary dividend of $408 million to
Prudential Financial. In 2013, PALAC is permitted to pay an ordinary dividend of
$41 million based on Connecticut insurance law. On September 6, 2012, Prudential
Retirement Insurance and Annuity Corporation, or PRIAC, paid an ordinary
dividend of $200 million to its parent, Prudential Insurance.



International insurance subsidiaries.  Our international insurance subsidiaries
are subject to dividend restrictions from the regulatory authorities in the
international jurisdictions in which they operate. Our most significant
international insurance subsidiaries, Prudential of Japan and Gibraltar Life,
are permitted to pay common stock dividends based on calculations specified by
Japanese insurance law, subject to prior notification to the FSA. Dividends in
excess of these amounts and other forms of capital distribution require the
prior approval of the FSA. In 2012, Prudential of Japan paid a dividend of ¥18.4
billion, or $224 million, which was ultimately sent to Prudential Financial. The
current regulatory fiscal year end for both Prudential of Japan and Gibraltar
Life is March 31, 2013, at which time the common stock dividend amount permitted
to be paid without prior approval from the FSA will be determinable. Although
Gibraltar Life may be able to pay common stock dividends under these legal and
regulatory restrictions, we do not anticipate receiving common stock dividends
for several years as Gibraltar Life may return capital to Prudential Financial
through other means, such as the repayment of subordinated debt or preferred
stock obligations held by Prudential Financial or other affiliates. In 2012,
Gibraltar repaid ¥31.5 billion, or $401 million, in subordinated debt to its
parent, Prudential Holdings of Japan, of which $259 million was ultimately sent
to Prudential Financial. As of December 31, 2012, Gibraltar Life had
subordinated debt and preferred stock obligations to affiliates of approximately
$3.7 billion. Additionally, during 2012, Prudential of Korea paid a dividend of
$58 million, which was ultimately sent to Prudential Financial.



Other subsidiaries. The ability of our asset management subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely unrestricted from a regulatory standpoint.

Liquidity of Insurance Subsidiaries




We manage the liquidity of our insurance operations to ensure stable, reliable
and cost-effective sources of cash flows to meet all of our obligations.
Liquidity within each of our insurance subsidiaries is provided by a variety of
sources, as described more fully below, including portfolios of liquid assets.
The investment portfolios of our subsidiaries are integral to the overall
liquidity of our insurance operations. We segment our investment portfolios and
employ an asset/liability management approach specific to the requirements of
each of our product lines. This enhances the discipline applied in managing the
liquidity, as well as the interest rate and credit risk profiles, of each
portfolio in a manner consistent with the unique characteristics of the product
liabilities. We use a projection process for cash flows from operations to
ensure sufficient liquidity is available to meet projected cash outflows,
including claims.



Liquidity is measured against internally-developed benchmarks that take into
account the characteristics of both the asset portfolio and the liabilities that
they support. We consider attributes of the various categories of



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liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our insurance operations' liquidity under various stress scenarios, including company-specific and market-wide events. We believe we have adequate liquidity in each of our insurance subsidiaries, including under these stress scenarios.



Cash Flow



The principal sources of liquidity for our insurance subsidiaries are premiums
and certain annuity considerations, investment and fee income, and investment
maturities and sales associated with our insurance and annuity operations, as
well as internal and external borrowings. The principal uses of that liquidity
include benefits, claims, dividends paid to policyholders, and payments to
policyholders and contractholders in connection with surrenders, withdrawals and
net policy loan activity. Other uses of liquidity include commissions, general
and administrative expenses, purchases of investments, hedging activity and
payments in connection with financing activities.



In each of our major insurance subsidiaries, we believe that the cash flows from
operations are adequate to satisfy current liquidity requirements. The continued
adequacy of this liquidity will depend upon factors such as future securities
market conditions, changes in interest rate levels, policyholder perceptions of
our financial strength, policyholder behavior, catastrophic events and the
relative safety and attractiveness of competing products, each of which could
lead to reduced cash inflows or increased cash outflows. Our insurance
operations' cash flows from investment activities result from repayments of
principal, proceeds from maturities and sales of invested assets and investment
income, net of amounts reinvested. The primary liquidity risks with respect to
these cash flows are the risk of default by debtors or bond insurers, our
counterparties' willingness to extend repurchase and/or securities lending
arrangements, commitments to invest and market volatility. We closely manage
these risks through our credit risk management process and regular monitoring of
our liquidity position.



Domestic insurance operations.  In managing the liquidity of our domestic
insurance operations, we consider the risk of policyholder and contractholder
withdrawals of funds earlier than our assumptions when selecting assets to
support these contractual obligations. We use surrender charges and other
contract provisions to mitigate the extent, timing and profitability impact of
withdrawals of funds by customers. The following table sets forth withdrawal
characteristics of our general account annuity reserves and deposit liabilities
(based on statutory liability values) as of the dates indicated.



                                                December 31, 2012                     December 31, 2011
                                            Amount           % of Total           Amount           % of Total
                                                                    ($ in billions)
Not subject to discretionary
withdrawal provisions                     $     39.8                  46 %      $     38.9                  47 %
Subject to discretionary withdrawal,
with adjustment:
With market value adjustment                    23.1                  27              22.2                  27
At market value                                  2.6                   3               2.2                   3
At contract value, less surrender
charge of 5% or more                             1.8                   2               2.0                   2

Subtotal                                        67.3                  78              65.3                  79
Subject to discretionary withdrawal
at contract value with no surrender
charge or surrender charge of less
than 5%                                         17.8                  22              17.8                  21

Total annuity reserves and deposit
liabilities                               $     85.1                 100 %      $     83.1                 100 %





Individual life insurance policies are less susceptible to withdrawal than our
annuity reserves and deposit liabilities because policyholders may incur
surrender charges and be subject to a new underwriting process in order to
obtain a new insurance policy. Our annuity reserves with guarantee features may
be less susceptible to withdrawal than historical experience indicates, due to
the perceived value of these guarantee features to policyholders as a result of
market declines in recent years as well as the unavailability of comparable
products in the marketplace. Annuity benefits and guaranteed investment
withdrawals under group annuity contracts are generally not subject to early
withdrawal. Gross account withdrawals for our domestic insurance operations'
products were consistent with our assumptions in asset/liability management, and
the associated cash outflows did not have a material adverse impact on our
overall liquidity.



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International insurance operations.  As with our domestic operations, in
managing the liquidity of our international insurance operations, we consider
the risk of policyholder and contractholder withdrawals of funds earlier than
our assumptions in selecting assets to support these contractual obligations.
The following table sets forth the total general account insurance-related
liabilities (other than dividends payable to policyholders) of our international
insurance subsidiaries, as of the dates indicated.



                                                                       December 31,
                                                                     2012        2011
                                                                       (in billions)
Prudential of Japan(1)                                              $  36.4     $  36.6
Gibraltar Life(2)                                                     103.8        96.6
All other international insurance subsidiaries(3)                      10.6 

8.6

Total general account insurance-related liabilities (other than dividends payable to policyholders)

$ 150.8$ 141.8

(1) As of December 31, 2012 and 2011, $5.7 billion and $4.5 billion,

respectively, of the insurance-related liabilities for Prudential of Japan

are associated with U.S. dollar-denominated products that are coinsured to

our domestic insurance operations and supported by U.S. dollar-denominated

      assets.


(2)   Includes Prudential Gibraltar.


(3)   Represents our international insurance operations, excluding Japan.




We believe most of the longer-term recurring pay individual life insurance
policies sold by our Japanese operations do not have significant withdrawal risk
because policyholders may incur surrender charges and must undergo a new
underwriting process to obtain a new insurance policy. In addition, we utilize
market value adjustment features to mitigate the profitability impact and timing
of withdrawals of funds by customers. As of December 31, 2012, products with a
market value adjustment feature represented $19.9 billion of our Japan
operations' insurance-related liabilities.



Recently, Gibraltar Life has had substantial sales of its yen-denominated single
premium reduced death benefit whole life product that has a greater savings
component. This product is more susceptible to increased levels of surrenders if
interest rates increase in Japan, which may result in losses. As of December 31,
2012, single premium reduced death benefit whole life products represented $10.0
billion of our Japan operations' insurance-related liabilities. Gibraltar Life
also sells fixed annuities denominated in U.S. and Australian dollars that may
be subject to increased surrenders should these currencies appreciate in
relation to the yen and interest rates in Australia and the U.S. decline
relative to Japan. As of December 31, 2012, fixed annuities denominated in U.S.
and Australian dollars represented $17.1 billion of our Japan operations'
insurance-related liabilities, of which $14.5 billion include a market value
adjustment feature which mitigates the profitability impact from surrenders.



Liquid Assets



Liquid assets include cash and cash equivalents, short-term investments, fixed
maturities that are not designated as held-to-maturity and public equity
securities. In addition to access to substantial investment portfolios, our
insurance companies' liquidity is managed through access to a variety of
instruments available for funding and/or managing cash flow mismatches,
including from time to time those arising from claim levels in excess of
projections. Our ability to utilize assets and liquidity between our
subsidiaries is limited by regulatory and other constraints. We believe that
ongoing operations and the liquidity profile of our assets provide sufficient
liquidity under reasonably foreseeable stress scenarios for each of our
insurance subsidiaries.



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The following table sets forth the fair value of our domestic insurance operations' portfolio of liquid assets, including cash and short-term investments, fixed maturity investments other than those designated as held-to-maturity, by NAIC or equivalent rating, and public equity securities, as of the dates indicated.



                                                         December 31, 2012
                                        Prudential                                                December 31,
                                        Insurance        PRIAC        Other(1)        Total           2011
                                                                    (in billions)
Cash and short-term investments        $        5.6      $  1.0      $      0.8      $   7.4      $         6.6
Fixed maturity investments:
High or highest quality                       130.0        18.8             9.8        158.6              124.6
Other than high or highest quality              8.1         1.3             0.6         10.0               10.3

Subtotal                                      138.1        20.1            10.4        168.6              134.9
Public equity securities                        3.6           0               0          3.6                3.3

Total                                  $      147.3      $ 21.1      $     11.2      $ 179.6      $       144.8




(1) Includes PALAC and PRUCO life insurance companies





The following table sets forth the fair value of our international insurance
operations' portfolio of liquid assets, including cash and short-term
investments, fixed maturity investments other than those designated as
held-to-maturity, by NAIC or equivalent rating, and public equity securities, as
of the dates indicated.



                                                            December 31, 2012
                                       Prudential         Gibraltar           All                         December 31,
                                        of Japan           Life(1)          Other(2)         Total            2011
                                                                        (in billions)
Cash and short-term investments        $       0.6       $       4.5       $      0.1       $   5.2       $         5.4
Fixed maturity investments:
High or highest quality(3)                    28.6              94.7             11.6         134.9               120.6
Other than high or highest quality             0.4               2.0              0.1           2.5                 2.0

Subtotal                                      29.0              96.7             11.7         137.4               122.6
Public equity securities                       1.3               2.1              0.4           3.8                 3.4

Total                                  $      30.9       $     103.3       $     12.2       $ 146.4       $       131.4





(1)   Includes Prudential Gibraltar.


(2)   Represents our international insurance operations, excluding Japan.


(3) Of the $134.9 billion of fixed maturity investments that are not designated

      as held-to-maturity and considered high or highest quality as of
      December 31, 2012, $95.9 billion, or 71%, were invested in government or
      government agency bonds.




Given the size and liquidity profile of our investment portfolios, we believe
that claim experience, including policyholder withdrawals and surrenders,
varying from our projections does not constitute a significant liquidity risk.
Our asset/liability management process takes into account the expected maturity
of investments and expected claim payments as well as the specific nature and
risk profile of the liabilities. To the extent we need to pay claims in excess
of projections, we may borrow temporarily or sell investments sooner than
anticipated to pay these claims, which may result in increased borrowing costs
or realized investment gains or losses affecting results of operations. The
payment of claims and sale of investments earlier than anticipated would have an
impact on the reported level of cash flow from operating, investing, and
financing activities, respectively, in our financial statements. Historically,
there has been no significant variation between the expected maturities of our
investments and the payment of claims.



Liquidity associated with other activities

Hedging activities associated with living benefit guarantees




As discussed under "-Captive reinsurance companies" above, we reinsure living
benefit guarantees on certain variable annuity and retirement products from our
domestic insurance companies to a captive reinsurance company, Pruco Re. Pruco
Re requires access to sufficient liquidity to support the hedging activities
such as periodic settlements, purchases, maturities, terminations and breakage.
The liquidity needs can vary materially



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due to, among other items, changes in interest rates, equity markets, mortality
and policyholder behavior. Currently, we fund these liquidity needs with a
combination of capital contributions and loans from Prudential Financial and
affiliates.



Additionally, for certain of our domestic insurance companies to claim statutory
reinsurance reserve credit for business ceded to Pruco Re, Pruco Re must
collateralize its obligations under the reinsurance arrangement. We satisfy this
requirement today by depositing assets into statutory reserve credit trusts.
Funding needs for the statutory reserve credit trusts are separate and distinct
from capital needs of Pruco Re. However, assets pledged to the statutory reserve
credit trusts may include assets supporting the capital of Pruco Re provided
that they meet eligibility requirements prescribed by the relevant insurance
regulators. Reinsurance reserve credit requirements can move materially in
either direction due to changes in equity markets, interest rates, actuarial
assumptions and other factors. Higher reinsurance reserve credit requirements
would necessitate depositing additional assets in the statutory reserve credit
trusts, while lower reserve credit requirements would allow assets to be removed
from the statutory reserve credit trusts. As of December 31, 2012 and 2011, for
the applicable domestic insurance entities, the statutory reserve credit trusts
required collateral of $2.2 billion and $1.2 billion respectively. The increase
in comparison to 2011 was primarily driven by actuarial assumption updates,
reflecting lower long-term interest rates, partially offset by the impact of
higher equity markets.



The living benefits hedging activity in Pruco Re may also result in collateral
postings on derivatives to or from counterparties. The Company's collateral
position depends on changes in interest rates and equity markets related to the
notional amount of the exposures hedged. Depending on market conditions, the
collateral posting requirements can result in material liquidity needs. As of
December 31, 2012, these derivatives were in a net receive position, for which
$4.7 billion of collateral was posted to the Company by the external
counterparties.



Foreign exchange hedging activities




We employ various hedging strategies to manage potential exposure to foreign
currency exchange rate movements, including the strategies discussed in
"-Results of Operations for Financial Services Businesses by
Segment-International Insurance Division." These hedging strategies include both
internal and external hedging programs and may impact the liquidity of both
Prudential Financial and our international insurance subsidiaries.



The internal-only hedges are between a subsidiary of Prudential Financial and
certain of our yen-based entities and serve to hedge a portion of the value of
U.S. dollar-denominated investments held on the books of these yen-based
entities. These U.S. dollar-denominated investments are part of our hedging
strategy to mitigate the impact of foreign currency exchange rate movements on
the value of our U.S. dollar-equivalent investment in our Japanese subsidiaries.
Absent an internal hedge, however, the changes in market value of these U.S.
dollar-denominated investments attributable to changes in the yen-dollar
exchange rate would create volatility in the solvency margins of these
subsidiaries. To minimize this volatility, we enter into inter-company hedges.
Cash settlements from these hedging activities result in cash flows between
Prudential Financial and these yen-based subsidiaries. The cash flows are
dependent on changes in foreign currency exchange rates and the notional amount
of the exposures hedged. During 2012, Prudential Financial received $21 million
of net cash settlements related to the internal hedge program, which were paid
by the yen-based subsidiaries. As of December 31, 2012, the market value of the
internal hedges was an asset of $50 million due from the yen-based subsidiaries.
Absent any changes in forward exchange rates from those expected as of
December 31, 2012, the $50 million internal hedge asset represents the present
value of the net cash flows to Prudential Financial from these entities over the
life of the hedging instruments, up to 30 years. A significant yen depreciation
over an extended period of time could result in net cash flows to Prudential
Financial. Conversely, a significant yen appreciation could result in net cash
outflows from Prudential Financial.



Our external hedges primarily serve to hedge foreign currency-denominated future
income of our foreign subsidiaries and equity investments in certain of these
subsidiaries. The external hedges are between a subsidiary of Prudential
Financial and external parties. Cash settlements on these activities result in
cash flows between Prudential Financial and the external parties and are
dependent on changes in foreign currency exchange rates and the notional amount
of the exposures hedged. During 2012, Prudential Financial paid $121 million for
these international insurance-related external hedge settlements. As of
December 31, 2012, the net asset related to these external foreign currency
hedges was $103 million. A significant appreciation in the yen and other foreign
currencies could result in net cash outflows.



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Asset Management operations



The principal sources of liquidity for our fee-based asset management businesses
include asset management fees and commercial mortgage origination and servicing
fees. The principal uses of liquidity include general and administrative
expenses and distribution of dividends and returns of capital to Prudential
Financial. The primary liquidity risks for our fee-based asset management
businesses relate to their profitability, which is impacted by market conditions
and our investment management performance. We believe the cash flows from our
fee-based asset management businesses are adequate to satisfy the current
liquidity requirements of these operations, as well as requirements that could
arise under reasonably foreseeable stress scenarios, which are monitored through
the use of internal measures.



The principal sources of liquidity for our strategic investments and interim
loans held in our asset management businesses are cash flows from investments,
the ability to liquidate investments, and available borrowing lines from
internal sources, including Prudential Funding and Prudential Financial. The
primary liquidity risks include the inability to sell assets in a timely manner,
declines in the value of assets and credit defaults.



In support of our real estate business, certain real estate funds under
management are held for the benefit of clients in insurance company separate
accounts sponsored by Prudential Insurance. In the normal course of business,
Prudential Insurance, on behalf of these separate accounts, may contractually
agree to various funding commitments which may include, among other things,
commitments to purchase real estate, to invest in real estate partnerships (both
existing and to-be-formed) to acquire or develop real estate, and/or to fund
additional construction or other expenditures on previously-acquired real estate
investments. These contractual commitments are typically entered into by
Prudential Insurance on behalf of the particular separate account. As of
December 31, 2012, total outstanding funding commitments related to such
separate account activity was $1.9 billion, of which $1.2 billion was on-balance
sheet and $0.7 billion was off-balance sheet. In the majority of cases (all but
$0.2 billion), the commitments specify that Prudential Insurance's recourse
liability for the obligation is limited to the assets of the applicable separate
account, with no recourse to Prudential Insurance. We believe that the separate
accounts have sufficient resources to meet future obligations, including $1.1
billion of maturities in 2013. However, there is a risk that the separate
accounts may not be able to timely fund all maturing obligations from regular
sources such as asset sales, operating cash flow, deposits from clients, debt
refinancing or, as mentioned in Note 14 to our Consolidated Financial
Statements, from portfolio level credit facilities. In cases where the separate
account is not able to fund maturing obligations, Prudential Insurance may be
called upon or required to provide interim funding solutions. To date,
Prudential Insurance has not been required to provide any such funding.



Alternative Sources of Liquidity

In addition to the sources of liquidity discussed throughout this section, Prudential Financial and certain subsidiaries have access to the alternative sources of liquidity described below.



Asset-based Financing



We conduct asset-based or secured financing within our insurance and other
subsidiaries, including transactions such as securities lending, repurchase
agreements and mortgage dollar rolls to earn spread income, to borrow funds, or
to facilitate trading activity. These programs are primarily driven by portfolio
holdings of securities that are lendable based on counterparty demand for these
securities in the marketplace. The collateral received in connection with these
programs is primarily used to purchase securities in the short-term spread
portfolios of our insurance entities. Investments held in the short-term spread
portfolios include cash and cash equivalents, short-term investments, mortgage
loans and fixed maturities, including mortgage- and asset-backed securities,
with a weighted average life at time of purchase by the short-term portfolios of
four years or less. Floating rate assets comprise the majority of our short-term
spread portfolio. These short-term portfolios are subject to specific investment
policy statements, which among other things, do not allow for significant
asset/liability interest rate duration mismatch.



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The following table sets forth our liabilities under asset-based or secured financing programs attributable to the Financial Services Businesses and Closed Block Business as of the dates indicated.




                                             December 31, 2012                                    December 31, 2011
                               Financial          Closed                            Financial          Closed
                                Services          Block                              Services          Block
                               Businesses        Business       Consolidated        Businesses        Business       Consolidated
                                                                         (in millions)
Securities sold under
agreements to repurchase      $      3,436      $    2,382      $       5,818      $      3,118      $    3,100      $       6,218
Cash collateral for loaned
securities                           2,864           1,077              3,941             2,254             719              2,973
Securities sold but not
yet purchased                            0               0                  0                 5               0                  5

Total(1)                      $      6,300      $    3,459      $       9,759      $      5,377      $    3,819      $       9,196

Portion of above
securities that may be
returned to the Company
overnight requiring
immediate return of the
cash collateral               $      4,536      $    1,566      $       6,102      $      3,438      $    2,012      $       5,450
Weighted average maturity,
in days(2)                              25              67                                   62              72




(1)   The daily weighted average outstanding for the twelve months ended
      December 31, 2012 and 2011 was $6,695 million and $4,651 million,

respectively, for the Financial Services Businesses and $4,303 million and

$4,301 million, respectively, for the Closed Block Business.


(2)   Excludes securities that may be returned to the Company overnight.



The $565 million increase in the outstanding liabilities under these programs during 2012 was driven by attractive financing and investment opportunities.




As of December 31, 2012, our domestic insurance entities had assets eligible for
the asset-based or secured financing programs of $81.6 billion, of which $9.4
billion were on loan. Taking into account market conditions and outstanding loan
balances as of December 31, 2012, we believe approximately $30.3 billion of the
remaining eligible assets are readily lendable, of which approximately $21.6
billion relates to the Financial Services Businesses; however, these amounts are
subject to potential regulatory constraints and to changes in market conditions.



In addition, as of December 31, 2012, our Closed Block Business had outstanding
mortgage dollar rolls, under which we are committed to repurchase $505 million
of mortgage-backed securities, or TBA forward contracts. These repurchase
agreements do not qualify as secured borrowings and are accounted for as
derivatives. These mortgage-backed securities are considered high or highest
quality based on NAIC or equivalent rating.



Membership in the Federal Home Loan Banks

Prudential Insurance is a member of the Federal Home Loan Bank of New York, or
FHLBNY. Membership allows Prudential Insurance access to the FHLBNY's financial
services, including the ability to obtain loans and to issue funding agreements
as an alternative source of liquidity that are collateralized by qualifying
mortgage-related assets or U.S. Treasury securities. Prudential Retirement
Insurance and Annuity Company, or PRIAC, is a member of the Federal Home Loan
Bank of Boston, or FHLBB, which provides PRIAC access to collateralized
advances. Based on regulatory limitations, as of December 31, 2012, Prudential
Insurance had an estimated maximum borrowing capacity of $6.4 billion under the
FHLBNY facility, of which $2.3 billion was outstanding, and PRIAC had an
estimated maximum borrowing capacity of $1.7 billion with no advances
outstanding. Nevertheless, borrowings under these facilities are subject to the
FHLBNY's and the FHLBB's discretion and require the availability of qualifying
assets at Prudential Insurance and PRIAC. For further information, see Note 14
to our Consolidated Financial Statements.



Commercial Paper Programs



Prudential Financial and Prudential Funding, LLC, or Prudential Funding, a
wholly-owned subsidiary of Prudential Insurance, have commercial paper programs
with an authorized issuance capacity of $3.0 billion and $7.0 billion,
respectively. Prudential Financial commercial paper borrowings generally have
been used to fund



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the working capital needs of our subsidiaries. Prudential Funding commercial
paper borrowings have generally served as an additional source of financing to
meet the working capital needs of Prudential Insurance and its subsidiaries.
Prudential Funding also lends to other subsidiaries of Prudential Financial up
to limits agreed with NJDOBI. Prudential Funding maintains a support agreement
with Prudential Insurance whereby Prudential Insurance has agreed to maintain
Prudential Funding's positive tangible net worth at all times. Prudential
Financial has also issued a subordinated guarantee covering Prudential Funding's
commercial paper program. As of December 31, 2012, Prudential Financial and
Prudential Funding had outstanding borrowings of $113 million and $359 million,
respectively, under these commercial paper programs. For further information,
see Note 14 to our Consolidated Financial Statements.



Credit Facilities



We have access to an aggregate of $3.75 billion of syndicated, unsecured
committed credit facilities, which includes a $2 billion five-year facility
expiring in December 2016 that has Prudential Financial as borrower and a $1.75
billion three-year facility expiring in December 2014 that has both Prudential
Financial and Prudential Funding as borrowers. The facilities may be used for
general corporate purposes, including as backup liquidity for our commercial
paper programs. The maximum amount of outstanding borrowings from the five-year
credit facility in 2012 was $250 million. There were no outstanding borrowings
under these credit facilities as of December 31, 2012 or as of the date of this
filing.



Prudential Financial expects that it may continue to borrow under the five-year
credit facility from time to time to fund its working capital needs and those of
its subsidiaries. In addition, up to $300 million of the five-year facility may
be drawn in the form of standby letters of credit that can be used to meet the
Company's operating needs. The credit facilities contain representations and
warranties, covenants and events of default that are customary for facilities of
this type; however, borrowings under the facilities are not contingent on the
Company's credit ratings nor subject to material adverse change clauses.
Borrowings under the credit facilities require that the Company maintain at all
times consolidated net worth, relating to the Financial Services Businesses
only, of at least $18.985 billion (excluding AOCI and excluding equity of
non-controlling interests). For further information, see Note 14 to our
Consolidated Financial Statements.



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Financing Activities



As of December 31, 2012 and 2011, total short- and long-term debt of the Company
on a consolidated basis was $27.2 billion and $27.0 billion, respectively. The
following table sets forth total consolidated borrowings of the Company as of
the dates indicated. We may, from time to time, seek to redeem or repurchase our
outstanding debt securities through open market purchases, individually
negotiated transactions or otherwise. Any such repurchases will depend on
prevailing market conditions, our liquidity position and other factors.



                                                      December 31, 2012                                     December 31, 2011
                                       Prudential          Other                             Prudential          Other
                                       Financial       Subsidiaries       Consolidated       Financial       Subsidiaries       Consolidated
                                                                                   (in millions)
General obligation short-term debt:
Commercial paper(1)                   $        113     $         359     $          472     $        296     $         870     $        1,166
Current portion of long-term debt
and other(2)(3)                              1,734               203              1,937              956               214              1,170

Subtotal                                     1,847               562              2,409            1,252             1,084              2,336

General obligation long-term debt:
Senior debt(3)(4)                           12,404             1,916             14,320           15,781             1,432             17,213
Junior subordinated debt                     4,594                 0              4,594            1,519                 0              1,519
Surplus notes(5)                                 0             4,140              4,140                0             4,140              4,140

Subtotal                                    16,998             6,056             23,054           17,300             5,572             22,872

Total general obligations                   18,845             6,618             25,463           18,552             6,656             25,208

Limited recourse borrowing(6):
Current portion of long-term debt                0                75                 75                0                 0                  0
Long-term debt                                   0             1,675              1,675                0             1,750              1,750

Total limited recourse borrowings                0             1,750              1,750                0             1,750              1,750

Total borrowings                      $     18,845     $       8,368     $       27,213     $     18,552     $       8,406     $       26,958




(1) See "-Alternative Sources of Liquidity" above for a discussion on our use of

commercial paper

(2) Includes collateralized borrowings from the Federal Home Loan Bank of New

York of $100 million and $199 million at December 31, 2012 and 2011,

respectively. For additional information on these borrowings, see Note 14 to

the Consolidated Financial Statements.

(3) Does not include $1,780 million and $3,197 million of medium-term notes of

consolidated trust entities secured by funding agreements purchased with the

proceeds of such notes as of December 31, 2012 and 2011, respectively, or

$1.9 billion or $1.5 billion of collateralized funding agreements issued to

the Federal Home Loan Bank of New York as of December 31, 2012 and 2011,

respectively. These notes and funding agreements are included in

"Policyholders' account balances." For additional information on these

obligations, see Notes 10 and 14 to the Consolidated Financial Statements

(4) Includes collateralized borrowings from the Federal Home Loan Bank of New

York of $280 million and $725 million at December 31, 2012 and 2011,

respectively. For additional information on these borrowings, see Note 14 to

the Consolidated Financial Statements.

(5) Amounts are net of assets under set-off arrangements of $1,000 million and

$500 million, as of December 31, 2012 and 2011, respectively

(6) Limited and non-recourse borrowing represents outstanding debt of Prudential

Holdings, LLC that is attributable to the Closed Block Business. See
      "Prudential Holdings, LLC Notes" within Note 14 to the Consolidated
      Financial Statements for additional information.




As of December 31, 2012 and 2011, we were in compliance with all debt covenants
related to the borrowings in the table above. For further information on the
terms of our short- and long-term debt obligations, see Note 14 to our
Consolidated Financial Statements.



Based on the use of proceeds, we classify our borrowings as capital debt,
investment-related debt, and debt related to specified businesses. Capital debt,
which is debt utilized to meet the capital requirements of our businesses, was
$10.6 billion and $11.2 billion as of December 31, 2012 and 2011, respectively.
Investment-related debt of $10.5 billion and $8.9 billion as of December 31,
2012 and 2011, respectively, consists of debt issued to finance specific
investment assets or portfolios of investment assets, the proceeds from which
will service the debt. Specifically, this includes institutional spread lending
investment portfolios, assets supporting reserve requirements under Regulation
XXX and Guideline AXXX as described below, as well as institutional and
insurance company portfolio cash flow timing differences. Our remaining
borrowings are utilized for business funding to meet specific purposes,
including funding new business acquisition costs associated with our individual
annuities business, operating needs associated with hedging our individual
annuities products as discussed above and activities associated with our asset
management business.



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Prudential Financial Borrowings




Long-term borrowings are conducted primarily by the holding company, Prudential
Financial. It borrows these funds to meet its capital and other funding needs,
as well as the capital and funding needs of its subsidiaries. Prudential
Financial maintains a shelf registration statement with the SEC that permits the
issuance of public debt, equity and hybrid securities. As a "Well-Known Seasoned
Issuer" under SEC rules, Prudential Financial's shelf registration statement
provides for automatic effectiveness upon filing and has no stated issuance
capacity.



Prudential Financial primarily issues senior debt under its Medium-Term Note,
Series D program that currently has an authorized issuance capacity of $20
billion, of which approximately $8.7 billion remained available as of
December 31, 2012. Prudential Financial also maintains a retail medium-term
notes program, including InterNotes® that has an authorized issuance capacity of
$5.0 billion, of which approximately $4.3 billion remained available as of
December 31, 2012. The weighted average interest rate on Prudential Financial's
senior notes, including the effect of interest rate hedging activity, was 5.27%
and 5.24% for the years ended December 31, 2012 and 2011, respectively,
excluding the effect of debt issued to consolidated subsidiaries.



Prudential Financial has $4.6 billion of junior subordinated notes outstanding as of December 31, 2012 that are considered hybrid securities and receive enhanced equity treatment from the rating agencies. See Note 14 to our Consolidated Financial Statements for a description of the key terms of our junior subordinated notes.




During 2012, $850 million of medium-term notes matured, and we redeemed $1,631
million of outstanding retail notes financed in part by our issuance of $3,075
million of junior subordinated notes. As part of our overall liquidity and
capital management, we may continue to redeem some or all of the remaining
retail notes outstanding. As of December 31, 2012, $0.9 billion of outstanding
retail notes were redeemable by the Company at par.



Subsidiary Borrowings



Subsidiary borrowings principally consist of surplus note issuances done within
our insurance and captive reinsurance subsidiaries, commercial paper borrowings
by Prudential Funding and asset-based financing.



During 2012, Prudential Insurance issued $1.0 billion of asset-backed notes.
These notes are secured by a trust holding approximately $2.8 billion of
residential mortgage-backed securities deposited by Prudential Insurance. The
deposit of these securities into the trust did not result in the recognition of
gains or losses on the securities, or de-recognition of the securities from the
balance sheet under statutory accounting principles or U.S. GAAP, but is
consistent with our tax planning strategies to monetize statutory deferred tax
assets. For additional detail on these notes, see Note 14 to our Consolidated
Financial Statements.


Financing of regulatory reserves associated with domestic life insurance products




As discussed above under "Capital-Insurance Subsidiaries-Captive Reinsurance
Companies," we use captive reinsurance companies to implement reinsurance and
capital management actions, including financing regulatory non-economic reserves
through internal and external solutions. These activities are described below.



During 2012 and 2011, a captive reinsurance subsidiary entered into agreements
with external counterparties providing for the issuance and sale of up to $1.5
billion of ten-year fixed-rate surplus notes in order to finance non-economic
reserves required under Regulation XXX. Under the agreements, the subsidiary
received debt securities, with a principal amount equal to the surplus notes
issued, which are redeemable under certain circumstances, including upon the
occurrence of specified stress events affecting the subsidiary. Because valid
rights of set-off exist, interest and principal payments on the surplus notes
and on the debt securities are settled on a net basis, and the surplus notes are
reflected in the Company's total consolidated borrowings on a net basis.
Prudential Financial has agreed to make capital contributions to the subsidiary
in order to reimburse it for investment losses in excess of specified amounts
and has agreed to make payments of principal and interest on the surplus notes
in certain cases if payments are not made by the subsidiary. As of December 31,
2012, no capital contributions have been made by Prudential Financial under this
agreement. In addition, during 2011 and 2012, another captive reinsurance
subsidiary issued $2.5 billion of surplus notes to an affiliate to finance
non-economic reserves required under Guideline AXXX.



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Other captive reinsurance subsidiaries have outstanding an additional $3.2
billion of surplus notes that were issued in 2006 through 2008 with unaffiliated
institutions to finance non-economic reserves required under Regulation XXX and
Guideline AXXX. Prudential Financial has agreed to maintain the capital of these
subsidiaries at or above a prescribed minimum level and has entered into
arrangements (which are accounted for as derivative instruments) that require it
to make certain payments in the event of deterioration in the value of these
surplus notes. As of December 31, 2012 and December 31, 2011, there were no
collateral postings made under these derivative instruments.



The surplus notes described above are subordinated to policyholder obligations,
and the payment of principal on the surplus notes may only be made with prior
insurance regulatory approval. The payment of interest on the surplus notes has
been approved by the regulator, subject to its ability to withdraw that
approval.



As we continue to underwrite term and universal life business, including as part
of The Hartford's individual life business acquired by us in early 2013, we
expect to have additional borrowing needs to finance non-economic statutory
reserves required under Regulation XXX and Guideline AXXX. However, we believe
we have sufficient financing resources available, including those internal and
external resources described above, to meet our financing needs under Regulation
XXX and under Guideline AXXX through 2013, assuming that the volume of new
business remains consistent with current sales projections.



                                    Ratings



Financial strength ratings (which are sometimes referred to as "claims-paying"
ratings) and credit ratings are important factors affecting public confidence in
an insurer and its competitive position in marketing products. Nationally
Recognized Statistical Ratings Organizations continually review the financial
performance and financial condition of the entities they rate, including
Prudential Financial and its rated subsidiaries. Our credit ratings are also
important for our ability to raise capital through the issuance of debt and for
the cost of such financing.



A downgrade in the credit or financial strength ratings of Prudential Financial
or its rated subsidiaries could potentially, among other things, limit our
ability to market products, reduce our competitiveness, increase the number or
value of policy surrenders and withdrawals, increase our borrowing costs and
potentially make it more difficult to borrow funds, adversely affect the
availability of financial guarantees, such as letters of credit, cause
additional collateral requirements or other required payments under certain
agreements, allow counterparties to terminate derivative agreements and/or hurt
our relationships with creditors, distributors, or trading counterparties
thereby potentially negatively affecting our profitability, liquidity, and/or
capital. In addition, we consider our own risk of non-performance in determining
the fair value of our liabilities. Therefore, changes in our credit or financial
strength ratings may affect the fair value of our liabilities.



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Financial strength ratings represent the opinions of rating agencies regarding
the financial ability of an insurance company to meet its obligations under an
insurance policy. Credit ratings represent the opinions of rating agencies
regarding an entity's ability to repay its indebtedness. The following table
summarizes the ratings for Prudential Financial and certain of its subsidiaries
as of the date of this filing.



                                                 A.M.
                                                Best(1)     S&P(2)     Moody's(3)   Fitch(4)
Last review date                               6/12/2012   7/26/2012   7/24/2012    12/6/2012
Current outlook                                 Stable     Stable(5)    Positive     Stable

Financial Strength Ratings:
The Prudential Insurance Company of America       A+          AA-          A2          A+
Pruco Life Insurance Company                      A+          AA-          A2          A+
Pruco Life Insurance Company of New Jersey        A+          AA-         NR*          A+
Prudential Annuities Life Assurance
Corporation                                       A+          AA-          NR          A+
Prudential Retirement Insurance and Annuity
Company                                           A+          AA-          A2          A+
The Prudential Life Insurance Company Ltd.
(Prudential of Japan)                             NR          AA-          NR          NR
Gibraltar Life Insurance Company, Ltd.            NR          AA-          NR          NR

Credit Ratings:
Prudential Financial, Inc.:
Short-term borrowings                            AMB-1        A-1         P-2          F2
Long-term senior debt(6)                          a-           A          Baa2        BBB+
Junior subordinated long-term debt                bbb        BBB+         Baa3        BBB-
The Prudential Insurance Company of America:
Capital and surplus notes                          a           A          Baa1         A-
Prudential Funding, LLC:
Short-term debt                                  AMB-1       A-1+         P-2          F1
Long-term senior debt                             a+          AA-          A3           A
PRICOA Global Funding I:
Long-term senior debt                             aa-         AA-          A2          A+




*   "NR" indicates not rated.

(1) A.M. Best Company , which we refer to as A.M. Best, financial strength

ratings for insurance companies currently range from "A++ (superior)" to "F

(in liquidation)." A.M. Best's ratings reflect its opinion of an insurance

company's financial strength, operating performance and ability to meet its

obligations to policyholders. An A.M. Best long-term credit rating is an

opinion of the ability of an obligor to pay interest and principal in

accordance with the terms of the obligation. A.M. Best long-term credit

ratings range from "aaa (exceptional)" to "d (in default)," with ratings

from "aaa" to "bbb" considered as investment grade. An A.M. Best short-term

credit rating reflects an opinion of the issuer's fundamental credit

quality. Ratings range from "AMB-1+," which represents an exceptional

ability to repay short-term debt obligations, to "AMB-4," which correlates

with a speculative ("bb") long-term rating.

(2) Standard & Poor's Rating Services, which we refer to as S&P, financial

strength ratings currently range from "AAA (extremely strong)" to "R

(regulatory supervision)." These ratings reflect S&P's opinion of an

operating insurance company's financial capacity to meet the obligations of

      its insurance policies in accordance with their terms. A "+" or "-"
      indicates relative strength within a category. An S&P credit rating is a
      current opinion of the creditworthiness of an obligor with respect to a

specific financial obligation, a specific class of financial obligations or

a specific financial program. S&P's long-term issue credit ratings range

from "AAA (extremely strong)" to "D (default)." S&P short-term ratings range

from "A-1 (highest category)" to "D (default)."

(3) Moody's Investors Service, Inc., which we refer to as Moody's, insurance

financial strength ratings currently range from "Aaa (exceptional)" to "C

(lowest)." Moody's insurance ratings reflect the ability of insurance

companies to repay punctually senior policyholder claims and obligations.

Numeric modifiers are used to refer to the ranking within the group-with 1

being the highest and 3 being the lowest. These modifiers are used to

indicate relative strength within a category. Moody's credit ratings

currently range from "Aaa (highest)" to "C (default)." Moody's credit

ratings grade debt according to its investment quality. Moody's considers

"A1," "A2" and "A3" rated debt to be upper medium grade obligations, subject

to low credit risk. Moody's short-term ratings are opinions of the ability

of issuers to honor senior financial obligations and contracts. Prime

ratings range from "Prime-1 (P-1)," which represents a superior ability for

repayment of senior short-term debt obligations, to "Prime-3 (P-3)," which

represents an acceptable ability for repayment of such obligations. Issuers

rated "Not Prime" do not fall within any of the Prime rating categories.

(4) Fitch Ratings Ltd., which we refer to as Fitch, financial strength ratings

currently range from "AAA (exceptionally strong)" to "D (distressed)."

Fitch's ratings reflect its assessment of the likelihood of timely payment

      of policyholder and contractholder obligations.




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Fitch long-term credit ratings currently range from "AAA (highest credit

quality)," which denotes exceptionally strong capacity for timely payment of

financial commitments, to "D (default)." Investment grade ratings range

between "AAA" and "BBB." Short-term ratings range from "F1 (highest credit

quality)" to "C (high default risk)." Within long-term and short-term ratings,

a "+" or a "-" may be appended to a rating to denote relative status within

major rating categories.

(5) S&P has the ratings of our U.S.-domiciled entities on stable outlook and the

ratings of The Prudential Life Insurance Company Ltd. and Gibraltar Life

Insurance Company Ltd. on negative outlook as part of S&P's decision to put

      the sovereign debt ratings of Japan on negative outlook.


(6)   Includes the retail medium-term notes program.




The ratings set forth above reflect current opinions of each rating agency. Each
rating should be evaluated independently of any other rating. These ratings are
not directed toward shareholders and do not in any way reflect evaluations of
the safety and security of the Common Stock. These ratings are reviewed
periodically and may be changed at any time by the rating agencies. As a result,
we cannot assure you that we will maintain our current ratings in the future.



Rating agencies use an "outlook" statement for both industry sectors and
individual companies. For an industry sector, a stable outlook generally implies
that over the next 12-18 months the rating agency expects ratings to remain
unchanged among companies in the sector. Currently, A.M. Best, S&P and Fitch all
have the U.S. life insurance industry on stable outlook. Moody's has the U.S.
life insurance industry on negative outlook. For a particular company, an
outlook generally indicates a medium- or long-term trend (generally six months
to two years) in credit fundamentals, which if continued, may lead to a rating
change. These indicators are not necessarily a precursor of a rating change nor
do they preclude a rating agency from changing a rating at any time without
notice. Currently, Moody's has all of the Company's ratings on positive outlook;
A.M. Best and Fitch have all of the Company's ratings on stable outlook; and S&P
has the ratings of our U.S.-domiciled entities on stable outlook and the ratings
of The Prudential Life Insurance Company Ltd. and Gibraltar Life Insurance
Company Ltd. on negative outlook as part of S&P's decision to put the sovereign
debt ratings of Japan on negative outlook.



Requirements to post collateral or make other payments as a result of ratings
downgrades under certain agreements, including derivative agreements, can be
satisfied in cash or by posting permissible securities held by the subsidiaries
subject to the agreements. A ratings downgrade of three ratings levels from the
ratings levels as of December 31, 2012 (relating to financial strength ratings
in certain cases and credit ratings in other cases) would result in estimated
additional collateral posting requirements or payments under such agreements of
approximately $77 million. The amount of collateral required to be posted for
derivative agreements is also dependent on the fair value of the derivative
positions as of the balance sheet date. For additional information regarding the
potential impacts of a ratings downgrade on our derivative agreements see Note
21 to our Consolidated Financial Statements. In addition, a ratings downgrade by
A.M. Best to "A-" for our domestic life insurance companies would require
Prudential Insurance to post a letter of credit in the amount of approximately
$1.7 billion, based on the level of statutory reserves related to the variable
annuity business acquired from Allstate, that we estimate would result in annual
cash outflows of approximately $14 million, or collateral posting in the form of
cash or securities to be held in a trust. We believe that the posting of such
collateral would not be a material liquidity event for Prudential Insurance.



In view of the difficulties experienced recently by many financial institutions,
the rating agencies have heightened the level of scrutiny that they apply to
such institutions, have increased the frequency and scope of their credit
reviews, have requested additional information from the companies that they
rate, and may adjust upward the capital and other requirements employed in the
rating agency models for maintenance of certain ratings levels, such as the
financial strength ratings currently held by our life insurance subsidiaries. In
addition, actions we might take to access third party financing or to realign
our capital structure may in turn cause rating agencies to reevaluate our
ratings.



                            Contractual Obligations



The table below summarizes the future estimated cash payments related to certain
contractual obligations as of December 31, 2012. The estimated payments
reflected in this table are based on management's estimates and assumptions
about these obligations. Because these estimates and assumptions are necessarily
subjective, the



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actual cash outflows in future periods will vary, possibly materially, from
those reflected in the table. In addition, we do not believe that our cash flow
requirements can be adequately assessed based solely upon an analysis of these
obligations, as the table below does not contemplate all aspects of our cash
inflows, such as the level of cash flow generated by certain of our investments,
nor all aspects of our cash outflows.



                                                          Estimated Payments Due by Period
                                                                                                     2018 and
                                         Total          2013       

2014-2015 2016-2017 thereafter

                                                                    (in 

millions)

Short-term and long-term debt
obligations(1)                        $    42,993     $  3,769     $     7,873     $     5,214     $     26,137
Operating lease obligations(2)                519          135             189              99               96
Purchase obligations:
Commitments to purchase or fund
investments(3)                              4,167        2,994           1,024              50               99
Commercial mortgage loan
commitments(4)                              2,552        2,018             338             116               80
Other liabilities:
Insurance liabilities(5)                1,161,725       46,026          79,481          80,513          955,705
Other(6)                                   10,548       10,515              33               0                0

Total                                 $ 1,222,504     $ 65,457     $    88,938     $    85,992     $    982,117





(1)   The estimated payments due by period for long-term debt reflects the
      contractual maturities of principal, as disclosed in Note 14 to the

Consolidated Financial Statements, as well as estimated future interest

      payments. The payment of principal and estimated future interest for
      short-term debt are reflected in estimated payments due in less than one
      year. The estimate for future interest payments includes the effect of

derivatives that qualify for hedge accounting treatment. See Note 14 to the

Consolidated Financial Statements for additional information concerning our

short-term and long-term debt.

(2) The estimated payments due by period for operating leases reflect the future

minimum lease payments under non-cancelable operating leases, as disclosed

in Note 23 to the Consolidated Financial Statements. We have no significant

      capital lease obligations.


(3)   As discussed in Note 23 to the Consolidated Financial Statements, we have

commitments to purchase or fund investments, some of which are contingent

upon events or circumstances not under our control, including those at the

discretion of our counterparties. The timing of the fulfillment of certain

of these commitments cannot be estimated, therefore the settlement of these

obligations are reflected in estimated payments due in less than one year.

Commitments to purchase or fund investments include $0.757 billion that we

anticipate will ultimately be funded from our separate accounts. Of these

separate account commitments, $0.007 billion have recourse to Prudential

Insurance if the separate accounts are unable to fund the amounts when due.

For further discussion of these separate account commitments, see

"-Liquidity-Liquidity associated with other activities-Asset Management

      operations."


(4)   As discussed in Note 23 to the Consolidated Financial Statements, loan

commitments of our commercial mortgage operations, which are legally binding

commitments to extend credit to a counterparty, have been reflected in the

contractual obligations table above principally based on the expiration date

of the commitment; however, it is possible these loan commitments could be

funded prior to their expiration. In certain circumstances the counterparty

may also extend the date of the expiration in exchange for a fee.

(5) The estimated payments due by period for insurance liabilities reflect

future estimated cash payments to be made to policyholders and others for

future policy benefits, policyholders' account balances, policyholder's

dividends, reinsurance payables and separate account liabilities. These

future estimated cash outflows are based on mortality, morbidity, lapse and

other assumptions comparable with our experience, consider future premium

receipts on current policies in force, and assume market growth and interest

crediting consistent with assumptions used in amortizing deferred

acquisition costs and value of business acquired. These cash outflows are

undiscounted with respect to interest and, as a result, the sum of the cash

outflows shown for all years in the table of $1,162 billion exceeds the

corresponding liability amounts of $612 billion included in the Consolidated

Financial Statements as of December 31, 2012. Separate account liabilities

are legally insulated from general account obligations, and it is generally

expected these liabilities will be fully funded by separate account assets

and their related cash flows. We have made significant assumptions to

determine the future estimated cash outflows related to the underlying

policies and contracts. Due to the significance of the assumptions used,

actual cash outflows will differ, possibly materially, from these estimates.

(6) The estimated payments due by period for other liabilities includes

securities sold under agreements to repurchase, cash collateral for loaned

securities, liabilities for unrecognized tax benefits, bank customer

liabilities, and other miscellaneous liabilities. Amounts presented in the

table also exclude $1.577 billion of notes of consolidated VIE's which

recourse for these obligations is limited to the assets of the respective

      VIE and do not have recourse to the general credit of the company.



We also enter into agreements to purchase goods and services in the normal course of business; however, these purchase obligations are not material to our consolidated results of operations or financial position as of December 31, 2012.




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                         Off-Balance Sheet Arrangements


Guarantees and Other Contingencies




In the course of our business, we provide certain guarantees and indemnities to
third parties pursuant to which we may be contingently required to make payments
in the future. See "Commitments and Guarantees" within Note 23 to the
Consolidated Financial Statements for additional information.



Other Contingent Commitments



We also have other commitments, some of which are contingent upon events or
circumstances not under our control, including those at the discretion of our
counterparties. See "Commitments and Guarantees" within Note 23 to the
Consolidated Financial Statements for additional information regarding these
commitments. For further discussion of certain of these commitments that relate
to our separate accounts, also see "-Liquidity associated with other
activities-Asset Management operations."



Other Off-Balance Sheet Arrangements




We do not have retained or contingent interests in assets transferred to
unconsolidated entities, or variable interests in unconsolidated entities or
other similar transactions, arrangements or relationships that serve as credit,
liquidity or market risk support, that we believe are reasonably likely to have
a material effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
our access to or requirements for capital resources. In addition, we do not have
relationships with any unconsolidated entities that are contractually limited to
narrow activities that facilitate our transfer of or access to associated
assets. See Note 5 to the Consolidated Financial Statements for additional
information.



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