Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations (“MD&A”) addresses the consolidated monetary situation of Pruco Life
Insurance coverage Firm, or the “Firm,” as of September 30, 2021, in contrast with
December 31, 2020, and its consolidated outcomes of operations for the three and
9 months ended September 30, 2021 and 2020. You must learn the next
evaluation of our consolidated monetary situation and outcomes of operations in
conjunction with the MD&A, the “Danger Components” part, and the audited
Consolidated Monetary Statements included within the Firm’s Annual Report on
Type 10-Ok for the yr ended December 31, 2020, in addition to the statements underneath
“Ahead-Wanting Statements” , and the Unaudited Interim Consolidated Monetary
Statements included elsewhere on this Quarterly Report on Type 10-Q.

Overview

The Firm sells variable annuities, common life insurance coverage, variable life
insurance coverage and time period life insurance coverage primarily by means of affiliated and unaffiliated
distributors in the USA. As of December 31, 2020, the Firm
discontinued the gross sales of conventional variable annuities with assured dwelling
profit riders.

Efficient July 1, 2021, the Firm recaptured the dangers associated to its variable
annuity base contracts, together with the dwelling profit ensures, that had
beforehand been reinsured to Prudential Annuities Life Assurance Company
(“PALAC”) from April 1, 2016 by means of June 30, 2021. The recapture doesn’t
influence Pruco Life Insurance coverage Firm of New Jersey, which can proceed to
reinsure its new and in power enterprise to The Prudential Insurance coverage of America.
The product dangers associated to the beforehand reinsured enterprise that have been being
managed in PALAC, have been transferred to the Firm. As well as, the dwelling
profit hedging program associated to the beforehand reinsured dwelling profit
riders might be managed inside the Firm. This transaction is known as
the “2021 Variable Annuities Recapture”. For extra data on this
transition, see Notice 1 to the Unaudited Interim Consolidated Monetary
Statements.
COVID-19
Because the first quarter of 2020, the novel coronavirus (“COVID-19”) has created
excessive stress and disruption within the international economic system and monetary markets and
has elevated mortality and morbidity expertise for the worldwide inhabitants. The
COVID-19 pandemic continues to influence our outcomes of operations within the present
interval and is anticipated to proceed to influence our outcomes of operations in future
durations. The COVID-19 pandemic has moved in localized waves, with its influence
worsening after which bettering in several places at totally different occasions in a
repetitive however unpredictable sample. Throughout the third quarter of 2021, the
mortality impacts to our companies from COVID-19 elevated in comparison with the
second quarter. The Firm has taken a number of measures to handle the impacts of
this disaster. The precise and anticipated impacts of those occasions and different objects are
included within the following replace:
•Outlook. We count on COVID-19 to proceed to contribute to elevated ranges of
mortality, leading to elevated life insurance coverage claims within the near-term. The
pandemic may additionally influence gross sales volumes.

•Danger Components. The COVID-19 pandemic has adversely impacted our outcomes of
operations, monetary place, funding portfolio, new enterprise alternatives
and operations, and these impacts are anticipated to proceed. For added
data on the dangers to our enterprise posed by the COVID-19 pandemic, see
“Danger Components” included within the Firm’s Annual Report on Type 10-Ok for the yr
ended December 31, 2020.

•Enterprise Continuity. All through the COVID-19 pandemic, now we have been executing
Prudential Monetary Inc.’s (“Prudential Monetary”) and our enterprise continuity
protocols to make sure our staff are protected and capable of serve our clients. This
included successfully transitioning the overwhelming majority of our staff to distant
work preparations.

We imagine we are able to maintain distant work and social distancing for an indefinite
interval whereas guaranteeing that essential enterprise operations are sustained. In
addition, we’re managing COVID-19-related impacts on third-party offered
companies, and don’t anticipate vital interruption in essential operations.

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Impression of a Low Curiosity Price Setting

As a worldwide monetary companies firm, market rates of interest are a key driver
of our outcomes of operations and monetary situation. Modifications in rates of interest
can have an effect on our outcomes of operations and/or our monetary situation in a number of
methods, together with favorable or adversarial impacts to:

• investment-related exercise, together with: funding revenue returns, internet
curiosity margins, internet funding unfold outcomes
new cash charges, mortgage mortgage prepayments and bond redemptions;
• hedging prices and different threat mitigation actions;
• insurance coverage reserve ranges, amortization of deferred coverage acquisition prices
(“DAC”) and market expertise true-ups:
• buyer account values, together with their influence on payment revenue;
• product choices, design options, crediting charges and gross sales combine; and
• policyholder habits, together with give up or withdrawal exercise.

For extra data on rate of interest dangers, see “Danger Components-Market Danger”
included in our Annual Report on Type 10-Ok for the yr ended December 31, 2020.

Revenues and Bills

The Firm earns revenues principally from insurance coverage premiums, mortality and
expense charges, asset administration charges from insurance coverage and funding merchandise,
and from internet funding revenue on the funding of common account and different
funds. The Firm receives premiums primarily from the sale of particular person life
insurance coverage and annuity merchandise. The Firm earns mortality and expense charges,
and asset administration charges, primarily from the sale and servicing of
common life insurance coverage and separate account merchandise together with variable life
insurance coverage and variable annuities. The Firm’s working bills principally
include insurance coverage advantages offered and reserves established for anticipated
future insurance coverage advantages, common enterprise bills, reinsurance premiums,
commissions and different prices of promoting and servicing the varied merchandise offered
and curiosity credited on common account liabilities.

Accounting Insurance policies & Pronouncements

Utility of Crucial Accounting Estimates

The preparation of monetary statements in conformity with U.S. GAAP requires
the appliance of accounting insurance policies that usually contain a major diploma
of judgment. Administration, on an ongoing foundation, critiques estimates and assumptions
used within the preparation of monetary statements. If administration determines that
modifications in assumptions and estimates are applicable given present details
and circumstances, the Firm’s outcomes of operations and monetary place as
reported within the Unaudited Interim Consolidated Monetary Statements might change
considerably.

Administration believes the accounting insurance policies referring to the next areas are
most depending on the appliance of estimates and assumptions and require
administration’s most troublesome, subjective, or complicated judgments:

•DAC and different prices, together with deferred gross sales inducements (“DSI”);
•Policyholder liabilities;
•Valuation of investments, together with derivatives, measurement of allowance for
credit score losses, and recognition of other-than-temporary impairments;
•Reinsurance recoverables;
•Taxes on revenue; and
•Reserves for contingencies, together with reserves for losses in reference to
unresolved authorized issues.

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Market Efficiency – Fairness and Curiosity Price Assumptions

DAC and different prices related to the variable and common life insurance policies and
the variable and glued annuity contracts are typically amortized over the
anticipated lives of those insurance policies in proportion to complete gross income. Whole
gross income embody each precise gross income and estimates of gross income
for future durations. The quarterly changes for market efficiency mirror the
influence of adjustments to our estimate of complete gross income to mirror precise fund
efficiency and market circumstances. A good portion of gross income for
our variable annuity contracts and, to a lesser diploma, our variable life
contracts are dependent upon the entire price of return on belongings held in separate
account funding choices. This price of return influences the charges we earn on
variable annuity and variable life contracts, prices we incur related to the
assured minimal dying and assured minimal revenue profit options associated
to our variable annuity contracts and anticipated claims to be paid on variable
life contracts, in addition to different sources of revenue. Returns which might be greater than
our expectations for a given interval produce greater than anticipated account
balances, which improve the longer term charges we count on to earn on variable annuity
and variable life contracts and reduce the longer term prices we count on to incur
related to the assured minimal dying and assured minimal revenue
profit options associated to our variable annuity contracts and anticipated claims
to be paid on variable life contracts. The alternative happens when returns are
decrease than our expectations. The adjustments in future anticipated gross income are
used to acknowledge a cumulative adjustment to all prior durations’ amortization.

Moreover, the calculation of the estimated legal responsibility for future coverage
advantages associated to sure insurance coverage merchandise consists of an estimate of
related revenues and bills which might be depending on each historic market
efficiency in addition to estimates of market efficiency sooner or later. Just like
DAC and different prices described above, these liabilities are topic to quarterly
changes for expertise together with market efficiency, along with annual
changes ensuing from our annual critiques of assumptions.

The weighted common price of return assumptions utilized in creating estimated
market returns think about many elements particular to every product kind, together with
asset durations, asset allocations and different elements. With regard to fairness
market assumptions, the near-term future price of return assumption utilized in
evaluating DAC, different prices and liabilities for future coverage advantages for
sure of our merchandise, primarily our home variable annuity and variable
life insurance coverage merchandise, is usually up to date every quarter and is derived utilizing
a reversion to the imply strategy, a typical trade apply. Beneath this
strategy, we think about historic fairness returns and alter projected fairness
returns over an preliminary future interval of 5 years (the “near-term”) in order that
fairness returns converge to the long-term anticipated price of return. If the
near-term projected future price of return is bigger than our near-term most
future price of return of 15.0%, we use our most future price of return. If the
near-term projected future price of return is decrease than our near-term minimal
future price of return of 0%, we use our minimal future price of return. As of
September 30, 2021, our variable annuities and variable life insurance coverage
companies assume an 8.0% long-term fairness anticipated price of return and a 0.4%
near-term imply reversion fairness anticipated price of return.

With regard to rate of interest assumptions utilized in evaluating DAC, DSI and
liabilities for future coverage advantages for sure of our merchandise, we typically
replace the long-term and near-term future charges used to mission mounted revenue
returns yearly and quarterly, respectively. On account of our 2021 annual
critiques and replace of assumptions and different refinements, we saved our long-term
expectation of the 10-year U.S. Treasury price unchanged and proceed to grade to
a price of three.25% over ten years. As a part of our quarterly market expertise
updates, we replace our near-term projections of rates of interest to mirror
adjustments in present charges.

For a dialogue of the influence that might end result from adjustments in sure key
assumptions, see “Administration’s Dialogue and Evaluation of Monetary Situation
and Outcomes of Operations-Accounting Insurance policies and Pronouncements-Sensitivities
for Insurance coverage Belongings and Liabilities” in our Annual Report on Type 10-Ok for the
yr ended December 31, 2020.

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Future Adoption of New Accounting Pronouncements

ASU 2018-12, Monetary Providers – Insurance coverage (Matter 944): Focused Enhancements
to the Accounting for Lengthy-Length Contracts, was issued by the Monetary
Accounting Requirements Board (“FASB”) on August 15, 2018. In October 2019, the
FASB issued ASU 2019-09, Monetary Providers – Insurance coverage (Matter 944): Efficient
Date to affirm its choice to defer the efficient date of ASU 2018-12 to
January 1, 2022 (with early adoption permitted), representing a one yr
extension from the unique efficient date of January 1, 2021. On account of
the COVID-19 pandemic, in November 2020 the FASB issued ASU 2020-11, Monetary
Providers-Insurance coverage (Matter 944): Efficient Date and Early Utility to defer
for a further one yr the efficient date of ASU 2018-12 from January 1,
2022 to January 1, 2023, and to offer transition aid to facilitate the
early adoption of the ASU. The transition aid would permit giant calendar-year
public corporations that early undertake ASU 2018-12 to use the steerage both as of
January 1, 2020 or January 1, 2021 (and file transition changes as of
January 1, 2020 or January 1, 2021, respectively) within the 2022 monetary
statements. Firms that don’t early undertake ASU 2018-12 would apply the
steerage as of January 1, 2021 (and file transition changes as of January
1, 2021) within the 2023 monetary statements. The Firm at present intends to
undertake ASU 2018-12 efficient January 1, 2023 utilizing the modified retrospective
transition technique the place permitted.

ASU 2018-12 will influence, a minimum of to some extent, the accounting and disclosure
necessities for all long-duration insurance coverage and funding contracts issued by
the Firm. The Firm expects the usual to have a major monetary
influence on the Consolidated Monetary Statements and can considerably improve
disclosures. Along with vital impacts to the steadiness sheet upon
adoption, the Firm additionally expects an influence to the sample of earnings
emergence following the transition date. See Notice 2 to the Unaudited Interim
Consolidated Monetary Statements for a extra detailed dialogue of ASU 2018-12,
in addition to different accounting pronouncements issued however not but adopted and newly
adopted accounting pronouncements.

Modifications in Monetary Place

Whole belongings decreased $1.7 billion from $208.3 billion at December 31, 2020 to
$206.6 billion at September 30, 2021. Important elements have been:

•Reinsurance recoverables decreased $17.5 billion primarily pushed by the
recapture of the dwelling profit ensures as a part of the 2021 Variable
Annuities Recapture;

Partially offset by:

•Whole investments elevated $8.8 billion primarily pushed by consideration
acquired associated to the 2021 Variable Annuities Recapture;
•Deferred coverage acquisition prices elevated $3.8 billion primarily because of the
unwinding of ceded prices on account of the 2021 Variable Annuities Recapture;
and
•Separate account belongings elevated $1.1 billion primarily pushed by favorable
fairness efficiency, partially offset by internet outflows and coverage costs.
Whole liabilities decreased $3.1 billion from $204.3 billion at December 31,
2020 to $201.2 billion at September 30, 2021. Important elements have been:
•Future coverage advantages decreased $5.1 billion primarily pushed by a lower in
reserves associated to our variable annuity dwelling profit liabilities attributable to
rising charges and favorable fairness efficiency;
Partially offset by:
•Separate account liabilities elevated $1.1 billion, comparable to the
improve in Separate account belongings, as mentioned above.
Whole fairness elevated $1.4 billion from $4.0 billion at December 31, 2020 to
$5.4 billion at September 30, 2021 pushed by a capital contribution of $3.8
billion on account of the 2021 Variable Annuities Recapture, partially offset
by after-tax internet lack of $2.4 billion.

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Outcomes of Operations

Revenue (loss) from Operations earlier than Revenue Taxes

Three Months Comparability

Revenue (loss) from operations earlier than revenue taxes decreased $3,229 million from
revenue of $33 million for the three months ended September 30, 2020 to a lack of
$3,196 million for the three months ended September 30, 2021 primarily pushed
by:
•Important Realized funding positive aspects (losses), internet reflecting an unfavorable
influence because of the 2021 Variable Annuities Recapture. See Notice 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars;
Partially offset by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.

9 Months Comparability

Revenue (loss) from operations earlier than revenue taxes decreased $3,249 million from
revenue of $85 million for the 9 months ended September 30, 2020 to a lack of
$3,164 million for the 9 months ended September 30, 2021. This consists of an
unfavorable comparative internet lack of $24 million from our annual critiques and
replace of assumptions and different refinements, as talked about above. Excluding the
influence of our annual critiques and replace of assumptions and different refinements,
revenue (loss) from operations decreased $3,225 million primarily pushed by:
•Important Realized funding positive aspects (losses), internet reflecting an unfavorable
influence because of the 2021 Variable Annuities Recapture. See Notice 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars;
Partially offset by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.

The next desk offers the online influence to the Unaudited Interim Statements
of Operations, which is primarily pushed by the adjustments within the U.S. GAAP
embedded by-product legal responsibility and hedge positions underneath the Asset Legal responsibility
Administration (“ALM”) technique, and the associated amortization of DAC and different
prices.

Three Months Ended
September 30, 2021
(in thousands and thousands)(1)

U.S. GAAP embedded by-product and hedging positions
Change in worth of U.S.GAAP legal responsibility, pre-NPR(2)

$ 266
Change within the NPR adjustment (217)
Change in truthful worth of hedge belongings, excluding capital hedges(3) (453)
Change in truthful worth of capital hedges(4) (54)
2021 Variable Annuities Recapture (4,953)
Different 426
Realized funding positive aspects (losses), internet, and associated changes (4,985)
Market expertise updates(5) (26)
Costs associated to realized investments positive aspects (losses), internet 0

Web influence from adjustments within the U.S. GAAP embedded by-product and
hedge positions, after the influence of NPR, DAC and different prices(6) $

(5,011)

(1)Optimistic quantity represents revenue; destructive quantity represents a loss.
(2)Represents the change within the legal responsibility (excluding NPR) for our variable
annuities which is measured using a valuation methodology that’s required
underneath U.S. GAAP. This legal responsibility consists of such objects as threat margins that are
required by U.S. GAAP however not included in our greatest estimate of the legal responsibility.
(3)Represents the adjustments in truthful worth of the derivatives utilized to hedge
potential claims related to our variable annuity dwelling profit ensures.
(4)Represents the adjustments in truthful worth of fairness derivatives of the capital
hedge program meant to guard a portion of the general capital place of
our enterprise towards publicity to the fairness markets.
(5)Represents the quick impacts in present interval outcomes from adjustments in
present market circumstances on estimates of profitability.

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(6)Excludes quantities from the adjustments in unrealized positive aspects and losses from mounted
revenue devices recorded in OCI (versus internet revenue) of $20 million for the
three months ended September 30, 2021.

For the three months ended September 30, 2021, the lack of $5.0 billion was
primarily pushed by the 2021 Variable Annuities Recapture. See Notice 1 to the
Unaudited Interim Consolidated Monetary Statements for additional particulars.

Revenues, Advantages and Bills
Three Months Comparability
Revenues decreased $4,317 million from $302 million for the three months ended
September 30, 2020 to $(4,015) million for the three months ended September 30,
2021 primarily pushed by:
•Important Realized funding positive aspects (losses), internet reflecting an unfavorable
influence because of the 2021 Variable Annuities Recapture. See Notice 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars.
Advantages and bills decreased $1,089 million from $270 million for the three
months ended September 30, 2020 to $(819) million for the three months ended
September 30, 2021 primarily pushed by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.
9 Months Comparability
Revenues decreased $4,235 million from $846 million for the 9 months ended
September 30, 2020 to $(3,389) million for the 9 months ended September 30,
2021. This consists of an unfavorable comparative internet lower of $43 million from
our annual critiques and replace of assumptions and different refinements, as talked about
above. Excluding the influence of our annual critiques and replace of assumptions and
different refinements, Revenues decreased $4,191 million primarily pushed by:
•Important Realized funding positive aspects (losses), internet reflecting an unfavorable
influence because of the 2021 Variable Annuities Recapture. See Notice 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars.

Advantages and bills decreased $986 million from $761 million for the 9
months ended September 30, 2020 to $(225) million for the 9 months ended
September 30, 2021. This features a favorable comparative internet lower of $19
million from our annual critiques and replace of assumptions and different refinements,
as talked about above. Excluding the influence of our annual critiques and replace of
assumptions and different refinements, Advantages and bills decreased $966 million
primarily pushed by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.
Dangers and Danger Mitigants
Variable Annuity Dangers and Danger Mitigants:
The first threat exposures of our variable annuity contracts relate to precise
deviations from, or adjustments to, the assumptions used within the unique pricing of
these merchandise, together with capital markets assumptions comparable to fairness market
returns, rates of interest and market volatility, together with actuarial assumptions
comparable to contractholder mortality, the timing and quantity of annuitization and
withdrawals, and contract lapses. For these threat exposures, achievement of our
anticipated returns is topic to the chance that precise expertise will differ from
the assumptions used within the unique pricing of those merchandise. Prudential
Monetary manages our publicity to sure dangers pushed by fluctuations in
capital markets primarily by means of a mixture of Product Design Options and
an Asset Legal responsibility Administration Technique (“ALM”), as mentioned beneath. The Firm
additionally manages these threat exposures by means of reinsurance for sure of our
variable annuity merchandise. For data on our reinsurance agreements, see
Notice 6 to the Unaudited Interim Consolidated Monetary Statements. Gross sales of
conventional variable annuities with assured dwelling profit riders have been
discontinued as of December 31, 2020.
Efficient July 1, 2021, the Firm recaptured the dangers associated to its variable
annuity base contracts, together with the dwelling profit ensures, that had
beforehand been reinsured to PALAC from April 1, 2016 by means of June 30, 2021. The
recapture doesn’t influence PLNJ, which can proceed to reinsure its new and in
power enterprise to Prudential Insurance coverage. The product dangers associated to the
beforehand reinsured enterprise that have been being managed in PALAC, have been transferred
to the Firm. As well as, the dwelling profit hedging program associated to the
beforehand reinsured dwelling profit riders might be managed inside the Firm.
For extra data on this transaction, see Notice 1 to the Unaudited Interim
Consolidated Monetary Statements.

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Product Design Options:
A portion of the variable annuity contracts that we provided embody an asset
switch characteristic. This characteristic is applied on the contract stage, and
transfers belongings between sure variable funding sub-accounts chosen by
the annuity contractholder and, relying on the profit characteristic, a fixed-rate
account within the common account or a bond fund sub-account inside the separate
account. The target of the asset switch characteristic is to cut back our publicity
to fairness market threat and market volatility.
The asset switch characteristic related to highest day by day dwelling profit merchandise
makes use of a chosen bond fund sub-account inside the separate account. The
transfers are based mostly on a static mathematical components used with the actual
profit which considers various elements, together with, however not restricted to, the
influence of funding efficiency on the contractholder’s complete account worth.
Different product design options we make the most of embody, amongst others, asset allocation
restrictions, minimal issuance age necessities and sure limitations on the
quantity of contractholder buy funds, in addition to a required minimal
allocation to our common account for sure of our merchandise. As well as,
there’s variety in our payment preparations, as sure charges are based totally
on the profit assure quantity, the contractholder account worth and/or
premiums, which helps protect sure income streams when market fluctuations
trigger account values to say no.
Asset Legal responsibility Administration Technique (together with mounted revenue devices and
derivatives):
We make use of an ALM technique that makes use of a mixture of each conventional mounted
revenue devices and derivatives to fulfill anticipated liabilities related to
our variable annuity dwelling profit ensures. The financial legal responsibility we handle
with this ALM technique consists of anticipated dwelling profit claims underneath much less
extreme market circumstances, that are managed utilizing mounted revenue devices,
derivatives, or a mixture thereof, and potential dwelling profit claims
ensuing from extra extreme market circumstances, that are hedged utilizing by-product
devices. For the portion of our ALM technique executed with derivatives, we
enter into a spread of exchange-traded and over-the-counter fairness, rate of interest
and credit score derivatives, together with, however not restricted to: fairness and treasury
futures; complete return, credit score default and rate of interest swaps; and choices,
together with fairness choices, swaptions, and flooring and caps. The intent of this
technique is to extra effectively handle the capital and liquidity related to
these merchandise whereas persevering with to mitigate fluctuations in internet revenue attributable to
actions in capital markets.
The valuation of the financial legal responsibility we search to defray excludes sure objects
which might be included inside the U.S. GAAP legal responsibility, comparable to NPR as a way to
maximize safety regardless of the potential of our personal default, as effectively
as threat margins (required by U.S. GAAP however totally different from our greatest estimate) and
valuation methodology variations. The next desk offers a reconciliation
between the legal responsibility reported underneath U.S. GAAP and the financial legal responsibility we
handle by means of our ALM technique, internet of reinsurance recoverables, as of the
interval indicated:
As of September 30, 2021
(in thousands and thousands)
U.S. GAAP Legal responsibility, together with NPR $ 8,269
NPR Adjustment 2,033
Subtotal 10,302
Changes together with threat margins and valuation
methodology variations (1,785)
Financial legal responsibility managed by ALM technique $ 8,517

As of September 30, 2021, the truthful worth of our mounted revenue devices and
by-product belongings exceed our financial legal responsibility.
Beneath our ALM technique, we count on variations within the U.S. GAAP internet revenue influence
between the adjustments in worth of the mounted revenue devices (both designated
as available-for-sale or designated as buying and selling) and derivatives as in comparison with
the adjustments within the embedded by-product legal responsibility these belongings help. These
variations could be primarily attributed to a few distinct areas:
•Totally different valuation methodologies in measuring the legal responsibility we intend to cowl
with mounted revenue devices and derivatives versus the legal responsibility reported
underneath U.S. GAAP. The valuation methodology utilized in estimating the financial
legal responsibility we intend to defray with mounted revenue devices (both designated
as available-for-sale or designated as buying and selling) and derivatives is totally different
from that required to be utilized to measure the legal responsibility underneath U.S. GAAP.
Moreover, the valuation of the financial legal responsibility excludes sure objects
which might be included inside the U.S. GAAP legal responsibility, comparable to NPR as a way to
maximize safety regardless of the potential of our personal default and threat
margins (required by U.S. GAAP however totally different from our greatest estimate).

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•Totally different accounting therapy between liabilities and belongings supporting these
liabilities. Beneath U.S. GAAP, adjustments in worth of the embedded by-product
legal responsibility, by-product devices and glued revenue devices designated as
buying and selling instantly mirrored in internet revenue, whereas adjustments within the truthful worth of
mounted revenue devices which might be designated as available-for-sale are recorded
as unrealized positive aspects (losses) in different complete revenue.
•Normal hedge outcomes. For the by-product portion of the ALM technique, the online
hedging influence (the extent to which the adjustments in worth of the hedging
devices offset the change in worth of the portion of the financial legal responsibility
we’re hedging) could also be impacted by various elements, together with: money circulate
timing variations between our hedging devices and the corresponding portion
of the financial legal responsibility we’re hedging, foundation variations attributable to
precise underlying contractholder funds to be hedged versus hedgeable indices,
rebalancing prices associated to dynamic rebalancing of hedging devices as
markets transfer, sure parts of the financial legal responsibility that will not be hedged
(together with sure actuarial assumptions), and implied and realized market
volatility on the hedge positions relative to the portion of the financial
legal responsibility we search to hedge.
For data relating to the Danger Urge for food Framework (“RAF”) we use to guage
and help the dangers of the ALM technique, see “-Liquidity and Capital
Sources-Capital”
Capital Hedge Program:
We make use of a capital hedge program inside the Firm to guard a portion of the
general capital place of the variable annuities enterprise towards its publicity
to the fairness markets. The capital hedge program is performed utilizing fairness
derivatives which embody fairness name and put choices, complete return swaps and
futures contracts.

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Revenue Taxes

For data relating to revenue taxes, see Notice 7 to the Unaudited Interim
Consolidated Monetary Statements.

Liquidity and Capital Sources
This part dietary supplements and must be learn at the side of “Administration’s
Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations-Liquidity and Capital Sources” included in our Annual Report on
Type 10-Ok for the yr ended December 31, 2020.
Overview
Liquidity refers back to the capacity to generate adequate money assets to fulfill
the cost obligations of the Firm. Capital refers back to the long-term
monetary assets out there to help the operations of our enterprise, fund
enterprise development, and supply a cushion to resist adversarial circumstances. Our
capacity to generate and keep adequate liquidity and capital will depend on the
profitability of our enterprise, common financial circumstances, our capacity to
borrow from associates and our entry to the capital markets by means of associates
as described herein.
Efficient and prudent liquidity and capital administration is a precedence throughout the
group. Administration screens the liquidity of the Firm each day
and tasks borrowing and capital wants over a multi-year time horizon. We use
a Danger Urge for food Framework (“RAF”) to make sure that all dangers taken by the Firm
aligns with our capability and willingness to take these dangers. The RAF offers a
dynamic evaluation of capital and liquidity stress impacts, together with situations
much like, and extra extreme than, these occurring attributable to COVID-19, and is
meant to make sure that adequate assets can be found to soak up these
impacts. We imagine that our capital and liquidity assets are adequate to
fulfill the capital and liquidity necessities of the Firm.
Our companies are topic to complete regulation and supervision by
home and worldwide regulators. These laws at present embody
necessities (lots of that are the topic of ongoing rule-making) referring to
capital, leverage, liquidity, stress-testing, general threat administration, credit score
publicity reporting and credit score focus. For data on these regulatory
initiatives and their potential influence on us, see “Enterprise-Regulation” and
“Danger Components” included in our Annual Report on Type 10-Ok for the yr ended
December 31, 2020.
Capital
We handle the Firm to regulatory capital ranges in step with our “AA”
scores targets. We make the most of the risk-based capital (“RBC”) ratio as a major
measure of capital adequacy. RBC is calculated based mostly on statutory monetary
statements and threat formulation in step with the practices of the Nationwide
Affiliation of Insurance coverage Commissioners (“NAIC”). RBC considers, amongst different
issues, dangers associated to the sort and high quality of the invested belongings,
insurance-related dangers related to an insurer’s merchandise and liabilities,
rate of interest dangers and common enterprise dangers. RBC ratio calculations are
meant to help insurance coverage regulators in measuring an insurer’s solvency and
capacity to pay future claims. The reporting of RBC measures will not be meant for
the aim of rating any insurance coverage firm or to be used in reference to any
advertising and marketing, promoting or promotional actions, however is offered to the
public. The Firm’s capital ranges considerably exceed the minimal stage
required by relevant insurance coverage laws. Our regulatory capital ranges might
be affected sooner or later by adjustments to the relevant laws, proposals
for that are at present into account by each home and worldwide
insurance coverage regulators.
The regulatory capital stage of the Firm could be materially impacted by
rate of interest and fairness market fluctuations, adjustments within the values of
derivatives, the extent of impairments recorded, and credit score high quality migration of
the funding portfolio, amongst different objects. As well as, the reinsurance of
enterprise or the recapture of enterprise topic to reinsurance preparations attributable to
defaults by, or credit score high quality migration affecting, the reinsurers or for different
causes might negatively influence regulatory capital ranges. The Firm’s
regulatory capital stage can be affected by statutory accounting guidelines, which
are topic to alter by every relevant insurance coverage regulator.
Captive Reinsurance Firms:
See “Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations-Liquidity and Capital Sources-Capital-Affiliated Captive
Reinsurance Firms” included in our Annual Report on Type 10-Ok for the yr
ended December 31, 2020, for a dialogue of our use of captive reinsurance
corporations.
Liquidity
Our liquidity is managed to make sure steady, dependable and cost-effective sources
of money flows to fulfill all of our obligations. Liquidity is offered by a spread
of sources, as described extra totally beneath, together with portfolios of liquid
belongings. Our funding portfolios are integral to the general liquidity of the
Firm. We use a projection course of for money flows from

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operations to make sure adequate liquidity to fulfill projected money outflows,
together with claims. The influence of Prudential Funding, LLC’s (“Prudential
Funding”), a wholly-owned subsidiary of Prudential Insurance coverage, financing capability
on liquidity is taken into account within the inside liquidity measures of the Firm.
Liquidity is measured towards internally-developed benchmarks that take into
account the traits of each the asset portfolio and the liabilities that
they help. We think about attributes of the varied classes of liquid belongings
(for instance, kind of asset and credit score high quality) in calculating inside
liquidity measures to guage our liquidity underneath varied stress situations,
together with company-specific and market-wide occasions. We proceed to imagine that
money generated by ongoing operations and the liquidity profile of our belongings
present adequate liquidity underneath moderately foreseeable stress situations.
The principal sources of the Firm’s liquidity are premiums and sure
annuity issues, funding and payment revenue, funding maturities, gross sales
of investments and inside borrowings. The principal makes use of of that liquidity
embody advantages, claims, and funds to policyholders and contractholders in
reference to surrenders, withdrawals and internet coverage mortgage exercise. Different makes use of
of liquidity embody commissions, common and administrative bills, purchases
of investments, the cost of dividends and returns of capital to the mum or dad
firm, hedging and reinsurance exercise and funds in reference to
financing actions.
In managing liquidity, we think about the chance of policyholder and contractholder
withdrawals of funds sooner than our assumptions when deciding on belongings to
help these contractual obligations. We use give up costs and different
contract provisions to mitigate the extent, timing and profitability influence of
withdrawals of funds by clients.
Liquid Belongings
Liquid belongings embody money and money equivalents, short-term investments, U.S.
Treasury mounted maturities, and glued maturities that aren’t designated as
held-to-maturity and public fairness securities. As of September 30, 2021 and
December 31, 2020, the Firm had liquid belongings of $15,692 million and $7,681
million, respectively. The portion of liquid belongings comprised money and money
equivalents and short-term investments was $1,185 million and $477 million as of
September 30, 2021 and December 31, 2020, respectively. As of September 30,
2021, $6,677 million, or 93%, of the mounted maturity investments within the Firm’s
common account portfolios, have been rated excessive or highest high quality based mostly on NAIC or
equal score.

Time period and Common Life Reserve Financing
The Firm makes use of affiliated captive reinsurance subsidiaries to finance the
portion of the statutory reserves required to be held underneath Regulation XXX and
Guideline AXXX that’s thought of to be non-economic. The financing preparations
contain the reinsurance of time period and common life enterprise to our affiliated
captive reinsurers and the issuance of surplus notes by these affiliated
captives which might be handled as capital for statutory functions. These surplus notes
are subordinated to policyholder obligations, and the cost of principal and
curiosity on the excess notes can solely be made with prior insurance coverage regulatory
approval.

As of September 30, 2021, the affiliated captive reinsurance corporations have
entered into agreements with exterior counterparties offering for the issuance
of as much as an mixture of $14,700 million of surplus notes by our affiliated
captive reinsurers in return for the receipt of credit-linked notes
(“Credit score-Linked Notice Constructions”), of which $12,746 million of surplus notes was
excellent, in comparison with an mixture issuance capability of $14,825 million, of
which $12,919 million was excellent as of December 31, 2020. Beneath the
agreements, the affiliated captive receives in alternate for the excess notes
a number of credit-linked notes issued by a special-purpose affiliate of the
Firm with an mixture principal quantity equal to the excess notes
excellent. The affiliated captive holds the credit-linked notes as belongings
supporting Regulation XXX or Guideline AXXX non-economic reserves, as
relevant. For extra data on our Credit score-Linked Notice Constructions, see
“Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operation-Liquidity and Capital Sources-Financing Actions” within the Annual
Report on Type 10-Ok for the yr ended December 31, 2020.

As of September 30, 2021, our affiliated captive reinsurance corporations had
excellent an mixture of $2,775 million of debt issued for the aim of
financing Regulation XXX and Guideline AXXX non-economic reserves, of which
roughly $1,175 million pertains to Regulation XXX reserves and
roughly $1,600 million pertains to Guideline AXXX reserves. As well as, as
of September 30, 2021, for functions of financing Guideline AXXX reserves, certainly one of
our affiliated captives had roughly $3,982 million of surplus notes
excellent that have been issued to associates.

The Firm has launched up to date variations of its particular person life merchandise in
conjunction with the requirement to undertake principle-based reserving by January
1, 2020. These up to date merchandise are at present priced to help the
principle-based statutory reserve stage with out the necessity for reserve financing.

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