0000777917us-gaap:AvailableforsaleSecuritiesMemberus-gaap:DebtSecuritiesMemberus-gaap:GainLossOnInvestmentsMember12020-01-012020-06-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q


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

For the quarterly period ended ~~March 31,~~June 30, 2021


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

For the Transition Period from to

Commission file number 033-37587

____________________________________________________________

Pruco Life Insurance Company

(Exact Name of Registrant as Specified in its Charter)


Arizona						22-1944557
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

213 Washington Street

Newark, NJ 07102

(973) 802-6000

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Not Applicable	Not Applicable	Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☐
		Emerging Growth Company	☐

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

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

As of ~~May~~August 12, 2021, 250,000 shares of the registrant’s Common Stock (par value $10) were outstanding. As of such date, The Prudential Insurance Company of America, a New Jersey corporation, owned all of the registrant’s Common Stock.

Pruco Life Insurance Company meets the conditions set

forth in General Instruction (H) (1) (a) and (b) on Form 10-Q and

is therefore filing this Form 10-Q in the reduced disclosure format.

Table of Contents

TABLE OF CONTENTS


		Page Number
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Unaudited Interim Consolidated Statements of Financial Position as of ~~March 31,~~June 3 0 , 2021 and December 31, 2020	4

	Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended ~~March 31,~~June 3 0 , 2021 and 2020	5

	Unaudited Interim Consolidated Statements of Equity for the three and six months ended ~~March 31,~~June 3 0 , 2021 and 2020	6

	Unaudited Interim Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 3 0 , 2021 and 2020	7

	Notes to Unaudited Interim Consolidated Financial Statements	8

	1. Business and Basis of Presentation	8

	2. Significant Accounting Policies and Pronouncements	9

	3. Investments	12

	4. Derivatives and Hedging	22

	5. Fair Value of Assets and Liabilities	2728

	6. Reinsurance	3539

	7. Income Taxes	4044

	8. Equity	4145

	9. Related Party Transactions	4247

	10. Commitments and Contingent Liabilities	4550



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4853

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5562

Item 4.	Controls and Procedures	5562

PART II—OTHER INFORMATION		5663

Item 1.	Legal Proceedings	5663

Item 1A.	Risk Factors	5663

Item 6.	Exhibits	5764

SIGNATURES		5865

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company and its subsidiary. There can be no assurance that future developments affecting Pruco Life Insurance Company and its subsidiary will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) the ongoing impact of the COVID-19 pandemic on the global economy, financial markets and our business, (2) losses on investments or financial contracts due to deterioration in credit quality or value, or counterparty default; (3) losses on insurance products due to mortality experience or policyholder behavior experience that differs significantly from our expectations when we price our products; (4) changes in interest rates and equity prices that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data (d) reliance on third parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) state insurance laws and developments regarding group-wide supervision, capital and reserves, and (e) privacy and cybersecurity regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) ratings downgrades; (11) market conditions that may adversely affect the sales or persistency of our products; (12) competition; and (13) reputational damage. Pruco Life Insurance Company does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2020 for discussion of certain risks relating to our business and investment in our securities.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PRUCO LIFE INSURANCE COMPANY

Unaudited Interim Consolidated Statements of Financial Position

~~March 31,~~June 30, 2021 and December 31, 2020 (in thousands, except share amounts)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Fixed maturities, available for sale, at fair value (allowance for credit losses: 2021-$2,858; 2020-$2,339) (amortized cost: 2021–$6,636,128; 2020–$6,157,371)		$	7,053,914	$	7,012,631
Fixed maturities, available for sale, at fair value (allowance for credit losses: 2021-$558; 2020-$2,339) (amortized cost: 2021–$6,691,704; 2020–$6,157,371)						Fixed maturities, available for sale, at fair value (allowance for credit losses: 2021-$558; 2020-$2,339) (amortized cost: 2021–$6,691,704; 2020–$6,157,371)	$	7,339,233	$	7,012,631
Fixed maturities, trading, at fair value (amortized cost: 2021–$74,783; 2020–$73,413)	Fixed maturities, trading, at fair value (amortized cost: 2021–$74,783; 2020–$73,413)	81,114		82,482		Fixed maturities, trading, at fair value (amortized cost: 2021–$74,783; 2020–$73,413)	81,361		82,482
Equity securities, at fair value (cost: 2021– $5,646; 2020–$105,508)		8,096		108,457
Equity securities, at fair value (cost: 2021– $46,001; 2020–$105,508)						Equity securities, at fair value (cost: 2021– $46,001; 2020–$105,508)	48,931		108,457

Policy loans	Policy loans	1,320,915		1,323,681		Policy loans	1,325,519		1,323,681
Short-term investments	Short-term investments	3,997		49,997		Short-term investments	0		49,997
Commercial mortgage and other loans (net of $4,314 and $4,552 allowance for credit losses at March 31, 2021 and December 31, 2020, respectively)		1,259,515		1,288,846
Other invested assets (includes $190,892 and $94,939 of assets measured at fair value at March 31, 2021 and December 31, 2020, respectively)		627,357		520,955
Commercial mortgage and other loans (net of $3,404 and $4,552 allowance for credit losses at June 30, 2021 and December 31, 2020, respectively)						Commercial mortgage and other loans (net of $3,404 and $4,552 allowance for credit losses at June 30, 2021 and December 31, 2020, respectively)	1,288,940		1,288,846
Other invested assets (includes $181,424 and $94,939 of assets measured at fair value at June 30, 2021 and December 31, 2020, respectively)						Other invested assets (includes $181,424 and $94,939 of assets measured at fair value at June 30, 2021 and December 31, 2020, respectively)	620,592		520,955
Total investments	Total investments	10,354,908		10,387,049		Total investments	10,704,576		10,387,049
Cash and cash equivalents	Cash and cash equivalents	275,727		426,979		Cash and cash equivalents	238,213		426,979
Deferred policy acquisition costs	Deferred policy acquisition costs	2,647,832		2,433,936		Deferred policy acquisition costs	2,790,412		2,433,936
Accrued investment income	Accrued investment income	97,728		93,613		Accrued investment income	97,327		93,613
Reinsurance recoverables	Reinsurance recoverables	42,364,083		48,367,096		Reinsurance recoverables	42,955,806		48,367,096
Receivables from parent and affiliates	Receivables from parent and affiliates	269,946		266,473		Receivables from parent and affiliates	280,424		266,473

Income taxes receivable	Income taxes receivable	294,014		175,024		Income taxes receivable	274,410		175,024
Other assets	Other assets	385,585		417,508		Other assets	402,500		417,508
Separate account assets	Separate account assets	145,348,536		145,740,422		Separate account assets	150,164,599		145,740,422
TOTAL ASSETS	TOTAL ASSETS	$	202,038,359	$	208,308,100	TOTAL ASSETS	$	207,908,267	$	208,308,100
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
LIABILITIES	LIABILITIES					LIABILITIES
Future policy benefits	Future policy benefits	$	26,799,239	$	32,889,181	Future policy benefits	$	27,399,889	$	32,889,181
Policyholders’ account balances	Policyholders’ account balances	24,149,144		23,857,574		Policyholders’ account balances	24,326,011		23,857,574

Cash collateral for loaned securities	Cash collateral for loaned securities	2,725		2,725		Cash collateral for loaned securities	2,725		2,725

Payables to parent and affiliates	Payables to parent and affiliates	105,833		75,990		Payables to parent and affiliates	175,902		75,990
Other liabilities	Other liabilities	1,657,565		1,694,492		Other liabilities	1,760,014		1,694,492
Separate account liabilities	Separate account liabilities	145,348,536		145,740,422		Separate account liabilities	150,164,599		145,740,422
Total liabilities	Total liabilities	198,063,042		204,260,384		Total liabilities	203,829,140		204,260,384
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)	COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)	0		0		COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)	0		0
EQUITY	EQUITY					EQUITY
Common stock ($10 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding)	Common stock ($10 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding)	2,500		2,500		Common stock ($10 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding)	2,500		2,500
Additional paid-in capital	Additional paid-in capital	1,832,590		1,726,690		Additional paid-in capital	1,798,499		1,726,690
Retained earnings	Retained earnings	1,875,775		1,772,398		Retained earnings	1,842,681		1,772,398
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	264,452		546,128		Accumulated other comprehensive income (loss)	435,447		546,128
Total equity	Total equity	3,975,317		4,047,716		Total equity	4,079,127		4,047,716
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	202,038,359	$	208,308,100	TOTAL LIABILITIES AND EQUITY	$	207,908,267	$	208,308,100

See Notes to Unaudited Interim Consolidated Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss)

Three and Six Months Ended ~~March 31,~~June 30, 2021 and 2020 (in thousands)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020				2021		2020		2021		2020
REVENUES	REVENUES						REVENUES
Premiums	Premiums	$	44,405	$	14,871		Premiums	$	44,862	$	22,544	$	89,267	$	37,415
Policy charges and fee income	Policy charges and fee income	151,865		139,919			Policy charges and fee income	180,200		161,085		332,065		301,004
Net investment income	Net investment income	98,867		79,581			Net investment income	95,300		83,462		194,167		163,043
Asset administration fees	Asset administration fees	6,211		4,388			Asset administration fees	6,276		4,302		12,487		8,690
Other income	Other income	18,244		8,836			Other income	25,630		14,892		43,874		23,728

Realized investment gains (losses), net	Realized investment gains (losses), net	76,608		89,895			Realized investment gains (losses), net	(122,502)		(80,231)		(45,894)		9,664
TOTAL REVENUES	TOTAL REVENUES	396,200		337,490			TOTAL REVENUES	229,766		206,054		625,966		543,544
BENEFITS AND EXPENSES	BENEFITS AND EXPENSES						BENEFITS AND EXPENSES
Policyholders’ benefits	Policyholders’ benefits	93,913		85,923			Policyholders’ benefits	78,076		86,253		171,989		172,176
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	56,170		55,046			Interest credited to policyholders’ account balances	47,400		66,417		103,570		121,463
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	51,840		49,309			Amortization of deferred policy acquisition costs	35,115		13,638		86,955		62,947
General, administrative and other expenses	General, administrative and other expenses	136,196		75,914			General, administrative and other expenses	95,444		59,118		231,640		135,032
TOTAL BENEFITS AND EXPENSES	TOTAL BENEFITS AND EXPENSES	338,119		266,192			TOTAL BENEFITS AND EXPENSES	256,035		225,426		594,154		491,618
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	58,081		71,298			INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	(26,269)		(19,372)		31,812		51,926
Income tax expense (benefit)	Income tax expense (benefit)	(45,309)		(27,101)			Income tax expense (benefit)	6,993		(29,417)		(38,316)		(56,518)
INCOME (LOSS) FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	INCOME (LOSS) FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	103,390		98,399			INCOME (LOSS) FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	(33,262)		10,045		70,128		108,444
Equity in earnings of operating joint venture, net of taxes	Equity in earnings of operating joint venture, net of taxes	(13)		(787)			Equity in earnings of operating joint venture, net of taxes	168		(513)		155		(1,300)
NET INCOME (LOSS)	NET INCOME (LOSS)	$	103,377	$	97,612		NET INCOME (LOSS)	$	(33,094)	$	9,532	$	70,283	$	107,144
Other comprehensive income (loss), before tax:	Other comprehensive income (loss), before tax:						Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(5,205)		(20,402)			Foreign currency translation adjustments	424		16,514		(4,781)		(3,888)
Net unrealized investment gains (losses)	Net unrealized investment gains (losses)	(350,202)		(134,266)			Net unrealized investment gains (losses)	215,967		325,293		(134,235)		191,027
Total	Total	(355,407)		(154,668)			Total	216,391		341,807		(139,016)		187,139
Less: Income tax expense (benefit) related to other comprehensive income (loss)	Less: Income tax expense (benefit) related to other comprehensive income (loss)	(73,731)		(28,287)			Less: Income tax expense (benefit) related to other comprehensive income (loss)	45,396		68,391		(28,335)		40,104
Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes	(281,676)		(126,381)			Other comprehensive income (loss), net of taxes	170,995		273,416		(110,681)		147,035
Comprehensive income (loss)	Comprehensive income (loss)	$	(178,299)	$	(28,769)		Comprehensive income (loss)	$	137,901	$	282,948	$	(40,398)	$	254,179

See Notes to Unaudited Interim Consolidated Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Unaudited Interim Consolidated Statements of Equity

Three and Six Months Ended ~~March 31,~~June 30, 2021 and 2020 (in thousands)


		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity			Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2020	Balance, December 31, 2020	$	2,500	$	1,726,690	$	1,772,398	$	546,128	$	4,047,716	Balance, December 31, 2020	$	2,500	$	1,726,690	$	1,772,398	$	546,128	$	4,047,716

Contributed capital	Contributed capital			105,900						105,900		Contributed capital			105,900						105,900

Comprehensive income (loss):	Comprehensive income (loss):											Comprehensive income (loss):
Net income (loss)	Net income (loss)					103,377				103,377		Net income (loss)					103,377				103,377
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax							(281,676)		(281,676)		Other comprehensive income (loss), net of tax							(281,676)		(281,676)
Total comprehensive income (loss)	Total comprehensive income (loss)									(178,299)		Total comprehensive income (loss)									(178,299)
Balance, March 31, 2021	Balance, March 31, 2021	$	2,500	$	1,832,590	$	1,875,775	$	264,452	$	3,975,317	Balance, March 31, 2021	$	2,500	$	1,832,590	$	1,875,775	$	264,452	$	3,975,317

Contributed capital												Contributed capital			0						0
Return of capital												Return of capital			(34,091)						(34,091)

Comprehensive income (loss):												Comprehensive income (loss):
Net income (loss)												Net income (loss)					(33,094)				(33,094)
Other comprehensive income (loss), net of taxes												Other comprehensive income (loss), net of taxes							170,995		170,995
Total comprehensive income (loss)												Total comprehensive income (loss)									137,901
Balance, June 30, 2021												Balance, June 30, 2021	$	2,500	$	1,798,499	$	1,842,681	$	435,447	$	4,079,127


		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity			Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2019	Balance, December 31, 2019	$	2,500	$	1,153,632	$	1,577,453	$	281,442	$	3,015,027	Balance, December 31, 2019	$	2,500	$	1,153,632	$	1,577,453	$	281,442	$	3,015,027
Cumulative effect of adoption of accounting changes(1)	Cumulative effect of adoption of accounting changes(1)					(1,752)				(1,752)		Cumulative effect of adoption of accounting changes(1)					(1,752)				(1,752)

Contributed (distributed) capital-parent/child asset transfers												Contributed (distributed) capital-parent/child asset transfers			0						0
Comprehensive income (loss):	Comprehensive income (loss):											Comprehensive income (loss):
Net income (loss)	Net income (loss)					97,612				97,612		Net income (loss)					97,612				97,612
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax							(126,381)		(126,381)		Other comprehensive income (loss), net of tax							(126,381)		(126,381)
Total comprehensive income (loss)	Total comprehensive income (loss)									(28,769)		Total comprehensive income (loss)									(28,769)
Balance, March 31, 2020	Balance, March 31, 2020	$	2,500	$	1,153,632	$	1,673,313	$	155,061	$	2,984,506	Balance, March 31, 2020	$	2,500	$	1,153,632	$	1,673,313	$	155,061	$	2,984,506

Contributed capital												Contributed capital			325,000						325,000

Contributed (distributed) capital-parent/child asset transfers												Contributed (distributed) capital-parent/child asset transfers			(1,942)						(1,942)
Comprehensive income (loss):												Comprehensive income (loss):
Net income (loss)												Net income (loss)					9,532				9,532
Other comprehensive income (loss), net of tax												Other comprehensive income (loss), net of tax							273,416		273,416
Total comprehensive income (loss)												Total comprehensive income (loss)									282,948
Balance, June 30, 2020												Balance, June 30, 2020	$	2,500	$	1,476,690	$	1,682,845	$	428,477	$	3,590,512

(1)Includes the impact from the adoption of ASU 2016-13. See Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

See Notes to Unaudited Interim Consolidated Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Unaudited Interim Consolidated Statements of Cash Flows

~~Three~~Six Months Ended ~~March 31,~~June 30, 2021 and 2020 (in thousands)


		2021		2020			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	Net income (loss)	$	103,377	$	97,612	Net income (loss)	$	70,283	$	107,144
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income	Policy charges and fee income	(28,138)		(31,564)		Policy charges and fee income	(22,018)		(39,490)
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	56,170		55,046		Interest credited to policyholders’ account balances	103,570		121,463
Realized investment (gains) losses, net	Realized investment (gains) losses, net	(76,608)		(89,895)		Realized investment (gains) losses, net	45,894		(9,664)
Amortization and other non-cash items	Amortization and other non-cash items	(17,211)		3,310		Amortization and other non-cash items	(31,361)		(18,346)
Change in:	Change in:					Change in:
Future policy benefits	Future policy benefits	629,659		796,294		Future policy benefits	924,447		1,380,155
Reinsurance recoverables	Reinsurance recoverables	(597,841)		(745,550)		Reinsurance recoverables	(934,329)		(1,236,738)
Accrued investment income	Accrued investment income	(4,115)		(44)		Accrued investment income	(3,714)		9
Net payables to/receivables from parent and affiliates	Net payables to/receivables from parent and affiliates	25,571		(1,970)		Net payables to/receivables from parent and affiliates	84,598		(156,618)
Deferred policy acquisition costs	Deferred policy acquisition costs	(176,017)		(113,789)		Deferred policy acquisition costs	(337,488)		(278,479)
Income taxes	Income taxes	(45,258)		(27,200)		Income taxes	(71,050)		(56,291)

Derivatives, net	Derivatives, net	(97,539)		59,069		Derivatives, net	(40,879)		67,672
Other, net	Other, net	80,694		(36,429)		Other, net	70,192		(59,424)
Cash flows from (used in) operating activities	Cash flows from (used in) operating activities	(147,256)		(35,110)		Cash flows from (used in) operating activities	(141,855)		(178,607)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:	Proceeds from the sale/maturity/prepayment of:					Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale	108,725		86,461		Fixed maturities, available-for-sale	470,550		150,587

Equity securities	Equity securities	98,680		0		Equity securities	99,345		192
Policy loans	Policy loans	44,593		45,631		Policy loans	86,862		86,793
Ceded policy loans	Ceded policy loans	(4,533)		(2,885)		Ceded policy loans	(7,292)		(6,573)
Short-term investments	Short-term investments	74,984		0		Short-term investments	78,980		99,606
Commercial mortgage and other loans	Commercial mortgage and other loans	61,607		42,057		Commercial mortgage and other loans	85,893		74,985
Other invested assets	Other invested assets	14,688		6,262		Other invested assets	30,518		4,706

Payments for the purchase/origination of:	Payments for the purchase/origination of:					Payments for the purchase/origination of:
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale	(510,669)		(163,416)		Fixed maturities, available-for-sale	(997,806)		(369,432)
Fixed maturities, trading	Fixed maturities, trading	(1,370)		0		Fixed maturities, trading	(1,370)		0

Equity securities						Equity securities	(41,074)		(6)
Policy loans	Policy loans	(27,122)		(39,568)		Policy loans	(60,691)		(73,633)
Ceded policy loans	Ceded policy loans	2,254		6,231		Ceded policy loans	5,139		12,948
Short-term investments	Short-term investments	(28,991)		(129,600)		Short-term investments	(28,991)		(201,551)
Commercial mortgage and other loans	Commercial mortgage and other loans	(33,840)		(20,210)		Commercial mortgage and other loans	(85,567)		(41,429)
Other invested assets	Other invested assets	(13,659)		(21,916)		Other invested assets	(31,094)		(34,816)

Notes receivable from parent and affiliates, net	Notes receivable from parent and affiliates, net	(28)		(7,124)		Notes receivable from parent and affiliates, net	(57)		(5,254)
Derivatives, net	Derivatives, net	(10,823)		(2,706)		Derivatives, net	(5,011)		(9,799)
Other, net	Other, net	(1,376)		(182)		Other, net	(2,305)		1,317
Cash flows from (used in) investing activities	Cash flows from (used in) investing activities	(226,880)		(200,965)		Cash flows from (used in) investing activities	(403,971)		(311,359)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders’ account deposits	Policyholders’ account deposits	1,036,026		1,240,761		Policyholders’ account deposits	2,103,227		2,454,899
Ceded policyholders’ account deposits	Ceded policyholders’ account deposits	(820,018)		(908,495)		Ceded policyholders’ account deposits	(1,683,933)		(1,796,974)
Policyholders’ account withdrawals	Policyholders’ account withdrawals	(750,479)		(790,672)		Policyholders’ account withdrawals	(1,594,433)		(1,653,848)
Ceded policyholders’ account withdrawals	Ceded policyholders’ account withdrawals	663,049		632,987		Ceded policyholders’ account withdrawals	1,386,684		1,341,955
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities	Net change in securities sold under agreement to repurchase and cash collateral for loaned securities	0		(4,942)		Net change in securities sold under agreement to repurchase and cash collateral for loaned securities	0		(4,829)
Contributed capital	Contributed capital	100,000		0		Contributed capital	100,000		325,000

Contributed (distributed) capital - parent/child asset transfers						Contributed (distributed) capital - parent/child asset transfers	0		(2,458)
Net change in all other financing arrangements (maturities 90 days or less)	Net change in all other financing arrangements (maturities 90 days or less)	0		(2,845)		Net change in all other financing arrangements (maturities 90 days or less)	0		(2,845)

Drafts outstanding	Drafts outstanding	3,837		68,585		Drafts outstanding	47,280		(17,252)
Other, net	Other, net	(9,531)		(7,151)		Other, net	(1,765)		(3,100)
Cash flows from (used in) financing activities	Cash flows from (used in) financing activities	222,884		228,228		Cash flows from (used in) financing activities	357,060		640,548
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(151,252)		(7,847)		NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(188,766)		150,582
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	426,979		563,199		CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	426,979		563,199
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	275,727	$	555,352	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	238,213	$	713,781

Significant Non-Cash Transactions

There were no significant non-cash transactions for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Pruco Life Insurance Company (“Pruco Life”) is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential Insurance”), which in turn is a direct wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). Pruco Life is a stock life insurance company organized in 1971 under the laws of the State of Arizona. It is licensed to sell life insurance and annuities in the District of Columbia, Guam and in all states except New York, and sells such products primarily through affiliated and unaffiliated distributors.

Pruco Life has 1 wholly-owned insurance subsidiary, Pruco Life Insurance Company of New Jersey (“PLNJ”). PLNJ is a stock life insurance company organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in New Jersey and New York only. Pruco Life and its subsidiary are together referred to as the "Company", "we" or "our" and all financial information is shown on a consolidated basis.

Effective July 1, 2021, the Company recaptured the risks related to its variable annuity base contracts, along with the living benefit guarantees, that had previously been reinsured to Prudential Annuities Life Assurance Corporation (“PALAC”) from April 1, 2016 through June 30, 2021. The recapture does not impact PLNJ, which will continue to reinsure its new and in force business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in PALAC, were transferred to the Company. In addition, the living benefit hedging program related to the previously reinsured living benefit riders will be managed within the Company.

Basis of Presentation

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Intercompany balances and transactions have been eliminated.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining deferred policy acquisition costs ("DAC") and related amortization; policyholders' account balances related to the fair value of embedded derivative instruments associated with the index-linked features of certain universal life products; valuation of investments including derivatives, measurement of allowance for credit losses, and the recognition of other-than-temporary impairments (“OTTI”); future policy benefits including guarantees; reinsurance recoverables; provision for income taxes and valuation of deferred tax assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal and regulatory matters.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

COVID-19

Beginning in the first quarter of 2020, the outbreak of the novel coronavirus (“COVID-19”) resulted in extreme stress and disruption in the global economy and financial markets. While markets have rebounded, the pandemic has adversely impacted, and may continue to adversely impact, the Company's results of operations, financial condition and cash flows. Due to the highly uncertain nature of these conditions, it is not possible to estimate the ultimate impacts at this time. The risks may have manifested, and may continue to manifest, in the Company's financial statements in the areas of, among others, i) investments: increased risk of loss on our investments due to default or deterioration in credit quality or value; and ii) insurance liabilities and related balances: potential changes to assumptions regarding investment returns, mortality and policyholder behavior which are reflected in our insurance liabilities and certain related balances (e.g., DAC, etc.). The Company cannot predict what impact the COVID-19 pandemic will ultimately have on its businesses.

Reclassifications

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

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of ~~March 31,~~June 30, 2021, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

ASU issued but not yet adopted as of ~~March 31,~~June 30, 2021 — ASU 2018-12

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018 and is expected to have a significant impact on the Consolidated Financial Statements and Notes to the Consolidated Financial Statements. In October 2019, the FASB issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. As a result of the COVID-19 pandemic, in November 2020, the FASB issued ASU 2020-11, Financial Services-Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company currently intends to adopt ASU 2018-12 effective January 1, ~~2023.~~2023 using the modified retrospective transition method where permitted. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. Outlined below are four key areas of change, although there are other less significant changes not noted below. In addition to the impacts to the balance sheet upon ~~transition,~~adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

ASU 2018-12 Amended Topic

Description

Method of adoption

Effect on the financial statements or other significant matters

Cash flow assumptions used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products

Requires an entity to review, and if necessary, update the cash flow assumptions used to measure the liability for future policy benefits, for both changes in future assumptions and actual experience, at least annually using a retrospective update method with a cumulative catch-up adjustment recorded in a separate line item in the Consolidated Statements of Operations.

An entity may choose one of two adoption methods for the liability for future policy benefits: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in Accumulated other comprehensive income (loss) ("AOCI") or (2) a full retrospective transition method.

The ~~options for method of adoption and~~Company currently intends to adopt this guidance effective January 1, 2023 using the modified retrospective transition method. The impacts of electing such ~~methods~~method are currently under assessment.

Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products

Requires discount rate assumptions to be based on an upper-medium grade fixed income instrument yield, which will be updated each quarter with the impact recorded through OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the discount rate assumptions.

As noted above, an entity may choose either a modified retrospective transition method or full retrospective transition method for the liability for future policy benefits. Under either method, for balance sheet remeasurement purposes, the liability for future policy benefits will be remeasured using current discount rates as of either the beginning of the prior year (if early adoption is elected) or the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.

As noted above, the Company currently intends to adopt the guidance for the liability for future policy benefits effective January 1, 2023 using the modified retrospective transition method. Upon adoption, ~~under either transition method,~~ there will be an adjustment to AOCI as a result of remeasuring in force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment upon adoption will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed.

Amortization of DAC and other balances

Requires DAC and other balances, such as unearned revenue reserves and deferred sales inducements ("DSI"), to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.

An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or (2) if an entity chooses a full retrospective transition method for its liability for future policy benefits, as described above, it is required to also use a full retrospective transition method for DAC and other balances.

The ~~options for method of adoption and~~Company currently intends to adopt this guidance effective January 1, 2023 using the ~~impacts of such methods are under assessment.~~modified retrospective transition method. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.

Market Risk Benefits ("MRB")

Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record MRB assets and liabilities separately on the Statements of Financial Position. Changes in fair value of market risk benefits are recorded in net income, except for the portion of the change in MRB liabilities attributable to changes in an entity’s non-performance risk ("NPR"), which is recognized in OCI.

An entity shall adopt the guidance for market risk benefits using the retrospective transition method, which includes a cumulative-effect adjustment on the balance sheet as of either the beginning of prior year (if early adoption is elected) or the beginning of the earliest period presented. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption.

The Company currently intends to adopt this guidance effective January 1, 2023 using the retrospective transition method. Upon adoption, the Company expects an impact to retained earnings for the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., guaranteed minimum death benefits on variable annuities) and an impact from reclassifying the cumulative effect of changes in NPR from retained earnings to AOCI. The magnitude of such adjustments is currently being assessed.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Modifications related to COVID-19

We assess modifications to certain fixed income instruments on a case-by-case basis to evaluate whether a troubled debt restructuring ("TDR") has occurred. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") provides a temporary suspension of TDR accounting for certain COVID-19 related modifications where the investment was not more than 30 days past due as of December 31, 2019 (“TDR Relief”). The TDR Relief was set to expire on December 31, 2020, but was extended through December 31, 2021 by the Consolidated Appropriations Act of 2021. The Company elected to apply the TDR Relief beginning in the first quarter of 2021. The TDR Relief does not apply to modifications completed 60 days after the national emergency related to COVID-19 ends, or December 31, 2021, whichever comes earlier. As of ~~March 31,~~June 30, 2021, any such modifications did not have a material impact on the Company's results of operations. For additional information regarding the Company’s policies for troubled debt restructurings, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

3. INVESTMENTS

Fixed Maturity Securities

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:


		March 31, 2021											June 30, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	74,863	$	2,318	$	134	$	0	$	77,047	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	77,270	$	2,399	$	98	$	0	$	79,571
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	468,281		48,003		53		0		516,231		Obligations of U.S. states and their political subdivisions	463,842		53,164		0		0		517,006
Foreign government bonds	Foreign government bonds	267,478		22,300		4,773		0		285,005		Foreign government bonds	259,923		30,384		1,474		0		288,833
U.S. public corporate securities	U.S. public corporate securities	2,776,403		255,050		59,966		0		2,971,487		U.S. public corporate securities	2,883,449		373,398		13,907		0		3,242,940
U.S. private corporate securities	U.S. private corporate securities	913,052		59,968		6,448		1,072		965,500		U.S. private corporate securities	901,049		73,246		3,114		195		970,986
Foreign public corporate securities	Foreign public corporate securities	412,336		25,763		9,728		0		428,371		Foreign public corporate securities	446,271		35,573		3,884		0		477,960
Foreign private corporate securities	Foreign private corporate securities	973,715		74,883		10,450		1,786		1,036,362		Foreign private corporate securities	975,131		81,515		9,167		363		1,047,116
Asset-backed securities(1)	Asset-backed securities(1)	228,920		1,231		93		0		230,058		Asset-backed securities(1)	232,411		993		68		0		233,336
Commercial mortgage-backed securities	Commercial mortgage-backed securities	476,388		22,859		3,269		0		495,978		Commercial mortgage-backed securities	431,953		28,560		1,402		0		459,111
Residential mortgage-backed securities(2)	Residential mortgage-backed securities(2)	44,692		3,212		29		0		47,875		Residential mortgage-backed securities(2)	20,405		1,969		0		0		22,374
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	6,636,128	$	515,587	$	94,943	$	2,858	$	7,053,914	Total fixed maturities, available-for-sale	$	6,691,704	$	681,201	$	33,114	$	558	$	7,339,233

(1)Includes credit-tranched securities collateralized by loan obligations, education loans, auto loans ~~education loans~~ and ~~home equity loans.~~other asset types.

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


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	74,946	$	2,931	$	22	$	0	$	77,855
Obligations of U.S. states and their political subdivisions	460,003		57,948		0		0		517,951
Foreign government bonds	206,633		44,254		32		0		250,855
U.S. public corporate securities	2,473,440		456,581		587		0		2,929,434
U.S. private corporate securities	919,316		95,793		2,198		855		1,012,056
Foreign public corporate securities	278,717		42,899		886		0		320,730
Foreign private corporate securities	977,539		123,006		7,131		1,484		1,091,930
Asset-backed securities(1)	236,909		1,115		386		0		237,638
Commercial mortgage-backed securities	480,412		40,660		125		0		520,947
Residential mortgage-backed securities(2)	49,456		3,779		0		0		53,235
Total fixed maturities, available-for-sale	$	6,157,371	$	868,966	$	11,367	$	2,339	$	7,012,631

(1)Includes credit-tranched securities collateralized by loan obligations, credit cards, auto loans, education loans and sub-prime mortgages.

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

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following tables set forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the dates indicated:


		March 31, 2021													June 30, 2021
		Less Than Twelve Months				Twelve Months or More				Total					Less Than Twelve Months				Twelve Months or More				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
		(in thousands)													(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:													Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	2,130	$	134	$	0	$	0	$	2,130	$	134	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	2,155	$	98	$	0	$	0	$	2,155	$	98
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	8,534		53		0		0		8,534		53		Obligations of U.S. states and their political subdivisions	0		0		0		0		0		0
Foreign government bonds	Foreign government bonds	79,654		4,773		0		0		79,654		4,773		Foreign government bonds	52,756		1,474		0		0		52,756		1,474
U.S. public corporate securities	U.S. public corporate securities	801,795		59,806		3,851		160		805,646		59,966		U.S. public corporate securities	458,252		13,891		2,985		16		461,237		13,907
U.S. private corporate securities	U.S. private corporate securities	125,258		4,011		19,321		2,437		144,579		6,448		U.S. private corporate securities	27,096		621		20,946		2,493		48,042		3,114
Foreign public corporate securities	Foreign public corporate securities	179,494		8,376		5,901		1,352		185,395		9,728		Foreign public corporate securities	147,550		2,724		6,090		1,160		153,640		3,884
Foreign private corporate securities	Foreign private corporate securities	85,182		1,892		84,782		8,271		169,964		10,163		Foreign private corporate securities	37,102		1,146		84,548		7,594		121,650		8,740
Asset-backed securities	Asset-backed securities	25,549		88		14,657		5		40,206		93		Asset-backed securities	47,239		68		0		0		47,239		68
Commercial mortgage-backed securities	Commercial mortgage-backed securities	73,271		3,269		0		0		73,271		3,269		Commercial mortgage-backed securities	60,214		1,402		0		0		60,214		1,402
Residential mortgage-backed securities	Residential mortgage-backed securities	5,135		29		0		0		5,135		29		Residential mortgage-backed securities	0		0		0		0		0		0
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	1,386,002	$	82,431	$	128,512	$	12,225	$	1,514,514	$	94,656	Total fixed maturities, available-for-sale	$	832,364	$	21,424	$	114,569	$	11,263	$	946,933	$	32,687


	December 31, 2020
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	2,255	$	22	$	0	$	0	$	2,255	$	22

Foreign government bonds	2,270		32		0		0		2,270		32
U.S. public corporate securities	33,295		341		2,754		246		36,049		587
U.S. private corporate securities	33,806		771		6,659		1,427		40,465		2,198
Foreign public corporate securities	6,432		97		6,464		789		12,896		886
Foreign private corporate securities	2,931		131		85,340		6,657		88,271		6,788
Asset-backed securities	51,914		183		70,503		203		122,417		386
Commercial mortgage-backed securities	17,443		125		0		0		17,443		125
Residential mortgage-backed securities	0		0		0		0		0		0
Total fixed maturities, available-for-sale	$	150,346	$	1,702	$	171,720	$	9,322	$	322,066	$	11,024

As of June 30, 2021 and December 31, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $26.3 million and $5.0 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $6.4 million and $6.0 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, 2021, the $11.3 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, utility and energy sectors. As of December 31, 2020, the $9.3 million of gross unrealized losses of twelve months or more were concentrated in the Company's corporate securities within the finance, energy and utility sectors.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of March 31, 2021 and December 31, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $87.0 million and $5.0 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $7.7 million and $6.0 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of March 31, 2021, the $12.2 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, energy and utility sectors. As of December 31, 2020, the $9.3 million of gross unrealized losses of twelve months or more were concentrated in the Company's corporate securities within the finance, energy and utility sectors.

In accordance with its policy described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at ~~March 31,~~June 30, 2021. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening, ~~increases in interest rates,~~ foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of ~~March 31,~~June 30, 2021, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

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


		March 31, 2021					June 30, 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
		(in thousands)					(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:					Fixed maturities, available-for-sale:
Due in one year or less	Due in one year or less	$	260,579	$	259,543	Due in one year or less	$	217,121	$	217,020
Due after one year through five years	Due after one year through five years	890,152		942,628		Due after one year through five years	883,617		940,186
Due after five years through ten years	Due after five years through ten years	867,157		920,640		Due after five years through ten years	940,829		1,004,880
Due after ten years	Due after ten years	3,868,240		4,157,192		Due after ten years	3,965,368		4,462,326
Asset-backed securities	Asset-backed securities	228,920		230,058		Asset-backed securities	232,411		233,336
Commercial mortgage-backed securities	Commercial mortgage-backed securities	476,388		495,978		Commercial mortgage-backed securities	431,953		459,111
Residential mortgage-backed securities	Residential mortgage-backed securities	44,692		47,875		Residential mortgage-backed securities	20,405		22,374
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	6,636,128	$	7,053,914	Total fixed maturities, available-for-sale	$	6,691,704	$	7,339,233

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed and residential mortgage-backed securities are shown separately in the table above, as they do not have a single maturity date.

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on write-downs and the allowance for credit losses of fixed maturities, for the periods indicated:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
			(in thousands)						(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:							Fixed maturities, available-for-sale:
Proceeds from sales(1)	Proceeds from sales(1)		$	33,749		$	7,718	Proceeds from sales(1)	$	283,241	$	5,223	$	316,990	$	12,941
Proceeds from maturities/prepayments	Proceeds from maturities/prepayments		74,085			81,786		Proceeds from maturities/prepayments	96,373		55,968		170,458		137,754
Gross investment gains from sales and maturities	Gross investment gains from sales and maturities		352			553		Gross investment gains from sales and maturities	8,156		39		8,508		592
Gross investment losses from sales and maturities	Gross investment losses from sales and maturities		(2,569)			(73)		Gross investment losses from sales and maturities	(9,087)		(1,663)		(11,656)		(1,736)

Write-downs recognized in earnings(2)	Write-downs recognized in earnings(2)		(2)			(945)		Write-downs recognized in earnings(2)	0		(77)		(2)		(1,022)
(Addition to) release of allowance for credit losses	(Addition to) release of allowance for credit losses		(519)			(2,210)		(Addition to) release of allowance for credit losses	2,300		(2,362)		1,781		(4,572)

(1)Includes $16.9 million and $0.1 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2021 and 2020, respectively.

(2)Amounts represent write-downs on securities actively marketed for sale and write-downs on securities approaching maturity related to foreign exchange movements.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

~~(1)Includes $(0.9) million and $3.0 million of non-cash related proceeds due to the timing of trade settlements for the three months ended March 31, 2021 and 2020, respectively.~~

~~(2)Amounts represent write-downs on securities actively marketed for sale and write-downs on securities approaching maturity related to foreign exchange movements.~~

The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, as of the dates indicated:


		Three Months Ended March 31, 2021															Three Months Ended June 30, 2021
		U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total			U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
		(in thousands)															(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:															Fixed maturities, available-for-sale:
Balance, beginning of period	Balance, beginning of period	$	0	$	0	$	2,339	$	0	$	0	$	0	$	2,339	Balance, beginning of period	$	0	$	0	$	2,858	$	0	$	0	$	0	$	2,858

Reductions for securities sold during the period	Reductions for securities sold during the period	0		0		(11)		0		0		0		(11)		Reductions for securities sold during the period	0		0		(14)		0		0		0		(14)

Addition (reductions) on securities with previous allowance	Addition (reductions) on securities with previous allowance	0		0		530		0		0		0		530		Addition (reductions) on securities with previous allowance	0		0		(2,286)		0		0		0		(2,286)

Balance, end of period	Balance, end of period	$	0	$	0	$	2,858	$	0	$	0	$	0	$	2,858	Balance, end of period	$	0	$	0	$	558	$	0	$	0	$	0	$	558


		Three Months Ended March 31, 2020															Three Months Ended June 30, 2020
		U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total			U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
		(in thousands)															(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:															Fixed maturities, available-for-sale:
Balance, beginning of period	Balance, beginning of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Balance, beginning of period	$	0	$	0	$	2,210	$	0	$	0	$	0	$	2,210
Additions to allowance for credit losses not previously recorded	Additions to allowance for credit losses not previously recorded	0		0		2,210		0		0		0		2,210		Additions to allowance for credit losses not previously recorded	0		0		2,681		0		0		0		2,681

Reductions for securities sold during the period																Reductions for securities sold during the period	0		0		(9)		0		0		0		(9)

Addition (reductions) on securities with previous allowance																Addition (reductions) on securities with previous allowance	0		0		(310)		0		0		0		(310)

Balance, end of period	Balance, end of period	$	0	$	0	$	2,210	$	0	$	0	$	0	$	2,210	Balance, end of period	$	0	$	0	$	4,572	$	0	$	0	$	0	$	4,572


	Six Months Ended June 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	2,339	$	0	$	0	$	0	$	2,339


Reductions for securities sold during the period	0		0		(25)		0		0		0		(25)

Addition (reductions) on securities with previous allowance	0		0		(1,756)		0		0		0		(1,756)


Balance, end of period	$	0	$	0	$	558	$	0	$	0	$	0	$	558

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Additions to allowance for credit losses not previously recorded	0		0		4,891		0		0		0		4,891

Reductions for securities sold during the period	0		0		(9)		0		0		0		(9)

Addition (reductions) on securities with previous allowance	0		0		(310)		0		0		0		(310)


Balance, end of period	$	0	$	0	$	4,572	$	0	$	0	$	0	$	4,572

See Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information about the Company’s methodology for developing our allowance for credit losses.

For the three months ended ~~March 31,~~June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment in the communications and utility sectors within private corporate securities. For the three months ended June 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the communications and energy sectors within private corporate securities.

For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment in the communications and utility sectors within private corporate securities. For the six months ended June 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the communications and energy sectors within private corporate securities.

The Company did 0t have any fixed maturity securities purchased with credit deterioration, as of both ~~March 31,~~June 30, 2021 and December 31, 2020.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income,” was ~~$(0.5)~~$0.5 million and ~~$(0.8)~~less than $(0.1) million during the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and less than $0.1 million and $(0.5) million during the six months ended June 30, 2021 and 2020, respectively.

1516

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Commercial Mortgage and Other Loans

The following table sets forth the composition of “Commercial mortgage and other loans,” as of the dates indicated:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount (in thousands)		% of Total		Amount (in thousands)		% of Total			Amount (in thousands)		% of Total		Amount (in thousands)		% of Total
Commercial mortgage and agricultural property loans by property type:	Commercial mortgage and agricultural property loans by property type:									Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	Apartments/Multi-Family	$	356,283	28.2	%	$	364,549	28.2	%	Apartments/Multi-Family	$	349,755	27.1	%	$	364,549	28.2	%
Hospitality	Hospitality	33,873		2.7		34,069		2.6		Hospitality	33,632		2.6		34,069		2.6
Industrial	Industrial	382,763		30.3		399,017		30.9		Industrial	385,174		29.8		399,017		30.9
Office	Office	191,749		15.2		195,443		15.1		Office	199,676		15.4		195,443		15.1
Other	Other	137,845		10.9		138,477		10.7		Other	149,775		11.6		138,477		10.7
Retail	Retail	139,385		11.0		142,266		11.0		Retail	152,461		11.8		142,266		11.0
Total commercial mortgage loans	Total commercial mortgage loans	1,241,898		98.3		1,273,821		98.5		Total commercial mortgage loans	1,270,473		98.3		1,273,821		98.5
Agricultural property loans	Agricultural property loans	21,931		1.7		19,577		1.5		Agricultural property loans	21,871		1.7		19,577		1.5
Total commercial mortgage and agricultural property loans	Total commercial mortgage and agricultural property loans	1,263,829		100.0	%	1,293,398		100.0	%	Total commercial mortgage and agricultural property loans	1,292,344		100.0	%	1,293,398		100.0	%
Allowance for credit losses	Allowance for credit losses	(4,314)				(4,552)				Allowance for credit losses	(3,404)				(4,552)
Total net commercial mortgage and agricultural property loans	Total net commercial mortgage and agricultural property loans	$	1,259,515			$	1,288,846			Total net commercial mortgage and agricultural property loans	$	1,288,940			$	1,288,846

As of ~~March 31,~~June 30, 2021, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California ~~(23%~~(26%), Texas (12%) and New York (7%)) and included loans secured by properties in Europe ~~(12%~~(11%), Mexico (3%) and Australia (2%).

The following ~~table sets~~tables set forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:


		Three Months Ended March 31,										Three Months Ended June 30,
		2021				2020						2021						2020
		Commercial Mortgage Loans		Agricultural Property Loans		Total		Commercial Mortgage Loans		Agricultural Property Loans			Total			Commercial Mortgage Loans		Agricultural Property Loans		Total		Commercial Mortgage Loans		Agricultural Property Loans		Total
		(in thousands)										(in thousands)

Allowance, beginning of period	Allowance, beginning of period	$	4,546	$	6	$	4,552	$	1,743	$	25		$	1,768	Allowance, beginning of period	$	4,309	$	5	$	4,314	$	4,503	$	11	$	4,514
Cumulative effect of adoption of ASU 2016-13		0		0		0		2,495		(8)			2,487

Addition to (release of) allowance for expected losses	Addition to (release of) allowance for expected losses	(237)		(1)		(238)		265		(6)			259		Addition to (release of) allowance for expected losses	(929)		19		(910)		46		(1)		45

Allowance, end of period	Allowance, end of period	$	4,309	$	5	$	4,314	$	4,503	$	11		$	4,514	Allowance, end of period	$	3,380	$	24	$	3,404	$	4,549	$	10	$	4,559



	Six Months Ended June 30,
	2021				2020
	Commercial Mortgage Loans		Agricultural Property Loans		Total		Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)





Allowance, beginning of period	$	4,546	$	6	$	4,552	$	1,743	$	25	$	1,768
Cumulative effect of adoption of ASU 2016-13	0		0		0		2,495		(8)		2,487

Addition to (release of) allowance for expected losses	(1,166)		18		(1,148)		311		(7)		304




Allowance, end of period	$	3,380	$	24	$	3,404	$	4,549	$	10	$	4,559

1617

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

See Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information about the Company's methodology for developing our allowance and expected losses.

For the three months ended ~~March 31,~~June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was ~~reflecting~~primarily related to the improving credit environment. For the three months ended ~~March 31,~~June 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to net negative migration.

For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. For the six months ended June 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the dates indicated:


		March 31, 2021												June 30, 2021
		Amortized Cost by Origination Year												Amortized Cost by Origination Year
		2021		2020		2019		2018		2017		Prior			Total			2021		2020		2019		2018		2017		Prior		Total
		(in thousands)												(in thousands)
Commercial mortgage loans	Commercial mortgage loans																Commercial mortgage loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	0	$	10,589	$	46,504	$	47,320	$	96,801	$	391,196		$	592,410	0%-59.99%	$	13,800	$	11,434	$	47,529	$	47,096	$	95,864	$	361,334	$	577,057
60%-69.99%	60%-69.99%	6,340		69,374		94,483		126,964		48,271		100,015			445,447		60%-69.99%	19,512		68,517		93,498		123,264		47,258		86,594		438,643
70%-79.99%	70%-79.99%	11,000		63,941		36,069		22,416		32,298		37,343			203,067		70%-79.99%	34,855		64,479		36,039		22,400		32,119		63,912		253,804
80% or greater	80% or greater	0		0		0		0		974		0			974		80% or greater	0		0		0		0		969		0		969
Total	Total	$	17,340	$	143,904	$	177,056	$	196,700	$	178,344	$	528,554		$	1,241,898	Total	$	68,167	$	144,430	$	177,066	$	192,760	$	176,210	$	511,840	$	1,270,473
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	6,340	$	128,608	$	157,876	$	183,974	$	171,078	$	482,536		$	1,130,412	Greater or Equal to 1.2x	$	57,315	$	129,279	$	158,018	$	180,169	$	168,999	$	466,250	$	1,160,030
1.0 - 1.2x	1.0 - 1.2x	11,000		15,296		10,303		7,074		7,266		42,124			93,063		1.0 - 1.2x	10,852		15,151		10,263		0		7,211		41,730		85,207
Less than 1.0x	Less than 1.0x	0		0		8,877		5,652		0		3,894			18,423		Less than 1.0x	0		0		8,785		12,591		0		3,860		25,236
Total	Total	$	17,340	$	143,904	$	177,056	$	196,700	$	178,344	$	528,554		$	1,241,898	Total	$	68,167	$	144,430	$	177,066	$	192,760	$	176,210	$	511,840	$	1,270,473
Agricultural property loans	Agricultural property loans																Agricultural property loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	16,500	$	0	$	0	$	0	$	0	$	5,431		$	21,931	0%-59.99%	$	16,500	$	0	$	0	$	0	$	0	$	5,371	$	21,871
60%-69.99%	60%-69.99%	0		0		0		0		0		0			0		60%-69.99%	0		0		0		0		0		0		0
70%-79.99%	70%-79.99%	0		0		0		0		0		0			0		70%-79.99%	0		0		0		0		0		0		0
80% or greater	80% or greater	0		0		0		0		0		0			0		80% or greater	0		0		0		0		0		0		0
Total	Total	$	16,500	$	0	$	0	$	0	$	0	$	5,431		$	21,931	Total	$	16,500	$	0	$	0	$	0	$	0	$	5,371	$	21,871
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	16,500	$	0	$	0	$	0	$	0	$	4,616		$	21,116	Greater or Equal to 1.2x	$	16,500	$	0	$	0	$	0	$	0	$	4,556	$	21,056
1.0 - 1.2x	1.0 - 1.2x	0		0		0		0		0		0			0		1.0 - 1.2x	0		0		0		0		0		0		0
Less than 1.0x	Less than 1.0x	0		0		0		0		0		815			815		Less than 1.0x	0		0		0		0		0		815		815
Total	Total	$	16,500	$	0	$	0	$	0	$	0	$	5,431		$	21,931	Total	$	16,500	$	0	$	0	$	0	$	0	$	5,371	$	21,871

1718

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Total
	(in thousands)
Commercial mortgage loans
Loan-to-Value Ratio:
0%-59.99%	$	10,645	$	47,284	$	33,443	$	92,410	$	162,030	$	251,903	$	597,715
60%-69.99%	69,819		95,331		141,260		52,710		80,875		43,823		483,818
70%-79.99%	63,783		36,099		22,431		32,476		21,178		15,342		191,309
80% or greater	0		0		0		979		0		0		979
Total	$	144,247	$	178,714	$	197,134	$	178,575	$	264,083	$	311,068	$	1,273,821
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	128,839	$	159,476	$	177,098	$	171,255	$	238,010	$	290,741	$	1,165,419
1.0 - 1.2x	15,408		10,334		7,134		7,320		26,073		16,418		82,687
Less than 1.0x	0		8,904		12,902		0		0		3,909		25,715
Total	$	144,247	$	178,714	$	197,134	$	178,575	$	264,083	$	311,068	$	1,273,821
Agricultural property loans
Loan-to-Value Ratio:
0%-59.99%	$	0	$	0	$	0	$	6,486	$	0	$	13,091	$	19,577
60%-69.99%	0		0		0		0		0		0		0
70%-79.99%	0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0
Total	$	0	$	0	$	0	$	6,486	$	0	$	13,091	$	19,577
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	0	$	0	$	0	$	6,486	$	0	$	12,276	$	18,762
1.0 - 1.2x	0		0		0		0		0		0		0
Less than 1.0x	0		0		0		0		0		815		815
Total	$	0	$	0	$	0	$	6,486	$	0	$	13,091	$	19,577

See Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional information about the Company’s commercial mortgage and other loans credit quality monitoring process.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:


		March 31, 2021													June 30, 2021
		Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)			Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
		(in thousands)													(in thousands)
Commercial mortgage loans	Commercial mortgage loans	$	1,241,898	$	0	$	0	$	0	$	1,241,898	$	0	Commercial mortgage loans	$	1,270,473	$	0	$	0	$	0	$	1,270,473	$	0
Agricultural property loans	Agricultural property loans	21,931		0		0		0		21,931		0		Agricultural property loans	21,871		0		0		0		21,871		0

Total	Total	$	1,263,829	$	0	$	0	$	0	$	1,263,829	$	0	Total	$	1,292,344	$	0	$	0	$	0	$	1,292,344	$	0

(1)As of ~~March 31,~~June 30, 2021, there were 0 loans in this category accruing interest.

(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)
Commercial mortgage loans	$	1,273,821	$	0	$	0	$	0	$	1,273,821	$	0
Agricultural property loans	19,577		0		0		0		19,577		0

Total	$	1,293,398	$	0	$	0	$	0	$	1,293,398	$	0

(1)As of December 31, 2020, there were 0 loans in this category accruing interest.

The Company did 0t have any commercial mortgage and other loans purchased with credit deterioration, as of ~~March 31,~~both June 30, 2021 and December 31, 2020.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

For both the three and six months ended ~~March 31,~~June 30, 2021 and 2020, there were 0 commercial mortgage and other loans acquired, other than those through direct origination and there were 0 commercial mortgage and other loans sold.

Other Invested Assets

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

March 31, 2021 December 31, 2020
(in thousands)
Company’s investment in separate accounts $ 45,508 $ 44,018
LPs/LLCs:
Equity method:
Private equity 248,942 241,493
Hedge funds 77,721 77,311
Real estate-related 64,294 63,194
Subtotal equity method 390,957 381,998
Fair value:
Private equity 68,778 65,436
Hedge funds 403 499
Real estate-related 10,709 10,857
Subtotal fair value 79,890 76,792
Total LPs/LLCs 470,847 458,790
Derivative instruments 111,002 18,147
Total other invested assets $ 627,357 $ 520,955

~~Accrued Investment Income~~

~~The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:~~

March 31, 2021 December 31, 2020
(in thousands)
Fixed maturities $ 58,500 $ 54,565
Equity securities 102 1
Commercial mortgage and other loans 3,413 3,610
Policy loans 35,683 35,374
Short-term investments and cash equivalents 30 63
Total accrued investment income $ 97,728 $ 93,613

~~There were 0 write-downs on accrued investment income for both the three months ended March 31, 2021 and 2020.~~


	June 30, 2021		December 31, 2020
	(in thousands)
Company’s investment in separate accounts	$	46,486	$	44,018
LPs/LLCs:
Equity method:
Private equity	242,185		241,493
Hedge funds	78,641		77,311
Real estate-related	71,856		63,194
Subtotal equity method	392,682		381,998
Fair value:
Private equity	67,307		65,436
Hedge funds	442		499
Real estate-related	10,524		10,857
Subtotal fair value	78,273		76,792
Total LPs/LLCs	470,955		458,790
Derivative instruments	103,151		18,147
Total other invested assets	$	620,592	$	520,955

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Accrued Investment Income

The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:


	June 30, 2021		December 31, 2020
	(in thousands)
Fixed maturities	$	58,757	$	54,565
Equity securities	1		1
Commercial mortgage and other loans	3,488		3,610
Policy loans	35,074		35,374

Short-term investments and cash equivalents	7		63

Total accrued investment income	$	97,327	$	93,613

There were 0 write-downs on accrued investment income for both the three months and six months ended June 30, 2021 and 2020.

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
			(in thousands)						(in thousands)
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale		$	59,958		$	54,566	Fixed maturities, available-for-sale	$	63,630	$	54,897	$	123,588	$	109,463
Fixed maturities, trading	Fixed maturities, trading		531			398		Fixed maturities, trading	544		395		1,075		793
Equity securities	Equity securities		103			102��		Equity securities	102		103		205		205
Commercial mortgage and other loans	Commercial mortgage and other loans		13,426			13,776		Commercial mortgage and other loans	13,322		12,322		26,748		26,098
Policy loans	Policy loans		17,034			17,311		Policy loans	17,315		17,615		34,349		34,926
Other invested assets	Other invested assets		13,073			(3,909)		Other invested assets	5,735		2,165		18,808		(1,744)
Short-term investments and cash equivalents	Short-term investments and cash equivalents		127			2,032		Short-term investments and cash equivalents	33		580		160		2,612
Gross investment income	Gross investment income		104,252			84,276		Gross investment income	100,681		88,077		204,933		172,353
Less: investment expenses	Less: investment expenses		(5,385)			(4,695)		Less: investment expenses	(5,381)		(4,615)		(10,766)		(9,310)
Net investment income	Net investment income		$	98,867		$	79,581	Net investment income	$	95,300	$	83,462	$	194,167	$	163,043

Realized Investment Gains (Losses), Net

The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
			(in thousands)						(in thousands)
Fixed maturities(1)	Fixed maturities(1)		$	(2,738)		$	(2,675)	Fixed maturities(1)	$	1,369	$	(4,063)	$	(1,369)	$	(6,738)

Commercial mortgage and other loans	Commercial mortgage and other loans		238			(188)		Commercial mortgage and other loans	910		(44)		1,148		(232)
Other invested assets	Other invested assets		22			(315)		Other invested assets	887		5		909		(310)
Derivatives	Derivatives		79,091			93,457		Derivatives	(125,662)		(76,353)		(46,571)		17,104

Short-term investments and cash equivalents	Short-term investments and cash equivalents		(5)			(384)		Short-term investments and cash equivalents	(6)		224		(11)		(160)
Realized investment gains (losses), net	Realized investment gains (losses), net		$	76,608		$	89,895	Realized investment gains (losses), net	$	(122,502)	$	(80,231)	$	(45,894)	$	9,664

(1)Includes fixed maturity securities classified as available-for-sale and excludes fixed maturity securities classified as trading.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Unrealized Gains (Losses) on Investments within AOCI

The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)

Fixed maturity securities, available-for-sale with an allowance	Fixed maturity securities, available-for-sale with an allowance	$	4	$	0	Fixed maturity securities, available-for-sale with an allowance	$	68	$	0
Fixed maturity securities, available-for-sale without an allowance	Fixed maturity securities, available-for-sale without an allowance	420,640		857,599		Fixed maturity securities, available-for-sale without an allowance	648,019		857,599
Derivatives designated as cash flow hedges(1)	Derivatives designated as cash flow hedges(1)	(3,413)		(8,112)		Derivatives designated as cash flow hedges(1)	12,248		(8,112)
Affiliated notes, available-for-sale	Affiliated notes, available-for-sale	3,197		4,024		Affiliated notes, available-for-sale	2,603		4,024
Other investments(2)	Other investments(2)	(3,929)		(4,162)		Other investments(2)	818		(4,162)
Net unrealized gains (losses) on investments	Net unrealized gains (losses) on investments	$	416,499	$	849,349	Net unrealized gains (losses) on investments	$	663,756	$	849,349

(1)For more information on cash flow hedges, see Note 4.

(2)Includes net unrealized gains (losses) on certain joint ventures that are strategic in nature and are included in "other assets".

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. As of ~~March 31,~~both June 30, 2021 and December 31, 2020, the Company had 0 repurchase agreements.

The following table sets forth the composition of “Cash collateral for loaned securities,” which represents the liability to return cash collateral received for the following types of securities loaned, as of the dates indicated:


		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
		Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements							Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
		Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total			Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
		(in thousands)													(in thousands)

Foreign public corporate securities	Foreign public corporate securities	$	2,725	$	0	$	2,725	$	2,725	$	0	$	2,725	Foreign public corporate securities	$	2,725	$	0	$	2,725	$	2,725	$	0	$	2,725

Total cash collateral for loaned securities(1)	Total cash collateral for loaned securities(1)	$	2,725	$	0	$	2,725	$	2,725	$	0	$	2,725	Total cash collateral for loaned securities(1)	$	2,725	$	0	$	2,725	$	2,725	$	0	$	2,725

(1)The Company did 0t have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.

4. DERIVATIVES AND HEDGING

Types of Derivative Instruments and Derivative Strategies

The Company utilizes various derivative instruments and strategies to manage its risk. Commonly used derivative instruments include, but are not necessarily limited to:

•Interest rate contracts: futures, swaps, options, caps and floors

•Equity contracts: futures, options and total return swaps

•Foreign exchange contracts: futures, options, forwards and swaps

•Credit contracts: single and index reference credit default swaps

Other types of financial contracts that the Company accounts for as derivatives include:

•Embedded derivatives

For detailed information on these contracts and the related strategies, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Primary Risks Managed by Derivatives

The table below provides a summary of the gross notional amount and fair value of derivative contracts by the primary underlying risks, excluding embedded derivatives and associated reinsurance recoverables. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements and cash collateral.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~


		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
Primary Underlying Risk/Instrument Type	Primary Underlying Risk/Instrument Type			Fair Value						Fair Value				Primary Underlying Risk/Instrument Type			Fair Value						Fair Value
		Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
		(in thousands)													(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:													Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate	Currency/Interest Rate													Currency/Interest Rate
Interest Rate Swaps	Interest Rate Swaps	$	3,452	$	66	$	0	$	3,486	$	203	$	0	Interest Rate Swaps	$	3,415	$	93	$	0	$	3,486	$	203	$	0
Foreign Currency Swaps	Foreign Currency Swaps	864,940		26,387		(41,832)		861,074		27,336		(49,316)		Foreign Currency Swaps	861,690		26,632		(27,151)		861,074		27,336		(49,316)
Total Derivatives Designated as Hedge Accounting Instruments	Total Derivatives Designated as Hedge Accounting Instruments	$	868,392	$	26,453	$	(41,832)	$	864,560	$	27,539	$	(49,316)	Total Derivatives Designated as Hedge Accounting Instruments	$	865,105	$	26,725	$	(27,151)	$	864,560	$	27,539	$	(49,316)
Derivatives Not Qualifying as Hedge Accounting Instruments:	Derivatives Not Qualifying as Hedge Accounting Instruments:													Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	Interest Rate													Interest Rate
Interest Rate Swaps	Interest Rate Swaps	$	683,050	$	33,886	$	(15,844)	$	663,050	$	57,024	$	(11,117)	Interest Rate Swaps	$	683,050	$	42,857	$	(10,706)	$	663,050	$	57,024	$	(11,117)

Interest Rate Futures	Interest Rate Futures	57,700		0		(252)		57,700		198		0		Interest Rate Futures	26,600		175		0		57,700		198		0
Foreign Currency	Foreign Currency													Foreign Currency
Foreign Currency Forwards	Foreign Currency Forwards	60,568		1,409		(124)		55,292		5		(1,322)		Foreign Currency Forwards	62,248		204		(113)		55,292		5		(1,322)
Credit	Credit													Credit
Credit Default Swaps	Credit Default Swaps	0		0		0		2,313		0		(18)		Credit Default Swaps	0		0		0		2,313		0		(18)
Currency/Interest Rate	Currency/Interest Rate													Currency/Interest Rate
Foreign Currency Swaps	Foreign Currency Swaps	142,568		5,569		(6,540)		143,011		6,584		(7,286)		Foreign Currency Swaps	138,715		6,159		(4,630)		143,011		6,584		(7,286)
Equity	Equity													Equity

Equity Options	Equity Options	3,350,200		307,881		(219,219)		3,244,900		306,196		(196,767)		Equity Options	3,472,275		244,280		(186,480)		3,244,900		306,196		(196,767)
Total Derivatives Not Qualifying as Hedge Accounting Instruments	Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	4,294,086	$	348,745	$	(241,979)	$	4,166,266	$	370,007	$	(216,510)	Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	4,382,888	$	293,675	$	(201,929)	$	4,166,266	$	370,007	$	(216,510)
Total Derivatives(1)(2)	Total Derivatives(1)(2)	$	5,162,478	$	375,198	$	(283,811)	$	5,030,826	$	397,546	$	(265,826)	Total Derivatives(1)(2)	$	5,247,993	$	320,400	$	(229,080)	$	5,030,826	$	397,546	$	(265,826)

(1)Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of ~~$7,435~~$9,264 million and $13,228 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively included in "Future policy benefits" and ~~$1,032~~$1,157 million and $1,155 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively included in "Policyholders' account balances". The fair value of the related reinsurance, included in "Reinsurance recoverables" or "Other liabilities" was an asset of ~~$7,448~~$9,276 million and $13,240 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

(2)Recorded in “Other invested assets” and “Payables to parent and affiliates” on the Unaudited Interim Consolidated Statements of Financial Position.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Offsetting Assets and Liabilities

The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance recoverables), and repurchase and reverse repurchase agreements that are offset in the Unaudited Interim Consolidated Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Unaudited Interim Consolidated Statements of Financial Position.


		March 31, 2021											June 30, 2021
		Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Consolidated Statements of Financial Position		Net Amounts Presented in the Consolidated Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount			Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Consolidated Statements of Financial Position		Net Amounts Presented in the Consolidated Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
		(in thousands)											(in thousands)
Offsetting of Financial Assets:	Offsetting of Financial Assets:											Offsetting of Financial Assets:
Derivatives(1)		$	375,198	$	(264,196)	$	111,002	$	(111,002)	$	0
Derivatives												Derivatives	$	320,400	$	(217,249)	$	103,151	$	(95,671)	$	7,480
Securities purchased under agreements to resell	Securities purchased under agreements to resell	0		0		0		0		0		Securities purchased under agreements to resell	0		0		0		0		0
Total Assets	Total Assets	$	375,198	$	(264,196)	$	111,002	$	(111,002)	$	0	Total Assets	$	320,400	$	(217,249)	$	103,151	$	(95,671)	$	7,480
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives(1)		$	283,811	$	(283,559)	$	252	$	0	$	252
Derivatives												Derivatives	$	229,080	$	(229,080)	$	0	$	0	$	0
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	0		0		0		0		0		Securities sold under agreements to repurchase	0		0		0		0		0
Total Liabilities	Total Liabilities	$	283,811	$	(283,559)	$	252	$	0	$	252	Total Liabilities	$	229,080	$	(229,080)	$	0	$	0	$	0


		December 31, 2020											December 31, 2020
		Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Consolidated Statements of Financial Position		Net Amounts Presented in the Consolidated Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount			Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Consolidated Statements of Financial Position		Net Amounts Presented in the Consolidated Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
		(in thousands)											(in thousands)
Offsetting of Financial Assets:	Offsetting of Financial Assets:											Offsetting of Financial Assets:
Derivatives(1)		$	397,546	$	(379,399)	$	18,147	$	(14,572)	$	3,575
Derivatives												Derivatives	$	397,546	$	(379,399)	$	18,147	$	(14,572)	$	3,575
Securities purchased under agreements to resell	Securities purchased under agreements to resell	0		0		0		0		0		Securities purchased under agreements to resell	0		0		0		0		0
Total Assets	Total Assets	$	397,546	$	(379,399)	$	18,147	$	(14,572)	$	3,575	Total Assets	$	397,546	$	(379,399)	$	18,147	$	(14,572)	$	3,575
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives(1)		$	265,826	$	(265,826)	$	0	$	0	$	0
Derivatives												Derivatives	$	265,826	$	(265,826)	$	0	$	0	$	0
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	0		0		0		0		0		Securities sold under agreements to repurchase	0		0		0		0		0
Total Liabilities	Total Liabilities	$	265,826	$	(265,826)	$	0	$	0	$	0	Total Liabilities	$	265,826	$	(265,826)	$	0	$	0	$	0

(1)Amounts exclude the excess of collateral received/pledged from/to the counterparty.

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “Credit Risk” below and Note 9. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Cash Flow Hedges

The primary derivative instruments used by the Company in its cash flow hedge accounting relationships are currency swaps and interest rate swaps. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, or equity derivatives in any of its cash flow hedge accounting relationships.

The following tables provide the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, excluding the offset of the hedged item in an effective hedge relationship.


		Three Months Ended March 31, 2021									Three Months Ended June 30, 2021
		Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)			Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
		(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:									Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges	Cash flow hedges									Cash flow hedges
Interest Rate	Interest Rate	$	0	$	12	$	0	$	(125)	Interest Rate	$	0	$	12	$	0	$	26
Currency/Interest Rate	Currency/Interest Rate	(163)		2,460		1,717		4,824		Currency/Interest Rate	69		2,330		(595)		15,635
Total cash flow hedges	Total cash flow hedges	(163)		2,472		1,717		4,699		Total cash flow hedges	69		2,342		(595)		15,661
Derivatives Not Qualifying as Hedge Accounting Instruments:	Derivatives Not Qualifying as Hedge Accounting Instruments:									Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	Interest Rate	(37,371)		0		0		0		Interest Rate	16,719		0		0		0
Currency	Currency	1,036		0		0		0		Currency	(203)		0		0		0
Currency/Interest Rate	Currency/Interest Rate	192		0		(11)		0		Currency/Interest Rate	2,898		0		(3)		0
Credit	Credit	(12)		0		0		0		Credit	0		0		0		0
Equity	Equity	15,562		0		0		0		Equity	19,694		0		0		0
Embedded Derivatives	Embedded Derivatives	99,847		0		0		0		Embedded Derivatives	(164,839)		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	Total Derivatives Not Qualifying as Hedge Accounting Instruments	79,254		0		(11)		0		Total Derivatives Not Qualifying as Hedge Accounting Instruments	(125,731)		0		(3)		0
Total	Total	$	79,091	$	2,472	$	1,706	$	4,699	Total	$	(125,662)	$	2,342	$	(598)	$	15,661


		Three Months Ended March 31, 2020									Six Months Ended June 30, 2021
		Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)			Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
		(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:									Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges	Cash flow hedges									Cash flow hedges
Interest Rate	Interest Rate	$	(45)	$	(3)	$	0	$	300	Interest Rate	$	1	$	23	$	0	$	(99)
Currency/Interest Rate	Currency/Interest Rate	384		2,629		8,828		97,770		Currency/Interest Rate	(94)		4,791		1,121		20,459
Total cash flow hedges	Total cash flow hedges	339		2,626		8,828		98,070		Total cash flow hedges	(93)		4,814		1,121		20,360
Derivatives Not Qualifying as Hedge Accounting Instruments:	Derivatives Not Qualifying as Hedge Accounting Instruments:									Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	Interest Rate	30,506		0		0		0		Interest Rate	(20,652)		0		0		0
Currency	Currency	1,471		0		0		0		Currency	834		0		0		0
Currency/Interest Rate	Currency/Interest Rate	19,333		0		58		0		Currency/Interest Rate	3,090		0		(14)		0
Credit	Credit	0		0		0		0		Credit	(12)		0		0		0
Equity	Equity	(74,944)		0		0		0		Equity	35,256		0		0		0
Embedded Derivatives	Embedded Derivatives	116,752		0		0		0		Embedded Derivatives	(64,994)		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	Total Derivatives Not Qualifying as Hedge Accounting Instruments	93,118		0		58		0		Total Derivatives Not Qualifying as Hedge Accounting Instruments	(46,478)		0		(14)		0
Total	Total	$	93,457	$	2,626	$	8,886	$	98,070	Total	$	(46,571)	$	4,814	$	1,107	$	20,360

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2020
	Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Interest Rate	$	0	$	1	$	0	$	27
Currency/Interest Rate	387		2,745		(3,687)		(30,356)
Total cash flow hedges	387		2,746		(3,687)		(30,329)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(796)		0		0		0
Currency	(444)		0		0		0
Currency/Interest Rate	(4,662)		0		(10)		0
Credit	(225)		0		0		0
Equity	42,826		0		0		0
Embedded Derivatives	(113,439)		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	(76,740)		0		(10)		0
Total	$	(76,353)	$	2,746	$	(3,697)	$	(30,329)


	Six Months Ended June 30, 2020
	Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Interest Rate	$	(44)	$	(2)	$	0	$	327
Currency/Interest Rate	771		5,374		5,141		67,414
Total cash flow hedges	727		5,372		5,141		67,741
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	29,709		0		0		0
Currency	1,027		0		0		0
Currency/Interest Rate	14,671		0		48		0
Credit	(225)		0		0		0
Equity	(32,118)		0		0		0
Embedded Derivatives	3,313		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	16,377		0		48		0
Total	$	17,104	$	5,372	$	5,189	$	67,741

(1)Net change in AOCI.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Presented below is a rollforward of current period cash flow hedges in AOCI before taxes:


	(in thousands)
Balance, December 31, 2020	$	(8,112)
Amount recorded in AOCI
Interest Rate	~~(113)~~(75)

Currency/Interest Rate	~~8,838~~26,277
Total amount recorded in AOCI	~~8,725~~26,202
Amount reclassified from AOCI to income
Interest Rate	~~(12)~~(24)

Currency/Interest Rate	~~(4,014)~~(5,818)
Total amount reclassified from AOCI to income	~~(4,026)~~(5,842)
Balance, ~~March 31,~~June 30, 2021	$	~~(3,413)~~12,248

The changes in fair value of cash flow hedges are deferred in AOCI and are included in "Net unrealized investment gains (losses)" in the Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss); these amounts are then reclassified to earnings when the hedged item affects earnings. Using ~~March 31,~~June 30, 2021 values, it is estimated that a pre-tax gain of $9 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending ~~March 31,~~June 30, 2022.

The exposures the Company is hedging with these qualifying cash flow hedges include the variability of the payment or receipt of interest or foreign currency amounts on existing financial instruments.

There were no material amounts reclassified from AOCI into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

Credit Derivatives

The Company has no exposure from credit derivative positions where it has written credit protection as of ~~March 31,~~June 30, 2021 and December 31, 2020.

The Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company's investment portfolio. The Company has outstanding notional amounts of $0 million and $2 million reported as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively with a fair value of $0 million for both periods.

Counterparty Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by counterparties to financial derivative transactions with a positive fair value. The Company manages credit risk by entering into derivative transactions with its affiliate, Prudential Global Funding LLC (“PGF”), related to its over-the-counter ("OTC") derivatives. PGF, in turn, manages its credit risk by: (i) entering into derivative transactions with highly rated major international financial institutions and other creditworthy counterparties governed by master netting agreement, as applicable; (ii) trading through central clearing and OTC parties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single-party credit exposures which are subject to periodic management review.

Substantially all of the Company’s derivative agreements have zero thresholds which require daily full collateralization by the party in a liability position.

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Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

5. FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement - Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities.

Level 2 – Fair value is based on significant inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, and other market observable inputs.

Level 3 – Fair value is based on at least one significant unobservable input for the asset or liability. The assets and liabilities in this category may require significant judgment or estimation in determining the fair value.

For a discussion of the Company's valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 5 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

2728

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Assets and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities reported at fair value on a recurring basis, as of the dates indicated.


		March 31, 2021											June 30, 2021
		Level 1		Level 2		Level 3		Netting(1)		Total			Level 1		Level 2		Level 3		Netting(1)		Total
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	22,047	$	55,000	$		$	77,047	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	24,571	$	55,000	$		$	79,571
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	0		516,231		0				516,231		Obligations of U.S. states and their political subdivisions	0		517,006		0				517,006
Foreign government bonds	Foreign government bonds	0		284,848		157				285,005		Foreign government bonds	0		288,677		156				288,833
U.S. corporate public securities	U.S. corporate public securities	0		2,971,487		0				2,971,487		U.S. corporate public securities	0		3,242,940		0				3,242,940
U.S. corporate private securities	U.S. corporate private securities	0		933,531		31,969				965,500		U.S. corporate private securities	0		937,412		33,574				970,986
Foreign corporate public securities	Foreign corporate public securities	0		419,680		8,691				428,371		Foreign corporate public securities	0		468,902		9,058				477,960
Foreign corporate private securities	Foreign corporate private securities	0		911,531		124,831				1,036,362		Foreign corporate private securities	0		918,918		128,198				1,047,116
Asset-backed securities(2)	Asset-backed securities(2)	0		227,924		2,134				230,058		Asset-backed securities(2)	0		206,157		27,179				233,336
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		495,978		0				495,978		Commercial mortgage-backed securities	0		459,111		0				459,111
Residential mortgage-backed securities	Residential mortgage-backed securities	0		47,875		0				47,875		Residential mortgage-backed securities	0		22,374		0				22,374
Subtotal	Subtotal	0		6,831,132		222,782				7,053,914		Subtotal	0		7,086,068		253,165				7,339,233
Fixed maturities, trading	Fixed maturities, trading	0		80,347		767				81,114		Fixed maturities, trading	0		80,560		801				81,361

Equity securities	Equity securities	125		293		7,678				8,096		Equity securities	133		40,793		8,005				48,931
Short-term investments	Short-term investments	0		3,997		0				3,997		Short-term investments	0		0		0				0
Cash equivalents	Cash equivalents	0		239,150		0				239,150		Cash equivalents	115,996		86,809		0				202,805
Other invested assets(3)	Other invested assets(3)	0		375,198		0		(264,196)		111,002		Other invested assets(3)	175		320,225		0		(217,249)		103,151
Reinsurance recoverables	Reinsurance recoverables	0		0		7,447,863				7,447,863		Reinsurance recoverables	0		0		9,275,523				9,275,523
Receivables from parent and affiliates	Receivables from parent and affiliates	0		111,170		0				111,170		Receivables from parent and affiliates	0		110,607		0				110,607
Subtotal excluding separate account assets	Subtotal excluding separate account assets	125		7,641,287		7,679,090		(264,196)		15,056,306		Subtotal excluding separate account assets	116,304		7,725,062		9,537,494		(217,249)		17,161,611
Separate account assets(4)(5)	Separate account assets(4)(5)	39,346		140,023,499		0				140,062,845		Separate account assets(4)(5)	61,180		144,675,059		0				144,736,239
Total assets	Total assets	$	39,471	$	147,664,786	$	7,679,090	$	(264,196)	$	155,119,151	Total assets	$	177,484	$	152,400,121	$	9,537,494	$	(217,249)	$	161,897,850
Future policy benefits(6)	Future policy benefits(6)	$	0	$	0	$	7,435,081	$		$	7,435,081	Future policy benefits(6)	$	0	$	0	$	9,263,516	$		$	9,263,516
Policyholders' account balances	Policyholders' account balances	0		0		1,031,525				1,031,525		Policyholders' account balances	0		0		1,156,610				1,156,610
Payables to parent and affiliates	Payables to parent and affiliates	0		283,559		0		(283,559)		0		Payables to parent and affiliates	0		229,080		0		(229,080)		0
Other liabilities		252		0		0				252

Total liabilities	Total liabilities	$	252	$	283,559	$	8,466,606	$	(283,559)	$	8,466,858	Total liabilities	$	0	$	229,080	$	10,420,126	$	(229,080)	$	10,420,126

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Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


		December 31, 2020											December 31, 2020
		Level 1		Level 2		Level 3		Netting(1)		Total			Level 1		Level 2		Level 3		Netting(1)		Total
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	22,855	$	55,000	$		$	77,855	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	22,855	$	55,000	$		$	77,855
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	0		517,951		0				517,951		Obligations of U.S. states and their political subdivisions	0		517,951		0				517,951
Foreign government bonds	Foreign government bonds	0		250,692		163				250,855		Foreign government bonds	0		250,692		163				250,855
U.S. corporate public securities	U.S. corporate public securities	0		2,929,431		3				2,929,434		U.S. corporate public securities	0		2,929,431		3				2,929,434
U.S. corporate private securities	U.S. corporate private securities	0		977,423		34,633				1,012,056		U.S. corporate private securities	0		977,423		34,633				1,012,056
Foreign corporate public securities	Foreign corporate public securities	0		311,407		9,323				320,730		Foreign corporate public securities	0		311,407		9,323				320,730
Foreign corporate private securities	Foreign corporate private securities	0		961,113		130,817				1,091,930		Foreign corporate private securities	0		961,113		130,817				1,091,930
Asset-backed securities(2)	Asset-backed securities(2)	0		235,573		2,065				237,638		Asset-backed securities(2)	0		235,573		2,065				237,638
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		520,947		0				520,947		Commercial mortgage-backed securities	0		520,947		0				520,947
Residential mortgage-backed securities	Residential mortgage-backed securities	0		53,235		0				53,235		Residential mortgage-backed securities	0		53,235		0				53,235
Subtotal	Subtotal	0		6,780,627		232,004				7,012,631		Subtotal	0		6,780,627		232,004				7,012,631
Fixed maturities, trading	Fixed maturities, trading	0		81,727		755				82,482		Fixed maturities, trading	0		81,727		755				82,482

Equity securities	Equity securities	100,268		300		7,889				108,457		Equity securities	100,268		300		7,889				108,457
Short-term investments	Short-term investments	49,997		0		0				49,997		Short-term investments	49,997		0		0				49,997
Cash equivalents	Cash equivalents	49,996		347,330		0				397,326		Cash equivalents	49,996		347,330		0				397,326
Other invested assets(3)	Other invested assets(3)	198		397,348		0		(379,399)		18,147		Other invested assets(3)	198		397,348		0		(379,399)		18,147
Reinsurance recoverables	Reinsurance recoverables	0		0		13,239,539				13,239,539		Reinsurance recoverables	0		0		13,239,539				13,239,539
Receivables from parent and affiliates	Receivables from parent and affiliates	0		111,970		0				111,970		Receivables from parent and affiliates	0		111,970		0				111,970
Subtotal excluding separate account assets	Subtotal excluding separate account assets	200,459		7,719,302		13,480,187		(379,399)		21,020,549		Subtotal excluding separate account assets	200,459		7,719,302		13,480,187		(379,399)		21,020,549
Separate account assets(4)(5)	Separate account assets(4)(5)	0		140,583,009		0				140,583,009		Separate account assets(4)(5)	0		140,583,009		0				140,583,009
Total assets	Total assets	$	200,459	$	148,302,311	$	13,480,187	$	(379,399)	$	161,603,558	Total assets	$	200,459	$	148,302,311	$	13,480,187	$	(379,399)	$	161,603,558
Future policy benefits(6)	Future policy benefits(6)	$	0	$	0	$	13,227,814	$		$	13,227,814	Future policy benefits(6)	$	0	$	0	$	13,227,814	$		$	13,227,814
Policyholders' account balances	Policyholders' account balances	0		0		1,155,274				1,155,274		Policyholders' account balances	0		0		1,155,274				1,155,274
Payables to parent and affiliates	Payables to parent and affiliates	0		265,826		0		(265,826)		0		Payables to parent and affiliates	0		265,826		0		(265,826)		0
Other liabilities		0		0		0				0

Total liabilities	Total liabilities	$	0	$	265,826	$	14,383,088	$	(265,826)	$	14,383,088	Total liabilities	$	0	$	265,826	$	14,383,088	$	(265,826)	$	14,383,088

(1)“Netting” amounts represent cash collateral of ~~$(19.4)~~$(11.8) million and $113.6 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

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

(3)Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value ("NAV") per share (or its equivalent) as a practical expedient. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the fair values of such investments were ~~$80~~$78 million and $77 million, respectively.

(4)Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company's Unaudited Interim Consolidated Statements of Financial Position.

(5)Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and a corporate owned life insurance fund, for which fair value is measured at NAV per share (or its equivalent). At ~~March 31,~~June 30, 2021 and December 31, 2020, the fair value of such investments was ~~$5,286~~$5,428 million and $5,157 million, respectively.

(6)As of ~~March 31,~~June 30, 2021, the net embedded derivative liability position of ~~$7,435~~$9,264 million includes ~~$786~~$636 million of embedded derivatives in an asset position and ~~$8,221~~$9,900 million of embedded derivatives in a liability position. As of December 31, 2020, the net embedded derivative liability position of $13,228 million includes $483 million of embedded derivatives in an asset position and $13,711 million of embedded derivatives in a liability position.

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Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Quantitative Information Regarding Internally Priced Level 3 Assets and Liabilities – The tables below present quantitative information on significant internally-priced Level 3 assets and liabilities.

March 31, 2021
Fair Value Valuation
Techniques Unobservable Inputs Minimum Maximum Weighted Average Impact of
Increase in
Input on
Fair Value(1)
(in thousands)
Assets:
Corporate securities(2) $ 147,923 Discounted cash flow Discount rate 1.37 % 11.53 % 3.40 % Decrease
Reinsurance recoverables $ 7,447,863 Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3) $ 7,435,081 Discounted cash flow Lapse rate(5) 1 % 20 % Decrease
Spread over LIBOR(6) 0.09 % 1.14 % Decrease
Utilization rate(7) 39 % 96 % Increase
Withdrawal rate See table footnote (8) below.
Mortality rate(9) 0 % 15 % Decrease
Equity volatility curve 17 % 25 % Increase
Policyholders' account balances(4) $ 1,031,525 Discounted cash flow Lapse rate(5) 1 % 6 % Decrease
Spread over LIBOR(6) 0.09 % 1.14 % Decrease
Mortality rate(9) 0 % 24 % Decrease
Equity volatility curve 14 % 27 % Increase


		December 31, 2020												June 30, 2021
		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
		(in thousands)												(in thousands)
Assets:	Assets:												Assets:
Corporate securities(2)	Corporate securities(2)	$	151,554	Discounted cash flow	Discount rate	0.99	%	11.38	%	3.44	%	Decrease	Corporate securities(2)	$	154,266	Discounted cash flow	Discount rate	1.24	%	10.27	%	3.56	%	Decrease
																Market Comparables	EBITDA multiples(3)	6.6	X	10.2	X	7.9	X	Increase

Reinsurance recoverables	Reinsurance recoverables	$	13,239,539	Fair values are determined using the same unobservable inputs as future policy benefits.									Reinsurance recoverables	$	9,275,523	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:	Liabilities:												Liabilities:
Future policy benefits(3)		$	13,227,814	Discounted cash flow	Lapse rate(5)	1	%	20	%			Decrease
Future policy benefits(4)													Future policy benefits(4)	$	9,263,516	Discounted cash flow	Lapse rate(6)	1	%	20	%			Decrease
					Spread over LIBOR(6)	0.06	%	1.17	%			Decrease					Spread over LIBOR(7)	0.05	%	1.12	%			Decrease
					Utilization rate(7)	39	%	96	%			Increase					Utilization rate(8)	39	%	96	%			Increase
					Withdrawal rate	See table footnote (8) below.											Withdrawal rate	See table footnote (9) below.
					Mortality rate(9)	0	%	15	%			Decrease					Mortality rate(10)	0	%	15	%			Decrease
					Equity volatility curve	18	%	26	%			Increase					Equity volatility curve	16	%	25	%			Increase
Policyholders' account balances(4)		$	1,155,274	Discounted cash flow	Lapse rate(5)	1	%	6	%			Decrease
Policyholders' account balances(5)													Policyholders' account balances(5)	$	1,156,610	Discounted cash flow	Lapse rate(6)	1	%	6	%			Decrease
					Spread over LIBOR(6)	0.06	%	1.17	%			Decrease					Spread over LIBOR(7)	0.05	%	1.12	%			Decrease
					Mortality rate(9)	0	%	24	%			Decrease
					Equity volatility curve	15	%	30	%			Increase					Mortality rate(10)	0	%	23	%			Decrease
																	Equity volatility curve	11	%	26	%			Increase

3031

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
	(in thousands)
Assets:
Corporate securities(2)	$	151,554	Discounted cash flow	Discount rate	0.99	%	11.38	%	3.44	%	Decrease

Reinsurance recoverables	$	13,239,539	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(4)	$	13,227,814	Discounted cash flow	Lapse rate(6)	1	%	20	%			Decrease
				Spread over LIBOR(7)	0.06	%	1.17	%			Decrease
				Utilization rate(8)	39	%	96	%			Increase
				Withdrawal rate	See table footnote (9) below.
				Mortality rate(10)	0	%	15	%			Decrease
				Equity volatility curve	18	%	26	%			Increase
Policyholders' account balances(5)	$	1,155,274	Discounted cash flow	Lapse rate(6)	1	%	6	%			Decrease
				Spread over LIBOR(7)	0.06	%	1.17	%			Decrease
				Mortality rate(10)	0	%	24	%			Decrease
				Equity volatility curve	15	%	30	%			Increase

(1)Conversely, the impact of a decrease in input would have the opposite impact on fair value as that presented in the table.

(2)Includes assets classified as fixed maturities, available-for-sale and fixed maturities trading.

(3)Represents multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA"), and are amounts used when the Company has determined that market participants would use such multiples when valuing the investments.

(4)Future policy benefits primarily represent general account liabilities for the living benefit features of the Company’s variable annuity contracts which are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than a weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

~~(4)~~(5)Policyholders’ account balances primarily represent general account liabilities for the index-linked interest credited on certain of the Company’s life products that are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than a weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

~~(5)~~(6)Lapse rates for contracts with living benefit guarantees are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates for contracts with index-linked crediting guarantees may be adjusted at the contract level based on the applicability of any surrender charges, product type, and market related factors such as interest rates. Lapse rates are also generally assumed to be lower for the period where surrender charges apply. For any given contract, lapse rates vary throughout the period over which cash flows are projected for the purposes of valuing these embedded derivatives.

~~(6)~~(7)The spread over the London Inter-Bank Offered Rate ("LIBOR") swap curve represents the premium added to the proxy for the risk-free rate (LIBOR) to reflect the Company's estimates of rates that a market participant would use to value the living benefits in both the accumulation and payout phases and index-linked interest crediting guarantees. This spread includes an estimate of NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because funding agreements, living benefit guarantees, and index-linked interest crediting guarantees are insurance liabilities and are therefore senior to debt.

~~(7)~~(8)The utilization rate assumption estimates the percentage of contracts that will utilize the benefit during the contract duration and begin lifetime withdrawals at various time intervals from contract inception. The remaining contractholders are assumed to either begin lifetime withdrawals immediately or never utilize the benefit. Utilization assumptions may vary by product type, tax status and age. The impact of changes in these assumptions is highly dependent on the product type, the age of the contractholder at the time of the sale, and the timing of the first lifetime income withdrawal. Range reflects the utilization rate for the vast majority of business with living benefits.

~~(8)~~(9)The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the minimum withdrawal rate assumption is 76% and the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

~~(9)~~

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(10)The range reflects the mortality rates for the vast majority of business with living benefits and other contracts, with policyholders ranging from 45 to 90 years old. While the majority of living benefits have a minimum age requirement, certain other contracts do not have an age restriction. This results in contractholders with mortality rates approaching 0% for certain benefits. Mortality rates may vary by product, age, and duration. A mortality improvement assumption is also incorporated into the overall mortality table.

Interrelationships Between Unobservable Inputs – In addition to the sensitivities of fair value measurements to changes in each unobservable input in isolation, as reflected in the table above, interrelationships between these inputs may also exist, such that a change in one unobservable input may give rise to a change in another, or multiple, inputs. Examples of such interrelationships for significant internally-priced Level 3 assets and liabilities are as follows:

Corporate Securities – The rate used to discount future cash flows reflects current risk-free rates plus credit and liquidity spread requirements that market participants would use to value an asset. The discount rate may be influenced by many factors, including market cycles, expectations of default, collateral, term, and asset complexity. Each of these factors can influence discount rates, either in isolation, or in response to other factors. During weaker economic cycles, as the expectations of default increases, credit spreads widen, which results in a decrease in fair value.

Future Policy Benefits – The Company expects efficient benefit utilization and withdrawal rates to generally be correlated with lapse rates. However, behavior is ~~generally~~ highly dependent on the facts and circumstances surrounding the individual contractholder, such as their liquidity needs or tax situation, which could drive lapse behavior independent of other contractholder behavior assumptions. To the extent that more efficient contractholder behavior results in greater in-the-moneyness at the contract level, lapse rates may decline for those contracts. Similarly, to the extent that increases in equity volatility are correlated with overall declines in the capital markets, lapse rates may decline as contracts become more in-the-money.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Changes in Level 3 Assets and Liabilities – The following tables describe changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods. When a determination is made to classify assets and liabilities within Level 3, the determination is based on significance of the unobservable inputs in the overall fair value measurement. All transfers are based on changes in the observability of the valuation inputs, including the availability of pricing service information that the Company can validate. Transfers into Level 3 are generally the result of unobservable inputs utilized within valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the Company can validate.

Three Months Ended March 31, 2021
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
U.S. government $ 55,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 55,000 $ 0
Foreign government 163 (6) 0 0 0 0 0 0 0 157 (6)
Corporate securities(3) 174,776 (12,082) 2,319 0 0 (2,165) 0 2,643 0 165,491 (12,101)
Structured securities(4) 2,065 (15) 500 0 0 (416) 0 0 0 2,134 (14)
Other assets:
Fixed maturities, trading 755 12 0 0 0 0 0 0 0 767 12
Equity securities 7,889 (211) 0 0 0 0 0 0 0 7,678 (211)
Other invested assets 0 0 0 0 0 0 0 0 0 0 0
Reinsurance recoverables 13,239,539 (6,069,909) 278,233 0 0 0 0 0 0 7,447,863 (5,914,192)
Receivables from parent and affiliates 0 0 0 0 0 0 0 0 0 0 0
Liabilities:
Future policy benefits (13,227,814) 6,068,982 0 0 (276,249) 0 0 0 0 (7,435,081) 5,913,265
Policyholders' account balances(5) (1,155,274) 110,257 0 0 0 13,492 0 0 0 (1,031,525) 128,490

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Three Months Ended March 31, 2021
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss) Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale $ (508) $ 0 $ (11,618) $ 23 $ (500) $ 0 $ (11,621)
Other assets:
Fixed maturities, trading 0 12 0 0 0 12 0
Equity securities 0 (211) 0 0 0 (211) 0
Reinsurance recoverables (6,069,909) 0 0 0 (5,914,192) 0 0
Receivables from parent and affiliates 0 0 0 0 0 0 0
Liabilities:
Future policy benefits 6,068,982 0 0 0 5,913,265 0 0
Policyholders' account balances 110,257 0 0 0 128,490 0 0

Three Months Ended March 31, 2020
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
U.S. government $ 38,671 $ 0 $ 3,342 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 42,013 $ 0
Foreign government 163 (11) 0 0 0 0 0 0 0 152 (11)
Corporate securities(3) 50,083 (17,970) 7,193 (3,680) 0 (2,958) 0 98,014 0 130,682 (17,186)
Structured securities(4) 2,001 (484) 6,145 0 0 (224) 0 0 0 7,438 (483)
Other assets:
Fixed maturities, trading 668 (130) 0 0 0 0 0 0 0 538 (130)
Equity securities 9,898 (702) 0 0 0 0 0 0 0 9,196 (702)
Other invested assets 4 0 0 0 0 0 0 0 0 4 0
Reinsurance recoverables 8,539,671 11,408,202 266,951 0 0 0 0 0 0 20,214,824 11,508,908
Receivables from parent and affiliates 3,135 19 0 0 0 (1,579) 0 0 0 1,575 0
Liabilities:
Future policy benefits (8,529,566) (11,401,903) 0 0 (264,988) 0 0 0 0 (20,196,457) (11,502,609)
Policyholders' account balances(5) (962,351) 117,655 0 0 (55,565) 0 0 0 0 (900,261) 125,109

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


		Three Months Ended March 31, 2020															Three Months Ended June 30, 2021
		Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)							Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
		Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)				(in thousands)
		(in thousands)
Fixed maturities, available-for-sale		$	(1,779)	$	0	$	(16,776)	$	90		$	(1,334)	$	0	$	(16,346)
Fixed maturities, available-for-sale:																		Fixed maturities, available-for-sale:
U.S. government																		U.S. government	$	55,000	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	55,000	$	0
Foreign government																		Foreign government	157		(1)		0		0		0		0		0		0		0		156		(1)
Corporate securities(3)																		Corporate securities(3)	165,491		5,050		23		0		0		(2,208)		0		2,474		0		170,830		5,000
Structured securities(4)																		Structured securities(4)	2,134		2		25,450		0		0		(407)		0		0		0		27,179		1
Other assets:	Other assets:																	Other assets:
Fixed maturities, trading	Fixed maturities, trading	0		(130)		0		0			0		(130)		0			Fixed maturities, trading	767		34		0		0		0		0		0		0		0		801		33
Equity securities	Equity securities	0		(702)		0		0			0		(702)		0			Equity securities	7,678		327		0		0		0		0		0		0		0		8,005		327

Other invested assets																		Other invested assets	0		0		0		0		0		0		0		0		0		0		0

Reinsurance recoverables	Reinsurance recoverables	11,408,202		0		0		0			11,508,908		0		0			Reinsurance recoverables	7,447,863		1,550,027		277,633		0		0		0		0		0		0		9,275,523		1,638,970
Receivables from parent and affiliates	Receivables from parent and affiliates	0		0		0		19			0		0		0			Receivables from parent and affiliates	0		0		0		0		0		0		0		0		0		0		0
Liabilities:	Liabilities:																	Liabilities:
Future policy benefits	Future policy benefits	(11,401,903)		0		0		0			(11,502,609)		0		0			Future policy benefits	(7,435,081)		(1,552,781)		0		0		(275,654)		0		0		0		0		(9,263,516)		(1,640,666)
Policyholders' account balances		117,655		0		0		0			125,109		0		0
Policyholders' account balances(5)																		Policyholders' account balances(5)	(1,031,525)		(146,924)		0		0		0		21,839		0		0		0		(1,156,610)		(128,815)


	Three Months Ended June 30, 2021
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	2,316	$	0	$	2,708	$	27		$	2,300	$	0	$	2,700
Other assets:
Fixed maturities, trading	0		34		0		0			0		33		0
Equity securities	0		327		0		0			0		327		0
Other invested assets	0		0		0		0			0		0		0


Reinsurance recoverables	1,550,027		0		0		0			1,638,970		0		0
Receivables from parent and affiliates	0		0		0		0			0		0		0
Liabilities:
Future policy benefits	(1,552,781)		0		0		0			(1,640,666)		0		0
Policyholders' account balances	(146,924)		0		0		0			(128,815)		0		0

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government	$	55,000	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	55,000	$	0
Foreign government	163		(7)		0		0		0		0		0		0		0		156		(8)
Corporate securities(3)	174,776		(7,032)		2,342		0		0		(4,373)		0		5,117		0		170,830		(7,101)
Structured securities(4)	2,065		(13)		25,950		0		0		(823)		0		0		0		27,179		(13)
Other assets:
Fixed maturities, trading	755		46		0		0		0		0		0		0		0		801		46
Equity securities	7,889		116		0		0		0		0		0		0		0		8,005		116
Other invested assets	0		0		0		0		0		0		0		0		0		0		0


Reinsurance recoverables	13,239,539		(4,519,882)		555,866		0		0		0		0		0		0		9,275,523		(4,201,349)
Receivables from parent and affiliates	0		0		0		0		0		0		0		0		0		0		0
Liabilities:
Future policy benefits	(13,227,814)		4,516,201		0		0		(551,903)		0		0		0		0		(9,263,516)		4,197,669
Policyholders' account balances(5)	(1,155,274)		(36,667)		0		0		0		35,331		0		0		0		(1,156,610)		(325)


	Six Months Ended June 30, 2021
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	1,808	$	0	$	(8,910)	$	50		$	1,799	$	0	$	(8,921)
Other assets:
Fixed maturities, trading	0		46		0		0			0		46		0
Equity securities	0		116		0		0			0		116		0
Other invested assets	0		0		0		0			0		0		0

Reinsurance recoverables	(4,519,882)		0		0		0			(4,201,349)		0		0
Receivables from parent and affiliates	0		0		0		0			0		0		0
Liabilities:
Future policy benefits	4,516,201		0		0		0			4,197,669		0		0
Policyholders' account balances	(36,667)		0		0		0			(325)		0		0

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government	$	42,013	$	0	$	2,779	$	0	$	0	$	0	$	0	$	0	$	0	$	44,792	$	0
Foreign government	152		9		0		0		0		0		0		0		0		161		9
Corporate securities(3)	130,682		16,438		1,471		0		0		(3,377)		0		11,758		0		156,972		16,378
Structured securities(4)	7,438		9		0		0		0		(304)		0		0		(5,636)		1,507		9
Other assets:
Fixed maturities, trading	538		106		0		0		0		0		0		0		0		644		106
Equity securities	9,196		(46)		0		0		0		0		0		0		0		9,150		(46)
Other invested assets	4		(4)		0		0		0		0		0		0		0		0		(4)


Reinsurance recoverables	20,214,824		(1,457,242)		270,556		0		0		0		0		0		0		19,028,138		(1,317,838)
Receivables from parent and affiliates	1,575		4		0		0		0		(1,579)		0		0		0		0		0
Liabilities:
Future policy benefits	(20,196,457)		1,450,990		0		0		(268,599)		0		0		0		0		(19,014,066)		1,319,848
Policyholders' account balances(5)	(900,261)		(77,695)		0		0		(67,527)		0		0		0		0		(1,045,483)		(82,850)


	Three Months Ended June 30, 2020
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	(2,361)	$	0	$	18,807	$	10		$	(2,361)	$	0	$	18,757
Other assets:
Fixed maturities, trading	0		106		0		0			0		106		0
Equity securities	0		(46)		0		0			0		(46)		0
Other invested assets	(4)		0		0		0			(4)		0		0



Reinsurance recoverables	(1,457,242)		0		0		0			(1,317,838)		0		0
Receivables from parent and affiliates	0		0		0		4			0		0		0
Liabilities:
Future policy benefits	1,450,990		0		0		0			1,319,848		0		0
Policyholders' account balances	(77,695)		0		0		0			(82,850)		0		0

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government	$	38,671	$	0	$	6,121	$	0	$	0	$	0	$	0	$	0	$	0	$	44,792	$	0
Foreign government	163		(2)		0		0		0		0		0		0		0		161		(2)
Corporate securities(3)	50,083		(1,532)		8,664		(3,680)		0		(6,335)		0		109,772		0		156,972		(807)
Structured securities(4)	2,001		(475)		6,145		0		0		(528)		0		0		(5,636)		1,507		(473)
Other assets:
Fixed maturities, trading	668		(24)		0		0		0		0		0		0		0		644		(24)
Equity securities	9,898		(748)		0		0		0		0		0		0		0		9,150		(748)
Other invested assets	4		(4)		0		0		0		0		0		0		0		0		(4)


Reinsurance recoverables	8,539,671		9,950,960		537,507		0		0		0		0		0		0		19,028,138		10,102,377
Receivables from parent and affiliates	3,135		23		0		0		0		(3,158)		0		0		0		0		0
Liabilities:
Future policy benefits	(8,529,566)		(9,950,913)		0		0		(533,587)		0		0		0		0		(19,014,066)		(10,102,329)
Policyholders' account balances(5)	(962,351)		39,960		0		0		(123,092)		0		0		0		0		(1,045,483)		42,260


	Six Months Ended June 30, 2020
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	(4,140)	$	0	$	2,031	$	100		$	(3,695)	$	0	$	2,413
Other assets:
Fixed maturities, trading	0		(24)		0		0			0		(24)		0
Equity securities	0		(748)		0		0			0		(748)		0
Other invested assets	(4)		0		0		0			(4)		0		0



Reinsurance recoverables	9,950,960		0		0		0			10,102,377		0		0
Receivables from parent and affiliates	0		0		0		23			0		0		0
Liabilities:
Future policy benefits	(9,950,913)		0		0		0			(10,102,329)		0		0
Policyholders' account balances	39,960		0		0		0			42,260		0		0

(1)Realized investment gains (losses) on future policy benefits and reinsurance recoverables primarily represent the change in the fair value of the Company's living benefit guarantees on certain of its variable annuity contracts.

(2)Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

(3)Includes U.S. corporate public, U.S. corporate private, foreign corporate public and foreign corporate private securities.

(4)Includes asset-backed and residential mortgage-backed securities.

(5)Issuances and settlements for Policyholders' account balances are presented net in the rollforward.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Fair Value of Financial Instruments

The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Unaudited Interim Consolidated Statements of Financial Position. In some cases, as described below, the carrying amount equals or approximates fair value.


		March 31, 2021											June 30, 2021
		Fair Value								Carrying Amount(1)			Fair Value								Carrying Amount(1)
		Level 1		Level 2		Level 3		Total		Total			Level 1		Level 2		Level 3		Total		Total
		(in thousands)											(in thousands)
Assets:	Assets:											Assets:
Commercial mortgage and other loans	Commercial mortgage and other loans	$	0	$	0	$	1,321,349	$	1,321,349	$	1,259,515	Commercial mortgage and other loans	$	0	$	0	$	1,375,435	$	1,375,435	$	1,288,940
Policy loans	Policy loans	0		0		1,320,915		1,320,915		1,320,915		Policy loans	0		0		1,325,519		1,325,519		1,325,519

Cash and cash equivalents	Cash and cash equivalents	36,577		0		0		36,577		36,577		Cash and cash equivalents	35,408		0		0		35,408		35,408
Accrued investment income	Accrued investment income	0		97,728		0		97,728		97,728		Accrued investment income	0		97,327		0		97,327		97,327
Reinsurance recoverables	Reinsurance recoverables	0		0		230,930		230,930		226,882		Reinsurance recoverables	0		0		240,903		240,903		234,232
Receivables from parent and affiliates	Receivables from parent and affiliates	0		158,776		0		158,776		158,776		Receivables from parent and affiliates	0		169,817		0		169,817		169,817
Other assets	Other assets	0		22,416		0		22,416		22,416		Other assets	0		41,149		0		41,149		41,149
Total assets	Total assets	$	36,577	$	278,920	$	2,873,194	$	3,188,691	$	3,122,809	Total assets	$	35,408	$	308,293	$	2,941,857	$	3,285,558	$	3,192,392
Liabilities:	Liabilities:											Liabilities:
Policyholders’ account balances - investment contracts	Policyholders’ account balances - investment contracts	$	0	$	1,492,373	$	288,114	$	1,780,487	$	1,776,439	Policyholders’ account balances - investment contracts	$	0	$	1,448,751	$	296,554	$	1,745,305	$	1,738,633

Cash collateral for loaned securities	Cash collateral for loaned securities	0		2,725		0		2,725		2,725		Cash collateral for loaned securities	0		2,725		0		2,725		2,725

Payables to parent and affiliates	Payables to parent and affiliates	0		105,833		0		105,833		105,833		Payables to parent and affiliates	0		175,902		0		175,902		175,902
Other liabilities	Other liabilities	0		469,609		0		469,609		469,609		Other liabilities	0		457,151		34,091		491,242		491,242
Total liabilities	Total liabilities	$	0	$	2,070,540	$	288,114	$	2,358,654	$	2,354,606	Total liabilities	$	0	$	2,084,529	$	330,645	$	2,415,174	$	2,408,502


	December 31, 2020
	Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	1,359,422	$	1,359,422	$	1,288,846
Policy loans	0		0		1,323,681		1,323,681		1,323,681
Cash and cash equivalents	29,653		0		0		29,653		29,653
Accrued investment income	0		93,613		0		93,613		93,613
Reinsurance recoverables	0		0		227,993		227,993		217,637
Receivables from parent and affiliates	0		154,503		0		154,503		154,503
Other assets	0		27,120		0		27,120		27,120
Total assets	$	29,653	$	275,236	$	2,911,096	$	3,215,985	$	3,135,053
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	1,428,043	$	286,533	$	1,714,576	$	1,704,220

Cash collateral for loaned securities	0		2,725		0		2,725		2,725


Payables to parent and affiliates	0		75,990		0		75,990		75,990
Other liabilities	0		415,889		0		415,889		415,889
Total liabilities	$	0	$	1,922,647	$	286,533	$	2,209,180	$	2,198,824

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2020
Fair Value Carrying
Amount(1)
Level 1 Level 2 Level 3 Total Total
(in thousands)
Assets:
Commercial mortgage and other loans $ 0 $ 0 $ 1,359,422 $ 1,359,422 $ 1,288,846
Policy loans 0 0 1,323,681 1,323,681 1,323,681
Cash and cash equivalents 29,653 0 0 29,653 29,653
Accrued investment income 0 93,613 0 93,613 93,613
Reinsurance recoverables 0 0 227,993 227,993 217,637
Receivables from parent and affiliates 0 154,503 0 154,503 154,503
Other assets 0 27,120 0 27,120 27,120
Total assets $ 29,653 $ 275,236 $ 2,911,096 $ 3,215,985 $ 3,135,053
Liabilities:
Policyholders’ account balances - investment contracts $ 0 $ 1,428,043 $ 286,533 $ 1,714,576 $ 1,704,220
Cash collateral for loaned securities 0 2,725 0 2,725 2,725
Payables to parent and affiliates 0 75,990 0 75,990 75,990
Other liabilities 0 415,889 0 415,889 415,889
Total liabilities $ 0 $ 1,922,647 $ 286,533 $ 2,209,180 $ 2,198,824

(1) Carrying values presented herein differ from those in the Company’s Unaudited Interim Consolidated Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments.

6. REINSURANCE

The Company participates in reinsurance with its affiliates Prudential ~~Life Insurance Company of Taiwan Inc. (“Prudential of Taiwan”), Prudential~~ Arizona Reinsurance Captive Company (“PARCC”), Prudential Arizona Reinsurance Term Company (“PAR Term”), Prudential Arizona Reinsurance Universal Company (“PAR U”), Prudential Universal Reinsurance Company ("PURC"), Prudential Term Reinsurance Company (“Term Re”), PALAC, Gibraltar Universal Life Reinsurance Company ("GUL Re") ~~and~~, Dryden Arizona Reinsurance Term Company (“DART”), and Prudential Life Insurance Company of Taiwan Inc. (“Prudential of Taiwan”), a subsidiary of Prudential Financial that was sold to a third-party on June 30, 2021, as discussed below. The Company also participates in reinsurance with its parent company Prudential Insurance, as well as third parties. The reinsurance agreements provide risk diversification and additional capacity for future growth, limit the maximum net loss potential, manage statutory capital, and facilitate the Company's capital market hedging program. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The Company believes a material reinsurance liability resulting from such inability of reinsurers to meet their obligations is unlikely.

Reserves related to reinsured long-duration contracts are accounted for using assumptions consistent with those used to account for the underlying contracts. Amounts recoverable from reinsurers for long-duration reinsurance arrangements are estimated in a manner consistent with the claim liabilities and policy benefits associated with the reinsured policies. Reinsurance policy charges and fee income ceded for universal life and variable annuity products are accounted for as a reduction of policy charges and fee income. Reinsurance premiums ceded for term insurance products are accounted for as a reduction of premiums.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. The Company has entered into reinsurance agreements to transfer the risk related to the living benefit guarantees on variable annuities to PALAC excluding the PLNJ business which was reinsured to Prudential Insurance. These reinsurance agreements are derivatives and have been accounted for in the same manner as embedded derivatives and the changes in the fair value of these derivatives are recognized through “Realized investment gains (losses), net”. See Note 4 for additional information related to the accounting for embedded derivatives.

Reinsurance amounts included in the Company’s Unaudited Interim Consolidated Statements of Financial Position as of June 30, 2021 and December 31, 2020 were as follows:


	June 30, 2021		December 31, 2020
	(in thousands)
Reinsurance recoverables	$	42,955,806	$	48,367,096
Policy loans	(154,019)		(153,869)
Deferred policy acquisition costs	(6,384,433)		(6,574,020)
Deferred sales inducements	(427,921)		(445,493)
Other assets(1)	208,082		233,364
Policyholders’ account balances	4,671,873		4,773,439
Future policy benefits(2)	5,102,094		5,069,353
Other liabilities(3)	1,118,501		1,099,318

(1)Includes $0.0 million of unaffiliated activity at both June 30, 2021 and December 31, 2020.

(2)Includes $0.1 million and $0 million of unaffiliated activity as of June 30, 2021 and December 31, 2020, respectively.

(3)Includes $47 million and $43 million of unaffiliated activity as of June 30, 2021 and December 31, 2020, respectively.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reinsurance ~~amounts included in the Company’s Unaudited Interim Consolidated Statements of Financial Position as of March 31, 2021 and December 31, 2020 were as follows:~~

March 31, 2021 December 31, 2020
(in thousands)
Reinsurance recoverables $ 42,364,083 $ 48,367,096
Policy loans (152,662) (153,869)
Deferred policy acquisition costs (6,516,371) (6,574,020)
Deferred sales inducements (420,147) (445,493)
Other assets(1) 209,796 233,364
Policyholders’ account balances 4,725,317 4,773,439
Future policy benefits(2) 4,868,027 5,069,353
Other liabilities(3) 1,071,359 1,099,318

~~(1)Includes $0.0 million of unaffiliated activity at both March 31, 2021 and December 31, 2020.~~

~~(2)Includes $0.0 million of unaffiliated activity at both March 31, 2021 and December 31, 2020.~~

~~(3)Includes $53 million and $43 million of unaffiliated activity as of March 31, 2021 and December 31, 2020, respectively.~~

~~Reinsurance~~ recoverables by counterparty are broken out below:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
PAR U	PAR U	$	13,097,853	$	13,352,845	PAR U	$	13,323,437	$	13,352,845
PALAC	PALAC	10,753,335		15,941,123		PALAC	12,307,123		15,941,123
PURC	PURC	5,353,817		5,368,831		PURC	5,514,890		5,368,831
PARCC	PARCC	2,557,573		2,572,428		PARCC	2,498,339		2,572,428
GUL Re	GUL Re	2,549,764		2,573,609		GUL Re	2,613,264		2,573,609
PAR Term	PAR Term	1,980,388		1,913,265		PAR Term	1,934,818		1,913,265
Prudential Insurance	Prudential Insurance	1,846,899		2,421,226		Prudential Insurance	2,021,776		2,421,226
Prudential of Taiwan	Prudential of Taiwan	1,636,733		1,649,998		Prudential of Taiwan	0		1,649,998
Term Re	Term Re	1,814,238		1,766,978		Term Re	1,844,333		1,766,978
DART	DART	537,743		502,770		DART	604,157		502,770
Unaffiliated	Unaffiliated	235,740		304,023		Unaffiliated	293,669		304,023
Total reinsurance recoverables	Total reinsurance recoverables	$	42,364,083	$	48,367,096	Total reinsurance recoverables	$	42,955,806	$	48,367,096

Reinsurance amounts, included in the Company’s Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended ~~March 31,~~June 30, were as follows:

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020					2021		2020		2021		2020
		(in thousands)				(in thousands)
Premiums:	Premiums:							Premiums:
Direct	Direct	$	486,877	$	475,486			Direct	$	486,008	$	484,577	$	972,885	$	960,063
Assumed(1)	Assumed(1)	43		48				Assumed(1)	41		47		84		95
Ceded(2)	Ceded(2)	(442,515)		(460,663)				Ceded(2)	(441,187)		(462,080)		(883,702)		(922,743)
Net premiums	Net premiums	44,405		14,871				Net premiums	44,862		22,544		89,267		37,415
Policy charges and fee income:	Policy charges and fee income:							Policy charges and fee income:
Direct	Direct	909,889		901,442				Direct	893,456		816,817		1,803,345		1,718,259
Assumed	Assumed	140,113		132,504				Assumed	146,537		131,579		286,650		264,083
Ceded(3)	Ceded(3)	(898,137)		(894,027)				Ceded(3)	(859,793)		(787,311)		(1,757,930)		(1,681,338)
Net policy charges and fee income	Net policy charges and fee income	151,865		139,919				Net policy charges and fee income	180,200		161,085		332,065		301,004
Net investment income:	Net investment income:							Net investment income:
Direct	Direct	100,395		81,092				Direct	96,905		84,946		197,300		166,038
Assumed	Assumed	359		400				Assumed	371		394		730		794
Ceded	Ceded	(1,887)		(1,911)				Ceded	(1,976)		(1,878)		(3,863)		(3,789)
Net investment income	Net investment income	98,867		79,581				Net investment income	95,300		83,462		194,167		163,043
Asset administration fees:	Asset administration fees:							Asset administration fees:
Direct	Direct	96,614		89,329				Direct	98,823		84,330		195,437		173,659
Assumed	Assumed	0		0				Assumed	0		0		0		0
Ceded	Ceded	(90,403)		(84,941)				Ceded	(92,547)		(80,028)		(182,950)		(164,969)
Net asset administration fees	Net asset administration fees	6,211		4,388				Net asset administration fees	6,276		4,302		12,487		8,690
Other income:	Other income:							Other income:
Direct	Direct	17,100		8,606				Direct	24,577		12,682		41,677		21,288
Assumed(4)	Assumed(4)	(73)		(437)				Assumed(4)	13		408		(60)		(29)
Ceded	Ceded	65		(515)				Ceded	41		640		106		125
Amortization of reinsurance income	Amortization of reinsurance income	1,152		1,182				Amortization of reinsurance income	999		1,162		2,151		2,344
Net other income	Net other income	18,244		8,836				Net other income	25,630		14,892		43,874		23,728
Realized investment gains (losses), net:	Realized investment gains (losses), net:							Realized investment gains (losses), net:
Direct	Direct	6,157,747		(11,309,174)				Direct	(1,655,473)		1,408,425		4,502,274		(9,900,749)
Assumed	Assumed	0		0				Assumed	0		0		0		0
Ceded(5)	Ceded(5)	(6,081,139)		11,399,069				Ceded(5)	1,532,971		(1,488,656)		(4,548,168)		9,910,413
Realized investment gains (losses), net	Realized investment gains (losses), net	76,608		89,895				Realized investment gains (losses), net	(122,502)		(80,231)		(45,894)		9,664
Policyholders’ benefits (including change in reserves):	Policyholders’ benefits (including change in reserves):							Policyholders’ benefits (including change in reserves):
Direct	Direct	997,824		1,067,098				Direct	801,694		744,620		1,799,518		1,811,718
Assumed(6)	Assumed(6)	191,805		361,455				Assumed(6)	225,704		208,315		417,509		569,770
Ceded(7)	Ceded(7)	(1,095,716)		(1,342,630)				Ceded(7)	(949,322)		(866,682)		(2,045,038)		(2,209,312)
Net policyholders’ benefits (including change in reserves)	Net policyholders’ benefits (including change in reserves)	93,913		85,923				Net policyholders’ benefits (including change in reserves)	78,076		86,253		171,989		172,176
Interest credited to policyholders’ account balances:	Interest credited to policyholders’ account balances:							Interest credited to policyholders’ account balances:
Direct	Direct	179,435		179,295				Direct	100,790		92,457		280,225		271,752
Assumed	Assumed	32,986		34,236				Assumed	32,132		34,020		65,118		68,256
Ceded	Ceded	(156,251)		(158,485)				Ceded	(85,522)		(60,060)		(241,773)		(218,545)
Net interest credited to policyholders’ account balances	Net interest credited to policyholders’ account balances	56,170		55,046				Net interest credited to policyholders’ account balances	47,400		66,417		103,570		121,463
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	(468,435)		(742,911)				Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	(292,845)		(139,336)		(761,280)		(882,247)

3741

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(1)Includes ~~$0.0 million of unaffiliated activity for both the three months ended March 31, 2021 and 2020, respectively.~~

~~(2)Includes $(7)~~$0 million and ~~$(3)~~$0.1 million of unaffiliated activity for the three months ended ~~March 31,~~June 30, 2021 and 2020, ~~respectively.~~respectively and $0.1 million for both the six months ended June 30, 2021 and 2020.

~~(3)~~(2)Includes ~~$14~~$(6.6) million and ~~$(10)~~$(2.6) million of unaffiliated activity for the three months ended ~~March 31,~~June 30, 2021, and 2020, respectively and $(13.7) million and $(5.1) million for the six months ended June 30, 2021 and 2020, respectively.

(3)Includes $(16) million and $(11) million of unaffiliated activity for the three months ended June 30, 2021 and 2020, respectively and $(30) million and $(21) million for the six months ended June 30, 2021 and 2020, respectively.

(4)Includes $0.0 million and $(0.4) million of unaffiliated activity for the three months ended ~~March 31,~~June 30, 2021 and 2020, ~~respectively.~~respectively and $0 million for both the six months ended June 30, 2021 and 2020.

(5)Includes ~~$(141)~~$31 million and ~~$256~~$(29) million of unaffiliated activity for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively and $(110) million and $227 million for the six months ended June 30, 2021 and 2020, respectively.

(6)Includes ~~$0.1 million of unaffiliated activity for both the three months ended March 31, 2021 and 2020, respectively.~~

~~(7)Includes $(81)~~$0.2 million and ~~$(5)~~$0.5 million of unaffiliated activity for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively and $0.3 million and $0.6 million for the six months ended June 30, 2021 and 2020, respectively.

(7)Includes $(50) million and $(19) million of unaffiliated activity for the three months ended June 30, 2021 and 2020, respectively and $(131) million and $(24) million for the six months ended June 30, 2021 and 2020, respectively.

The gross and net amounts of life insurance face amount in force as of ~~March 31,~~June 30, 2021 and 2020 were as follows:


		2021		2020			2021		2020
		(in thousands)					(in thousands)
Direct gross life insurance face amount in force	Direct gross life insurance face amount in force	$	1,057,019,880	$	1,003,826,363	Direct gross life insurance face amount in force	$	1,068,336,643	$	1,020,870,402
Assumed gross life insurance face amount in force	Assumed gross life insurance face amount in force	38,553,587		39,643,598		Assumed gross life insurance face amount in force	38,300,008		39,361,931
Reinsurance ceded	Reinsurance ceded	(988,006,377)		(970,292,346)		Reinsurance ceded	(993,562,545)		(976,357,109)
Net life insurance face amount in force	Net life insurance face amount in force	$	107,567,090	$	73,177,615	Net life insurance face amount in force	$	113,074,106	$	83,875,224

Information regarding significant affiliated reinsurance agreements is described below.

PAR U

Pruco Life reinsures an amount equal to 70% of all the risks associated with Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, with effective dates prior to January 1, 2011.

Effective July 1, 2012, PLNJ reinsures an amount equal to 95% of all the risks associated with Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, with effective dates through December 31, 2019, excluding those policies that are subject to principle-based reserving.

On January 2, 2013, Pruco Life began to assume Guaranteed Universal Life ("GUL") business from Prudential Insurance in connection with the acquisition of The Hartford Life Business. The GUL business assumed from Prudential Insurance was subsequently retroceded to PAR U.

PALAC

Effective April 1, 2016, the Company entered into a reinsurance agreement to reinsure its variable annuity base contracts, along with the living benefit guarantees to PALAC, excluding the PLNJ business, which was reinsured to Prudential Insurance. This reinsurance agreement covers new and in force business and excludes business reinsured externally. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders. This discontinuation has no impact on the reinsurance agreement between PALAC, Prudential Insurance, and the Company.

Effective July 1, 2021, the Company recaptured the risks related to its business, as discussed above, that had previously been reinsured to PALAC from April 1, 2016 through June 30, 2021. The recapture does not impact PLNJ, which will continue to reinsure its new and in force business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in PALAC, were transferred to the Company. In addition, the living benefit hedging program related to the previously reinsured living benefit riders will be managed within the Company.

Table of Contents

PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

PURC

Pruco Life reinsures an amount equal to 70% of all the risks associated with its Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, with effective dates from January 1, 2011 through December 31, 2013, with PURC and 95% of all the risks associated with Universal Protector policies having no-lapse guarantees, as well as certain of its universal policies, with effective dates from January 1, 2014 through December 31, 2016.

PARCC

Prior to July 1, 2019, the Company reinsured 90% of the risks under its term life insurance policies, with effective dates prior to January 1, 2010 through an automatic coinsurance agreement with PARCC. Effective July 1, 2019, the Company amended the coinsurance agreement to increase the percentage from 90% to 100% of the policy risk amount reinsured, which resulted in an initial transfer of $476 million in premiums and $409 million in expenses ceded with the difference being deferred and subsequently amortized through income.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

GUL Re

Effective January 1, 2017, Pruco Life entered into an automatic coinsurance agreement with GUL Re to reinsure an amount equal to 95% of all the risks associated with Universal Protector policies having no-lapse guarantees, as well as certain of its universal policies, with effective dates on or after January 1, 2017 through December 31, 2019, excluding those policies that are subject to principle-based reserving.

Effective July 1, 2017, Pruco Life amended this agreement to include 30% of Universal Protector policies having no-lapse guarantees as well as certain of its universal policies with effective dates prior to January 1, 2014.

PAR Term

Prior to July 1, 2019, the Company reinsures 95% of the risks under its term life insurance policies with effective dates January 1, 2010 through December 31, 2013, through an automatic coinsurance agreement with PAR Term. Effective July 1, 2019, the Company amended the coinsurance agreement to increase the percentage from 95% to 100% of the policy risk amount reinsured, which resulted in an initial transfer of $150 million in premiums and $115 million in expenses ceded with the difference being deferred and subsequently amortized through income.

Prudential of Taiwan

On January 31, 2001, Pruco Life transferred all of its assets and liabilities associated with its Taiwanese branch, including its Taiwanese insurance book of business, to Prudential of ~~Taiwan, an affiliated company.~~Taiwan. The mechanism used to transfer this block of business in Taiwan is referred to as a “full acquisition and assumption” transaction. Under this mechanism, Pruco Life is jointly liable with Prudential of Taiwan for two years from the giving of notice to all obligees for all matured obligations and for two years after the maturity date of not-yet-matured obligations. Prudential of Taiwan is also contractually liable, under indemnification provisions of the transaction, for any liabilities that may be asserted against Pruco Life.

The transfer of the insurance related assets and liabilities was accounted for as a long-duration coinsurance transaction under U.S. GAAP. Under this accounting treatment, the insurance related liabilities ~~remain~~remained on the books of Pruco Life and an offsetting reinsurance recoverable iswas established. These assets and liabilities ~~are~~were denominated in U.S. dollars.

On August 11, 2020, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, entered into a Share Purchase Agreement with Taishin Financial Holding Co., Ltd. (the “Buyer”) pursuant to which PIIH has agreed to sell to the Buyer all of the issued and outstanding capital stock of Prudential of Taiwan. The Share Purchase Agreement contains customary warranties and covenants of PIIH and the Buyer. ~~If regulatory approvals are obtained~~On June 30, 2021, PIIH completed the sale of Prudential of Taiwan to the Buyer. This resulted in the removal of the insurance related liabilities and ~~customary closing conditions are met,~~offsetting reinsurance recoverables previously on the ~~Company expects the transaction to close in 2021.~~books of Pruco Life. The Buyer ~~will provide~~provided Pruco Life a backstop indemnification and Pruco Life ~~will provide~~provided a guarantee to stand ready to perform in the event of default by both Prudential of Taiwan and the Buyer. Refer to Note 10 for details on the guarantee.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Term Re

The Company reinsures 95% of the risks under its term life insurance policies, with effective dates on or after January 1, 2014 through December 31, 2017, through an automatic coinsurance agreement with Term Re.

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. Effective July 1, 2017, this agreement has been terminated for certain new business, primarily Universal Life insurance policies. As of January 1, 2020, the remaining portions of new business (specifically Term policies) ceased being reinsured by the Company to Prudential Insurance. Effective July 1, 2017, the Company reinsures a portion of the mortality risk directly to third-party reinsurers and retains all of the non-reinsured portion of the mortality risk. Effective July 1, 2019, this agreement has been recaptured for certain term life insurance policies which are now reinsured to PARCC and PAR Term as noted above.

On January 2, 2013, Pruco Life began to assume GUL business from Prudential Insurance in connection with the acquisition of the Hartford Financial Services Group, Inc. ("Hartford Financial"). The GUL business assumed from Prudential Insurance was subsequently retroceded to PAR U. In May 2018, Hartford Financial sold a group of operating subsidiaries, which includes two of Prudential Insurance's counterparties to these reinsurance arrangements. There was no impact to the terms, rights or obligations of Prudential Insurance, or operation of these reinsurance arrangements, as a result of this change in control of such counterparties. Similarly, there was no impact to the Company's reinsurance arrangements with respect to such GUL business as a result of this change in control. In January 2021, there was a definitive agreement announced to subsequently sell the two counterparties mentioned above. We anticipate there will be no impact to the terms, rights or obligations of the Company, or operation of these reinsurance arrangements, as a result of this change in control of such counterparties.

The Company has reinsured a group annuity contract with Prudential Insurance, in consideration for a single premium payment by the Company, providing reinsurance equal to 100% of all payments due under the contract.

Effective April 1, 2016, PLNJ entered into a reinsurance agreement to reinsure its variable annuity base contracts, along with the living benefit guarantees to Prudential Insurance. This reinsurance agreement covers new and in force business.

DART

Effective January 1, 2018, the Company entered into an automatic coinsurance agreement with DART to reinsure an amount equal to 95% of the risks associated with its term life insurance policies with effective dates on or after January 1, 2018 through December 31, 2019, excluding those policies that are subject to principle-based reserving.

Information regarding significant third-party reinsurance arrangements is described below.

Union Hamilton

Between April 1, 2015 and December 31, 2016, the Company, excluding its subsidiary, reinsured approximately 50% of the new business related to “highest daily” living benefits rider guarantees on HDI v.3.0 product, available with Prudential Premier® Retirement Variable Annuity, to Union Hamilton. This reinsurance remains in force for the duration of the underlying annuity contracts. New sales of HDI v.3.0 subsequent to December 31, 2016 are not covered by this external reinsurance agreement. As of ~~March 31,~~June 30, 2021, ~~$3.2~~$3.3 billion of HDI v.3.0 account values are reinsured to Union Hamilton.

7. INCOME TAXES

The Company uses a full-year projected effective tax rate approach to calculate year-to-date taxes. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected "Income tax expense (benefit)" divided by projected "Income (loss) from operations before income taxes and equity in earnings of operating joint venture." Taxes attributable to the operating joint venture are recorded within "Equity in earnings of operating joint venture, net of taxes." The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The Company's income tax provision, on a consolidated basis, amounted to an income tax benefit of ~~$(45.3)~~$(38.3) million, or ~~(78.01)~~(120.44)% of income (loss) from operations before income taxes and equity in earnings of operating joint venture, in the first ~~three~~six months of 2021, compared to ~~$(27.1)~~$(56.5) million, or ~~(38.01)~~(108.84)%, in the first ~~three~~six months of 2020. The Company's current and prior effective tax rates differed from the U.S. statutory tax rate of 21% primarily due to non-taxable investment income and tax credits.

~~Table~~On March 27, 2020, the CARES Act was enacted into law. One provision of ~~Contents~~

~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes~~the CARES Act amended the Tax Cuts and Jobs Act (“TCJA”) and allowed companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to ~~Unaudited Interim Consolidated Financial Statements—(Continued)~~

carry back those losses for five years. The Company has incorporated into the year-to-date 2020 effective tax rate an income tax benefit of $30 million that would result from carrying the estimated 2020 NOL back to tax years that have a 35% tax rate.

8. EQUITY

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss). The balance of and changes in each component of AOCI as of and for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, are as follows:


		Accumulated Other Comprehensive Income (Loss)				Accumulated Other Comprehensive Income (Loss)
		Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)			Total Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)
		(in thousands)				(in thousands)
Balance, December 31, 2020	Balance, December 31, 2020	$	(7,797)	$	553,925		$	546,128	Balance, December 31, 2020	$	(7,797)	$	553,925	$	546,128
Change in OCI before reclassifications	Change in OCI before reclassifications	(5,205)		(348,914)			(354,119)		Change in OCI before reclassifications	(4,781)		(129,762)		(134,543)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		(1,288)			(1,288)		Amounts reclassified from AOCI	0		(4,473)		(4,473)
Income tax benefit (expense)	Income tax benefit (expense)	192		73,539			73,731		Income tax benefit (expense)	149		28,186		28,335
Balance, March 31, 2021		$	(12,810)	$	277,262		$	264,452
Balance, June 30, 2021									Balance, June 30, 2021	$	(12,429)	$	447,876	$	435,447


		Accumulated Other Comprehensive Income (Loss)							Accumulated Other Comprehensive Income (Loss)
		Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)
		(in thousands)							(in thousands)
Balance, December 31, 2019	Balance, December 31, 2019	$	(7,917)	$	289,359	$	281,442	Balance, December 31, 2019	$	(7,917)	$	289,359	$	281,442
Change in OCI before reclassifications	Change in OCI before reclassifications	(20,402)		(125,148)		(145,550)		Change in OCI before reclassifications	(3,888)		195,529		191,641
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		(9,118)		(9,118)		Amounts reclassified from AOCI	0		(4,502)		(4,502)
Income tax benefit (expense)	Income tax benefit (expense)	92		28,195		28,287		Income tax benefit (expense)	12		(40,116)		(40,104)
Balance, March 31, 2020		$	(28,227)	$	183,288	$	155,061
Balance, June 30, 2020								Balance, June 30, 2020	$	(11,793)	$	440,270	$	428,477

(1)Includes cash flow hedges of ~~$(3)~~$12 million and $(8) million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, and ~~$124~~$94 million and $26 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
			(in thousands)						(in thousands)
Amounts reclassified from AOCI (1)(2):	Amounts reclassified from AOCI (1)(2):							Amounts reclassified from AOCI (1)(2):
Net unrealized investment gains (losses):	Net unrealized investment gains (losses):							Net unrealized investment gains (losses):
Cash flow hedges - Currency/Interest rate(3)	Cash flow hedges - Currency/Interest rate(3)		$	4,026		$	11,793	Cash flow hedges - Currency/Interest rate(3)	$	1,816	$	(553)	$	5,842	$	11,240
Net unrealized investment gains (losses) on available-for-sale securities	Net unrealized investment gains (losses) on available-for-sale securities		(2,738)			(2,675)		Net unrealized investment gains (losses) on available-for-sale securities	1,369		(4,063)		(1,369)		(6,738)
Total net unrealized investment gains (losses)(4)	Total net unrealized investment gains (losses)(4)		1,288			9,118		Total net unrealized investment gains (losses)(4)	3,185		(4,616)		4,473		4,502
Total reclassifications for the period	Total reclassifications for the period		$	1,288		$	9,118	Total reclassifications for the period	$	3,185	$	(4,616)	$	4,473	$	4,502

(1)All amounts are shown before tax.

(2)Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.

(3)See Note 4 for additional information on cash flow hedges.

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

(4)See table below for additional information on unrealized investment gains (losses), including the impact on DAC and other costs, future policy benefits, policyholders’ account balances and other liabilities.

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains (losses) on available-for-sale fixed maturity securities and certain other invested assets and other assets are included in the Company’s Unaudited Interim Consolidated Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from OCI those items that are included as part of “Net income” for a period that had been part of OCI in earlier periods. The amounts for the periods indicated below, split between amounts related to net unrealized investment gains (losses) on available-for-sale fixed maturity securities on which an allowance for credit losses has been recognized, and all other net unrealized investment gains (losses), are as follows:

Net Unrealized Gains (Losses) on Investments on Available-for-Sale Fixed Maturity Securities on which an allowance for credit losses has been recognized Net Unrealized
Gains (Losses)
on All Other Investments(1) DAC and Other Costs(2) Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(3) Deferred
Income Tax
(Liability)
Benefit Accumulated
Other
Comprehensive
Income (Loss)
Related To Net
Unrealized
Investment
Gains (Losses)
(in thousands)
Balance, December 31, 2020 $ 0 $ 849,349 $ 1,200,048 $ (1,348,231) $ (147,241) $ 553,925
Net investment gains (losses) on investments arising during the period 4 (431,566) 0 0 90,625 (340,937)
Reclassification adjustment for (gains) losses included in net income 0 (1,288) 0 0 269 (1,019)
Reclassification due to allowance for credit losses recorded during the period 0 0 0 0 0 0
Impact of net unrealized investment (gains) losses on DAC and other costs 0 0 (509,429) 0 106,975 (402,454)
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities 0 0 0 592,077 (124,330) 467,747
Balance, March 31, 2021 $ 4 $ 416,495 $ 690,619 $ (756,154) $ (73,702) $ 277,262


	Net Unrealized Gains (Losses) on Investments on Available-for-Sale Fixed Maturity Securities on which an allowance for credit losses has been recognized		Net Unrealized Gains (Losses) on All Other Investments(1)		DAC and Other Costs(2)		Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(3)		Income Tax Benefit (Expense)		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2020	$	0	$	849,349	$	1,200,048	$	(1,348,231)	$	(147,241)	$	553,925
Net investment gains (losses) on investments arising during the period	68		(181,188)		0		0		38,031		(143,089)
Reclassification adjustment for (gains) losses included in net income	0		(4,473)		0		0		939		(3,534)



Impact of net unrealized investment (gains) losses	0		0		(204,775)		256,133		(10,784)		40,574
Balance, June 30, 2021	$	68	$	663,688	$	995,273	$	(1,092,098)	$	(119,055)	$	447,876

(1)Includes cash flow hedges. See Note 4 for information on cash flow hedges.

(2)"Other costs" primarily includes reinsurance recoverables and deferred reinsurance losses.

(3)"Other liabilities" primarily includes reinsurance payables.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

9. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential Insurance and other affiliates. Although we seek to ensure that these transactions and relationships are fair and reasonable, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

Expense Charges and Allocations

The majority of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates. These expenses can be grouped into general and administrative expenses and agency distribution expenses.

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses include allocations of stock compensation expenses related to a stock-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was ~~$0.1~~$0.3 million and ~~$0.2~~$0.4 million for the three months ended ~~March 31,~~June 30, 2021, and 2020, respectively, and $0.4 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively. The expense charged to the Company for the deferred compensation program was ~~$1.5~~$0.8 million and ~~$2.9~~$0.1 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $2.3 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively.

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was $3 million and $5$4 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $6 million and $9 million for the six months ended June 30, 2021 and 2020, respectively.

The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was $3 million ~~and $6 million~~ for both the three months ended ~~March 31,~~June 30, 2021 and 2020, and $6 million and $9 million for the six months ended June 30, 2021 and 2020, respectively.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company’s expense for its share of the voluntary savings plan was $1 million and $2$2 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $2 million and $4 million for the six months ended June 30, 2021 and 2020, respectively.

The Company is charged distribution expenses from Prudential Insurance’s agency network for both its domestic life and annuity products through a transfer pricing agreement, which is intended to reflect a market-based pricing arrangement.

The Company pays commissions and certain other fees to Prudential Annuities Distributors, Inc. (“PAD”) in consideration for PAD’s marketing and underwriting of the Company’s annuity products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s annuity products. Commissions and fees paid by the Company to PAD were ~~$96~~$97 million and ~~$169~~$129 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $193 million and $297 million for the six months ended June 30, 2021 and 2020, respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was ~~$18~~$14 million and ~~$19~~$6 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $32 million and $25 million for the six months ended June 30, 2021 and 2020, respectively.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Corporate-Owned Life Insurance

The Company has sold 5 Corporate-Owned Life Insurance (“COLI”) policies to Prudential Insurance, and 1 to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was ~~$4,885~~$5,069 million at ~~March 31,~~June 30, 2021 and $4,757 million at December 31, 2020. Fees related to these COLI policies were ~~$13 million~~ ~~and~~ $14 million forand $11 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $27 million and $25 million for the six months ended June 30, 2021 and 2020, respectively. The Company retains the majority of the mortality risk associated with these COLI policies up to $3.5 million per individual policy.

Affiliated Investment Management Expenses

In accordance with an agreement with PGIM, Inc. ("PGIM"), the Company pays investment management expenses to PGIM who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were $4$3 million and $3$4 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, ~~respectively.~~respectively, and $7 million for both the six months ended June 30, 2021 and 2020. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Derivative Trades

In its ordinary course of business, the Company enters into OTC derivative contracts with an affiliate, PGF. For these OTC derivative contracts, PGF has a substantially equal and offsetting position with an external counterparty. See Note 4 for additional information.

Joint Ventures

The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. "Other invested assets" includes ~~$108~~$107 million and $111 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. "Net investment income" related to these ventures includes ~~a gain~~gains of $3$4 million and ~~a loss of $10~~$8 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and a gain of $7 million and a loss of $2 million for the six months ended June 30, 2021 and 2020, respectively.

Affiliated Asset Administration Fee Income

The Company has a revenue sharing agreement with AST Investment Services, Inc. ("ASTISI") and PGIM Investments LLC ("PGIM Investments") whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust. Income received from ASTISI and PGIM Investments related to this agreement was ~~$91~~$94 million and ~~$85~~$81 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $185 million and $166 million for the six months ended June 30, 2021 and 2020, respectively. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company has a revenue sharing agreement with PGIM Investments, whereby the Company receives fee income based on policyholders' separate account balances invested in The Prudential Series Fund. Income received from PGIM Investments related to this agreement was $4 million and $3 million for ~~both~~ the three months ended ~~March 31,~~June 30, 2021 and ~~2020.~~2020, respectively, and $7 million and $5 million for the six months ended June 30, 2021 and 2020, respectively. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Affiliated Notes Receivable

Affiliated notes receivable included in “Receivables from parent and affiliates” at ~~March 31,~~June 30, 2021 and December 31, 2020 were as follows:


		Maturity Dates			Interest Rates				March 31, 2021		December 31, 2020			Maturity Dates			Interest Rates				June 30, 2021		December 31, 2020
									(in thousands)												(in thousands)

U.S. dollar fixed rate notes	U.S. dollar fixed rate notes	2022	-	2027	0.00%	-	14.85	%	$	111,171	$	111,970	U.S. dollar fixed rate notes	2022	-	2027	0.00%	-	14.85	%	$	110,607	$	111,970

Total long-term notes receivable - affiliated(1)									$	111,171	$	111,970
Total notes receivable - affiliated(1)													Total notes receivable - affiliated(1)								$	110,607	$	111,970

(1)All ~~long-term~~ notes receivable may be called for prepayment prior to the respective maturity dates under specified circumstances.

The affiliated notes receivable shown above are classified as available-for-sale securities carried at fair value. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Insurance for loans due from affiliates.

Accrued interest receivable related to these loans was ~~$0.5 million and $1.2~~$1 million at ~~March 31,~~both June 30, 2021 and December 31, 2020, ~~respectively,~~ and is included in “Other assets”. Revenues related to these loans were $1 million for both the three months ended ~~March 31,~~June 30, 2021 and 2020, and $2 million for both the six months ended June 30, 2021 and 2020, and are included in “Other income”.

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Affiliated Asset Transfers

The Company participates in affiliated asset trades with parent and sister companies. Book and market value differences for trades with a parent and sister are recognized within "Additional paid-in capital" (“APIC”) and "Realized investment gains (losses), net", respectively. The table below shows affiliated asset trades for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and for the year ended December 31, 2020.


Affiliate	Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)		Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)
					(in thousands)											(in thousands)
Prudential Insurance	Prudential Insurance	March 2020	Purchase	Other Invested Assets	$	1,390	$	1,390	$	0	$	0	Prudential Insurance	March 2020	Purchase	Other Invested Assets	$	1,390	$	1,390	$	0	$	0
Prudential Insurance	Prudential Insurance	April 2020	Purchase	Fixed Maturities	$	61,953	$	59,659	$	(1,812)	$	0	Prudential Insurance	April 2020	Purchase	Fixed Maturities	$	61,953	$	59,659	$	(1,812)	$	0
Prudential Insurance	Prudential Insurance	April 2020	Purchase	Fixed Maturities	$	3,485	$	3,320	$	(130)	$	0	Prudential Insurance	April 2020	Purchase	Fixed Maturities	$	3,485	$	3,320	$	(130)	$	0
GA BV LLC	GA BV LLC	July 2020	Transfer Out	Fixed Maturities	$	1,914	$	1,914	$	0	$	0	GA BV LLC	July 2020	Transfer Out	Fixed Maturities	$	1,914	$	1,914	$	0	$	0
PALAC													PALAC	June 2021	Purchase	Equities	$	40,284	$	40,284	$	0	$	0

Debt Agreements

The Company is authorized to borrow funds up to $2.2 billion from affiliates to meet its capital and other funding needs. As of ~~March 31,~~June 30, 2021 and December 31, 2020, there was 0 debt outstanding.

The total interest expense to the Company related to affiliated loans and cash collateral with PGF was $0.0 million and ~~$0.5~~$0.1 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $0.0 million and $0.6 million for the six months ended June 30, 2021 and 2020, respectively.

Contributed Capital and Dividends

Through ~~March~~June 2021, the Company received capital contributions in the amount of $106 million from Prudential ~~Insurance.~~Insurance and there was a return of capital in the amount of $34 million associated with the financial guarantee related to the sale of Prudential

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

of Taiwan. In June, September and December of 2020, the Company received a capital contribution in the amount of $325 million, $75 million and $175 million, respectively, from Prudential Insurance.

Through ~~March~~June 2021 and December 2020, the Company did 0t pay any dividends to Prudential Insurance.

Reinsurance with Affiliates

As discussed in Note 6, the Company participates in reinsurance transactions with certain affiliates.

10. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

The Company has made commitments to fund commercial mortgage loans. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the outstanding balances on these commitments were ~~$19~~$40 million and $30 million, respectively. These amounts include unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was an allowance for credit losses of $0.0 million as of ~~March 31,~~both June 30, 2021 and December 31, 2020. There was a change in allowance of $0.0 million for both the three and six months ended ~~March 31,~~June 30, 2021 and 2020. The Company also made commitments to purchase or fund investments, mostly private fixed maturities. As of ~~March 31,~~June 30, 2021 and December 31, 2020, ~~$339~~$353 million and $354 million, respectively, of these commitments were outstanding. These amounts include unfunded commitments that are not unconditionally cancellable. There were 0 related charges for credit losses for either the three or six months ended ~~March 31,~~June 30, 2021 or 2020.

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Guarantees

In July 2017, the Company formed a joint venture with CT Corp to provide life insurance solutions in Indonesia. The Company owns a 49% interest in the joint venture and has entered into a shareholders agreement with CT Corp that sets out their respective rights and obligations with respect to the joint venture. Among other things, the shareholders agreement obligates the Company and CT Corp to provide capital to the joint venture, as necessary to comply with applicable law or to maintain a specified minimum amount of capital in the joint venture. This obligation is not limited to a maximum amount. The Company does not expect to make any payments on this guarantee and is not carrying any liabilities associated with the guarantee.

Since 2001, the Company entered into an arrangement with Prudential of Taiwan as discussed in Note 6. In June 2021, PIIH completed the sale of Prudential of Taiwan. As a result of the sale, the Company has a financial guarantee to stand ready to perform in an event that both Prudential of Taiwan and the Buyer default and fail to perform their obligations to make payments to the policyholders. The Company has recorded a liability of $34 million as of June 30, 2021, which represents the fair value of the guarantee and will be amortized in revenue over a period which approximates the life of the underlying insurance in force. Since this obligation is not subject to limitations, it is not possible to determine the maximum potential amount due under this guarantee.

Contingent Liabilities

On an ongoing basis, the Company and its regulators review its operations including, but not limited to, sales and other customer interface procedures and practices, and procedures for meeting obligations to its customers and other parties. These reviews may result in the modification or enhancement of processes or the imposition of other action plans, including concerning management oversight, sales and other customer interface procedures and practices, and the timing or computation of payments to customers and other parties. In certain cases, if appropriate, the Company may offer customers or other parties remediation and may incur charges, including the cost of such remediation, administrative costs and regulatory fines.

The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. For additional discussion of these matters, see “Litigation and Regulatory Matters” below.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

It is possible that the results of operations or the cash flows of the Company in a particular quarterly or annual period could be materially affected as a result of payments in connection with the matters discussed above or other matters depending, in part, upon the results of operations or cash flows for such period. Management believes, however, that ultimate payments in connection with these matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on the Company’s financial position.

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its business. Pending legal and regulatory actions include proceedings specific to the Company and proceedings generally applicable to business practices in the industry in which it operates. The Company is subject to class action lawsuits and other litigation involving a variety of issues and allegations involving sales practices, claims payments and procedures, premium charges, policy servicing and breach of fiduciary duty to customers. The Company is also subject to litigation arising out of its general business activities, such as its investments, contracts, leases and labor and employment relationships, including claims of discrimination and harassment, and could be exposed to claims or litigation concerning certain business or process patents. In addition, the Company, along with other participants in the businesses in which it engages, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of the Company’s pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of litigation or a regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but the matter, if material, is disclosed. The Company estimates that as of ~~March 31,~~June 30, 2021, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $100 million. This estimate is not an indication of expected loss, if any, or the Company's maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 14 to the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

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~~PRUCO LIFE INSURANCE COMPANY~~

~~Notes to Unaudited Interim Consolidated Financial Statements—(Continued)~~

Other Matters

Doyle C. Stone v. PFI, et al.

In April 2021, defendants filed a motion to dismiss the complaint. In June 2021, plaintiff filed a notice of voluntary dismissal of the complaint, without prejudice.

Regulatory

Variable Products

The Company has received regulatory inquiries and requests for information from state and federal regulators, including a subpoena from the U.S. Securities and Exchange Commission, concerning the appropriateness of variable product sales and replacement activity. The Company is cooperating with regulators and may become subject to additional regulatory inquiries and other actions related to this matter.

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PRUCO LIFE INSURANCE COMPANY

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Summary

The Company’s litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcome cannot be predicted. It is possible that the Company’s results of operations or cash flows in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flows for such period. In light of the unpredictability of the Company’s litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a material adverse effect on the Company’s financial statements. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on the Company’s financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the consolidated financial condition of Pruco Life Insurance Company, or the “Company,” as of ~~March 31,~~June 30, 2021, compared with December 31, 2020, and its consolidated results of operations for the three and six months ended ~~March 31,~~June 30, 2021 and 2020. You should read the following analysis of our consolidated financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section, and the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as well as the statements under “Forward-Looking Statements” , and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

The Company sells variable annuities, universal life insurance, variable life insurance and term life insurance primarily through affiliated and unaffiliated distributors in the United States. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders.

Effective July 1, 2021, the Company recaptured the risks related to its variable annuity base contracts, along with the living benefit guarantees, that had previously been reinsured to Prudential Annuities Life Assurance Corporation (“PALAC”) from April 1, 2016 through June 30, 2021. The recapture does not impact Pruco Life Insurance Company of New Jersey, which will continue to reinsure its new and in force business to The Prudential Insurance Company of America. The product risks related to the previously reinsured business that were being managed in PALAC, were transferred to the Company. In addition, the living benefit hedging program related to the previously reinsured living benefit riders will be managed within the Company.

COVID-19

Beginning in the first quarter of 2020, the outbreak of the novel coronavirus (“COVID-19”) created extreme stress and disruption in the global economy and financial markets and elevated mortality and morbidity experience for the global population. The pandemic continues to impact our results of operations in the current period and is expected to continue to be a driver of future impacts to our results of ~~operations.~~operations; however, the impacts to our businesses have moderated recently and are expected to continue to moderate. The Company has taken several measures to manage the impacts of this crisis. The actual and expected impacts of these events and other items are included in the following update:

•Outlook. We expect COVID-19 to continue to contribute to elevated levels of mortality, resulting in increased life insurance claims in the near-term. In addition, while we have seen strong sales of key products, ~~social distancing associated with~~ COVID-19 could ~~adversely~~ impact sales prospects in the near-term.

•Results of Operations. For the three and six months ended ~~March 31,~~June 30, 2021 we reported a net loss of $(33) million and a net income of ~~$103 million.~~$70 million, respectively. See “Results of Operations” for a discussion of results for the second quarter and the first ~~quarter~~six months of 2021.

•Risk Factors. The COVID-19 pandemic has adversely impacted our results of operations, financial position, investment portfolio, new business opportunities and operations, and these impacts are expected to continue. For additional information on the risks to our business posed by the COVID-19 pandemic, see “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

•Business Continuity. Throughout the COVID-19 pandemic, we have been executing Prudential Financial Inc.'s ("Prudential Financial") and our business continuity protocols to ensure our employees are safe and able to serve our customers. This included effectively transitioning the vast majority of our employees to remote work arrangements.

We believe we can sustain remote work and social distancing for an indefinite period while ensuring that critical business operations are sustained. In addition, we are managing COVID-19-related impacts on third-party provided services, and do not anticipate significant interruption in critical operations.

Impact of a Low Interest Rate Environment

As a global financial services company, market interest rates are a key driver of our results of operations and financial condition. Changes in interest rates can affect our results of operations and/or our financial condition in several ways, including favorable or adverse impacts to:

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• investment-related activity, including: investment income returns, net interest margins, net investment spread results

new money rates, mortgage loan prepayments and bond redemptions;

• hedging costs and other risk mitigation activities;

• insurance reserve levels, amortization of deferred policy acquisition costs (“DAC”) and market experience true-ups:

• customer account values, including their impact on fee income;

• product offerings, design features, crediting rates and sales mix; and

• policyholder behavior, including surrender or withdrawal activity.

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For more information on interest rate risks, see “Risk Factors—Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Revenues and Expenses

The Company earns revenues principally from insurance premiums, mortality and expense fees, asset administration fees from insurance and investment products, and from net investment income on the investment of general account and other funds. The Company receives premiums primarily from the sale of individual life insurance and annuity products. The Company earns mortality and expense fees, and asset administration fees, primarily from the sale and servicing of universal life insurance and separate account products including variable life insurance and variable annuities. The Company’s operating expenses principally consist of insurance benefits provided and reserves established for anticipated future insurance benefits, general business expenses, reinsurance premiums, commissions and other costs of selling and servicing the various products sold and interest credited on general account liabilities.

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

The preparation of financial statements in conformity with 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, the Company’s results of operations and financial position as reported in the Unaudited Interim Consolidated Financial Statements could change significantly.

Management believes the accounting policies relating to the following areas are most dependent on the application of estimates and assumptions and require management’s most difficult, subjective, or complex judgments:

•DAC and other costs, including deferred sales inducements (“DSI”);

•Policyholder liabilities;

•Valuation of investments, including derivatives, measurement of allowance for credit losses, and recognition of other-than-temporary impairments ("OTTI");

•Reinsurance recoverables;

•Taxes on income; and

•Reserves for contingencies, including reserves for losses in connection with unresolved legal matters.

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Market Performance - Equity and Interest Rate Assumptions

DAC and other costs associated with the variable and universal life policies and the variable and fixed annuity contracts are generally amortized over the expected lives of these policies in proportion to total gross profits. Total gross profits include both actual gross profits and estimates of gross profits for future periods. The quarterly adjustments for market performance reflect the impact of changes to our estimate of total gross profits to reflect actual fund performance and market conditions. A significant portion of gross profits for our variable annuity contracts and, to a lesser degree, our variable life contracts 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 on variable annuity and variable life contracts, costs we incur associated with the guaranteed minimum death and guaranteed minimum income benefit features related to our variable annuity contracts and expected claims to be paid on variable life 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 on variable annuity and variable life contracts 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 and expected claims to be paid on variable life 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.

Furthermore, the calculation of the estimated liability for future policy benefits related to certain insurance products includes an estimate of associated revenues and expenses that are dependent on both historical market performance as well as estimates of market performance in the future. Similar to DAC and other costs described above, these liabilities are subject to quarterly adjustments for experience including market performance, in addition to annual adjustments resulting from our annual reviews of assumptions.

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The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each product ~~type.~~type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, other costs and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and variable life insurance products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of ~~March 31,~~June 30, 2021, our variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a ~~0.7%~~0.0% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and liabilities for future policy benefits for certain of our products, we generally update the long-term and near-term future rates used to project fixed income returns annually and quarterly, respectively. As a result of our ~~2020~~2021 annual reviews and update of assumptions and other refinements, ~~which were performed in the second quarter,~~ we ~~reduced~~kept our long-term expectation of the 10-year U.S. Treasury rate ~~by 50 basis points~~unchanged and ~~now~~continue to grade to a rate of 3.25% over ten years. As part of our quarterly market experience updates, we update our near-term projections of interest rates to reflect changes in current rates.

For a discussion of the impact that could result from changes in certain key assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies and Pronouncements—Sensitivities for Insurance Assets and Liabilities” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Future Adoption of New Accounting Pronouncements

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the Financial Accounting Standards Board (“FASB”) on August 15, 2018 and is expected to have a significant impact on the Consolidated Financial Statements and Notes to the Consolidated Financial Statements. In October 2019, the FASB issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. As a result of the COVID-19 pandemic, in November 2020 the FASB issued ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company currently intends to adopt ASU 2018-12 effective January 1, 2023. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. In addition to the impacts to the balance sheet upon ~~transition,~~adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date. See Note 2 to the Unaudited Interim Consolidated Financial Statements for a more detailed discussion of ASU 2018-12, as well as other accounting pronouncements issued but not yet adopted and newly adopted accounting pronouncements.

Changes in Financial Position

Total assets decreased $6$0.4 billion from ~~$208~~$208.3 billion at December 31, 2020 to ~~$202~~$207.9 billion at ~~March 31,~~June 30, 2021. Significant components were:

•Reinsurance recoverables decreased $6$5.4 billion primarily related to the variable annuity reinsured living benefit liabilities resulting from rising interest rates and favorable equity market ~~performance. Also contributing is a decrease in universal life guaranteed minimum death benefit ("GMDB") reserves from unrealized capital losses on assets supporting the reserves partially~~performance;

Partially offset ~~by ongoing adverse insurance and investment assumption updates; and~~by:

•Separate account assets ~~decreased $392 million~~increased $4.4 billion primarily driven by favorable equity performance, partially offset by net outflows and policy ~~charges, offset by favorable equity market performance.~~charges.

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Total liabilities decreased $6$0.5 billion from ~~$204~~$204.3 billion at December 31, 2020 to ~~$198~~$203.8 billion at ~~March 31,~~June 30, 2021. Significant components were:

•Future policy benefits decreased $6$5.5 billion primarily driven by a decrease in reserves related to our variable annuity living benefit liabilities, as discussed ~~above, in addition to decreases in universal life GMDB reserves, as discussed above, partially~~above;

Partially offset ~~by higher term reserves from business growth; and~~by:

•Separate account liabilities ~~decreased $392 million,~~increased $4.4 billion, corresponding to the ~~decrease~~increase in Separate account assets, as discussed above.

Total equity ~~decreased $73~~increased $31 million from $4,048 million ~~as of~~at December 31, 2020 to ~~$3,975~~$4,079 million asat June 30, 2021 primarily driven by a capital contribution of ~~March 31, 2021 driven~~$106 million from Prudential Insurance to fund additional reserve requirements, partially offset by unrealized losses primarily on fixed maturity investments driven by rising interest rates reflected in ~~accumulated~~Accumulated other comprehensive income ~~partially offset by a capital contribution of $100 million from Prudential Insurance to fund additional reserve requirements.~~(loss).

Results of Operations

Income (loss) from Operations before Income Taxes

Three Months Comparison

Income (loss) from operations before income taxes decreased ~~$13~~$7 million from ~~income~~a loss of ~~$71~~$19 million for the three months ended ~~March 31,~~June 30, 2020 to ~~income~~a loss of ~~$58~~$26 million for the three months ended ~~March 31, 2021~~June 30, 2021. This includes an unfavorable comparative net loss of $24 million from our annual reviews and update of assumptions and other refinements primarily due to the absence of favorable investment assumptions. Excluding the comparative impact of our annual reviews and update of assumptions and other refinements, income (loss) from operations increased $17 million primarily driven by:

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•Higher Policy charges and fee income due to increased variable life product sales and higher charges from the universal life products;

•Higher Premiums from growth in term policies retained; and

•Higher Net investment income due to higher invested assets from the retained Life business, partially offset by lower reinvestment yields;

Partially offset by:

•Higher General, administrative and other expenses driven by unfavorable comparative impact from commission and expense allowance ceded due to lower sales and run off from ceded life business, partially offset by lower expenses due to company initiatives; and

•Higher Policyholders' benefits from an increase in reserves due to continued growth in retained products.

Six Months Comparison

Income (loss) from operations before income taxes decreased $20 million from income of $52 million for the six months ended June 30, 2020 to income of $32 million for the six months ended June 30, 2021. This includes an unfavorable comparative net loss of $24 million from our annual reviews and update of assumptions and other refinements, as mentioned above. Excluding the impact of our annual reviews and update of assumptions and other refinements, income (loss) from operations increased $4 million primarily driven by:

•Higher Premiums from growth in term policies retained;

•Higher Policy charges and fee income due to increased variable life product sales and higher charges from universal life products; and

•Higher Net investment income due to higher invested assets from the retained Life business, partially offset by lower reinvestment yields;

Partially offset by:

•Higher General, administrative and other expenses driven by unfavorable comparative impacts from commission and expense allowances due to lower annuity sales and run off from ceded life business; and

•Higher Policyholders' benefits from an increase in reserves due to continued growth in retained products, as well as higher net death benefits.

Revenues, Benefits and Expenses

Three Months Comparison

Revenues increased $24 million from $206 million for the three months ended June 30, 2020 to $230 million for the three months ended June 30, 2021. This includes an unfavorable comparative net decrease of $43 million from our annual reviews and update of assumptions and other refinements primarily due to the absence of favorable investment assumptions. Excluding the impact of our annual reviews and update of assumptions and other refinements, Revenues increased $67 million primarily driven by:

•Higher Policy charges and fee income due to increased variable life product sales and higher charges from the universal life products;

•Higher Premiums from growth in term policies retained; and

•Higher Net investment income due to higher invested assets from the retained Life business, partially offset by lower reinvestment yields.

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Benefits and expenses increased $31 million from $225 million for the three months ended June 30, 2020 to $256 million for the three months ended June 30, 2021. This includes a favorable comparative net decrease of $19 million from our annual reviews and update of assumptions and other refinements primarily due to the absence of favorable investment assumptions. Excluding the impact of our annual reviews and update of assumptions and other refinements, Benefits and expenses increased $50 million primarily driven by:

•Higher Policyholders' benefits from an increase in reserves due to continued growth in retained products.

~~Partially offset~~Six Months Comparison

Revenues increased $82 million from $544 million for the six months ended June 30, 2020 to $626 million for the six months ended June 30, 2021. This includes an unfavorable comparative net decrease of $43 million from our annual reviews and update of assumptions and other refinements, as mentioned above. Excluding the impact of our annual reviews and update of assumptions and other refinements, Revenues increased $125 million primarily driven by:

•Higher Premiums from growth in term policies retained;

•Higher Policy charges and fee income due to increased variable life product sales and higher charges from universal life products; and

•Higher Net investment income due to higher invested assets from the retained Life business, partially offset by lower reinvestment ~~yields; and~~

•~~Higher Policy charges and fee income due to increased variable life product sales and higher charges from the universal life product.~~

~~Revenues, Benefits and Expenses~~

~~Three Months Comparison~~

~~Revenues increased $59 million from a gain of $337 million for the three months ended March 31, 2020 to a gain of $396 million for the three months ended March 31, 2021 primarily driven by:~~

•~~Higher Premiums from growth in term policies retained;~~

•~~Higher Net investment income due to higher invested assets from the retained Life business, partially offset by lower reinvestment yields; and~~

•~~Higher Policy charges and fee income due to increased variable life sales and higher charges from universal life policies.~~yields.

Benefits and expenses increased ~~$72~~$102 million from ~~an expense of $266~~$492 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~an expense of $338~~$594 million for the ~~three~~six months ended ~~March 31, 2021~~June 30, 2021. This includes a favorable comparative net decrease of $19 million from our annual reviews and update of assumptions and other refinements, as mentioned above. Excluding the impact of our annual reviews and update of assumptions and other refinements, Benefits and expenses increased $121 million primarily driven by:

•Higher Policyholders' benefits from an increase in reserves due to continued growth in retained products and higher ~~mortality.~~

net death benefits.

Risks and Risk Mitigants

Variable Annuity Risks and Risk Mitigants:

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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, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. Prudential Financial manages our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of Product Design Features and an Asset Liability Management Strategy ("ALM"), as discussed below. The Company also manages these risk exposures through reinsurance for certain of our variable annuity products. For information on our reinsurance agreements, see Note 6 to the Unaudited Interim Consolidated Financial Statements. Sales of traditional variable annuities with guaranteed living benefit riders ~~have been~~were discontinued as of December 31, 2020.

Effective July 1, 2021, the Company recaptured the risks related to its variable annuity base contracts, along with the living benefit guarantees, that had previously been reinsured to PALAC from April 1, 2016 through June 30, 2021. The recapture does not impact PLNJ, which will continue to reinsure its new and in force business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in PALAC, were transferred to the Company. In addition, the living benefit hedging program related to the previously reinsured living benefit riders will be managed within the Company.

Product Design Features:

A portion of the variable annuity contracts that we offered include an asset transfer feature. This feature is implemented at the contract level, and transfers assets between certain variable investment sub-accounts selected by the annuity contractholder and, depending on the benefit feature, a fixed-rate account in the general account or a bond fund sub-account within the separate account. The objective of the asset transfer feature is to reduce our exposure to equity market risk and market volatility.

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The asset transfer feature associated with highest daily living benefit products uses a designated bond fund sub-account within the separate account. The transfers are based on a 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. Other product design features we utilize include, among others, asset allocation restrictions, minimum issuance age requirements and certain limitations on the amount of contractholder purchase payments, as well as a required minimum allocation to our general account ~~for certain of our products. We continue to introduce products that diversify our risk profile and have incorporated provisions in product design allowing frequent revisions of key pricing elements~~ for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

Asset Liability Management Strategy (including fixed income instruments and derivatives):

PALAC and Prudential Insurance employ an ALM strategy that utilizes a combination of both traditional fixed income instruments and derivatives to meet expected liabilities associated with our variable annuity living benefit guarantees. The economic liability we manage with this ALM strategy consists of expected living benefit claims under less severe market conditions, which are managed using fixed income instruments, derivatives, or a combination thereof, and potential living benefit claims resulting from more severe market conditions, which are hedged using derivative instruments. For our Prudential Defined Income variable annuity, we utilize fixed income instruments to meet expected liabilities. For the portion of our ALM strategy executed with derivatives, PALAC and Prudential Insurance enter into a range of exchange-traded and over-the-counter equity and interest rate derivatives, including, but not limited to: equity and treasury futures; total return and interest rate swaps; and options including equity options, swaptions, and floors and caps. The intent of this strategy is to more efficiently manage the capital and liquidity associated with these products while continuing to mitigate fluctuations in net income due to movements in capital markets. Since the ALM strategy is conducted in PALAC and Prudential Insurance, the results of the strategy do not directly impact the Company's results of operations or financial condition.

Capital Hedge Program:

A capital hedge program is employed within PALAC to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets. The capital hedge program is conducted using equity derivatives which include equity call and put options, total return swaps and futures contracts. Since the capital hedge program is conducted in PALAC, the results of the strategy do not directly impact the Company's results of operations or financial condition.

Income Taxes

For information regarding income taxes, see Note 7 to the Unaudited Interim Consolidated Financial Statements.

Liquidity and Capital Resources

This section supplements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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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 business, 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 business, general economic conditions, our ability to borrow from affiliates and our access to the capital markets through affiliates as described herein.

Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon. We use a Risk Appetite Framework ("RAF") to ensure that all risks taken by the Company aligns with our capacity and willingness to take those risks. The RAF provides a dynamic assessment of capital and liquidity stress impacts, including scenarios similar to, and more severe than, those occurring due to COVID-19, and is intended to ensure that sufficient resources are available to absorb those impacts. We believe that our capital and liquidity resources are sufficient to satisfy the capital and liquidity requirements of the Company.

Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital, leverage, liquidity, stress-testing, overall risk management, credit exposure reporting and credit concentration. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation" and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Capital

We manage the Company to regulatory capital levels consistent with our "AA" ratings targets. We utilize the risk-based capital (“RBC”) ratio as a primary measure of capital adequacy. RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the National Association of Insurance Commissioners ("NAIC"). 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. RBC ratio calculations are intended to assist insurance regulators in measuring an 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. The Company’s capital levels substantially exceed the minimum level required by applicable insurance regulations. Our regulatory capital levels may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators.

The regulatory capital level of the Company can be materially impacted by interest rate and equity market fluctuations, changes in the values of derivatives, the level of impairments recorded, and credit quality migration of the investment portfolio, among other items. In addition, the reinsurance of business or the recapture of business subject to reinsurance arrangements due to defaults by, or credit quality migration affecting, the reinsurers or for other reasons could negatively impact regulatory capital levels. The Company’s regulatory capital level is also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator.

Captive Reinsurance Companies:

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital—Affiliated Captive Reinsurance Companies” included in our Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of our use of captive reinsurance companies.

Liquidity

Our liquidity is managed to ensure stable, reliable and cost-effective sources of cash flows to meet all of our obligations. Liquidity is provided by a variety of sources, as described more fully below, including portfolios of liquid assets. Our investment portfolios are integral to the overall liquidity of the Company. We use a projection process for cash flows from operations to ensure sufficient liquidity to meet projected cash outflows, including claims. The impact of Prudential Funding, LLC’s ("Prudential Funding"), a wholly-owned subsidiary of Prudential Insurance, financing capacity on liquidity is considered in the internal liquidity measures of the Company.

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 liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios.

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The principal sources of the Company’s liquidity are premiums and certain annuity considerations, investment and fee income, investment maturities, sales of investments and internal borrowings. The principal uses of that liquidity include benefits, claims, 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, the payment of dividends and returns of capital to the parent company, hedging and reinsurance activity and payments in connection with financing activities.

In managing liquidity, 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.

Liquid Assets

Liquid assets include cash and cash equivalents, short-term investments, U.S. Treasury fixed maturities, and fixed maturities that are not designated as held-to-maturity and public equity securities. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the Company had liquid assets of ~~$7,423~~$7,708 million and $7,681 million, respectively. The portion of liquid assets comprised cash and cash equivalents and short-term investments was ~~$280~~$238 million and $477 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. As of ~~March 31,~~June 30, 2021, $6,677 million, or 95%, of the fixed maturity investments in the Company's general account portfolios, were rated high or highest quality based on NAIC or equivalent rating.

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Term and Universal Life Reserve Financing

The Company uses affiliated captive reinsurance subsidiaries to finance the portion of the statutory reserves required to be held under Regulation XXX and Guideline AXXX that is considered to be non-economic. The financing arrangements involve the reinsurance of term and universal life business to our affiliated captive reinsurers and the issuance of surplus notes by those affiliated captives that are treated as capital for statutory purposes. These surplus notes are subordinated to policyholder obligations, and the payment of principal and interest on the surplus notes can only be made with prior insurance regulatory approval.

As of ~~March 31,~~June 30, 2021, the affiliated captive reinsurance companies have entered into agreements with external counterparties providing for the issuance of up to an aggregate of $14,700 million of surplus notes by our affiliated captive reinsurers in return for the receipt of credit-linked notes (“Credit-Linked Note Structures”), of which ~~$12,644~~$12,494 million of surplus notes was outstanding, compared to an aggregate issuance capacity of $14,825 million, of which $12,919 million was outstanding as of December 31, 2020. Under the agreements, the affiliated captive receives in exchange for the surplus notes one or more credit-linked notes issued by a special-purpose affiliate of the Company with an aggregate principal amount equal to the surplus notes outstanding. The affiliated captive holds the credit-linked notes as assets supporting Regulation XXX or Guideline AXXX non-economic reserves, as applicable. For more information on our Credit-Linked Note Structures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Financing Activities” in the Annual Report on Form 10-K for the year ended December 31, 2020.

As of ~~March 31,~~June 30, 2021, our affiliated captive reinsurance companies had outstanding an aggregate of $2,775 million of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which approximately $1,175 million relates to Regulation XXX reserves and approximately $1,600 million relates to Guideline AXXX reserves. In addition, as of ~~March 31,~~June 30, 2021, for purposes of financing Guideline AXXX reserves, one of our affiliated captives had approximately $3,982 million of surplus notes outstanding that were issued to affiliates.

The Company has introduced updated versions of its individual life products in conjunction with the requirement to adopt principle-based reserving by January 1, 2020. These updated products are currently priced to support the principle-based statutory reserve level without the need for reserve financing. Certain elements of the implementation of principle-based reserving are yet to be finalized by the NAIC and may have a material impact on statutory reserves. The Company continues to assess the impact of the implementation of principle-based reserving on projected statutory reserve levels, product pricing and the use of financing.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, our products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and our strategies for managing this risk, vary by product. As of ~~March 31,~~June 30, 2021, there have been no material changes in our economic exposure to market risk from December 31, 2020, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, 2020, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission. See Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

Subsequent to the quarterly period covered by this Form 10-Q, effective July 1, 2021, the Company recaptured the risks related to its variable annuity base contracts, along with the living benefit guarantees, that had previously been reinsured to Prudential Annuities Life Assurance Corporation (“PALAC”) from April 1, 2016 through June 30, 2021. The product risks related to the previously reinsured business that were being managed in PALAC, were transferred to the Company. In addition, the living benefit hedging program related to the previously reinsured living benefit riders will be managed within the Company.

Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule 13a-15(e), as of ~~March 31,~~June 30, 2021. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~March 31,~~June 30, 2021, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), occurred during the quarter ended ~~March 31,~~June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10 to the Unaudited Interim Consolidated Financial Statements under “—Litigation and Regulatory Matters” for a description of certain pending litigation and regulatory matters affecting us, and certain risks to our business presented by such matters, which is incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. These risks could materially affect 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. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q.

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Item 6. Exhibits


EXHIBIT INDEX

31.1 Section 302 Certification of the Chief Executive Officer

31.2 Section 302 Certification of the Chief Financial Officer

32.1 Section 906 Certification of the Chief Executive Officer

32.2 Section 906 Certification of the Chief Financial Officer

101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH - XBRL Taxonomy Extension Schema Document.

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

104.Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Pruco Life Insurance Company

By:						/s/ Susan M. Mann
Name:						Susan M. Mann
						Vice President and Chief Financial Officer
						(Authorized Signatory and Principal Financial Officer)

Date: ~~May~~August 12, 2021

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