0000881453 us-gaap:~~FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2019-09-30~~AccumulatedNetUnrealizedInvestmentGainLossMember 2019-03-31

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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 ~~September 30, 2019~~March 31, 2020



☐	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 033-44202

_________________________________________________________________

Prudential Annuities Life Assurance Corporation

(Exact Name of Registrant as Specified in its Charter)



Arizona		06-1241288
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

One Corporate Drive

Shelton, CT 06484

(203) 926-1888

(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 ~~November 13, 2019,~~May 14, 2020, 25,000 shares of the registrant’s Common Stock (par value $100) consisting of 100 voting shares and 24,900 non-voting shares were outstanding. As of such date, Prudential Annuities, Inc., an indirect wholly-owned subsidiary of Prudential Financial, Inc., a New Jersey corporation, owned all of the registrant’s Common Stock.

Prudential Annuities Life Assurance Corporation 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.

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TABLE OF CONTENTS



			Page
PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Unaudited Interim Statements of Financial Position as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	4
		Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	5
		Unaudited Interim Statements of Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	6
		Unaudited Interim Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	87
		Notes to Unaudited Interim Financial Statements	98
		1. Business and Basis of Presentation	98
		2. Significant Accounting Policies and Pronouncements	109
		3. Investments	1214
		4. Derivative Instruments	2124
		5. Fair Value of Assets and Liabilities	2729
		6. Reinsurance	37
		7. Income Taxes	40
		8. Equity	40
		9. Related Party Transactions	4342
		10. Commitments and Contingent Liabilities	47
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
	Item 4.	Controls and Procedures	58
PART II OTHER INFORMATION			59
	Item 1.	Legal Proceedings	59
	Item 1A.	Risk Factors	59
	Item 6.	Exhibits	6061
SIGNATURES			6162

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FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q ~~including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations,~~ constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Annuities Life Assurance Corporation. There can be no assurance that future developments affecting Prudential Annuities Life Assurance Corporation 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; ~~(2)~~(3) losses on insurance products due to mortality experience or policyholder behavior experience that differs significantly from our expectations when we price our products; ~~(3)~~(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; ~~(4)~~(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; ~~(5)~~(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; ~~(6)~~(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 or (d) reliance on third ~~parties; (7)~~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; ~~(8)~~(9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; ~~(9)~~(10) ratings downgrades; ~~(10)~~(11) market conditions that may adversely affect the sales or persistency of our products; ~~(11)~~(12) competition; and ~~(12)~~(13) reputational damage. Prudential Annuities Life Assurance Corporation does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and the Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for discussion of certain risks relating to our business and investment in our securities.

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PART I - Financial Information

Item 1. Financial Statements

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Financial Position

~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands, except share amounts)


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost: 2019 – $12,076,220; 2018 – $10,186,465)	$	13,172,795		$	9,771,673
Fixed maturities, trading, at fair value (amortized cost: 2019 – $349,424; 2018 – $294,549)	392,749			289,752
Equity securities, at fair value (cost: 2019 – $68,391; 2018 – $18,765)	71,983			20,613
Commercial mortgage and other loans	1,335,206			1,353,478
Fixed maturities, available-for-sale, at fair value (amortized cost, 2020: $13,264,558; 2019: $12,465,746; 2020-net of $186 allowance for credit losses)							$	15,212,476		$	13,202,365
Fixed maturities, trading, at fair value (amortized cost, 2020: $347,115; 2019: $349,428)							432,020			383,198
Equity securities, at fair value (cost, 2020: $74,271; 2019: $63,647)							76,534			67,503
Commercial mortgage and other loans (net of $6,282 and $2,663 allowance for credit losses)(1)							1,502,846			1,471,522
Policy loans	12,352			12,805			12,251			12,366
Short-term investments	618,443			37,568			2,020,754			335,358
Other invested assets (includes $10,412 and $50,945 measured at fair value at September 30, 2019 and December 31, 2018, respectively)	427,504			348,541
Other invested assets (includes $28,761 and $10,492 of assets measured at fair value at March 31, 2020 and December 31, 2019, respectively)							505,569			474,013
Total investments	16,031,032			11,834,430			19,762,450			15,946,325
Cash and cash equivalents	5,923,320			4,503,534			13,945,360			2,795,163
Deferred policy acquisition costs(1)	4,459,791			4,447,505			4,095,019			4,455,683
Accrued investment income	98,662			90,895			107,400			102,724
Reinsurance recoverables	710,596			572,102			944,229			621,510
Income taxes(1)	1,377,002			964,521			1,172,020			1,202,714
Value of business acquired	30,647			33,222			28,282			30,025
Deferred sales inducements	836,342			889,598			699,396			812,724
Receivables from parent and affiliates	15,101			46,381			63,581			62,765
Other assets	88,211			85,310			213,171			139,933
Separate account assets	32,057,438			31,210,346			26,580,684			32,665,431
TOTAL ASSETS	$	61,628,142		$	54,677,844		$	67,611,592		$	58,834,997
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	16,193,345		$	9,368,986		$	26,612,760		$	12,932,461
Policyholders’ account balances	6,031,569			5,353,596			6,596,004			6,180,359
Payables to parent and affiliates	54,152			30,846			493,084			185,156
Cash collateral for loaned securities	0			384
Short-term debt	0			140,569			234,178			242,094
Long-term debt	653,596			787,596			419,418			419,418
Reinsurance payables	227,948			232,937			285,038			235,318
Other liabilities	645,867			811,016
Other liabilities(1)							881,363			447,405
Separate account liabilities	32,057,438			31,210,346			26,580,684			32,665,431
Total liabilities	55,863,915			47,936,276			62,102,529			53,307,642
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)
EQUITY
Common stock, $100 par value; 25,000 shares authorized, issued and outstanding	2,500			2,500			2,500			2,500
Additional paid-in capital	5,383,936			6,120,436			4,935,936			5,142,936
Retained earnings	(353,672		)	943,005
Retained earnings / (accumulated deficit)							(868,873		)	(46,693		)
Accumulated other comprehensive income (loss)	731,463			(324,373		)	1,439,500			428,612
Total equity	5,764,227			6,741,568			5,509,063			5,527,355
TOTAL LIABILITIES AND EQUITY	$	61,628,142		$	54,677,844		$	67,611,592		$	58,834,997

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~~Regulatory Developments~~

~~SEC Best Interest Regulation~~

COVID-19

~~In June~~During the first quarter of 2020, the outbreak of the 2019 ~~the SEC adopted a package of rulemakings~~novel coronavirus (“COVID-19”) created extreme stress and ~~interpretative guidance that, among other things, requires broker-dealers to act~~disruption in the ~~best interest~~global economy and financial markets and elevated mortality and morbidity experience for the global population. These events impacted our results of ~~retail customers when recommending securities transactions or investment strategies~~operations in the current period and are expected to ~~them.~~drive future impacts to our results of operations. The ~~guidance also clarifies the SEC’s views of the fiduciary duty that investment advisers owe~~Company has taken several measures to ~~their clients. The new best interest standards will become effective on June 30, 2020. We are evaluating~~manage the impacts of this crisis. The actual and expected impacts of these events and other items are included in the ~~new standards and have begun to implement them.~~ following update:

•

Outlook. We have taken pricing and product actions to ensure we realize appropriate returns for the current economic environment, and to diversify our product mix to further limit our sensitivity to interest rates, while maintaining a solid value proposition for our customers. In addition, while our distribution platforms include a suite of digital, hybrid advisory, and in-person advisory options, mandated social distancing has limited in-person engagement between customers and advisors. Collectively, we expect the product actions we have taken and the constrained distribution environment to adversely impact our sales prospects in the near-term. In addition, we expect account values and fee income will be impacted by market volatility.


•	Results of Operations. For the three months ended March 31, 2020 we reported a net loss of $821 million, as unfavorable financial market conditions had a substantial negative effect on reported results. See “Results of Operations” for a discussion of first quarter results.

•

Liquidity. The impact of COVID-19 and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings or ratings outlooks. See “Liquidity and Capital Resources-Liquidity” for a discussion of our liquidity.

•

Capital Resources. Market conditions could negatively impact our statutory capital and constrain our overall capital flexibility. Continued adverse market conditions could require us to take additional management actions to maintain capital consistent with our ratings objectives, which may include redeploying financial resources from internal sources or, if markets continue to decline, using available affiliate sources of capital or seeking additional sources. See “Liquidity and Capital Resources-Capital” for a discussion of our capital resources.


•	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.”


•	Business Continuity. One of the main impacts of the COVID-19 pandemic has been executing 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.

•

CARES Act and Other Regulatory Developments. In March 2020 Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (" the CARES Act"), which provides $2 trillion in economic stimulus to taxpayers, small businesses, and corporations through various grant and loan programs, tax provisions and regulatory relief. We are analyzing the CARES Act and its potential impact on the Company, and implementing operational changes necessary to accommodate the CARES Act.

Other governments and regulators, including the ~~new standards will apply~~NAIC and state insurance regulators, have implemented, or are considering, a number of actions in response to ~~recommendations~~the crisis, including delaying implementation of certain regulatory changes, temporarily waiving certain regulatory requirements and requiring or requesting insurers to ~~purchase~~waive premium payments and policy provisions and exclusions for certain periods of ~~our products, and will result in increased compliance costs, in particular in our Prudential Advisors distribution system.~~time.

~~SECURE Act~~

~~In May 2019,~~The Company is not aware of any new or proposed government mandates that could materially impact the U.S. House of Representatives passed the Setting Every Community up for Retirement Enhancement (“SECURE”) Act. If enacted into law in its current form, the SECURE Act would help promote retirement plan coverage by expanding access to and use of Multiple Employer Plans; facilitate access to lifetime income disclosures for plan participants to better understand how their retirement savings translate into monthly lifetime income in retirement; improve upon the current annuity selection safe harbor; and provide lifetime income portability. We cannot predict whether the SECURE Act will ultimately be adopted,Company’s solvency or ~~its impact on our business.~~

For additional information on the potential impacts of regulation on the Company see “Business—Regulation” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

liquidity position.

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Impact of a Low Interest Rate Environment

As a 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:

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

new money rates, mortgage loan prepayments and bond redemptions;

• insurance reserve levels, ~~market experience true-ups and~~ amortization of ~~both~~ deferred policy acquisition costs

(“DAC”) ~~and~~ /value of business acquired (“VOBA”); /deferred sales inducements ("DSI"); and market experience true-ups;

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

• fair value of, and possible impairments, on intangible assets;

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

• policyholder behavior, including surrender or withdrawal activity.

~~Interest rates in the U.S. have experienced a period of historically low levels in large part due to Federal Reserve efforts to assist~~

with the economic recovery subsequent to the financial crisis of 2008. While market conditions and events make uncertain the timing, amount and impact of any monetary policy decisions by the Federal Reserve, changes in interest rates may impact our reinvestment yields, primarily for our investments in fixed maturity securities and commercial mortgage loans. As interest rates rise, our reinvestment yield may exceed the overall portfolio yield resulting in a favorable impact to earnings. Conversely, if interest rates were to decline, our reinvestment yield may be below our overall portfolio yield, resulting in an unfavorable impact to earnings.

For more information on interest rate risks, see the "Risk Factors" section and “Risk Factors—Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Revenues and Expenses

The Company earns revenues principally from contract charges, mortality and expense fees, asset administration fees from annuity and investment products and from net investment income on the investment of general account and other funds. The Company earns contract fees, mortality and expense fees and asset administration fees primarily from the sale and servicing of annuity products. The Company’s operating expenses principally consist of annuity benefit guarantees provided and reserves established for anticipated future annuity benefit guarantees and costs of managing risk related to these products, interest credited to contractholders' account balances, general business expenses, reinsurance premiums, commissions and other costs of selling and servicing the various products it sold.

~~Profitability~~

The Company’s profitability depends principally on its ability to manage risk on insurance and annuity products. Profitability also depends on, among other items, our actuarial and contractholder behavior experience on insurance and annuity products, our ability to retain customer assets, generate and maintain favorable investment results, and to manage expenses.

See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of risks that have materially affected and may affect in the future the Company’s business, results of operations or financial condition, or cause the Company’s actual results to differ materially from those expected or those expressed in any forward-looking statements made by or on behalf of the Company.

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 on an ongoing basis.~~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 Financial Statements could change significantly.

~~Table of Contents~~

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, DSI and VOBA;

Policyholder liabilities;

Valuation of investments, including derivatives, measurement of allowance for credit losses, and ~~the~~ recognition of ~~other-than-temporary~~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 Assumptions

DAC, DSI and VOBA associated with 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 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 contracts, costs we incur associated with the guaranteed minimum death and guaranteed minimum income benefit features related to our variable annuity contracts, as well as other sources of profit. Returns that are higher than our expectations for a given period produce higher than expected account balances, which increase the future fees we expect to earn on variable annuity 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. 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, DSI and VOBA 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.

The weighted average rate of return assumptions used in developing estimated market returns consider many factors, 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, DSI, VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity 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. As of ~~September 30, 2019,~~March 31, 2020, we assume an 8.0% long-term equity expected rate of return and a ~~4.6%~~9.7% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and VOBA 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 2019 annual reviews and update of assumptions and other refinements, we kept our long-term expectation of the 10-year U.S. Treasury rate unchanged and continue to grade to a rate of 3.75% 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, 2019

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 ~~FASB~~Financial Accounting Standards Board ("FASB") on August 15, 2018 and is expected to have a significant impact on the Company's Financial Statements and Notes to the Financial Statements. In October 2019, the FASB ~~affirmed~~issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ~~the~~ 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. This ASU 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 adoption, the Company also expects an impact to how earnings emerge thereafter. See Note 2 to ~~our~~the Unaudited Interim 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.

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Changes in Financial Position

Total assets increased ~~$6.9~~$9 billion from ~~$54.7~~$59 billion at December 31, ~~2018~~2019 to ~~$61.6~~$68 billion at ~~September 30, 2019.~~March 31, 2020. Significant components were:

Total investments and Cash and cash equivalents increased ~~$5.7~~$15 billion primarily driven by derivative collateral postings, cash flows from insurance operations and unrealized gains on investments due to declining interest rates, partially offset by a return of ~~capital, net investment acquisitions and debt repayments; and~~capital;

Partially offset by:

Separate account assets ~~increased $0.8~~decreased $6 billion ~~primarily~~ driven by ~~favorable~~unfavorable equity market performance ~~partially offset by~~and net ~~outflows and policy charges.~~outflows.

Total liabilities increased ~~$8.0~~$9 billion from ~~$47.9~~$53 billion at December 31, ~~2018~~2019 to ~~$55.9~~$62 billion at ~~September 30, 2019.~~March 31, 2020. Significant components were:

Future policy benefits increased ~~$6.8~~$14 billion primarily driven by widening of credit spreads and declining interest rates, partially offset by ~~favorable equity markets;~~widening of non-performance risk ("NPR") spreads;

Partially offset by:

Separate account liabilities ~~increased $0.8~~decreased $6 billion, corresponding to the increase in ~~separate~~Separate account assets described ~~above;~~

~~Policyholders' account balances increased $0.7 billion primarily driven by general account product sales; and~~

~~Partially offset by a decrease in short-term and long-term debts of $0.3 billion driven by maturities and debt repayments.~~above.

Total equity decreased $0.9 billion from $6.7 billion at December 31, 2018 to $5.8 billion at September 30, 2019, primarily driven by an after-tax loss of $1.3 billion for the nine months ended September 30, 2019 and a return of capital of $0.7 billion, partially offset by unrealized gains on investments of $1.1 billion, as discussed above.remained relatively flat.

Results of Operations

Income (loss) from Operations before Income Taxes

Three Months Comparison

~~Income (loss)~~Losses from operations before income taxes ~~decreased $0.6 billion~~increased $179 million from ~~income~~a loss of ~~$0.3 billion~~$879 million for the three months ended ~~September 30, 2018~~March 31, 2019 to a loss of ~~$0.3 billion~~$1,058 million for the three months ended ~~September 30, 2019~~March 31, 2020 primarily driven by ~~unfavorable~~an increase in reserves related to our variable annuity living benefit ~~results~~guarantees reflecting widening of credit spreads and declining interest rates, partially offset by an increase in the NPR adjustment due to widening of credit ~~spread widening~~spreads in the current ~~quarter as well as~~quarter. Also contributing to the larger loss, is an unfavorable impact from duration management swaps ~~due to declining~~driven by larger declines in interest rates in the current quarter compared to ~~rising interest rates in~~ the prior period ~~quarter.~~quarter, and an increase in the amortization of DAC and other costs as well as guaranteed minimum death benefit reserve provisions due to unfavorable equity market performance and declining interest rates. These losses were partially offset by a favorable comparative impact ~~of mark to market losses related to~~from our capital hedge program.

~~Nine Months Comparison~~

~~Income (loss)~~ Impacts from operations before income taxes decreased $3.0 billion from income of $1.3 billion for the nine months ended September 30, 2018 to a loss of $1.7 billion for the nine months ended September 30, 2019, which includes a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results from this annual review included net charges of $11 million and $160 million in the second quarter of 2019 and 2018, respectively. Excluding this item, income (loss) from operations before income taxes decreased $2.8 billion primarily driven by an unfavorable impact from living benefit results in the current period as a result of declining interest rates and credit spread tightening in comparison to a favorable impact from rising interest rates and credit spread widening in the prior period. Also contributing to the decrease was an unfavorable comparative impact of realized gains (losses) related to duration management swaps driven by declining interest rates and our capital hedge program ~~driven by more favorable equity markets in 2019. Capital hedge impacts~~ are excluded from the table below.

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The following table illustrates the net impact ~~on our results~~to the Unaudited Interim Statements of ~~operations~~Operations from changes in the U.S. GAAP embedded derivative liability and hedge positions under the Asset Liability Management ("ALM") strategy, and the related amortization of DAC and other costs, ~~for the periods indicated:~~

that are excluded from adjusted operating income.

Three Months Ended Nine Months Ended
September 30, 2019
September 30, 2018 September 30, 2019 September 30, 2018
(in millions)(1) (in millions)(1)
Excluding impact of assumption updates and other refinements:
Net hedging impact(2) $ (8 ) $ (42 ) $ (145 ) $ (154 )
Change in portions of U.S. GAAP liability, before NPR(3) (1,273 ) 562
(1,704 ) 1,011
Change in the NPR adjustment 1,071
(258 ) 315
(144 )
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions (210 ) 262
(1,534 ) 713
Related benefit (charge) to amortization of DAC and other costs (17 ) (60 ) 214
(215 )
Net impact of assumption updates and other refinements 0
0
13
(159 )
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs. $ (227 ) $ 202
$ (1,307 ) $ 339



	Three Months Ended
	March 31, 2020			March 31, 2019
	(in millions)(1)
Excluding impact of assumption updates and other refinements:
Net hedging impact(2)	$	(130	)	$	(83	)
Change in portions of U.S. GAAP liability, before NPR(3)	(6,911		)	306
Change in the NPR adjustment	5,958			(963		)
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions	(1,083		)	(740		)
Related benefit (charge) to amortization of DAC and other costs	(168		)	151
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs.	$	(1,251	)	$	(589	)


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


(2)	Net hedging impact represents the difference between the change in fair value of the risk we seek to hedge using derivatives and the change in fair value of the derivatives utilized with respect to that risk.


(3)	Represents risk margins and valuation methodology differences between the economic liability managed by the ~~Asset Liability Management ("ALM")~~ALM Strategy and the U.S. GAAP liability.

For the three months ended ~~September 30, 2019,~~March 31, 2020, the loss of $1,251 million primarily reflected the impact of a $1,083 million net ~~impact~~charge from the changes in the U.S. GAAP embedded derivative and hedge ~~positions, after~~positions. This net charge was primarily driven by an unfavorable impact related to the ~~impact~~portions of ~~nonperformance risk ("NPR"),~~the U.S. GAAP liability before NPR, that are excluded from our hedge target, primarily driven by widening of credit spreads, declining interest rates (with offsets in changes in the fair value of fixed income instruments that are recorded in OCI versus net income) and unfavorable equity market performance. This decrease was partially offset by an increase in the NPR adjustment driven by widening of credit spreads used in measuring our living benefit liabilities. Also contributing to the net charge was a charge related to the amortization of DAC and other costs ~~was a net charge~~ of ~~$227~~$168 million.

For the three months ended March 31, 2019, the loss of $589 million ~~which~~ primarily ~~reflects~~reflected the impact of a $740 million net charge ~~of $210 million due to~~from the changes in the U.S. GAAP embedded derivative and hedge ~~positions as~~positions. This net charge was driven by a ~~result of declining interest rates, partially offset by credit spread widening~~decrease in the NPR adjustment used in measuring our living benefit ~~contracts.~~

~~For the nine months ended September 30, 2019, the net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact~~liabilities driven by tightening of NPR, DAC and other costs, was a net charge of $1,307 million, which primarily reflects the impact of a net charge of $1,534 million due to changes in the U.S. GAAP embedded derivative and hedge positions as a result of declining interest rates and credit ~~spread tightening, partially offset by favorable equity markets~~spreads used in measuring our living benefit ~~contracts.~~liabilities. This decrease was partially offset by a favorable impact related to the portions of the U.S. GAAP liability before NPR, that are excluded from our hedge target, primarily driven by tightening of credit spreads and declining interest rates (with offsets in changes in the fair value of fixed income instruments that are recorded in OCI versus net income), partially offset by favorable equity market performance. The ~~results~~net charge was partially offset by a benefit related to the amortization of DAC and other costs of $151 million.

Revenues, Benefits and Expenses

Three Months Comparison

Revenues increased $606 million from a loss of $583 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 ~~had partial offsets~~to revenues of $23 million for the three months ended March 31, 2020 driven by an increase in realized investment gains (losses), net as a result of favorable comparative impacts from our capital hedge program and an increase in the ~~$214~~NPR adjustment, partially offset by an increase in reserves related to our variable annuity living benefit guarantees and losses from our duration management swaps, as discussed above.

Benefits and expenses increased $785 million ~~of related benefits~~from $297 million for the three months ended March 31, 2019 to $1,082 million for the three months ended March 31, 2020 primarily driven by higher amortization of DAC and other costs as well as ~~the impact of a $13 million net~~guaranteed minimum death benefit ~~from our annual reviews and update of assumptions and other refinements.~~

For the three months ended September 30, 2018, the net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs, was a net benefit of $202 million, which primarily reflects the impact of a net benefit of $262 millionreserve provisions due to ~~changes in the U.S. GAAP embedded derivative~~unfavorable equity market performance and ~~hedge positions as a result of rising~~declining interest ~~rates used in measuring our living benefit contracts partially offset by $60 million of related charges to amortization of DAC and other costs.~~

For the nine months ended September 30, 2018, the net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs, was a net benefit of $339 million, which primarily reflects a $713 million net impact from changes in the U.S. GAAP embedded derivative and hedge positions as a result of rising interest rates, favorable equity markets and credit spread widening used in measuring our living benefit contracts. Partial offsets include $215 million of related charges to amortization of DAC and other costs and a $159 million net charge from our annual reviews and update of assumptions and other refinements, including updates to expected withdrawal rates as well as economic assumptions.

rates.

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~~Revenues, Benefits and Expenses~~

~~Three Months Comparison~~

Revenues decreased $0.5 billion from $0.8 billion for the three months ended September 30, 2018 to $0.3 billion for the three months ended September 30, 2019 driven by a decrease in Total realized investment gains (losses), net as a result of unfavorable living benefit results and duration management swaps due to the impact from declining interest rates partially offset by favorable comparative results from our capital hedge program, as discussed above.

Benefits and expenses remained flat from $0.6 billion for the three months ended September 30, 2018 to $0.6 billion for the three months ended September 30, 2019 primarily driven by a decrease related to the amortization of DAC and other costs due to lower gross profits, partially offset by higher commissions and expenses assumed.

~~Nine Months Comparison~~

Revenues decreased $3.3 billion from $2.9 billion for the nine months ended September 30, 2018 to a loss of $0.4 billion for the nine months ended September 30, 2019. Excluding the impacts of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $3.2 billion primarily driven by a decrease of $3.1 billion in Realized investment gains (losses) as a result of unfavorable living benefit and duration management results due to the impact from declining interest rates and unfavorable comparative results related to our capital hedge program, as discussed above.

Benefits and expenses decreased $0.3 billion from $1.6 billion for the nine months ended September 30, 2018 to $1.3 billion for the nine months ended September 30, 2019. Excluding the impacts of our annual reviews and update of assumptions and other refinements, as discussed above, expenses decreased $0.4 billion primarily driven by amortization of DAC and other costs due to changes in the living benefit reserves, as discussed above.

~~Variable Annuity~~ Risks and Risk Mitigants

The following is a summary ~~of: (i)~~of certain risks associated with Individual ~~Annuities'~~Annuities’ products, ~~and (ii)~~ certain strategies in mitigating those risks including any updates to those strategies since the previous year-end, and ~~(iii)~~ the related financial results. For a more detailed description of these items and their related accounting treatment, refer to the complete descriptions provided in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Fixed Annuity Risks and Risk Mitigants. The primary risk exposures of our fixed annuity products relate to investment risks we bear for providing customers a minimum guaranteed interest rate or an index-linked interest rate required to be credited to the customer’s account value, including interest rate fluctuations and/or sustained periods of low interest rates, and credit risk related to the underlying investments. We manage these risk exposures primarily through our investment strategies and product design features, which include credit rate resetting subject to the minimum guaranteed interest rate, as well as surrender charges applied during the early years of the policy that help to provide protection for premature withdrawals. In addition, a portion of our fixed annuity products have a market value adjustment provision that provides protection of lapse in the case of rising interest rates. We also manage these risk exposures through external reinsurance.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, 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. We ~~currently~~ manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, ~~an ALM~~ii) Asset Liability Management Strategy, and aiii) Capital Hedge ~~Program.~~Program as discussed below. We also manage these risk exposures through external reinsurance.

i. Product Design ~~Features~~Features:

A portion of the variable annuity contracts that we ~~have~~ 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.~~accounts. The objective of the asset transfer feature is to reduce our exposure to equity market risk and market volatility. The transfers are based on a static mathematical formula used with the particular benefit which considers 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 deposits. 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 ~~these~~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.

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

~~Our current~~We employ an ALM strategy that utilizes a combination of both traditional fixed income instruments and derivatives to help defray potential claims associated with ~~the~~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 ~~a traditional~~an ALM strategy through the accumulation of fixed income and derivative instruments, and potential living benefit claims resulting from more severe market conditions, which are hedged using derivative instruments. For the portion of our ALM strategy executed with derivatives, we enter into a range of exchange-traded, ~~cleared,~~ and over-the-counter ("OTC") 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.

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The valuation of the economic liability we seek to defray excludes certain items that are included within the U.S. GAAP liability, such as NPR (in order to maximize protection irrespective of the possibility of our own default), as well as risk margins (required by U.S. GAAP but different from our best estimate) and valuation methodology differences. The following table provides a reconciliation between the liability reported under U.S. GAAP and the economic liability ~~the Company intends to~~we manage through our ALM strategy as of the ~~dates~~periods indicated:

As of September 30, 2019 As of December 31, 2018
(in millions) (in millions)
U.S. GAAP liability (including non-performance risk) $ 15,086
$ 8,332
Non-performance risk adjustment 4,552
4,275
Subtotal 19,638
12,608
Adjustments including risk margins and valuation methodology differences (5,575 ) (3,831 )
Economic liability managed by ALM strategy $ 14,063
$ 8,777



	As of March 31, 2020			As of December 31, 2019
	(in millions)
U.S. GAAP liability (including NPR)	$	25,303		$	11,823
NPR adjustment	9,311			3,245
Subtotal	34,614			15,068
Adjustments including risk margins and valuation methodology differences	(10,939		)	(4,111		)
Economic liability managed through the ALM strategy	$	23,675		$	10,957

As of ~~September 30, 2019, we have sufficient~~March 31, 2020, our fixed income instruments and derivative assets ~~to cover~~exceed our economic liability.

~~For information regarding the Risk Appetite Framework we use to evaluate and support the risks of the ALM strategy, see “—Liquidity and Capital Resources—Capital”.~~

Capital Hedge Program

We employ a capital hedge program within the Company ~~to further hedge equity market impacts. The program is intended~~ 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. The changes in value of these derivatives are recognized in adjusted operating income over the expected duration of the capital hedge program.

Income Taxes

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

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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, ~~2018.~~2019.

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 Prudential Financial, Prudential Insurance and the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon through our periodic planning process. We believe that cash flows from the sources of funds available to us are sufficient to satisfy the current liquidity requirements of Prudential Insurance, Prudential Financial and the Company, including under reasonably foreseeable stress scenarios. Prudential Financial has a capital management framework in place that governs the allocation of capital and approval of capital uses.

Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include, or may include ~~in the future~~ requirements ~~and limitations~~ (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, ~~2018.~~2019.

COVID-19 and Related Market Disruptions

During the first quarter of 2020 and continuing into the second quarter, broad market concerns over the impact of COVID-19 have led to significant volatility and disruptions in the global economy and financial markets. Given this macro environment and the global pandemic, as examined through our stress testing, in the first quarter we took the following significant management actions to enhance our liquidity and capital position:

We executed additional capital hedges that protect a portion of the capital position against additional declines in the equity markets; and

We accelerated our product diversification strategy and repriced certain products, which are expected to support the capital position over time.

Liquidity. The Company continues to operate with significant liquid resources. Nevertheless, the impact of COVID-19 and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings or ratings outlooks.

Capital. As of March 31, 2020, the Company maintained capital levels consistent with its ratings targets. However, market conditions could negatively impact the statutory capital and constrain our overall capital flexibility. Continued adverse market conditions could require us to take additional management actions to maintain capital consistent with their ratings objectives, which may include redeploying financial resources from internal sources or, if markets continue to decline, using available external sources of capital or seeking additional sources.

Liquidity and Capital Risk Management. 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.

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Capital

Our capital management framework is primarily based on statutory Risk-Based Capital ("RBC") measures. The RBC ratio is a primary measure of the capital adequacy of the Company. 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.

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The Company has returned capital to its parent, PAI for the periods indicated below.

Return of Capital
(in millions)
September 30, 2019 $ 245
June 30, 2019 $ 247
March 31, 2019 $ 245
December 31, 2018 $ 225
September 30, 2018 $ 250
June 30, 2018 $ 250
March 31, 2018 $ 300

~~Risk Appetite Framework~~

Prudential Financial manages capital consistent with our Risk Appetite Framework (“RAF”) to determine the amount of capital it needs to hold given its risk profile. The RAF is designed to ensure that all risks taken across the enterprise align with our capacity and willingness to take those risks. It allows for a cohesive assessment of risk and available resources and supports management’s decision-making. The RAF is supported by our comprehensive stress testing framework to provide a dynamic assessment of stress impacts and the resources available to absorb those impacts under stress scenarios. It incorporates the objectives of what we previously referred to as our Capital Protection Framework.



	Return of Capital
	(in millions)
March 31, 2020	$	207
December 31, 2019	$	241
September 30, 2019	$	245
June 30, 2019	$	247
March 31, 2019	$	245

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 (as described below) 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.

~~Cash Flow~~

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 ~~return~~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.

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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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had liquid assets of ~~$20.2~~$32 billion and ~~$14.6~~$17 billion, respectively. The portion of liquid assets comprised of cash and cash equivalents and short-term investments was ~~$6.5~~$16 billion and ~~$4.5~~$3 billion as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. As of ~~September 30, 2019, $13.1~~March 31, 2020, $15 billion, or ~~97%~~96%, of the fixed maturity investments in the Company's general account portfolios, were rated high or highest quality based on NAIC or equivalent rating.

~~Hedging~~Financing activities

Prudential Funding, LLC

Prudential Financial and Prudential Funding borrow funds in the capital markets primarily through the direct issuance of commercial paper. The borrowings serve as an additional source of financing to meet our working capital needs. Prudential Funding operates under a support agreement with Prudential Insurance whereby Prudential Insurance has agreed to maintain Prudential Funding’s positive tangible net worth at all times.

Hedging activities associated with living benefit guarantees

The hedging portion of our risk management strategy associated with our living benefit guarantees, including those assumed from Pruco Life, is being managed within the Company. For the portion of the risk management strategy executed through hedging, we enter into a range of exchange-traded, cleared and other OTC equity and interest rate derivatives in order to hedge certain living benefit guarantees accounted for as embedded derivatives against changes in certain capital market risks above a designated threshold. The portion of the risk management strategy comprising the hedging portion requires access to liquidity to meet the Company's payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations. These liquidity needs can vary materially due to, among other items, changes in interest rates, equity markets, mortality and policyholder behavior.

The hedging portion of the risk management strategy may also result in derivative-related collateral postings ~~on derivatives~~ to (when we are in a net pay position) or from (when we are in a net receive position) counterparties. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Depending on market conditions, the collateral posting requirements can result in material liquidity needs when we are in a net pay position.

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 ~~September 30, 2019,~~March 31, 2020, there have been no material changes in our economic exposure to market risk from December 31, ~~2018,~~2019, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, ~~2018,~~2019, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the ~~SEC.~~Securities and Exchange Commission. See the “Risk Factors” section and Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, 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.

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 ~~September 30, 2019.~~March 31, 2020. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2019,~~March 31, 2020, 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 ~~September 30, 2019~~March 31, 2020 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 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, ~~2018.~~2019. These risks could materially affect our business, results of operations or financial condition, 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” above and the risks of our business described elsewhere in this Quarterly Report on Form 10-Q. The following should be read in conjunction with and supplements and amends the section titled “Risk Factors” in our Annual Report on Form 10-K.

The COVID-19 pandemic has resulted in extreme stress and disruption in the global economy and financial markets, and has adversely impacted, and may continue to adversely impact, our results of operations, financial condition and prospects.

During the first quarter of 2020 the COVID-19 crisis (i) caused unfavorable financial market conditions which had a substantial negative effect on reported results and market values in our investment portfolio, (ii) negatively impacted our statutory capital and constrained our overall capital flexibility primarily due to asset value declines and the need to strengthen reserves, and (iii) caused us to lower our outlook for the future, as described further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview-COVID-19.”

We cannot predict what impact the COVID-19 pandemic will ultimately have on the global economy, markets or our business. The pandemic could exacerbate existing areas of concern, such as the pace of economic growth, equity market performance, and continued low interest rates, among others. Changes in consumer spending, business investment, and government debt and spending as a result of the crisis may negatively impact our business.

These risks may have manifested, and may continue to manifest, in our business in the following areas, among others:

Investment Risk. The COVID-19 pandemic and its impact on the global economy has increased the risk of loss on our investments due to default or deterioration in credit quality or value.

Insurance Risk. We expect COVID-19 to drive elevated levels of mortality in the near-term. The COVID-19 pandemic may ultimately result in a mortality calamity, which is the risk that short-term mortality rates deviate adversely from what is expected as a result of pandemics or other disasters. Elevated losses will reduce our earnings and capital, and we may be forced to liquidate assets before maturity in order to pay the excess claims. The pandemic situation may worsen depending on the evolution of the virus’s transmissibility and virulence, effectiveness of public health measures and availability of potential vaccines and treatments. Ultimate losses would depend on several factors, including the rates of mortality and morbidity among various segments of the insured population, age distribution of associated deaths, collectability of reinsurance, performance of our investment portfolio, effect on lapses and surrenders of existing policies, as well as sales of new policies and other variables.

The pandemic may also result in a change in policyholder behavior, such as policyholders choosing to defer or stop paying insurance premiums. It may also result in a lapse calamity, which is the risk that lapse rates over the short-term deviate adversely from what is expected. For example, surrenders of cash surrender value products by customers in need of liquidity can impact our liquidity, and it may be necessary in certain market conditions to sell assets to meet surrender demands. Lapse calamity can also impact our earnings through its impact on estimated future profits.

Finally, we cannot predict whether COVID-19 will ultimately lead to longer-term deviations from the mortality, policyholder behavior or morbidity assumptions we used to price our products.

Market Risk. Continued market disruptions and volatility may further negatively impact the profitability of many of our insurance and annuity products, which depends in part on the value of the separate accounts supporting these products which can fluctuate substantially depending on market conditions. Market volatility and reduced liquidity may reduce our ability to implement asset-liability management and hedging strategies. The decline in interest rates, in particular, may result in lower investment income, higher reserve levels and other consequences.

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Liquidity Risk. The impact of the COVID-19 crisis and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings. Furthermore, certain sources of liquidity might not be available during times of stress, or may only be available on unfavorable terms, which can result in a decrease in our profitability and a significant reduction in our financial flexibility.

In particular, abrupt changes to interest rate, equity, and/or currency markets could lead to increased collateral requirements to counterparties, and cash demands due to severe mortality calamity, customer withdrawals or lapse events.

Operational Risk. One of the main impacts of the COVID-19 crisis has been executing our business continuity protocols to ensure our employees are safe and able to serve our customers. This included transitioning the vast majority of our employees to remote work arrangements. We have also made a number of operational changes to accommodate our customers.

In this environment, there is an elevated risk that weaknesses or failures in our business continuation plans could lead to disruption of our operations, liability to clients, exposure to disciplinary action or harm to our reputation. Furthermore, weaknesses or failures within a vendor’s business continuation plan can materially disrupt our business operations. Our information systems and those of our vendors and service providers may be more vulnerable to cyber-attacks, computer viruses or other computer related attacks, programming errors and similar disruptive problems during a business continuation event.

Strategic Risk. The COVID-19 pandemic could ultimately generate an economic downturn; higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending. In such an environment, the demand for our products and our investment returns could be materially adversely affected. In addition, we expect near-term sales to be slowed by the impact of social distancing and financial hardship on our customers.

Finally, we cannot predict what actions governments will take in response to the COVID-19 pandemic, and how any new laws, regulations, or state-sponsored programs may impact our business.

Table of Contents

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)

Table of Contents

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.



PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION

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

Date: ~~November 13, 2019~~May 14, 2020

6162


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
REVENUES
Premiums	$	12,506		$	13,679		$	48,242		$	48,008		$	16,579		$	17,265
Policy charges and fee income	527,152			550,592			1,559,874			1,653,225			496,869			507,934
Net investment income	149,367			103,164			406,408			300,035			123,037			125,069
Asset administration fees and other income	120,927			93,320			345,520			291,460			145,133			109,388
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(769		)	(2,523		)	(2,626		)	(2,960		)
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss)	0			0			(168		)	0
Other realized investment gains (losses), net	(536,498		)	67,796			(2,770,907		)	636,782
Total realized investment gains (losses), net	(537,267		)	65,273			(2,773,701		)	633,822
Realized investment gains (losses), net													(757,691		)	(1,342,219		)
Total revenues	272,685			826,028			(413,657		)	2,926,550			23,927			(582,563		)
BENEFITS AND EXPENSES
Policyholders’ benefits	69,833			49,931			125,673			113,624			242,529			7,950
Interest credited to policyholders’ account balances	56,947			82,313			100,729			213,903			112,970			10,427
Amortization of deferred policy acquisition costs	137,157			190,632			167,198			514,457			429,518			(10,091		)
Commission expense	220,828			192,951			672,110			644,628			218,074			230,192
General, administrative and other expenses	74,008			46,038			193,981			132,199			79,112			58,163
Total benefits and expenses	558,773			561,865			1,259,691			1,618,811			1,082,203			296,641
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	(286,088		)	264,163			(1,673,348		)	1,307,739			(1,058,276		)	(879,204		)
Income tax expense (benefit)	(58,576		)	(148,073		)	(377,042		)	57,278			(237,488		)	20,820
NET INCOME (LOSS)	$	(227,512	)	$	412,236		$	(1,296,306	)	$	1,250,461		$	(820,788	)	$	(900,024	)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	(228		)	(64		)	(244		)	(1,192		)	(483		)	100
Net unrealized investment gains (losses)	628,916			(149,116		)	1,336,746			(383,434		)	1,280,088			284,428
Total	628,688			(149,180		)	1,336,502			(384,626		)	1,279,605			284,528
Less: Income tax expense (benefit) related to other comprehensive income (loss)	132,024			(31,328		)	280,666			(80,773		)	268,717			59,751
Other comprehensive income (loss), net of tax	496,664			(117,852		)	1,055,836			(303,853		)
Other comprehensive income (loss), net of taxes													1,010,888			224,777
Comprehensive income (loss)	$	269,152		$	294,384		$	(240,470	)	$	946,608		$	190,100		$	(675,247	)


	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, 2018	$	2,500	$	6,120,436		$	943,005		$	(324,373	)	$	6,741,568
Balance, December 31, 2019															$	2,500	$	5,142,936		$	(46,693	)	$	428,612	$	5,527,355
Cumulative effect of adoption of accounting changes(1)						(371		)	0			(371		)						(1,392		)	0		(1,392		)
Return of capital			(245,000		)							(245,000		)			(207,000		)						(207,000		)
Comprehensive income (loss):
Net income (loss)						(900,024		)				(900,024		)						(820,788		)			(820,788		)
Other comprehensive income (loss), net of tax									224,777			224,777											1,010,888		1,010,888
Total comprehensive income (loss)												(675,247		)											190,100
Balance, March 31, 2019	2,500		5,875,436			42,610			(99,596		)	5,820,950
Return of capital			(246,500		)							(246,500		)
Comprehensive income (loss):
Net income (loss)						(168,770		)				(168,770		)
Other comprehensive income (loss), net of tax									334,395			334,395
Total comprehensive income (loss)												165,625
Balance, June 30, 2019	2,500		5,628,936			(126,160		)	234,799			5,740,075
Return of capital			(245,000		)							(245,000		)
Comprehensive income (loss):
Net income (loss)						(227,512		)				(227,512		)
Other comprehensive income (loss), net of tax									496,664			496,664
Total comprehensive income (loss)												269,152
Balance, September 30, 2019	$	2,500	$	5,383,936		$	(353,672	)	$	731,463		$	5,764,227
Balance, March 31, 2020															$	2,500	$	4,935,936		$	(868,873	)	$	1,439,500	$	5,509,063



	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, December 31, 2018	$	2,500	$	6,120,436		$	943,005		$	(324,373	)	$	6,741,568
Cumulative effect of adoption of accounting changes(2)						(371		)	0			(371		)
Return of capital			(245,000		)							(245,000		)
Comprehensive income (loss):
Net income (loss)						(900,024		)				(900,024		)
Other comprehensive income (loss), net of tax									224,777			224,777
Total comprehensive income (loss)												(675,247		)
Balance, March 31, 2019	$	2,500	$	5,875,436		$	42,610		$	(99,596	)	$	5,820,950



	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, December 31, 2017	$	2,500	$	7,145,436		$	(776,762	)	$	(90,124	)	$	6,281,050
Cumulative effect of adoption of ASU 2016-01						337			(3		)	334
Cumulative effect of adoption of ASU 2018-02						36,714			(36,714		)	0
Return of capital			(300,000		)							(300,000		)
Comprehensive income (loss):
Net income (loss)						635,679						635,679
Other comprehensive income (loss), net of tax									(139,866		)	(139,866		)
Total comprehensive income (loss)												495,813
Balance, March 31, 2018	2,500		6,845,436			(104,032		)	(266,707		)	6,477,197
Return of capital			(250,000		)							(250,000		)
Comprehensive income (loss):
Net income (loss)						202,546						202,546
Other comprehensive income (loss), net of tax									(46,135		)	(46,135		)
Total comprehensive income (loss)												156,411
Balance, June 30, 2018	2,500		6,595,436			98,514			(312,842		)	6,383,608
Return of capital			(250,000		)							(250,000		)
Comprehensive income (loss):
Net income (loss)						412,236						412,236
Other comprehensive income (loss), net of tax									(117,852		)	(117,852		)
Total comprehensive income (loss)												294,384
Balance, September 30, 2018	$	2,500	$	6,345,436		$	510,750		$	(430,694	)	$	6,427,992


	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(1,296,306	)	$	1,250,461		$	(820,788	)	$	(900,024	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Policy charges and fee income	(854		)	(2,147		)	(31		)	(259		)
Realized investment (gains) losses, net	2,773,701			(633,822		)	757,691			1,342,219
Depreciation and amortization	453			6,227			145			(1,162		)
Interest credited to policyholders’ account balances	100,729			213,903			112,970			10,427
Change in:
Future policy benefits	839,804			795,294			498,277			235,812
Accrued investment income	(7,767		)	12,103			(4,676		)	(5,350		)
Net receivables from/payables to parent and affiliates	3,589			1,490			8,112			8,156
Deferred sales inducements	(568		)	(1,836		)	(582		)	(327		)
Deferred policy acquisition costs	(155,778		)	241,665			340,757			(107,724		)
Income taxes	(693,049		)	(175,460		)	(237,653		)	20,754
Reinsurance recoverables, net	(27,373		)	(52,210		)	(7,176		)	21,307
Derivatives, net	3,144,906			(3,094,289		)	12,740,695			(428,685		)
Other, net ~~(1)~~	25,324			110,198			4,824			(4,705		)
Cash flows from (used in) operating activities	4,706,811			(1,328,423		)	13,392,565			190,439
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	596,626			2,144,273			267,555			271,473
Fixed maturities, trading	111			99,623			38			36
Equity securities	2,534			6,280			1,026			802
Commercial mortgage and other loans	247,723			137,766			7,953			105,399
Policy loans	1,256			553			307			341
Other invested assets	23,072			16,864			12,759			18,880
Short-term investments	491,254			981,355			374,890			19,885
Payments for the purchase/origination of:
Fixed maturities, available for sale	(2,646,186		)	(1,939,203		)	(686,699		)	(2,232,403		)
Fixed maturities, trading	(54,862		)	(208,007		)	0			(33,423		)
Equity securities	(51,229		)	(3,253		)	(11,648		)	(5,570		)
Commercial mortgage and other loans	(239,275		)	(113,638		)	(60,454		)	(20,112		)
Policy loans	(288		)	(110		)	(70		)	(76		)
Other invested assets	(128,402		)	(99,983		)	(45,053		)	(37,103		)
Short-term investments	(1,071,423		)	(291,399		)	(2,057,951		)	(105,029		)
Notes receivable from parent and affiliates, net	34,008			2,967			0			34,008
Derivatives, net	(76,670		)	19,929			(232,861		)	(21,069		)
Other, net	0			(69		)	0			(1		)
Cash flows from (used in) investing activities	(2,871,751		)	753,948			(2,430,208		)	(2,003,962		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits	3,034,018			2,128,976			1,478,968			964,888
Ceded policyholders' account deposits	(13,881		)	(28,992		)	(26,187		)	(7,215		)
Policyholders' account withdrawals	(2,452,263		)	(1,979,186		)	(1,029,198		)	(884,357		)
Ceded policyholders' account withdrawals	28,760			20,786			9,447			16,323
Cash collateral for loaned securities	(384		)	(10,236		)	0			(384		)
Repayments of debt (maturities longer than 90 days)	(274,569		)	0			0			(134,000		)
Net increase/(decrease) in short-term borrowing							(7,916		)	0
Drafts outstanding	(455		)	(2,550		)	(10,701		)	(3,671		)
Distribution to Parent	(736,500		)	(800,000		)	(207,000		)	(245,000		)
Other, net							(19,573		)	0
Cash flows from (used in) financing activities	(415,274		)	(671,202		)	187,840			(293,416		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,419,786			(1,245,677		)	11,150,197			(2,106,939		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	4,503,534			1,639,939			2,795,163			4,503,534
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,923,320		$	394,262		$	13,945,360		$	2,396,595



Standard	Description	Effective date and method of adoption	Effect on the financial statements or other significant matters
ASU ~~2017-08,~~2020-04, Reference Rate Reform (Topic 848): Facilitation ~~Receivables -~~ ~~Nonrefundable Fees~~ ~~and Other Costs~~ ~~(Subtopic 310-20)~~ ~~Premium~~ ~~Amortization~~of the Effects of Reference Rate Reform on ~~Purchased Callable~~ ~~Debt Securities~~ Financial Reporting	This ASU ~~requires~~provides optional relief for certain ~~premiums on callable debt securities~~contracts impacted by reference rate reform. The standard permits an entity to consider contract modification due to reference rate reform to be ~~amortized~~an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU also temporarily (until December 31, 2022) allows hedge relationships to continue without de-designation upon changes due to reference rate reform.	March 12, 2020 to December 31, 2022 using the ~~earliest call date.~~prospective method.	~~January 1, 2019 using the modified retrospective method which included cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption.~~	~~Adoption of the~~ This ASU did not have a significant impact on the Company’s Financial Statements and Notes to the Financial Statements. The ~~impact of~~Company made the ~~cumulative-effect adjustment to retained earnings was immaterial.~~
election under ASU ~~2017-12,~~ Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting2020-04 for ~~Hedging Activities~~	~~This ASU makes targeted changes~~ all applicable contracts as they converted from the current reference rate to the ~~existing hedge accounting model to better portray the economics of an entity’s risk management activities and to simplify the use of hedge accounting.~~ The ASU eliminates separate measurement and recording of hedge ineffectiveness. It requires entities to present the earnings effect of the hedging instrument in the same income statement line item in which the hedged item is reported and also requires expanded disclosures.new reference rate.	~~January 1, 2019 using the modified retrospective method which included cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption.~~	Adoption of the ASU did not have a significant impact on the Company’s Financial Statements and Notes to the Financial Statements. The impact of the cumulative-effect adjustment to retained earnings and accumulated other comprehensive income (loss) ("AOCI") related to ineffectiveness of the hedge instruments outstanding at the date of the adoption was immaterial. See Note 4 for additional required disclosures.



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 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 will apply the amendments to contracts in force 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~~Accumulated Other Comprehensive Income (loss) ("AOCI") or (2) a full retrospective transition method.	The options for method of adoption and the impacts of such methods are 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 and will be required to be updated each quarter with the impact recorded through Other Comprehensive Income ("OCI").	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 the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.	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 the discount rate 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 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 will apply the amendments to contracts in force 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 retrospective transition method for DAC and other balances.	The options for method of adoption and the impacts of such methods are under assessment. 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	Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, ~~with changes~~and record market risk benefit 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 that is attributable to changes in an entity’s non-performance risk ("NPR"), which is recognized in OCI.	An entity ~~will apply a~~shall adopt the guidance for market risk benefits using the retrospective transition method, which ~~will include~~includes a cumulative-effect adjustment on the balance sheet as 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.	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 ("GMDB") 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.


	September 30, 2019											March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)											(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,658,235	$	829,212	$	4,009	$	7,483,438	$	0		$	7,215,283	$	2,004,094	$	5,644	$	0	$	9,213,733
Obligations of U.S. states and their political subdivisions	134,157		8,133		7		142,283		0			231,490		6,855		702		0		237,643
Foreign government bonds	202,792		19,761		12		222,541		0			171,762		12,886		1,240		0		183,408
U.S. public corporate securities	1,636,880		129,488		1,745		1,764,623		0			1,834,541		92,000		38,870		0		1,887,671
U.S. private corporate securities	1,042,425		52,255		3,703		1,090,977		0			1,176,551		25,154		37,188		186		1,164,331
Foreign public corporate securities	289,283		17,738		52		306,969		0			278,341		7,403		20,373		0		265,371
Foreign private corporate securities	1,038,186		29,438		16,883		1,050,741		0			1,209,280		2,195		105,708		0		1,105,767
Asset-backed securities(1)	443,291		4,445		2,280		445,456		(11		)	507,849		3,063		25,809		0		485,103
Commercial mortgage-backed securities	554,117		30,064		0		584,181		0			562,409		27,558		449		0		589,518
Residential mortgage-backed securities(2)	76,854		4,743		11		81,586		0			77,052		3,392		513		0		79,931
Total fixed maturities, available-for-sale	$	12,076,220	$	1,125,277	$	28,702	$	13,172,795	$	(11	)	$	13,264,558	$	2,184,600	$	236,496	$	186	$	15,212,476


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


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


(3)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes ~~$13.6~~$14.3 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.



	March 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	$	550,574	$	5,644	$	0	$	0	$	550,574	$	5,644
Obligations of U.S. states and their political subdivisions	44,790		702		0		0		44,790		702
Foreign government bonds	27,964		1,221		74		19		28,038		1,240
U.S. public corporate securities	437,796		37,781		2,167		1,089		439,963		38,870
U.S. private corporate securities	542,221		34,290		26,844		2,898		569,065		37,188
Foreign public corporate securities	84,112		20,373		0		0		84,112		20,373
Foreign private corporate securities	937,001		89,599		85,795		16,109		1,022,796		105,708
Asset-backed securities	210,569		12,622		166,207		13,187		376,776		25,809
Commercial mortgage-backed securities	52,283		449		0		0		52,283		449
Residential mortgage-backed securities	5,893		513		7		0		5,900		513
Total fixed maturities, available-for-sale	$	2,893,203	$	203,194	$	281,094	$	33,302	$	3,174,297	$	236,496


~~(1)~~	~~Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, equipment leases, education loans and other asset types.~~


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


	December 31, 2018												December 31, 2019
	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:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	367,796	$	4,844	$	3,304,663	$	371,649	$	3,672,459	$	376,493	$	1,336,007	$	39,456	$	5,855	$	10	$	1,341,862	$	39,466
Obligations of U.S. states and their political subdivisions	25,764		322		83,950		2,805		109,714		3,127		97,752		436		0		0		97,752		436
Foreign government bonds	98,437		2,346		58,975		1,810		157,412		4,156		804		13		132		7		936		20
U.S. public corporate securities	627,589		28,474		386,599		22,108		1,014,188		50,582		93,147		870		15,491		461		108,638		1,331
U.S. private corporate securities	269,545		7,755		422,498		15,122		692,043		22,877		82,709		2,111		59,797		1,232		142,506		3,343
Foreign public corporate securities	97,367		2,521		107,286		4,310		204,653		6,831		50,150		113		0		0		50,150		113
Foreign private corporate securities	373,891		19,217		116,743		8,554		490,634		27,771		97,414		1,652		91,863		6,343		189,277		7,995
Asset-backed securities	358,668		3,501		24,529		264		383,197		3,765		103,911		717		235,759		2,017		339,670		2,734
Commercial mortgage-backed securities	45,432		355		159,638		5,136		205,070		5,491		66,071		236		0		0		66,071		236
Residential mortgage-backed securities	34		1		13,775		497		13,809		498		633		12		7		1		640		13
Total fixed maturities, available-for-sale	$	2,264,523	$	69,336	$	4,678,656	$	432,255	$	6,943,179	$	501,591	$	1,928,598	$	45,616	$	408,904	$	10,071	$	2,337,502	$	55,687


	September 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	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:
Apartments/Multi-Family	$	264,146		19.8	%	$	304,644		22.4	%	$	288,739		19.2	%	$	272,150		18.5	%
Hospitality	5,618			0.4		3,633			0.3		16,721			1.1		16,819			1.1
Industrial	438,973			32.8		355,758			26.2		478,089			31.8		464,528			31.5
Office	315,647			23.6		305,537			22.5		353,014			23.5		372,823			25.3
Other	128,779			9.6		137,781			10.2		155,782			10.3		156,768			10.6
Retail	123,138			9.2		194,646			14.4		130,815			8.7		131,051			8.9
Total commercial mortgage loans	1,276,301			95.4		1,301,999			96.0		1,423,160			94.6		1,414,139			95.9
Agricultural property loans	61,205			4.6		54,375			4.0		82,033			5.4		60,046			4.1
Total commercial mortgage and agricultural property loans by property type	1,337,506			100.0	%	1,356,374			100.0	%	1,505,193			100.0	%	1,474,185			100.0	%
Allowance for credit losses	(2,300		)			(2,896		)			(6,282		)			(2,663		)
Total net commercial mortgage and agricultural property loans by property type											1,498,911					$	1,471,522
Other loans:
Other collateralized loans											3,935					0
Allowance for credit losses											0					0
Total net other loans											3,935					0
Total commercial mortgage and other loans	$	1,335,206				$	1,353,478				$	1,502,846				$	1,471,522



	Commercial Mortgage Loans			Agricultural Property Loans		Other Collateralized Loans		Total
	(in thousands)
Balance at December 31, 2018	$	2,861		$	35	$	0	$	2,896
Addition to (release of) allowance for credit losses	(239		)	6		0		(233		)
Balance at December 31, 2019	2,622			41		0		2,663
Cumulative effect of adoption of ASU 2016-13	3,118			39		0		3,157
Addition to (release of) allowance for expected losses	363			99		0		462
Balance at March 31, 2020	$	6,103		$	179	$	0	$	6,282


~~(3)~~	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $3.3 million of net unrealized losses on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.


	September 30, 2019				March 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	128,354	$	129,099	$	246,536	$	245,711
Due after one year through five years	1,107,727		1,133,628		1,264,902		1,236,352
Due after five years through ten years	1,649,659		1,736,529		1,559,972		1,518,325
Due after ten years	8,116,218		9,062,316		9,045,838		11,057,536
Asset-backed securities	443,291		445,456		507,849		485,103
Commercial mortgage-backed securities	554,117		584,181		562,409		589,518
Residential mortgage-backed securities	76,854		81,586		77,052		79,931
Total fixed maturities, available-for-sale	$	12,076,220	$	13,172,795	$	13,264,558	$	15,212,476


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)												(in thousands)
Fixed maturities, available-for-sale
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	77,697		$	391,271		$	231,106		$	1,834,190		$	195,978		$	131,769
Proceeds from maturities/prepayments	125,432			67,980			379,849			308,339			78,080			144,443
Gross investment gains from sales and maturities	15			2,532			982			20,109			7,480			1,950
Gross investment losses from sales and maturities	(445		)	(10,764		)	(3,086		)	(85,869		)	(180		)	(656		)
OTTI recognized in earnings(2)	(769		)	(2,523		)	(2,794		)	(2,960		)	N/A			(2,025		)
Write-downs recognized in earnings(3)													(693		)	N/A
(Addition to) release of allowance for credit losses(4)													(186		)	N/A


(1)	Includes ~~$14.3~~$6.5 million and ~~$(1.7)~~$4.7 million of non-cash related proceeds due to the timing of trade settlements for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.


(2)	~~Excludes~~For the three months ended March 31, 2019, amounts exclude the portion of OTTI amounts remaining in OCI, representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of ~~the~~ impairment.


(3)	For the three months ended March 31, 2020, amounts represent write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.


(4)	Effective January 1, 2020, credit losses on available-for-sale fixed maturity securities are recorded within the “allowance for credit losses.”


~~(1)~~	Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security's amortized cost.


~~(1)~~	~~As of September 30, 2019, there were 0 loans acquired with deteriorated credit quality.~~


~~(2)~~	~~Recorded investment reflects the carrying value gross of related allowance.~~


~~(1)~~	~~As of December 31, 2018, there were 0 loans acquired with deteriorated credit quality.~~


	September 30, 2019								March 31, 2020
	Debt Service Coverage Ratio								Amortized Cost by Origination Year
	≥ 1.2X		1.0X to <1.2X		< 1.0X		Total		2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
	(in thousands)								(in thousands)
Loan-to-Value Ratio:
Commercial mortgage loans
0%-59.99%									$	0	$	112,817	$	25,889	$	95,941	$	160,898	$	257,347	$	0	$	652,892
60%-69.99%									33,614		163,428		25,274		108,435		93,846		107,170		0		531,767
70%-79.99%									7,093		65,987		54,799		67,721		28,481		5,184		0		229,265
80% or greater									0		0		0		8,245		0		991		0		9,236
Subtotal									40,707		342,232		105,962		280,342		283,225		370,692		0		1,423,160
Agricultural property loans
0%-59.99%									22,500		13,798		1,261		8,553		1,180		34,741		0		82,033
60%-69.99%									0		0		0		0		0		0		0		0
70%-79.99%									0		0		0		0		0		0		0		0
80% or greater									0		0		0		0		0		0		0		0
Subtotal									22,500		13,798		1,261		8,553		1,180		34,741		0		82,033
Total commercial mortgage and agricultural property loans
0%-59.99%	$	635,907	$	6,801	$	3,615	$	646,323	22,500		126,615		27,150		104,494		162,078		292,088		0		734,925
60%-69.99%	465,223		13,525		0		478,748		33,614		163,428		25,274		108,435		93,846		107,170		0		531,767
70%-79.99%	179,558		30,696		0		210,254		7,093		65,987		54,799		67,721		28,481		5,184		0		229,265
80% or greater	1,177		1,004		0		2,181		0		0		0		8,245		0		991		0		9,236
Total commercial mortgage and agricultural property loans	$	1,281,865	$	52,026	$	3,615	$	1,337,506	$	63,207	$	356,030	$	107,223	$	288,895	$	284,405	$	405,433	$	0	$	1,505,193


	September 30, 2019												March 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)		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	$	1,276,301	$	0	$	0	$	0	$	1,276,301	$	0	$	1,423,160	$	0	$	0	$	0	$	1,423,160	$	0
Agricultural property loans	61,205		0		0		0		61,205		0		77,756		4,277		0		0		82,033		0
Other collateralized loans													3,935		0		0		0		3,935		0
Total	$	1,337,506	$	0	$	0	$	0	$	1,337,506	$	0	$	1,504,851	$	4,277	$	0	$	0	$	1,509,128	$	0


(1)	As of ~~September 30,~~March 31, 2020, 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 Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.


(1)	As of December 31, 2019, there were 0 loans in this category accruing interest.



	March 31, 2020
	(in thousands)

Fixed maturities	$	97,265
Equity securities	60
Commercial mortgage and other loans	4,496
Policy loans	10
Short-term investments and cash equivalents	5,569
Total accrued investment income	$	107,400


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


(1)	Effective January 1, 2020, per ASU 2016-13, fixed maturity securities, available-for-sale are no longer required to be disclosed “with OTTI” and “all other”.



	September 30, 2019						December 31, 2018
	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
	(in thousands)
Foreign government bonds	$	0	$	0	$	0	$	0	$	0	$	0
U.S. public corporate securities	0		0		0		384		0		384
Total cash collateral for loaned securities(1)	$	0	$	0	$	0	$	384	$	0	$	384

~~Standard~~

~~Description~~

~~Effective date and method of adoption~~

~~Effect on the financial statements or other significant matters~~

~~ASU 2016-13~~,
Financial Instruments - Credit Losses (Topic 326):
Measurement of
Credit Losses on
Financial
Instruments

This ASU provides a new current expected credit loss model to account for credit losses on certain financial assets and off-balance sheet exposures (e.g., loans held for investment, debt securities held to maturity, reinsurance receivables, net investments in leases and loan commitments). The model requires an entity to estimate lifetime credit losses related to such financial assets and exposures based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The standard also modifies the current OTTI standard for available-for-sale debt securities to require the use of an allowance rather than a direct write down of the investment, and replaces existing standard for purchased credit deteriorated loans and debt securities.

January 1, 2020 using the modified retrospective method which will include a cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. However, prospective application is required for purchased credit deteriorated assets previously accounted for under ASC 310-30 and for debt securities for which an OTTI was recognized prior to the date of adoption. Early adoption is permitted beginning January 1, 2019.

The Company continues to test and refine its expected credit loss models and related systems, processes and controls for assets held on the Statement of Financial Position at amortized cost. We currently estimate the cumulative impact of the adoption to retained earnings, primarily attributable to the reserves for commercial mortgage and other loans, to be immaterial.