~~0000881453 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-06-30~~

Table of Contents

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 ~~June 30, 2020~~March 31, 2021



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

For the Transition Period from to

Commission File Number 033-44202

_________________________________________________________________

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,, CT06484

(~~203~~) (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 ~~August~~May 12, ~~2020,~~2021, 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.

Table of Contents

TABLE OF CONTENTS



			Page
PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Unaudited Interim Statements of Financial Position as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	4
		Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~	5
		Unaudited Interim Statements of Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~	6
		Unaudited Interim Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~	7
		Notes to Unaudited Interim Financial Statements	8
		1. Business and Basis of Presentation	8
		2. Significant Accounting Policies and Pronouncements	9
		3. Investments	1411
		4. ~~Derivative Instruments~~Derivatives and Hedging	2422
		5. Fair Value of Assets and Liabilities	3027
		6. Reinsurance	4036
		7. Income Taxes	4339
		8. Equity	4339
		9. Related Party Transactions	4541
		10. Commitments and Contingent Liabilities	5044
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5146
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6255
	Item 4.	Controls and Procedures	6255
PART II OTHER INFORMATION			6356
	Item 1.	Legal Proceedings	6356
	Item 1A.	Risk Factors	6356
	Item 6.	Exhibits	6557
SIGNATURES			6658

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon 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; (3) losses on insurance products due to mortality experience or policyholder behavior experience that differs significantly from our expectations when we price our products; (4) changes in interest rates and equity prices that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data (d) reliance on third parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) state insurance laws and developments regarding group-wide supervision, capital and reserves, and (e) privacy and cybersecurity regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) ratings downgrades; (11) market conditions that may adversely affect the sales or persistency of our products; (12) competition; and (13) reputational damage. 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 June 30, 2020 and~~ the Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for discussion of certain risks relating to our business and investment in our securities.

Table of Contents

PART I - ~~Financial Information~~FINANCIAL INFORMATION

Item 1. Financial Statements

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Financial Position

~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (in thousands, except share amounts)


	June 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
ASSETS							ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost, 2020: $14,517,513; 2019: $12,465,746; 2020-net of $982 allowance for credit losses)	$	16,894,879		$	13,202,365
Fixed maturities, trading, at fair value (amortized cost, 2020: $525,032; 2019: $349,428)	620,449			383,198
Equity securities, at fair value (cost, 2020: $66,470; 2019: $63,647)	72,065			67,503
Commercial mortgage and other loans (net of $6,879 and $2,663 allowance for credit losses at June 30, 2020 and December 31, 2019, respectively)(1)	1,644,320			1,471,522
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2021-$735; 2020-$686) (amortized cost: 2021-$11,178,085; 2020-$16,177,891)							Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2021-$735; 2020-$686) (amortized cost: 2021-$11,178,085; 2020-$16,177,891)	$	11,525,964		$	18,584,685
Fixed maturities, trading, at fair value (amortized cost: 2021-$4,002,146; 2020-$1,017,771)							Fixed maturities, trading, at fair value (amortized cost: 2021-$4,002,146; 2020-$1,017,771)	3,546,185			1,114,142

Equity securities, at fair value (cost: 2021-$283,560; 2020-$279,096)							Equity securities, at fair value (cost: 2021-$283,560; 2020-$279,096)	276,886			288,082
Commercial mortgage and other loans (net of $7,001 and $7,382 allowance for credit losses at March 31, 2021 and December 31, 2020, respectively)							Commercial mortgage and other loans (net of $7,001 and $7,382 allowance for credit losses at March 31, 2021 and December 31, 2020, respectively)	1,794,798			1,765,770
Policy loans	12,257			12,366			Policy loans	11,659			11,806
Short-term investments	3,642,940			335,358			Short-term investments	13,393			318,161
Other invested assets (includes $13,524 and $10,492 of assets measured at fair value at June 30, 2020 and December 31, 2019, respectively)	529,040			474,013
Other invested assets (includes $90,283 and $204,863 of assets measured at fair value at March 31, 2021 and December 31, 2020, respectively)							Other invested assets (includes $90,283 and $204,863 of assets measured at fair value at March 31, 2021 and December 31, 2020, respectively)	710,252			818,810
Total investments	23,415,950			15,946,325			Total investments	17,879,137			22,901,456
Cash and cash equivalents	6,554,856			2,795,163			Cash and cash equivalents	1,809,484			1,069,211
Deferred policy acquisition costs~~(1)~~	4,243,190			4,455,683			4,161,890			4,237,780
Accrued investment income	116,317			102,724			Accrued investment income	99,519			121,604
Reinsurance recoverables	860,518			621,510			Reinsurance recoverables	543,849			694,040
Income taxes~~(1)~~	1,765,762			1,202,714			1,330,481			1,448,714
Value of business acquired	27,246			30,025			Value of business acquired	27,126			27,247
Deferred sales inducements	751,671			812,724			Deferred sales inducements	674,311			714,598
Receivables from parent and affiliates	89,092			62,765			Receivables from parent and affiliates	88,712			87,620
Other assets	312,198			139,933			Other assets	583,922			767,540
Separate account assets	29,379,668			32,665,431			Separate account assets	32,146,468			32,205,296
TOTAL ASSETS	$	67,516,468		$	58,834,997		TOTAL ASSETS	$	59,344,899		$	64,275,106
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
LIABILITIES							LIABILITIES
Future policy benefits	$	25,263,142		$	12,932,461		Future policy benefits	$	11,712,823		$	18,560,891
Policyholders’ account balances	6,859,669			6,180,359			Policyholders’ account balances	10,958,077			9,181,459
Payables to parent and affiliates	480,793			185,156			Payables to parent and affiliates	243,276			47,345

Short-term debt	353,849			242,094			Short-term debt	119,671			119,671
Long-term debt	299,747			419,418			Long-term debt	299,747			299,747
Reinsurance payables	210,579			235,318			Reinsurance payables	160,279			178,860
Other liabilities(1)	893,740			447,405
Other liabilities							Other liabilities	718,495			980,692
Separate account liabilities	29,379,668			32,665,431			Separate account liabilities	32,146,468			32,205,296
Total liabilities	63,741,187			53,307,642			Total liabilities	56,358,836			61,573,961
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)							COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)	0			0
EQUITY							EQUITY
Common stock, $100 par value; 25,000 shares authorized, issued and outstanding	2,500			2,500			Common stock, $100 par value; 25,000 shares authorized, issued and outstanding	2,500			2,500
Additional paid-in capital	4,762,936			5,142,936			Additional paid-in capital	4,382,936			4,382,936
Retained earnings / (accumulated deficit)	(2,625,087		)	(46,693		)	Retained earnings / (accumulated deficit)	(1,519,537)			(3,217,350)
Accumulated other comprehensive income (loss)	1,634,932			428,612			Accumulated other comprehensive income (loss)	120,164			1,533,059
Total equity	3,775,281			5,527,355			Total equity	2,986,063			2,701,145
TOTAL LIABILITIES AND EQUITY	$	67,516,468		$	58,834,997		TOTAL LIABILITIES AND EQUITY	$	59,344,899		$	64,275,106

~~(1) June 30, 2020 amounts include the impacts of the January 1, 2020 adoption of ASU 2016-13. See Note 2 for details.~~

See Notes to Unaudited Interim Financial Statements

Table of Contents

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Operations and Comprehensive Income (Loss)

Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands)


	Three Months Ended March 31,
		2021		2020
REVENUES
Premiums		$	15,762	$	16,579
Policy charges and fee income		507,583		496,869
Net investment income		139,259		123,037
Asset management and service fees(1)		103,521		97,850
Other income (loss)(1)		(773,292)		47,283




Realized investment gains (losses), net		3,129,136		(757,691)
TOTAL REVENUES		3,121,969		23,927
BENEFITS AND EXPENSES
Policyholders’ benefits		29,628		242,529
Interest credited to policyholders’ account balances		147,910		112,970
Amortization of deferred policy acquisition costs		342,576		429,518
Commission expense		165,315		218,074
General, administrative and other expenses		52,776		79,112
TOTAL BENEFITS AND EXPENSES		738,205		1,082,203
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES		2,383,764		(1,058,276)
Income tax expense (benefit)		493,951		(237,488)
NET INCOME (LOSS)		$	1,889,813	$	(820,788)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		49		(483)
Net unrealized investment gains (losses)		(1,788,524)		1,280,088



Total		(1,788,475)		1,279,605
Less: Income tax expense (benefit) related to other comprehensive income (loss)		(375,580)		268,717



Other comprehensive income (loss), net of taxes		(1,412,895)		1,010,888
Comprehensive income (loss)		$	476,918	$	190,100

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
REVENUES
Premiums $ 15,013
$ 18,471
$ 31,592
$ 35,736
Policy charges and fee income 455,682
524,788
952,551
1,032,722
Net investment income 158,426
131,972
281,463
257,041
Asset administration fees and other income 105,849
115,205
250,982
224,593
Realized investment gains (losses), net (3,375,764 ) (894,215 ) (4,133,455 ) (2,236,434 )
Total revenues (2,640,794 ) (103,779 ) (2,616,867 ) (686,342 )
BENEFITS AND EXPENSES
Policyholders’ benefits (37,768 ) 47,890
204,761
55,840
Interest credited to policyholders’ account balances (33,254 ) 33,355
79,716
43,782
Amortization of deferred policy acquisition costs (194,304 ) 40,132
235,214
30,041
Commission expense 191,055
221,090
409,129
451,282
General, administrative and other expenses 51,771
61,810
130,883
119,973
Total benefits and expenses (22,500 ) 404,277
1,059,703
700,918
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (2,618,294 ) (508,056 ) (3,676,570 ) (1,387,260 )
Income tax expense (benefit) (862,080 ) (339,286 ) (1,099,568 ) (318,466 )
NET INCOME (LOSS) $ (1,756,214 ) $ (168,770 ) $ (2,577,002 ) $ (1,068,794 )
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments 2
(116 ) (481 ) (16 )
Net unrealized investment gains (losses) 247,379
423,402
1,527,467
707,830
Total 247,381
423,286
1,526,986
707,814
Less: Income tax expense (benefit) related to other comprehensive income (loss) 51,949
88,891
320,666
148,642
Other comprehensive income (loss), net of taxes 195,432
334,395
1,206,320
559,172
Comprehensive income (loss) $ (1,560,782 ) $ 165,625
$ (1,370,682 ) $ (509,622 )
(1) Prior period amounts have been reclassified to conform to current period presentation.

See Notes to Unaudited Interim Financial Statements

Table of Contents

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Equity

Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands)


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2020	$	2,500	$	4,382,936	$	(3,217,350)	$	1,533,059	$	2,701,145



Return of capital			0						0
Dividend to parent					(192,000)				(192,000)


Comprehensive income (loss):
Net income (loss)					1,889,813				1,889,813
Other comprehensive income (loss), net of tax							(1,412,895)		(1,412,895)
Total comprehensive income (loss)									476,918
Balance, March 31, 2021	$	2,500	$	4,382,936	$	(1,519,537)	$	120,164	$	2,986,063

  Common
Stock

Additional
Paid-in
Capital
Retained Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total Equity
Balance, December 31, 2019 $ 2,500
$ 5,142,936
$ (46,693 ) $ 428,612
$ 5,527,355
Cumulative effect of adoption of accounting changes(1) (1,392 ) (1,392 )
Return of capital (207,000 ) (207,000 )
Comprehensive income (loss):
Net income (loss) (820,788 ) (820,788 )
Other comprehensive income (loss), net of tax 1,010,888
1,010,888
Total comprehensive income (loss) 190,100
Balance, March 31, 2020 $ 2,500
$ 4,935,936
$ (868,873 ) $ 1,439,500
$ 5,509,063
Return of capital (173,000 ) (173,000 )
Comprehensive income (loss):
Net income (loss) (1,756,214 ) (1,756,214 )
Other comprehensive income (loss), net of tax 195,432
195,432
Total comprehensive income (loss) (1,560,782 )
Balance, June 30, 2020 $ 2,500
$ 4,762,936
$ (2,625,087 ) $ 1,634,932
$ 3,775,281

  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 ) (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
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


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2019	$	2,500	$	5,142,936	$	(46,693)	$	428,612	$	5,527,355
Cumulative effect of adoption of accounting changes(1)					(1,392)				(1,392)


Return of capital			(207,000)						(207,000)
Dividend to parent					0				0


Comprehensive income (loss):
Net income (loss)					(820,788)				(820,788)
Other comprehensive income (loss), net of tax							1,010,888		1,010,888
Total comprehensive income (loss)									190,100
Balance, March 31, 2020	$	2,500	$	4,935,936	$	(868,873)	$	1,439,500	$	5,509,063

(1) Includes the impact from the adoption of ASU 2016-13. See Note 2.

~~(2) Includes the impact from the adoption of ASU 2017-08 and 2017-12. See Note~~ 2 to the Financial Statements included in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for additional information.

See Notes to Unaudited Interim Financial Statements

Table of Contents

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Cash Flows

~~Six~~Three Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands)

2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,577,002 ) $ (1,068,794 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Policy charges and fee income 59
(618 )
Realized investment (gains) losses, net 4,133,455
2,236,434
Depreciation and amortization (327 ) (69 )
Interest credited to policyholders’ account balances 79,716
43,782
Change in:

Future policy benefits 709,681
518,143
Accrued investment income (13,593 ) (7,254 )
Net receivables from/payables to parent and affiliates (12,182 ) (5,904 )
Deferred sales inducements (847 ) (447 )
Deferred policy acquisition costs 79,404
(180,893 )
Income taxes (883,346 ) (238,375 )
Reinsurance recoverables, net (27,746 ) (3,031 )
Derivatives, net 8,242,322
777,708
Other, net (12,169 ) 13,117
Cash flows from (used in) operating activities 9,717,425
2,083,799
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale 464,413
404,235
Fixed maturities, trading 70,843
73
Equity securities 14,369
2,534
Commercial mortgage and other loans 21,007
117,869
Policy loans 529
1,069
Other invested assets 13,743
20,825
Short-term investments 2,829,379
384,990
Payments for the purchase/origination of:

Fixed maturities, available for sale (2,399,294 ) (2,481,050 )
Fixed maturities, trading (243,881 ) (54,862 )
Equity securities (15,863 ) (26,246 )
Commercial mortgage and other loans (207,350 ) (83,787 )
Policy loans (73 ) (168 )
Other invested assets (72,413 ) (74,670 )
Short-term investments (6,134,853 ) (353,614 )
Notes receivable from parent and affiliates, net 0
34,008
Derivatives, net (626,097 ) (31,536 )
Other, net 0
0
Cash flows from (used in) investing activities (6,285,541 ) (2,140,330 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits 2,768,113
1,981,101
Ceded policyholders' account deposits (30,493 ) (11,204 )
Policyholders' account withdrawals (2,155,125 ) (1,670,995 )
Ceded policyholders' account withdrawals 22,107
23,598
Cash collateral for loaned securities 0
(384 )
Repayments of debt (maturities longer than 90 days) 0
(274,569 )
Net increase/(decrease) in short-term borrowing (7,916 ) 0
Drafts outstanding 137,072
(4,650 )
Distribution to Parent (380,000 ) (491,500 )
Other, net (25,949 ) 0
Cash flows from (used in) financing activities 327,809
(448,603 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,759,693
(505,134 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,795,163
4,503,534
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,554,856
$ 3,998,400


	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,889,813	$	(820,788)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Policy charges and fee income	(331)		(31)
Realized investment (gains) losses, net	(3,129,136)		757,691
Depreciation and amortization	5,669		145

Interest credited to policyholders’ account balances	147,910		112,970
Change in:
Future policy benefits	289,900		498,277
Accrued investment income	22,085		(4,676)

Net receivables from/payables to parent and affiliates	(10,134)		8,112

Deferred sales inducements	(965)		(582)
Deferred policy acquisition costs	243,468		340,757
Income taxes	493,813		(237,653)
Reinsurance recoverables, net	(12,290)		(7,176)

Derivatives, net	(4,325,229)		12,740,695

Other, net	753,618		4,824
Cash flows from (used in) operating activities	(3,631,809)		13,392,565
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	7,898,232		267,555
Fixed maturities, trading	2,015,501		38
Equity securities	1,333		1,026
Commercial mortgage and other loans	20,850		7,953

Policy loans	292		307
Other invested assets	5,058		12,759
Short-term investments	307,947		374,890
Payments for the purchase/origination of:
Fixed maturities, available for sale	(1,847,341)		(686,699)
Fixed maturities, trading	(5,201,320)		0
Equity securities	(5,730)		(11,648)
Commercial mortgage and other loans	(56,582)		(60,454)

Policy loans	(30)		(70)
Other invested assets	(4,799)		(45,053)
Short-term investments	(3,194)		(2,057,951)


Derivatives, net	(34,308)		(232,861)

Cash flows from (used in) investing activities	3,095,909		(2,430,208)
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits	2,503,057		1,478,968
Ceded policyholders' account deposits	(3,536)		(26,187)
Policyholders' account withdrawals	(1,029,911)		(1,029,198)
Ceded policyholders' account withdrawals	4,072		9,447




Net increase/(decrease) in short-term borrowing	0		(7,916)
Drafts outstanding	(3,171)		(10,701)
Distribution to parent	(192,000)		(207,000)

Other, net	(2,338)		(19,573)
Cash flows from (used in) financing activities	1,276,173		187,840
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	740,273		11,150,197
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	1,069,211		2,795,163
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,809,484	$	13,945,360

Significant Non-Cash Transactions

There were no significant non-cash transactions for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

See Notes to Unaudited Interim Financial Statements

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

1. BUSINESS AND BASIS OF PRESENTATION

Prudential Annuities Life Assurance Corporation (the “Company” or “PALAC”), with its principal offices in Shelton, Connecticut, is a wholly-owned subsidiary of Prudential Annuities, Inc. (“PAI”), which in turn is an indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey corporation.

Effective April 1, 2016, the Company reinsured the variable annuity base contracts, along with the living benefit guarantees, from Pruco Life Insurance Company ("Pruco Life"), excluding the Pruco Life Insurance Company of New Jersey ("PLNJ") business which was reinsured to The Prudential Insurance Company of America (“Prudential Insurance”), in each case under a coinsurance and modified coinsurance agreement. This reinsurance agreement covers new and in force business and excludes business reinsured externally. As of December 31, 2020, Pruco Life discontinued the sales of traditional variable annuities with guaranteed living benefit riders. The discontinuation has no impact on the reinsurance agreement between Pruco Life and the Company. In addition, the living benefit hedging program related to the living benefit guarantees as well as the product risks for retained and reinsured businesses are being managed within the Company and Prudential Insurance, as applicable.

The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing long-term savings and retirement products, including insurance products, and individual and group annuities.

Effective April 1, 2016, the Company reinsured the variable annuity base contracts, along with the living benefit guarantees, from Pruco Life Insurance Company ("Pruco Life"), excluding the Pruco Life Insurance Company of New Jersey ("PLNJ") business which was reinsured to Prudential Insurance Company of America (“Prudential Insurance”), in each case under a coinsurance and modified coinsurance agreement. This reinsurance agreement covers new and in force business and excludes business reinsured externally. In addition, the living benefit hedging program related to the living benefit guarantees as well as the product risks for retained and reinsured businesses are being managed within the Company and Prudential Insurance, as applicable.

Basis of Presentation

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

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Use of Estimates

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

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

COVID-19

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

As of December 31, 2019
Fair
Value     Valuation
Techniques     Unobservable
Inputs Minimum     Maximum     Weighted
Average Impact of
Increase in
Input on Fair
Value(1)
(in thousands)
Assets:
Corporate securities(2) $ 17,149
Discounted cash flow Discount rate 4.79 % 20 % 8.66 % Decrease
Market Comparables EBITDA multiples(3) 6.7 X 6.7 X 6.7 X Increase
Reinsurance recoverables $ 302,814
Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(4) $ 11,822,998
Discounted cash flow Lapse rate(6) 1 % 18 % Decrease
Spread over LIBOR(7) 0.10 % 1.23 % Decrease
Utilization rate(8) 43 % 97 % Increase
Withdrawal rate See table footnote (9) below.
Mortality rate(10) 0 % 15 % Decrease
Equity volatility curve 13 % 23 % Increase
Policyholders' account balances(5) $ 196,892
Discounted cash flow Lapse rate(6) 1 % 42 % Decrease
Spread over LIBOR(7) 0.10 % 1.23 % Decrease
Equity volatility curve 6 % 25 % Increase


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


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


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

~~(4)~~

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

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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

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

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

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

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

(10)Prior period amount has been updated.

~~(5)~~

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

~~(6)~~

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

~~(7)~~

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

~~(8)~~

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

~~(9)~~

The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of June 30, 2020 and December 31, 2019, the minimum withdrawal rate assumption is 76% and78% respectively. As of June 30, 2020 and December 31, 2019, the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

~~(10)~~

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

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

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

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

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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


	Three Months Ended March 31, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Government	$	15,000	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	15,000	$	0

Corporate Securities(3)	148,687		(931)		10,634		0		0		(7,627)		0		15,147		0		165,910		(1,031)
Structured Securities(4)	18,542		(107)		0		0		0		(1,479)		0		0		0		16,956		(106)
Other assets:
Fixed maturities, trading	5,045		82		0		0		0		0		0		0		0		5,127		87
Equity securities	4,153		13		0		0		0		0		0		0		0		4,166		13

Short term investments	10,000		0		2,349		0		0		0		0		0		0		12,349		0
Cash equivalents	0		0		100		0		0		0		0		0		0		100		0
Other assets	53,980		8,572		2,653		0		0		(2,133)		0		0		0		63,072		6,439
Reinsurance recoverables	409,013		(141,885)		4,262		0		0		0		0		0		0		271,390		(135,675)

Liabilities:
Future policy benefits	(17,314,004)		7,093,338		0		0		(291,149)		0		0		0		0		(10,511,815)		6,900,120
Policyholders' account balances(5)	(580,184)		(267,770)		0		0		(138,525)		0		0		0		0		(986,479)		(252,703)

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


	Three Months Ended March 31, 2021
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	(44)	$	0	$	(987)	$	(7)		$	(37)	$	0	$	(1,100)
Other assets:
Fixed maturities, trading	0		88		0		(6)			0		87		0
Equity securities	0		13		0		0			0		13		0

Short term investments	0		0		0		0			0		0		0
Cash equivalents	0		0		0		0			0		0		0
Other assets	8,572		0		0		0			6,439		0		0
Reinsurance recoverables	(141,885)		0		0		0			(135,675)		0		0

Liabilities:
Future policy benefits	7,093,338		0		0		0			6,900,120		0		0
Policyholders' account balances	(267,770)		0		0		0			(252,703)		0		0


	Three Months Ended March 31, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Government	$	10,547	$	0	$	911	$	0	$	0	$	0	$	0	$	0	$	0	$	11,458	$	0

Corporate Securities(3)	104,267		(14,767)		11,277		(1,155)		0		(2,365)		0		14,349		0		111,606		(15,781)
Structured Securities(4)	18,825		(288)		6,145		0		0		(455)		0		0		0		24,227		(286)
Other assets:
Fixed maturities, trading	4,464		(871)		0		0		0		0		0		0		0		3,593		(866)
Equity securities	5,247		(261)		0		0		0		0		0		0		0		4,986		(261)

Short term investments	0		0		0		0		0		0		0		0		0		0		0
Cash equivalents	0		0		0		0		0		0		0		0		0		0		0
Other assets	8,059		(3,613)		7,796		0		0		0		0		0		0		12,242		(3,613)
Reinsurance recoverables	302,814		257,953		4,323		0		0		0		0		0		0		565,090		260,722

Liabilities:
Future policy benefits	(11,822,998)		(13,197,472)		0		0		(282,184)		0		0		0		0		(25,302,654)		(13,329,640)
Policyholders' account balances(5)	(196,892)		60,429		0		0		(22,457)		0		0		0		0		(158,920)		53,957

Three Months Ended June 30, 2020
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other(2) Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(3)
(in thousands)
Fixed maturities, available-for-sale:
U.S. Government $ 11,458
$ 0
$ 758
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 12,216
$ 0
Corporate Securities(4) 111,606
8,603
3,896
(7,810 ) 0
(3,445 ) 0
10,783
(244 ) 123,389
7,738
Structured Securities(5) 24,227
157
0
0
0
(620 ) 0
0
(5,636 ) 18,128
155
Other assets:
Fixed maturities, trading 3,593
708
0
0
0
0
0
0
0
4,301
713
Equity securities 4,986
256
0
0
0
0
0
0
0
5,242
256
Other invested assets 0
0
0
0
0
0
0
0
0
0
0
Other assets 12,242
4,558
10,338
0
0
(2 ) 0
0
0
27,136
4,556
Reinsurance recoverables 565,090
(30,207 ) 4,240
0
0
0
0
0
0
539,123
(26,137 )
Liabilities:
Future policy benefits (25,302,654 ) 1,588,409
0
0
(284,426 ) 0
0
0
0
(23,998,671 ) 1,421,382
Policyholders' account balances(6) (158,920 ) (39,095 ) 0
0
(28,057 ) 0
0
0
0
(226,072 ) (34,321 )

Three Months Ended June 30, 2020
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(3)
Realized investment gains (losses), net(1) Asset administration fees and other income Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Asset administration fees and other income Included in other comprehensive income (loss)(7)
(in thousands)
Fixed maturities, available-for-sale $ (57 ) $ 0
$ 8,799
$ 18
$ (982 ) $ 0
$ 8,875
Other assets:
Fixed maturities, trading 0
713
0
(5 ) 0
713
0
Equity securities 0
256
0
0
0
256
0
Other invested assets 0
0
0
0
0
0
0
Other assets 4,558
0
0
0
4,556
0
0
Reinsurance recoverables (30,207 ) 0
0
0
(26,137 ) 0
0
Liabilities:
Future policy benefits 1,588,409
0
0
0
1,421,382
0
0
Policyholders' account balances (39,095 ) 0
0
0
(34,321 ) 0
0

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


	Three Months Ended March 31, 2020
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)(6)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)(6)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	(110)	$	0	$	(14,924)	$	(21)		$	0	$	0	$	(16,067)
Other assets:
Fixed maturities, trading	0		(866)		0		(5)			0		(866)		0
Equity securities	0		(261)		0		0			0		(261)		0

Short term investments	0		0		0		0			0		0		0
Cash equivalents	0		0		0		0			0		0		0
Other assets	(3,613)		0		0		0			(3,613)		0		0
Reinsurance recoverables	257,953		0		0		0			260,722		0		0

Liabilities:
Future policy benefits	(13,197,472)		0		0		0			(13,329,640)		0		0
Policyholders' account balances	60,429		0		0		0			53,957		0		0

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

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

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

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

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

(6)Retitled to "Other income (loss)" to conform to current period presentation.

Six Months Ended June 30, 2020
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other(2) Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(3)
(in thousands)
Fixed maturities, available-for-sale:
U.S. Government $ 10,547
$ 0
$ 1,669
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 12,216
$ 0
Corporate Securities(4) 104,267
(6,164 ) 15,173
(8,965 ) 0
(5,810 ) 0
25,132
(244 ) 123,389
(8,042 )
Structured Securities(5) 18,825
(131 ) 6,145
0
0
(1,075 ) 0
0
(5,636 ) 18,128
(131 )
Other assets:
Fixed maturities, trading 4,464
(163 ) 0
0
0
0
0
0
0
4,301
(153 )
Equity securities 5,247
(5 ) 0
0
0
0
0
0
0
5,242
(5 )
Other invested assets 0
0
0
0
0
0
0
0
0
0
0
Other assets 8,059
945
18,134
0
0
(2 ) 0
0
0
27,136
944
Reinsurance recoverables 302,814
227,746
8,563
0
0
0
0
0
0
539,123
232,325
Liabilities:
Future policy benefits (11,822,998 ) (11,609,063 ) 0
0
(566,610 ) 0
0
0
0
(23,998,671 ) (11,807,482 )
Policyholders' account balances(6) (196,892 ) 21,334
0
0
(50,514 ) 0
0
0
0
(226,072 ) 10,084

Six Months Ended June 30, 2020
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(3)
Realized investment gains (losses), net(1) Asset administration fees and other income Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Asset administration fees and other income Included in other comprehensive income (loss)(7)
(in thousands)
Fixed maturities, available-for-sale $ (167 ) $ 0
$ (6,125 ) $ (3 ) $ (982 ) $ 0
$ (7,191 )
Other assets:
Fixed maturities, trading 0
(153 ) 0
(10 ) 0
(153 ) 0
Equity securities 0
(5 ) 0
0
0
(5 ) 0
Other invested assets 0
0
0
0
0
0
0
Other assets 945
0
0
0
944
0
0
Reinsurance recoverables 227,746
0
0
0
232,325
0
0
Liabilities:
Future policy benefits (11,609,063 ) 0
0
0
(11,807,482 ) 0
0
Policyholders' account balances 21,334
0
0
0
10,084
0
0

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Three Months Ended June 30, 2019
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other (2) Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(3)
(in thousands)
Fixed maturities, available-for-sale:
U.S. Government $ 8,779
$ 0
$ 601
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 9,380
$ 0
Corporate Securities(4) 84,800
13
4,087
0
0
(16,626 ) 0
815
(2,018 ) 71,071
0
Structured Securities(5) 50,258
384
0
0
0
(339 ) 0
0
(30,578 ) 19,725
0
Other assets:
Fixed maturities, trading 0
(977 ) 0
0
0
0
0
5,021
0
4,044
(972 )
Equity securities 5,616
481
0
(734 ) 0
0
0
0
0
5,363
480
Other invested assets 0
0
0
0
0
0
0
0
0
0
0
Other assets 0
0
0
0
0
0
0
0
0
0
0
Reinsurance recoverables 283,991
51,236
4,518
0
0
0
(1 ) 0
0
339,744
53,335
Liabilities:
Future policy benefits (9,316,905 ) (2,157,110 ) 0
0
(264,465 ) 0
0
0
0
(11,738,480 ) (2,240,816 )
Policyholders' account balances(6) (80,579 ) (5,095 ) 0
0
(35,428 ) 0
0
0
0
(121,102 ) (3,299 )

Three Months Ended June 30, 2019
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(3)
Realized investment gains (losses), net(1) Asset administration fees and other income Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Asset administration fees and other income
(in thousands)
Fixed maturities, available-for-sale $ (1,175 ) $ 0
$ 1,473
$ 99
$ 0
$ 0
Other assets:
Fixed maturities, trading 0
(972 ) 0
(5 ) 0
(972 )
Equity securities 0
481
0
0
0
480
Other invested assets 0
0
0
0
0
0
Other assets 0
0
0
0
0
0
Reinsurance recoverables 51,236
0
0
0
53,335
0
Liabilities:
Future policy benefits (2,157,110 ) 0
0
0
(2,240,816 ) 0
Policyholders' account balances (5,095 ) 0
0
0
(3,299 ) 0

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

Six Months Ended June 30, 2019
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other (2) Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(3)
(in thousands)
Fixed maturities, available-for-sale:
U.S. Government $ 8,132
$ 0
$ 1,248
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 9,380
$ 0
Corporate Securities(4) 85,452
623
7,313
0
0
(22,089 ) 0
1,790
(2,018 ) 71,071
(1,996 )
Structured Securities(5) 9,336
529
44,273
0
0
(4,386 ) 0
551
(30,578 ) 19,725
(2 )
Other assets:
Fixed maturities, trading 0
(977 ) 0
0
0
0
0
5,021
0
4,044
(972 )
Equity securities 5,705
587
0
(929 ) 0
0
0
0
0
5,363
598
Other invested assets 0
0
0
0
0
0
0
0
0
0
0
Other assets 0
0
0
0
0
0
0
0
0
0
0
Reinsurance recoverables 239,911
68,861
9,077
0
0
0
21,895
0
0
339,744
72,829
Liabilities:
Future policy benefits (8,332,474 ) (2,884,200 ) 0
0
(521,806 ) 0
0
0
0
(11,738,480 ) (3,025,994 )
Policyholders' account balances(6) (42,350 ) (13,078 ) 0
0
(65,674 ) 0
0
0
0
(121,102 ) (11,282 )

Six Months Ended June 30, 2019
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(3)
Realized investment gains (losses), net(1) Asset administration fees and other income Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Asset administration fees and other income
(in thousands)
Fixed maturities, available-for-sale $ (1,900 ) $ 0
$ 2,914
$ 138
$ (1,998 ) $ 0
Other assets:
Fixed maturities, trading 0
(972 ) 0
(5 ) 0
(972 )
Equity securities 0
587
0
0
0
598
Other invested assets 0
0
0
0
0
0
Other assets 0
0
0
0
0
0
Reinsurance recoverables 68,861
0
0
0
72,829
0
Liabilities:
Future policy benefits (2,884,200 ) 0
0
0
(3,025,994 ) 0
Policyholders' account balances (13,078 ) 0
0
0
(11,282 ) 0


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


~~(2)~~	~~Other includes reclassifications of certain assets and liabilities between reporting categories.~~


~~(3)~~	~~Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.~~


~~(4)~~	~~Includes U.S. corporate public, U.S. corporate private, foreign corporate public and foreign corporate private securities.~~

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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


~~(5)~~	~~Includes asset-backed, commercial mortgage-backed and residential mortgage-backed securities.~~


~~(6)~~	~~Issuances and settlements for Policyholders' account balances are presented net in the rollforward.~~


~~(7)~~	Effective January 1, 2020, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period were added prospectively due to adoption of ASU 2018-13. ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~.

Fair Value of Financial Instruments

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


	June 30, 2020											March 31, 2021
	Fair Value								Carrying Amount(1)			Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total			Level 1		Level 2		Level 3		Total		Total
	(in thousands)											(in thousands)
Assets:											Assets:
Commercial mortgage and other loans	$	0	$	0	$	1,697,362	$	1,697,362	$	1,644,320	Commercial mortgage and other loans	$	0	$	0	$	1,861,808	$	1,861,808	$	1,794,798
Policy loans	0		0		12,257		12,257		12,257		Policy loans	0		0		11,659		11,659		11,659

Short-term investments	824,939		0		0		824,939		824,939		Short-term investments	0		0		0		0		0
Cash and cash equivalents	993,381		1,016,505		0		2,009,886		2,009,886		Cash and cash equivalents	478,682		260,000		0		738,682		738,682
Accrued investment income	0		116,317		0		116,317		116,317		Accrued investment income	0		99,519		0		99,519		99,519
Reinsurance recoverables	0		0		53,392		53,392		52,596		Reinsurance recoverables	0		0		51,462		51,462		50,695
Receivables from parent and affiliates	0		33,303		0		33,303		33,303		Receivables from parent and affiliates	0		34,565		0		34,565		34,565
Other assets	0		5,173		226,165		231,338		231,338		Other assets	0		72,976		410,020		482,996		482,996
Total assets	$	1,818,320	$	1,171,298	$	1,989,176	$	4,978,794	$	4,924,956	Total assets	$	478,682	$	467,060	$	2,334,949	$	3,280,691	$	3,212,914
Liabilities:											Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	1,891,373	$	1,891,373	$	1,871,759	Policyholders’ account balances - investment contracts	$	0	$	0	$	2,515,936	$	2,515,936	$	2,502,017
Cash collateral for loaned securities	0		0		0		0		0

Short-term debt	0		359,900		0		359,900		353,849		Short-term debt	0		120,394		0		120,394		119,671
Long-term debt	0		335,225		0		335,225		299,747		Long-term debt	0		328,773		0		328,773		299,747
Reinsurance payables	0		0		46,079		46,079		46,079		Reinsurance payables	0		0		43,550		43,550		43,550
Payables to parent and affiliates	0		44,971		0		44,971		44,971		Payables to parent and affiliates	0		40,074		0		40,074		40,074
Other liabilities	0		588,257		0		588,257		588,257		Other liabilities	0		537,517		0		537,517		537,517
Separate account liabilities - investment contracts	0		38		0		38		38		Separate account liabilities - investment contracts	0		24		0		24		24
Total liabilities	$	0	$	1,328,391	$	1,937,452	$	3,265,843	$	3,204,700	Total liabilities	$	0	$	1,026,782	$	2,559,486	$	3,586,268	$	3,542,600

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


	December 31, 2020
	Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	1,836,633	$	1,836,633	$	1,765,770
Policy loans	0		0		11,806		11,806		11,806
Short-term investments	165,000		0		0		165,000		165,000
Cash and cash equivalents	386,078		150,000		0		536,078		536,078
Accrued investment income	0		121,604		0		121,604		121,604
Reinsurance recoverables	0		0		51,225		51,225		50,484
Receivables from parent and affiliates	0		31,594		0		31,594		31,594
Other assets	0		278,355		394,069		672,424		672,424
Total assets	$	551,078	$	581,553	$	2,293,733	$	3,426,364	$	3,354,760
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	2,426,471	$	2,426,471	$	2,406,100

Short-term debt	0		121,205		0		121,205		119,671
Long-term debt	0		332,451		0		332,451		299,747
Reinsurance payables	0		0		44,446		44,446		44,446
Payables to parent and affiliates	0		47,345		0		47,345		47,345
Other liabilities	0		757,968		0		757,968		757,968
Separate account liabilities - investment contracts	0		30		0		30		30
Total liabilities	$	0	$	1,258,999	$	2,470,917	$	3,729,916	$	3,675,307

December 31, 2019
Fair Value
Carrying
Amount(1)
Level 1 Level 2 Level 3 Total Total
(in thousands)
Assets:
Commercial mortgage and other loans $ 0
$ 0
$ 1,512,283
$ 1,512,283
$ 1,471,522
Policy loans 0
0
12,366
12,366
12,366
Short-term investments 75,004
0
0
75,004
75,004
Cash and cash equivalents 687,558
302,000
0
989,558
989,558
Accrued investment income 0
102,724
0
102,724
102,724
Reinsurance recoverables 0
0
56,171
56,171
55,796
Receivables from parent and affiliates 0
10,192
50,587
60,779
60,192
Other assets 0
1,893
63,106
64,999
64,999
Total assets $ 762,562
$ 416,809
$ 1,694,513
$ 2,873,884
$ 2,832,161
Liabilities:
Policyholders’ account balances - investment contracts $ 0
$ 0
$ 1,445,486
$ 1,445,486
$ 1,438,742
Cash collateral for loaned securities 0
0
0
0
0
Short-term debt 0
245,617
0
245,617
242,094
Long-term debt 0
446,105
0
446,105
419,418
Reinsurance payables 0
0
50,035
50,035
50,035
Payables to parent and affiliates 0
39,209
0
39,209
39,209
Other liabilities 0
205,988
0
205,988
205,988
Separate account liabilities - investment contracts 0
54
0
54
54
Total liabilities $ 0
$ 936,973
$ 1,495,521
$ 2,432,494
$ 2,395,540
(1)Carrying values presented herein differ from those in the Company’s Unaudited Interim Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments.


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

6. REINSURANCE

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its living benefit guarantees and variable annuity base contracts. Effective April 1, 2016, the Company recaptured the risks related to its variable annuity living benefit guarantees that were previously reinsured to affiliates. In addition, the Company reinsured variable annuity base contracts, along with the living benefit guarantees, from Pruco Life, excluding the PLNJ business which was reinsured to Prudential Insurance. This reinsurance covers new and in force business and excludes business reinsured externally. As of December 31, 2020, Pruco Life discontinued the sales of traditional variable annuities with guaranteed living benefit riders. This discontinuation has no impact on the reinsurance agreement between Pruco Life and the Company.

Effective December 31, 2015, the Company surrendered its New York license and reinsured the majority of its New York business, both the living benefit guarantees and base contracts, to Prudential Insurance. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The Company believes a material reinsurance liability resulting from such inability of reinsurers to meet their obligations is unlikely.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. These reinsurance agreements are derivatives and have been accounted for in the same manner as embedded derivatives and the changes in the fair value of these derivatives are recognized through "Realized investment gains (losses), net". See Note 4 for additional information related to the accounting for embedded derivatives.

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Reinsurance amounts included in the Company's Unaudited Interim Statements of Financial Position as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows:


	March 31, 2021		December 31, 2020
	(in thousands)
Reinsurance recoverables	$	543,849	$	694,040
Deferred policy acquisition costs	3,282,938		3,414,620
Deferred sales inducements	354,475		374,631
Value of business acquired	(2,101)		(2,124)
Other assets	59,572		61,471
Policyholders’ account balances	3,238,339		3,273,863
Future policy benefits	7,457,026		12,610,942
Reinsurance payables(1)	160,279		178,860
Other liabilities	243,013		262,462

June 30, 2020 December 31, 2019
(in thousands)
Reinsurance recoverables(1) $ 860,518
$ 621,510
Deferred policy acquisition costs 3,530,644
3,725,719
Deferred sales inducements 397,925
437,594
Value of business acquired (2,135 ) (2,275 )
Other assets(2) 52,143
65,819
Policyholders’ account balances 3,322,132
3,253,474
Future policy benefits 17,724,091
8,328,777
Reinsurance payables(3) 210,579
235,318
Other liabilities(4) 489,594
337,909


~~(1)~~	~~Includes $0.5 million and $0.2 million of unaffiliated activity as of June 30, 2020 and December 31, 2019, respectively.~~


~~(2)~~	~~Includes $(13.3) million and $(3.9) million of unaffiliated activity as of June 30, 2020 and December 31, 2019, respectively.~~


~~(3)~~	~~Includes $0.1 million of unaffiliated activity at both June 30, 2020 and December 31, 2019.~~


~~(4)~~	~~Includes $214.3 million and $60.4 million of unaffiliated activity as of June 30, 2020 and December 31, 2019, respectively.~~

(1)Includes $0.4 million and $2.3 million of unaffiliated activity as of March 31, 2021 and December 31, 2020, respectively.

~~Reinsurance~~

The reinsurance recoverables by counterparty are broken out below:

June 30, 2020 December 31, 2019
(in thousands)
Prudential Insurance $ 634,470
$ 387,355
Pruco Life 225,566
233,933
Unaffiliated 482
222
Total reinsurance recoverables $ 860,518
$ 621,510


	March 31, 2021		December 31, 2020
	(in thousands)
Prudential Insurance	$	356,434	$	494,611
Pruco Life	187,113		198,547
Unaffiliated	302		882
Total reinsurance recoverables	$	543,849	$	694,040

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Premiums:
Direct	$	6,137	$	6,498
Assumed	10,076		10,427
Ceded	(451)		(346)
Net premiums	15,762		16,579
Policy charges and fee income:
Direct	107,332		106,254
Assumed	407,138		398,661
Ceded(1)	(6,887)		(8,046)
Net policy charges and fee income	507,583		496,869
Asset management and service fees(2):
Direct	23,916		23,048
Assumed	81,622		76,781
Ceded	(2,017)		(1,979)
Net asset management and service fees	103,521		97,850
Realized investment gains (losses), net:
Direct	(2,106,085)		9,042,990
Assumed	5,377,897		(10,060,454)
Ceded	(142,676)		259,773
Realized investment gains (losses), net	3,129,136		(757,691)
Policyholders' benefits (including change in reserves):
Direct	17,289		59,166
Assumed	12,390		188,524
Ceded(3)	(51)		(5,161)
Net policyholders' benefits (including change in reserves)	29,628		242,529
Interest credited to policyholders’ account balances:
Direct	81,621		45,839
Assumed	70,946		68,415
Ceded	(4,657)		(1,284)
Net interest credited to policyholders’ account balances	147,910		112,970
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	339,711		545,464

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(in thousands)
Premiums:
Direct $ 7,717
$ 8,381
$ 14,215
$ 16,435
Assumed 8,003
10,398
18,430
19,493
Ceded (707 ) (308 ) (1,053 ) (192 )
Net premiums 15,013
18,471
31,592
35,736
Policy charges and fee income:
Direct 95,670
122,420
201,924
244,031
Assumed 367,194
411,058
765,855
806,146
Ceded(1) (7,182 ) (8,690 ) (15,228 ) (17,455 )
Net policy charges and fee income 455,682
524,788
952,551
1,032,722
Asset administration fees and other income:
Direct 35,964
41,226
105,837
79,971
Assumed 71,725
76,079
148,964
148,774
Ceded (1,840 ) (2,100 ) (3,819 ) (4,152 )
Net asset administration fees and other income 105,849
115,205
250,982
224,593
Realized investment gains (losses), net:
Direct (4,643,352 ) 593,738
4,399,638
(240,470 )
Assumed 1,305,763
(1,530,524 ) (8,754,691 ) (2,046,233 )
Ceded (38,175 ) 42,571
221,598
50,269
Realized investment gains (losses), net (3,375,764 ) (894,215 ) (4,133,455 ) (2,236,434 )
Policyholders' benefits (including change in reserves):
Direct 467
17,616
59,633
24,719
Assumed (38,289 ) 31,619
150,235
33,976
Ceded(2) 54
(1,345 ) (5,107 ) (2,855 )
Net policyholders' benefits (including change in reserves) (37,768 ) 47,890
204,761
55,840
Interest credited to policyholders’ account balances:
Direct (12,284 ) 15,335
33,555
21,345
Assumed (22,561 ) 19,283
45,854
24,094
Ceded 1,591
(1,263 ) 307
(1,657 )
Net interest credited to policyholders’ account balances (33,254 ) 33,355
79,716
43,782
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization 38,342
240,225
583,806
439,480


~~(1)~~	Includes $(0.4) million and $(1.0) million of unaffiliated activity for the three months ended June 30, 2020 and 2019, respectively, and $(0.7) million and $(1.0) million for the six months ended June 30, 2020 and 2019, respectively.


~~(2)~~	Includes $(0.5) million and $(0.1) million of unaffiliated activity for the three months ended June 30, 2020 and 2019, respectively, and $(0.4) million and $(0.1) million for the six months ended June 30, 2020 and 2019, respectively.

(1)Includes $(0.3) million of unaffiliated activity for both the three months ended March 31, 2021 and 2020.

(2)Prior period amounts updated to conform to current period presentation.

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

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

7. INCOME TAXES

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

The Company's income tax provision amounted to an income tax ~~benefit~~expense of ~~$(1,100)~~$494 million, or ~~29.91%~~20.72% of income (loss) from operations before income taxes in the first ~~six~~three months of ~~2020,~~2021, compared to ~~$(318)~~an income tax benefit of $(237) million, or ~~22.96%~~22.44%, in the first ~~six~~three months of ~~2019.~~2020. The Company’s current and prior effective tax rates differed from the U.S. statutory tax rate of 21% primarily due to non-taxable investment income and tax credits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. One provision of the CARES Act amends the Tax Cuts and Jobs Act (“TCJA”) and allows companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. The Company has incorporated into the full year projected effective tax rate an income tax benefit of $305 million that would result from carrying the estimated 2020 NOL back to tax years that have a 35% tax rate. This amount is an estimate and will change if the amount of, and sources of, 2020 net taxable income are different from forecast.

8. EQUITY

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Unaudited Interim Statements of Operations and Comprehensive ~~Income.~~Income (Loss). The balance of and changes in each component of AOCI as of and for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are as follows:


	Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance, December 31, 2020	$	(708)	$	1,533,767	$	1,533,059
Change in OCI before reclassifications	49		(694,704)		(694,655)
Amounts reclassified from AOCI	0		(1,093,820)		(1,093,820)
Income tax benefit (expense)	(10)		375,590		375,580
Balance, March 31, 2021	$	(669)	$	120,833	$	120,164


	Accumulated Other Comprehensive Income (Loss)										Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Total Accumulated Other Comprehensive Income (Loss)				Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)										(in thousands)
Balance, December 31, 2019	$	(934	)	$	429,546		$	428,612		Balance, December 31, 2019	$	(934)	$	429,546	$	428,612
Change in OCI before reclassifications	(481		)	1,563,347			1,562,866			Change in OCI before reclassifications	(483)		1,309,567		1,309,084
Amounts reclassified from AOCI	0			(35,880		)	(35,880		)	Amounts reclassified from AOCI	0		(29,479)		(29,479)
Income tax benefit (expense)	101			(320,767		)	(320,666		)	Income tax benefit (expense)	102		(268,819)		(268,717)
Balance, June 30, 2020	$	(1,314	)	$	1,636,246		$	1,634,932
Balance, March 31, 2020										Balance, March 31, 2020	$	(1,315)	$	1,440,815	$	1,439,500

(1)Includes cash flow hedges of $(40) million and $(43) million as of March 31, 2021 and December 31, 2020, respectively, and $103 million and$0 million as of March 31, 2020 and December 31, 2019, respectively.

Accumulated Other Comprehensive Income (Loss)
Foreign Currency Translation Adjustment Net Unrealized
Investment Gains
(Losses)(1) Total Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, December 31, 2018 $ (1,078 ) $ (323,295 ) $ (324,373 )
Change in OCI before reclassifications (16 ) 698,743
698,727
Amounts reclassified from AOCI 0
9,087
9,087
Income tax benefit (expense) 3
(148,645 ) (148,642 )
Balance, June 30, 2019 $ (1,091 ) $ 235,890
$ 234,799


~~(1)~~	~~Includes cash flow hedges of $68 million and $0 million as of June 30, 2020 and December 31, 2019, respectively, and $0 million~~Table of Contents ~~and$(4) million as of June 30, 2019 and December 31, 2018, respectively~~.

~~Table of Contents~~

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Amounts reclassified from AOCI(1)(2):
Net unrealized investment gains (losses):
Cash flow hedges—Currency/ Interest rate(3)		$	12,316	$	23,057
Net unrealized investment gains (losses) on available-for-sale securities		1,081,504		6,422
Total net unrealized investment gains (losses)(4)		1,093,820		29,479
Total reclassifications for the period		$	1,093,820	$	29,479

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(in thousands)
Amounts reclassified from AOCI(1)(2):
Net unrealized investment gains (losses):
Cash flow hedges—Currency/ Interest rate(3) $ (2,267 ) $ (4,535 ) $ 20,790
$ (5,388 )
Net unrealized investment gains (losses) on available-for-sale securities 8,668
(2,968 ) 15,090
(3,699 )
Total net unrealized investment gains (losses)(4) 6,401
(7,503 ) 35,880
(9,087 )
Total reclassifications for the period $ 6,401
$ (7,503 ) $ 35,880
$ (9,087 )

(1)All amounts are shown before tax.

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

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

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


~~(1)~~	~~All amounts are shown before tax.~~


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


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


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

Net Unrealized Investment Gains (Losses)

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


	Net Unrealized Gains (Losses) on Investments on Available-for-Sale Fixed Maturity Securities on which an allowance for credit losses has been recognized		Net Unrealized Gains (Losses) on All Other Investments(1)		DAC and Other Costs(2)		Future Policy Benefits and Other Liabilities(3)		Deferred Income Tax (Liability) Benefit		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2020	$	2	$	2,369,107	$	(363,429)	$	(63,159)	$	(408,754)	$	1,533,767
Net investment gains (losses) on investments arising during the period	8		(963,933)		0		0		202,424		(761,501)
Reclassification adjustment for (gains) losses included in net income	0		(1,093,820)		0		0		229,702		(864,118)
Reclassification due to allowance for credit losses recorded during the period	35		(35)		0		0		0		0
Impact of net unrealized investment (gains) losses on DAC and other costs	0		0		233,899		0		(49,119)		184,780
Impact of net unrealized investment (gains) losses on future policy benefits and other liabilities	0		0		0		35,322		(7,417)		27,905
Balance, March 31, 2021	$	45	$	311,319	$	(129,530)	$	(27,837)	$	(33,164)	$	120,833

~~Net Unrealized Investment Gains (Losses)~~

(1)Includes cash flow hedges. See Note 4 for information on ~~Available-for-Sale Fixed Maturity Securities on which an allowance for credit losses has been recognized~~cash flow hedges.

(2)"Other costs" primarily includes reinsurance recoverables, DSI and VOBA.

(3)"Other liabilities" primarily includes reinsurance payables and deferred reinsurance gains.

Net Unrealized
Gains (Losses)
on Investments
DAC and Other Costs(2) Future Policy Benefits and Other Liabilities(3)
Deferred
Income Tax
(Liability)
Benefit

Accumulated Other Comprehensive
Income (Loss) Related To Net Unrealized Investment Gains (Losses)
(in thousands)
Balance, December 31, 2019(1) $ 0
$ 0
$ 0
$ 0
$ 0
Net investment gains (losses) on investments arising during the period 15
0
0
(3 ) 12
Reclassification adjustment for (gains) losses included in net income 0
0
0
0
0
Increase (decrease) due to non-credit related losses recognized in AOCI during the period (62 ) 0
0
14
(48 )
Impact of net unrealized investment (gains) losses on DAC and other costs 0
868
0
(180 ) 688
Impact of net unrealized investment (gains) losses on future policy benefits and other liabilities 0
0
157
(33 ) 124
Balance, June 30, 2020 $ (47 ) $ 868
$ 157
$ (202 ) $ 776


~~(1)~~	~~Allowance for credit losses on available-for-sale fixed maturity securities effective January 1, 2020.~~


~~(2)~~	~~"Other costs" primarily includes reinsurance recoverables, DSI and VOBA.~~


~~(3)~~	~~"Other liabilities" primarily includes reinsurance payables and deferred reinsurance gains.~~

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

~~All Other Net Unrealized Investment Gains (Losses) in AOCI~~

Net Unrealized
Gains (Losses)
on Investments(1)
DAC and Other Costs(3) Future Policy Benefits and Other Liabilities(4)
Deferred
Income Tax
(Liability)
Benefit
Accumulated Other Comprehensive
Income (Loss) Related To Net Unrealized Investment Gains (Losses)
(in thousands)
Balance, December 31, 2019(2) $ 736,930
$ (156,175 ) $ (35,983 ) $ (115,226 ) $ 429,546
Net investment gains (losses) on investments arising during the period 1,749,271
0
0
(367,349 ) 1,381,922
Reclassification adjustment for (gains) losses included in net income (35,880 ) 0
0
7,535
(28,345 )
Reclassification due to allowance for credit losses recorded during the period 62
0
0
(13 ) 49
Impact of net unrealized investment (gains) losses on DAC and other costs 0
(183,205 ) 0
38,473
(144,732 )
Impact of net unrealized investment (gains) losses on future policy benefits and other liabilities 0
0
(3,759 ) 789
(2,970 )
Balance, June 30, 2020 $ 2,450,383
$ (339,380 ) $ (39,742 ) $ (435,791 ) $ 1,635,470


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


~~(2)~~	~~Includes net unrealized gains (losses) for which an OTTI loss had been previously recognized.~~


~~(3)~~	~~"Other costs" primarily includes reinsurance recoverables, DSI and VOBA.~~


~~(4)~~	~~"Other liabilities" primarily includes reinsurance payables and deferred reinsurance gains.~~

9. RELATED PARTY TRANSACTIONS

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

Expense Charges and Allocations

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

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses include allocations of stock compensation expenses related to a stock-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was $0.0 million ~~and $0.1 million~~ for both the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019, respectively, and $0.1 million for both the six months ended June 30, 2020 and 2019.~~2020. The expense charged to the Company for the deferred compensation program was ~~$0.0~~$0.7 million and $0.2 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $0.3 million and $0.5 million for the six months ended June 30, 2020 and 2019,~~ respectively.

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was ~~$0.5~~$2.3 million and ~~$0.6~~$0.7 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $1.1 million for both the six months ended June 30, 2020 and 2019.~~respectively.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was ~~$0.4~~$1.1 million and ~~$0.5~~$0.6 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $1.0 million and $1.1 million for the six months ended June 30, 2020 and 2019,~~ respectively.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company's expense for its share of the voluntary savings plan was ~~$0.2~~$0.9 million and $0.3 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $0.5 million for both the six months ended June 30, 2020 and 2019.~~respectively.

The Company pays commissions and certain other fees to Prudential Annuities Distributors, Inc ("PAD") in consideration for PAD’s marketing and underwriting of the Company’s products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s products. Commissions and fees paid by the Company to PAD was ~~$29~~$120 million and ~~$25~~$23 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $52 million and $49 million for the six months ended June 30, 2020 and 2019,~~ respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was $2$8 million and $4$5 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $6 million and $8 million for the six months ended June 30, 2020 and 2019,~~ respectively.

Affiliated Investment Management Expenses

In accordance with an agreement with PGIM, Inc. (“PGIM”), the Company pays investment management expenses to PGIM who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were $5$6 million and $4$5 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $10 million and $8 million for the six months ended June 30, 2020 and 2019,~~ respectively. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Derivative Trades

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

Joint Ventures

The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. "Other invested assets" includes ~~$444~~$535 million and ~~$391~~$534 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. "Net investment income" related to these ventures includes a gain of ~~$15~~$4 million and $4a loss of $18 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and a loss of $3 million and a gain of $9 million for the six months ended June 30, 2020 and 2019,~~ respectively.

Affiliated Asset ~~Administration Fee Income~~Management and Service Fees

The Company has a revenue sharing agreement with AST Investment Services, Inc. (“ASTISI”) and PGIM Investments LLC (“PGIM Investments”) whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust and The Prudential Series Fund. Income received from ASTISI and PGIM Investments related to this agreement was ~~$21~~$23 million ~~and $24 million~~ for both the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019, respectively, and $43 million and $48 million for the six months ended June 30, 2020 and 2019, respectively.~~2020. These revenues are recorded as ~~“Asset administration fees~~“Asset management and ~~other income”~~service fees” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

Affiliated Notes Receivable

Affiliated notes receivable included in "Receivables from parent and affiliates" at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows:


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

U.S. dollar fixed rate notes	2026 - 2027	2.62%	-	14.85	%	$	54,147	$	56,025
Total long-term notes receivable - affiliated(1)						$	54,147	$	56,025

Maturity Dates Interest Rates June 30, 2020 December 31, 2019
(in thousands)
U.S. dollar fixed rate notes 2026 - 2027 2.62% - 14.85 % $ 55,789
$ 52,573
Total notes receivable - affiliated(1) $ 55,789
$ 52,573

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


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

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

Accrued interest receivable related to these loans was ~~$0.1 million and~~ $0.0 million at ~~June 30, 2020~~both March 31, 2021 and December 31, ~~2019, respectively,~~2020, and is included in “Other assets”. ~~Revenues~~Revenues related to these ~~assets~~loans were ~~a gain of~~ $0.4 million ~~and $0.1 million~~ for both the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and a gain of $0.8 million and a loss of $0.2 million for the six months ended June 30, 2020 and 2019, respectively,~~ and are included in “Asset ~~administration fees~~management and ~~other income”~~service fees”.

Affiliated Commercial Mortgage Loan

The affiliated commercial mortgage loan included in "Commercial mortgage and other loans" at ~~June 30,~~March 31, 2021 and December 31, 2020 was as ~~follow:~~follows:


	Maturity Date	Interest Rate	March 31, 2021		December 31, 2020
			(in thousands)
Affiliated Commercial Mortgage Loan	2025	4.60%	$	74,005	$	74,005

Maturity Date Interest Rate June 30, 2020
(in thousands)
Affiliated Commercial Mortgage Loan 2025 4.67% $ 74,005


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	914,937	$	30,951	$	10,334	$	0	$	935,554
Obligations of U.S. states and their political subdivisions	302,372		12,297		2,340		0		312,329
Foreign government bonds	172,078		16,143		896		0		187,325
U.S. public corporate securities	3,785,253		167,327		71,551		0		3,881,029
U.S. private corporate securities	1,767,324		88,125		14,741		720		1,839,988
Foreign public corporate securities	902,623		18,051		14,049		0		906,625
Foreign private corporate securities	1,457,455		102,363		11,411		15		1,548,392
Asset-backed securities(1)	975,298		9,902		212		0		984,988
Commercial mortgage-backed securities	835,555		35,109		10,722		0		859,942
Residential mortgage-backed securities(2)	65,190		4,635		33		0		69,792
Total fixed maturities, available-for-sale	$	11,178,085	$	484,903	$	136,289	$	735	$	11,525,964



	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	7,209,338	$	1,959,308	$	10,467	$	0	$	9,158,179
Obligations of U.S. states and their political subdivisions	244,211		15,004		5		0		259,210
Foreign government bonds	161,316		19,384		25		0		180,675
U.S. public corporate securities	2,552,065		246,280		7,499		0		2,790,846
U.S. private corporate securities	1,458,519		87,180		8,102		0		1,537,597
Foreign public corporate securities	317,646		20,654		7,671		0		330,629
Foreign private corporate securities	1,231,622		35,456		27,817		982		1,238,279
Asset-backed securities(1)	621,254		6,735		8,846		0		619,143
Commercial mortgage-backed securities	647,722		52,733		20		0		700,435
Residential mortgage-backed securities(2)	73,820		6,069		3		0		79,886
Total fixed maturities, available-for-sale	$	14,517,513	$	2,448,803	$	70,455	$	982	$	16,894,879


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	7,283,403	$	1,631,715	$	12,686	$	0	$	8,902,432
Obligations of U.S. states and their political subdivisions	258,135		19,512		156		0		277,491
Foreign government bonds	153,009		24,378		4		0		177,383
U.S. public corporate securities	3,112,420		339,348		1,361		0		3,450,407
U.S. private corporate securities	1,736,035		155,943		4,706		209		1,887,063
Foreign public corporate securities	513,204		29,029		408		0		541,825
Foreign private corporate securities	1,338,936		158,227		2,851		477		1,493,835
Asset-backed securities(1)	984,318		9,870		1,605		0		992,583
Commercial mortgage-backed securities	728,522		57,522		102		0		785,942
Residential mortgage-backed securities(2)	69,909		5,818		3		0		75,724
Total fixed maturities, available-for-sale	$	16,177,891	$	2,431,362	$	23,882	$	686	$	18,584,685



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,667,347	$	491,943	$	39,466	$	7,119,824	$	0
Obligations of U.S. states and their political subdivisions	252,304		7,814		436		259,682		0
Foreign government bonds	203,386		19,518		20		222,884		0
U.S. public corporate securities	1,615,060		126,947		1,331		1,740,676		0
U.S. private corporate securities	1,159,962		50,720		3,343		1,207,339		0
Foreign public corporate securities	321,111		16,989		113		337,987		0
Foreign private corporate securities	1,171,411		50,069		7,995		1,213,485		0
Asset-backed securities(1)	443,767		3,405		2,734		444,438		(20		)
Commercial mortgage-backed securities	557,584		20,941		236		578,289		0
Residential mortgage-backed securities(2)	73,814		3,960		13		77,761		0
Total fixed maturities, available-for-sale	$	12,465,746	$	792,306	$	55,687	$	13,202,365	$	(20	)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
REVENUES
Premiums	$	15,013		$	18,471		$	31,592		$	35,736
Policy charges and fee income	455,682			524,788			952,551			1,032,722
Net investment income	158,426			131,972			281,463			257,041
Asset administration fees and other income	105,849			115,205			250,982			224,593
Realized investment gains (losses), net	(3,375,764		)	(894,215		)	(4,133,455		)	(2,236,434		)
Total revenues	(2,640,794		)	(103,779		)	(2,616,867		)	(686,342		)
BENEFITS AND EXPENSES
Policyholders’ benefits	(37,768		)	47,890			204,761			55,840
Interest credited to policyholders’ account balances	(33,254		)	33,355			79,716			43,782
Amortization of deferred policy acquisition costs	(194,304		)	40,132			235,214			30,041
Commission expense	191,055			221,090			409,129			451,282
General, administrative and other expenses	51,771			61,810			130,883			119,973
Total benefits and expenses	(22,500		)	404,277			1,059,703			700,918
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	(2,618,294		)	(508,056		)	(3,676,570		)	(1,387,260		)
Income tax expense (benefit)	(862,080		)	(339,286		)	(1,099,568		)	(318,466		)
NET INCOME (LOSS)	$	(1,756,214	)	$	(168,770	)	$	(2,577,002	)	$	(1,068,794	)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	2			(116		)	(481		)	(16		)
Net unrealized investment gains (losses)	247,379			423,402			1,527,467			707,830
Total	247,381			423,286			1,526,986			707,814
Less: Income tax expense (benefit) related to other comprehensive income (loss)	51,949			88,891			320,666			148,642
Other comprehensive income (loss), net of taxes	195,432			334,395			1,206,320			559,172
Comprehensive income (loss)	$	(1,560,782	)	$	165,625		$	(1,370,682	)	$	(509,622	)



	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2019	$	2,500	$	5,142,936		$	(46,693	)	$	428,612	$	5,527,355
Cumulative effect of adoption of accounting changes(1)						(1,392		)			(1,392		)
Return of capital			(207,000		)						(207,000		)
Comprehensive income (loss):
Net income (loss)						(820,788		)			(820,788		)
Other comprehensive income (loss), net of tax									1,010,888		1,010,888
Total comprehensive income (loss)											190,100
Balance, March 31, 2020	$	2,500	$	4,935,936		$	(868,873	)	$	1,439,500	$	5,509,063
Return of capital			(173,000		)						(173,000		)
Comprehensive income (loss):
Net income (loss)						(1,756,214		)			(1,756,214		)
Other comprehensive income (loss), net of tax									195,432		195,432
Total comprehensive income (loss)											(1,560,782		)
Balance, June 30, 2020	$	2,500	$	4,762,936		$	(2,625,087	)	$	1,634,932	$	3,775,281


~~(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 $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.



	June 30, 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	$	539,420	$	10,467	$	0	$	0	$	539,420	$	10,467
Obligations of U.S. states and their political subdivisions	3,084		5		0		0		3,084		5
Foreign government bonds	368		14		81		11		449		25
U.S. public corporate securities	220,713		6,981		2,332		518		223,045		7,499
U.S. private corporate securities	124,703		6,429		19,376		1,673		144,079		8,102
Foreign public corporate securities	63,792		7,671		0		0		63,792		7,671
Foreign private corporate securities	412,032		15,832		118,199		11,980		530,231		27,812
Asset-backed securities	170,685		3,099		216,998		5,747		387,683		8,846
Commercial mortgage-backed securities	3,476		20		0		0		3,476		20
Residential mortgage-backed securities	0		0		84		3		84		3
Total fixed maturities, available-for-sale	$	1,538,273	$	50,518	$	357,070	$	19,932	$	1,895,343	$	70,450


	March 31, 2021
	Amortized Cost		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	303,632	$	307,998
Due after one year through five years	2,815,832		2,890,358
Due after five years through ten years	2,566,636		2,671,469
Due after ten years	3,615,942		3,741,417
Asset-backed securities	975,298		984,988
Commercial mortgage-backed securities	835,555		859,942
Residential mortgage-backed securities	65,190		69,792
Total fixed maturities, available-for-sale	$	11,178,085	$	11,525,964



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	136,699		$	21,640		$	332,677		$	153,409
Proceeds from maturities/prepayments	53,821			109,974			131,901			254,417
Gross investment gains from sales and maturities	10,774			(983		)	18,255			967
Gross investment losses from sales and maturities	(1,310		)	(1,985		)	(1,490		)	(2,641		)
OTTI recognized in earnings(2)	N/A			0			N/A			(2,025		)
Write-downs recognized in earnings(3)	0			N/A			(693		)	N/A
(Addition to) release of allowance for credit losses(4)	(796		)	N/A			(982		)	N/A


~~(1)~~	~~Includes $0.2 million and $3.6 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, 2020 and 2019, respectively.~~


~~(2)~~	For the three and six months ended June 30, 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 impairment.


~~(3)~~	~~For the three and six months ended June 30, 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.”~~


	March 31, 2021				December 31, 2020
	Amount (in thousands)		% of Total		Amount (in thousands)		% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	363,747	20.2	%	$	369,764	20.9	%
Hospitality	18,064		1.0		16,679		0.9
Industrial	607,002		33.7		590,231		33.3
Office	362,173		20.1		374,107		21.1
Other	224,733		12.5		187,643		10.6
Retail	129,817		7.2		130,154		7.3
Total commercial mortgage loans	1,705,536		94.7		1,668,578		94.1
Agricultural property loans	96,263		5.3		104,574		5.9
Total commercial mortgage and agricultural property loans	1,801,799		100.0	%	1,773,152		100.0	%
Allowance for credit losses	(7,001)				(7,382)
Total net commercial mortgage and agricultural property loans	$	1,794,798			$	1,765,770



	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	961			98		0		1,059
Balance at June 30, 2020	$	6,701		$	178	$	0	$	6,879


	March 31, 2021
	Amortized Cost by Origination Year
	2021		2020		2019		2018		2017		Prior		Total
	(in thousands)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	38,560	$	0	$	113,410	$	43,037	$	115,447	$	427,874	$	738,328
60%-69.99%	14,075		175,627		201,021		52,873		116,336		103,477		663,409
70%-79.99%	0		80,023		51,172		10,745		53,558		107,204		302,702
80% or greater	0		0		0		0		0		1,097		1,097
Total	$	52,635	$	255,650	$	365,603	$	106,655	$	285,341	$	639,652	$	1,705,536
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	52,635	$	255,650	$	342,820	$	106,655	$	285,341	$	589,367	$	1,632,468
1.0 - 1.2x	0		0		22,783		0		0		22,084		44,867
Less than 1.0x	0		0		0		0		0		28,201		28,201
Total	$	52,635	$	255,650	$	365,603	$	106,655	$	285,341	$	639,652	$	1,705,536
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	3,750	$	47,126	$	13,740	$	1,249	$	0	$	28,213	$	94,078
60%-69.99%	0		2,185		0		0		0		0		2,185
70%-79.99%	0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0
Total	$	3,750	$	49,311	$	13,740	$	1,249	$	0	$	28,213	$	96,263
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	3,750	$	49,311	$	13,740	$	1,249	$	0	$	24,632	$	92,682
1.0 - 1.2x	0		0		0		0		0		0		0
Less than 1.0x	0		0		0		0		0		3,581		3,581
Total	$	3,750	$	49,311	$	13,740	$	1,249	$	0	$	28,213	$	96,263


	March 31, 2021
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)
Commercial mortgage loans	$	1,705,536	$	0	$	0	$	0	$	1,705,536	$	0
Agricultural property loans	96,263		0		0		0		96,263		0

Total	$	1,801,799	$	0	$	0	$	0	$	1,801,799	$	0


~~(1)~~	~~As of June 30, 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.~~



	June 30, 2020
	(in thousands)

Fixed maturities	$	108,200
Equity securities	1
Commercial mortgage and other loans	4,585
Policy loans	10
Short-term investments and cash equivalents	3,262
Other(1)	259
Total accrued investment income	$	116,317


~~(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”.~~


~~(2)~~	~~For more information on cash flow hedges, see Note 4.~~


	March 31, 2021						December 31, 2020
Primary Underlying Risk/Instrument Type	Gross Notional		Fair Value				Gross Notional		Fair Value
			Assets		Liabilities				Assets		Liabilities
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate
Foreign Currency Swaps	$	1,403,565	$	24,141	$	(71,345)	$	1,376,290	$	23,167	$	(82,625)
Total Derivatives Designated as Hedge Accounting Instruments	$	1,403,565	$	24,141	$	(71,345)	$	1,376,290	$	23,167	$	(82,625)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Futures	$	4,713,300	$	3,401	$	(7,564)	$	4,597,200	$	2,755	$	(1,621)
Interest Rate Swaps	154,911,591		6,599,563		(12,720,544)		131,129,200		12,448,036		(9,540,941)
Interest Rate Options	10,148,000		111,391		(166,887)		10,198,000		608,538		(178,563)
Interest Rate Forwards	505,000		3,337		(24,254)		75,000		464		0
Foreign Currency
Foreign Currency Forwards	36,228		200		(100)		34,988		4		(557)
Currency/Interest Rate
Foreign Currency Swaps	253,453		7,818		(7,457)		228,117		7,939		(8,440)
Credit
Credit Default Swaps	1,095,000		25,852		(19)		1,574,173		38,875		(52)
Equity
Equity Futures	4,459,416		20,678		(2,374)		5,558,882		9,424		(24,688)
Total Return Swaps	19,541,904		121,378		(450,633)		22,121,729		62,362		(1,162,907)
Equity Options	41,210,913		508,706		(855,838)		23,856,379		1,617,672		(952,452)
Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	236,874,805	$	7,402,324	$	(14,235,670)	$	199,373,668	$	14,796,069	$	(11,870,221)
Total Derivatives(1)(2)	$	238,278,370	$	7,426,465	$	(14,307,015)	$	200,749,958	$	14,819,236	$	(11,952,846)


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


	March 31, 2021
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in thousands)
Offsetting of Financial Assets:
Derivatives(1)	$	7,426,465	$	(7,346,312)	$	80,153	$	0	$	80,153
Securities purchased under agreements to resell	260,000		0		260,000		(260,000)		0
Total Assets	$	7,686,465	$	(7,346,312)	$	340,153	$	(260,000)	$	80,153
Offsetting of Financial Liabilities:
Derivatives(1)	$	14,307,015	$	(14,099,180)	$	207,835	$	(207,835)	$	0
Securities sold under agreements to repurchase	0		0		0		0		0
Total Liabilities	$	14,307,015	$	(14,099,180)	$	207,835	$	(207,835)	$	0


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


	Three Months Ended March 31, 2021
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	1,405	$	4,339	$	6,572	$	2,997
Total cash flow hedges	1,405		4,339		6,572		2,997
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(3,744,843)		0		0		0
Currency	45		0		0		0
Currency/Interest Rate	3,227		0		(16)		0
Credit	2,323		0		0		0
Equity	(929,620)		0		0		0
Embedded Derivatives	6,713,023		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	2,044,155		0		(16)		0
Total	$	2,045,560	$	4,339	$	6,556	$	2,997



	Three Months Ended June 30, 2020
	Realized Investment Gains (Losses)			Net Investment Income		Other Income			AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	2,712		$	4,668	$	(9,648	)	$	(34,394	)
Total cash flow hedges	2,712			4,668		(9,648		)	(34,394		)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(79,874		)	0		0			0
Currency	57			0		0			0
Currency/Interest Rate	(11,767		)	0		(2		)	0
Credit	1,629			0		0			0
Equity	(4,830,379		)	0		0			0
Embedded Derivatives	1,531,563			0		0			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	(3,388,771		)	0		(2		)	0
Total	$	(3,386,059	)	$	4,668	$	(9,650	)	$	(34,394	)



	Six Months Ended June 30, 2020
	Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	4,567		$	8,928	$	7,295	$	68,462
Total cash flow hedges	4,567			8,928		7,295		68,462
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	6,970,027			0		0		0
Currency	1,087			0		0		0
Currency/Interest Rate	30,082			0		69		0
Credit	(5,528		)	0		0		0
Equity	184,909			0		0		0
Embedded Derivatives	(11,335,743		)	0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	(4,155,166		)	0		69		0
Total	$	(4,150,599	)	$	8,928	$	7,364	$	68,462

~~Standard~~

~~Description~~

~~Effective date and method of adoption~~

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

~~ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation~~
~~of the Effects of Reference Rate Reform on Financial Reporting~~

This ASU provides optional relief for certain contracts impacted by reference rate reform. The standard permits an entity to consider contract modification due to reference rate reform to be 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 prospective method.~~

This ASU did not have a significant impact on the Company’s Financial Statements and Notes to the Financial Statements. The Company made the election under ASU 2020-04 for all applicable contracts as they converted from the current reference rate to the new reference rate.