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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 ~~September 30, 2021~~March 31, 2022


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

For the Transition Period from to

Commission File Number 033-44202

_________________________________________________________________

Prudential Annuities Life Assurance Corporation

(Exact Name of Registrant as Specified in its Charter)


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

One Corporate Drive

Shelton, CT 06484

~~(203) 926-1888~~(615) 981-8801

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

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


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

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

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

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


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

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

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

As of ~~November 19, 2021,~~May 12, 2022, 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.,~~Fortitude Group Holdings, LLC, a ~~New Jersey corporation,~~Delaware limited liability company, 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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	4
		Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	5
		Unaudited Interim Statements of Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	6
		Unaudited Interim Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	87
		Notes to Unaudited Interim Financial Statements	98
		1. Business and Basis of Presentation	98
		2. Significant Accounting Policies and Pronouncements	1310
		3. Investments	1613
		4. Derivatives and Hedging	2823
		5. Fair Value of Assets and Liabilities	3428
		6. Reinsurance	4437
		7. Income Taxes	4740
		8. Equity	4740
		9. Related Party Transactions	4942
		10. Commitments and Contingent Liabilities	5345
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5547
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6557
	Item 4.	Controls and Procedures	6757
PART II OTHER INFORMATION			6858
	Item 1.	Legal Proceedings	6858
	Item 1A.	Risk Factors	6858
	Item 6.	Exhibits	6959
SIGNATURES			7060

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,~~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.~~damage; and (14) operational risks during the integration process following a change in ownership. 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 the Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for discussion of certain risks relating to our business and investment in our securities.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Financial Position

~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (in thousands, except share amounts)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2021-$2,226; 2020-$686) (amortized cost: 2021-$10,191,008; 2020-$16,177,891)		$	10,577,150	$	18,584,685
Fixed maturities, trading, at fair value (amortized cost: 2021-$338,930; 2020-$1,017,771)		341,924		1,114,142
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2022-$1,438; 2021-$1,086) (amortized cost: 2022-$8,888,296; 2021-$8,556,236)						Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2022-$1,438; 2021-$1,086) (amortized cost: 2022-$8,888,296; 2021-$8,556,236)	$	8,522,040	$	8,770,966
Fixed maturities, trading, at fair value (amortized cost: 2022-$27,486; 2021-$27,641)						Fixed maturities, trading, at fair value (amortized cost: 2022-$27,486; 2021-$27,641)	26,302		27,237

Equity securities, at fair value (cost: 2021-$239,035; 2020-$279,096)		236,395		288,082
Commercial mortgage and other loans (net of $4,234 and $7,382 allowance for credit losses at September 30, 2021 and December 31, 2020, respectively)		2,044,843		1,765,770
Equity securities, at fair value (cost: 2022-$225,363; 2021-$323,289)						Equity securities, at fair value (cost: 2022-$225,363; 2021-$323,289)	201,231		321,881
Commercial mortgage and other loans (net of $4,072 and $4,657 allowance for credit losses at March 31, 2022 and December 31, 2021, respectively)						Commercial mortgage and other loans (net of $4,072 and $4,657 allowance for credit losses at March 31, 2022 and December 31, 2021, respectively)	1,476,226		1,503,602
Policy loans	Policy loans	11,871		11,806		Policy loans	11,352		11,554
Short-term investments	Short-term investments	95,313		318,161		Short-term investments	173,621		875,426
Other invested assets (includes $13,826 and $204,863 of assets measured at fair value at September 30, 2021 and December 31, 2020, respectively)		96,160		818,810
Other invested assets (includes $380,895 and $13,077 of assets measured at fair value at March 31, 2022 and December 31, 2021, respectively)						Other invested assets (includes $380,895 and $13,077 of assets measured at fair value at March 31, 2022 and December 31, 2021, respectively)	464,773		94,079
Total investments	Total investments	13,403,656		22,901,456		Total investments	10,875,545		11,604,745
Cash and cash equivalents	Cash and cash equivalents	1,413,331		1,069,211		Cash and cash equivalents	1,577,811		2,015,885
Deferred policy acquisition costs	Deferred policy acquisition costs	1,000,868		4,237,780		Deferred policy acquisition costs	469,381		567,191
Accrued investment income	Accrued investment income	74,015		121,604		Accrued investment income	60,283		61,117
Reinsurance recoverables	Reinsurance recoverables	384,614		694,040		Reinsurance recoverables	8,128,490		8,108,267
Income taxes	Income taxes	1,088,488		1,448,714		Income taxes	884,177		908,694
Value of business acquired	Value of business acquired	27,186		27,247		Value of business acquired	24,957		27,568
Deferred sales inducements	Deferred sales inducements	294,029		714,598		Deferred sales inducements	244,181		295,097
Receivables from parent and affiliates	Receivables from parent and affiliates	54,706		87,620		Receivables from parent and affiliates	25,948		5,240
Other assets	Other assets	550,440		767,540		Other assets	2,677,924		2,717,405
Separate account assets	Separate account assets	31,916,178		32,205,296		Separate account assets	29,426,455		32,266,921
TOTAL ASSETS	TOTAL ASSETS	$	50,207,511	$	64,275,106	TOTAL ASSETS	$	54,395,152	$	58,578,130
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
LIABILITIES	LIABILITIES					LIABILITIES
Future policy benefits	Future policy benefits	$	4,650,800	$	18,560,891	Future policy benefits	$	3,844,329	$	4,505,007
Policyholders’ account balances	Policyholders’ account balances	10,718,803		9,181,459		Policyholders’ account balances	11,663,141		11,749,651
Payables to parent and affiliates	Payables to parent and affiliates	329,775		47,345		Payables to parent and affiliates	19,665		249,949
Cash collateral for loaned securities						Cash collateral for loaned securities	205,301		0

Short-term debt		0		119,671
Long-term debt		0		299,747

Reinsurance payables	Reinsurance payables	31,437		178,860		Reinsurance payables	6,999,679		7,182,652
Other liabilities	Other liabilities	503,550		980,692		Other liabilities	947,539		942,223
Separate account liabilities	Separate account liabilities	31,916,178		32,205,296		Separate account liabilities	29,426,455		32,266,921
Total liabilities	Total liabilities	48,150,543		61,573,961		Total liabilities	53,106,109		56,896,403
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)	COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)					COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)
EQUITY	EQUITY					EQUITY
Common stock, $100 par value; 25,000 shares authorized, issued and outstanding	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	Additional paid-in capital	590,601		4,382,936		Additional paid-in capital	286,436		592,208
Retained earnings / (accumulated deficit)		1,178,953		(3,217,350)
Retained earnings						Retained earnings	1,273,189		917,263
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	284,914		1,533,059		Accumulated other comprehensive income (loss)	(273,082)		169,756
Total equity	Total equity	2,056,968		2,701,145		Total equity	1,289,043		1,681,727
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	50,207,511	$	64,275,106	TOTAL LIABILITIES AND EQUITY	$	54,395,152	$	58,578,130

~~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 Nine Months Ended September 30, 2021 and 2020 (in thousands)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
REVENUES
Premiums $ 5,657 $ 13,936 $ 32,696 $ 45,528
Policy charges and fee income 106,137 489,440 1,127,868 1,441,991
Net investment income 101,318 144,669 386,525 426,132
Asset management and service fees(1) 22,685 99,419 232,256 288,909
Other income (loss)(1) (41,719) 3,339 (555,728) 64,831
Realized investment gains (losses), net 5,080,691 (245,974) 7,372,863 (4,379,429)
TOTAL REVENUES 5,274,769 504,829 8,596,480 (2,112,038)
BENEFITS AND EXPENSES
Policyholders’ benefits (241,771) 43,824 (215,754) 248,585
Interest credited to policyholders’ account balances 440,455 81,284 609,624 161,000
Amortization of deferred policy acquisition costs 19,081 204,516 401,735 439,730
Commission expense 1,408,014 193,174 1,738,901 602,303
General, administrative and other expenses (90,076) 29,604 38,395 160,487
TOTAL BENEFITS AND EXPENSES 1,535,703 552,402 2,572,901 1,612,105
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES 3,739,066 (47,573) 6,023,579 (3,724,143)
Income tax expense (benefit) 777,976 134,587 1,247,276 (964,981)
NET INCOME (LOSS) $ 2,961,090 $ (182,160) $ 4,776,303 $ (2,759,162)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments (183) 327 (117) (154)
Net unrealized investment gains (losses) (87,605) 33,026 (1,579,814) 1,560,493
Total (87,788) 33,353 (1,579,931) 1,560,339
Less: Income tax expense (benefit) related to other comprehensive income (loss) (18,436) 7,006 (331,786) 327,672
Other comprehensive income (loss), net of taxes (69,352) 26,347 (1,248,145) 1,232,667
Comprehensive income (loss) $ 2,891,738 $ (155,813) $ 3,528,158 $ (1,526,495)

~~(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 Nine Months Ended September 30, 2021 and 2020 (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)
Assets purchased/transferred from /to affiliates 0 0
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
Return of capital 0 0
Dividend to parent (188,000) (188,000)
Assets purchased/transferred from /to affiliates 0 0
Comprehensive income (loss):
Net income (loss) (74,600) (74,600)
Other comprehensive income (loss), net of tax 234,102 234,102
Total comprehensive income (loss) 159,502
Balance, June 30, 2021 $ 2,500 $ 4,382,936 $ (1,782,137) $ 354,266 $ 2,957,565
Return of capital (3,813,369) (3,813,369)
Dividend to parent 0 0
Assets purchased/transferred from /to affiliates 21,034 21,034
Comprehensive income (loss):
Net income (loss) 2,961,090 2,961,090
Other comprehensive income (loss), net of tax (69,352) (69,352)
Total comprehensive income (loss) 2,891,738
Balance, September 30, 2021 $ 2,500 $ 590,601 $ 1,178,953 $ 284,914 $ 2,056,968

~~Table of Contents~~

  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
Return of capital (173,000) (173,000)
Dividend to parent 0 0
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
Return of capital (192,000) (192,000)
Dividend to parent 0 0
Comprehensive income (loss):
Net income (loss) (182,160) (182,160)
Other comprehensive income (loss), net of tax 26,347 26,347
Total comprehensive income (loss) (155,813)
Balance, September 30, 2020 $ 2,500 $ 4,570,936 $ (2,807,247) $ 1,661,279 $ 3,427,468

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

~~See Notes to Unaudited Interim Financial Statements~~

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

~~Unaudited Interim Statements of Cash Flows~~

~~Nine Months Ended September 30, 2021 and 2020 (in thousands)~~

2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,776,303 $ (2,759,162)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income (1,919) (194)
Realized investment (gains) losses, net (7,372,863) 4,379,429
Depreciation and amortization 5,572 1,288
Interest credited to policyholders’ account balances 609,624 161,000
Change in:
Future policy benefits 604,172 1,014,611
Accrued investment income 47,589 (14,442)
Net receivables from/payables to parent and affiliates (23,245) (12,673)
Deferred sales inducements (867) (1,049)
Deferred policy acquisition costs 3,487,773 205,496
Income taxes 686,421 (636,990)
Reinsurance recoverables, net 40,516 (37,789)
Derivatives, net (3,001,376) 5,063,948
Other, net (1,922,973) (32,760)
Cash flows from (used in) operating activities (2,065,273) 7,330,713
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale 8,858,846 572,885
Fixed maturities, trading 2,082,332 159,732
Equity securities 45,557 29,057
Commercial mortgage and other loans 115,768 25,308
Policy loans 544 1,045
Other invested assets 43,923 27,263
Short-term investments 389,294 6,320,503
Payments for the purchase/origination of:
Fixed maturities, available for sale (5,142,331) (3,005,885)
Fixed maturities, trading (5,383,875) (543,613)
Equity securities (6,426) (16,019)
Commercial mortgage and other loans (1,089,461) (232,974)
Policy loans (96) (73)
Other invested assets (224,583) (147,298)
Short-term investments (166,451) (7,800,148)
Notes receivable from parent and affiliates, net 51,397 0
Derivatives, net (88,260) (774,629)
Other, net 3,470 0
Cash flows from (used in) investing activities (510,352) (5,384,846)
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits 6,715,772 4,455,177
Ceded policyholders' account deposits (6,752) (33,061)
Policyholders' account withdrawals (2,596,597) (3,070,114)
Ceded policyholders' account withdrawals 11,167 29,759
Repayments of debt (maturities longer than 90 days) (299,747) 0
Net increase/(decrease) in short-term borrowing (119,671) 11,322
Drafts outstanding (9,869) (12,968)
Distribution to parent (773,756) (572,000)
Other, net (802) (47,209)
Cash flows from (used in) financing activities 2,919,745 760,906
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 344,120 2,706,773
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,069,211 2,795,163
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,413,331 $ 5,501,936

~~Significant Non-Cash Transactions~~

Cash Flows from Investing and Financing Activities for the nine months ended September 30, 2021 excludes certain non-cash transactions related to the Pruco Life Insurance Company recapturing the risks related to its business that had previously been reinsured to Prudential Annuities Life Assurance Corporation from April 1, 2016 through June 30, 2021, which was effective July 1, 2021. See Note 1 for additional information. There were no significant non-cash transactions for the nine months ended September 30, 2020.

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 Months Ended March 31, 2022 and 2021 (in thousands)


	Three Months Ended March 31,
		2022		2021
REVENUES
Premiums		$	7,551	$	15,762
Policy charges and fee income		96,844		507,583
Net investment income		99,058		139,259
Asset management and service fees		20,341		103,521
Other income (loss)		(19,401)		(773,292)




Realized investment gains (losses), net		480,925		3,129,136
TOTAL REVENUES		685,318		3,121,969
BENEFITS AND EXPENSES
Policyholders’ benefits		26,254		29,628
Interest credited to policyholders’ account balances		84,643		147,910
Amortization of deferred policy acquisition costs		103,953		342,576
Commission expense		34,942		165,315
General, administrative and other expenses		3,025		52,776
TOTAL BENEFITS AND EXPENSES		252,817		738,205
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES		432,501		2,383,764
Income tax expense (benefit)		76,575		493,951
NET INCOME (LOSS)		$	355,926	$	1,889,813
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		25		49
Net unrealized investment gains (losses)		(560,580)		(1,788,524)



Total		(560,555)		(1,788,475)
Less: Income tax expense (benefit) related to other comprehensive income (loss)		(117,717)		(375,580)



Other comprehensive income (loss), net of taxes		(442,838)		(1,412,895)
Comprehensive income (loss)		$	(86,912)	$	476,918

See Notes to Unaudited Interim Financial Statements

Table of Contents

Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Equity

Three Months Ended March 31, 2022 and 2021 (in thousands)


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2021	$	2,500	$	592,208	$	917,263	$	169,756	$	1,681,727



Return of capital			(305,772)						(305,772)
Dividend to parent					0				0


Comprehensive income (loss):
Net income (loss)					355,926				355,926
Other comprehensive income (loss), net of tax							(442,838)		(442,838)
Total comprehensive income (loss)									(86,912)
Balance, March 31, 2022	$	2,500	$	286,436	$	1,273,189	$	(273,082)	$	1,289,043


	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

See Notes to Unaudited Interim Financial Statements

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Prudential Annuities Life Assurance Corporation

Unaudited Interim Statements of Cash Flows

Three Months Ended March 31, 2022 and 2021 (in thousands)


	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	355,926	$	1,889,813
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income	(364)		(331)
Realized investment (gains) losses, net	(480,925)		(3,129,136)
Depreciation and amortization	3,133		5,669

Interest credited to policyholders’ account balances	84,643		147,910
Change in:
Future policy benefits	59,955		289,900
Accrued investment income	834		22,085

Net receivables from/payables to parent and affiliates	(36,614)		(10,134)

Deferred sales inducements	0		(965)
Deferred policy acquisition costs	103,680		243,468
Income taxes	142,234		493,813
Reinsurance recoverables, net	(39,463)		(12,290)

Derivatives, net	(1,079,124)		(4,325,229)

Other, net	(2,760)		753,618
Cash flows from (used in) operating activities	(888,845)		(3,631,809)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	422,196		7,898,232
Fixed maturities, trading	155		2,015,501
Equity securities	94,976		1,333
Commercial mortgage and other loans	38,551		20,850

Policy loans	391		292
Other invested assets	926		5,058
Short-term investments	795,323		307,947
Payments for the purchase/origination of:
Fixed maturities, available for sale	(751,235)		(1,847,341)
Fixed maturities, trading	0		(5,201,320)
Equity securities	(314)		(5,730)
Commercial mortgage and other loans	(13,479)		(56,582)

Policy loans	(69)		(30)
Other invested assets	(105)		(4,799)
Short-term investments	(93,616)		(3,194)


Derivatives, net	3,016		(34,308)
Other, net	(61)		0
Cash flows from (used in) investing activities	496,655		3,095,909
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account deposits	774,569		2,503,057
Ceded policyholders' account deposits	(5,830)		(3,536)
Policyholders' account withdrawals	(733,522)		(1,029,911)
Ceded policyholders' account withdrawals	26,793		4,072
Cash collateral for loaned securities	205,301		0




Drafts outstanding	(7,423)		(3,171)
Distribution to parent	(305,772)		(192,000)

Other, net	0		(2,338)
Cash flows from (used in) financing activities	(45,884)		1,276,173
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(438,074)		740,273
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	2,015,885		1,069,211
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,577,811	$	1,809,484

Significant Non-Cash Transactions

There were no significant non-cash transactions for the three months ended March 31, 2022 and 2021.

See Notes to Unaudited Interim Financial Statements

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

1. BUSINESS AND BASIS OF PRESENTATION

Prior to April 1, 2022, Prudential Annuities Life Assurance Corporation (the “Company” or “PALAC”), with its principal offices in Shelton, Connecticut, iswas 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. On April 1, 2022, PAI completed the sale of its equity interest in PALAC to Fortitude Group Holdings, LLC (“FGH”) and subsequently is no longer an affiliate of Prudential Financial or any of its affiliates. See “Sale of PALAC” for further information.

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 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.

2021 Variable Annuities Recapture

Effective July 1, 2021, Pruco Life recaptured the risks related to its business, as discussed above, that had previously been reinsured to the Company from April 1, 2016 through June 30, 2021. The recapture does not impact PLNJ, which will continue to reinsure its new and in force business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in the Company, were transferred to Pruco Life. In addition, the living benefit hedging program related to the previously reinsured living benefit riders ~~will be~~are being managed within Pruco ~~Life.~~Life after the recapture. This transaction is referred to as the "2021 Variable Annuities Recapture". See Note 1 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, for more details.

~~Table of Contents~~

~~Prudential Annuities~~Reinsurance Agreement with Pruco Life ~~Assurance Corporation~~

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

~~The financial statement impacts of this transaction are as follows:~~

~~Unaudited Interim Statement~~Effective December 1, 2021, the Company entered into a reinsurance agreement with Pruco Life under which the Company reinsured all of ~~Financial Position~~its variable and fixed indexed annuities and fixed annuities with a guaranteed lifetime withdrawal income feature to Pruco Life.

Balance as of June 30, 2021 Impacts of Recapture Total as of July 1, 2021
(in millions)
ASSETS
Total investments(1)(2) $ 20,501 $ (8,327) $ 12,174
Cash and cash equivalents 2,091 (409) 1,682
Deferred policy acquisition costs 4,215 (3,286) 929
Accrued investment income 110 (42) 68
Reinsurance recoverables 567 (181) 386
Income tax receivable 1,707 (787) 920
Value of business acquired 28 0 28
Deferred sales inducements 692 (388) 304
Receivables from parent and affiliates 114 (41) 73
Other assets 544 0 544
Separate account assets 32,934 0 32,934
TOTAL ASSETS $ 63,503 $ (13,461) $ 50,042
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits $ 13,707 $ (9,048) $ 4,659
Policyholders’ account balances 12,617 (3,199) 9,418
Payables to parent and affiliates 34 0 34
Long-term debt 300 0 300
Reinsurance payable 148 (115) 33
Other liabilities 805 (245) 560
Separate account liabilities 32,934 0 32,934
Total Liabilities 60,545 (12,607) 47,938
EQUITY
Common stock 3 0 3
Additional paid-in capital(3) 4,383 (3,786) 597
Retained earnings (1,782) 3,026 1,244
Accumulated other comprehensive income 354 (94) 260
Total equity 2,958 (854) 2,104
TOTAL LIABILITIES AND EQUITY $ 63,503 $ (13,461) $ 50,042

~~Significant non-cash transactions~~

~~(1) The decrease in total investments includes non-cash activities of $8.3 billion related to the recapture transaction.~~

~~(2) The Company incurred an increase related to ceding commissions of $2.0 billion received from Pruco Life.~~

~~(3) The decrease in Additional paid-in capital includes non-cash activities of $3.4 billion in invested assets related to return of capital to PAI.~~

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

~~Unaudited Interim Statement of Operations and Comprehensive Income (Loss)~~


~~For the three and nine months ended September 30, 2021~~	~~Impacts of Recapture~~
	~~(in millions)~~
~~REVENUES~~

~~Other income (loss)~~	$	1
~~Realized investment gains (losses), net~~	~~5,142~~
~~TOTAL REVENUES~~	~~5,143~~
~~BENEFITS AND EXPENSES~~
~~Policyholders’ benefits~~	~~(257)~~
~~Interest credited to policyholders’ account balances~~	~~399~~
~~Commission expense~~	~~1,362~~
~~General, administrative and other expenses~~	~~(191)~~
~~TOTAL BENEFITS AND EXPENSES~~	~~1,313~~
~~INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES~~	~~3,830~~
~~Income tax expense (benefit)~~	~~804~~
~~NET INCOME (LOSS)~~	$	~~3,026~~

~~Affiliated Asset Transfers~~

Affiliate Period Transaction Security Type Fair Value Book Value APIC Increase/(Decrease) Realized Investment Gain/(Loss), Net Derivative Gain/(Loss)
(in millions)
Pruco Life July 1, 2021 Sale Derivatives, Fixed Maturities, Equity Securities, Commercial Mortgages and JV/LP Investments $ 4,908 $ 4,720 $ 0 $ 173 $ 15
PAI July 1, 2021 Return of Capital Fixed Maturities $ 3,420 $ 3,420 $ (3,420) $ 0 $ 0

As part of the recapture transaction, the Company sent invested assets of $6.8 billion, net of $2.0 billion ceding commissions as consideration to Pruco Life, which is equivalent to the amount of statutory reserve credit taken as of June 30, 2021. The company released living benefit liabilities of $8.3 billion as well as variable annuity base contracts of $3.0 billion and benefit and payout reserves of $0.9 billion.

Also, the Company derecognized its assumed Deferred Policy Acquisition Costs ("DAC") and Deferred Sales Inducements ("DSI") balances as of June 30, 2021. The company also recognized a deferred reinsurance gain from the original transaction of $0.2 billion. As a result of the recapture transaction, the Company recognized a pre-tax gain of $3.8 billion immediately.

~~There was a $3.8 billion return of capital to PAI, which includes $3.4 billion in invested assets and $0.4 billion in cash.~~

Basis of Presentation

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

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

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

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, ~~2020.~~2021.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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 DAC and related amortization; policyholders' account balances and reinsurance related to the fair value of embedded derivative instruments associated with the index-linked features of certain annuity products; value of business acquired ("VOBA") and its amortization; amortization of DSI; valuation of investments including derivatives, measurement of allowance for credit losses, and the recognition of other-than-temporary impairments; 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

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

Reclassifications

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

Sale of PALAC

~~In September 2021,~~On April 1, 2022, PAI ~~entered into a definitive agreement to sell~~completed the sale of its equity interest in PALAC to ~~Fortitude Group Holdings, LLC. The transaction will result~~FGH. Following the sale, the Company is currently evaluating its accounting policies. Accordingly, the accounting policies and pronouncements described in ~~a benefit~~Note 2, as well as certain accounting policies described in Note 2 to ~~Prudential~~the Financial ~~comprised of the purchase price for PALAC, a pre-closing net capital distribution by PALAC and an expected tax impact. The transaction is expected to close~~Statements included in the ~~first half~~Company’s Annual Report on Form 10-K for the year ended December 31, 2021, may be updated following the evaluation of ~~2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.~~its accounting policies.

Out of Period Adjustment

During the first quarter of 2022, the Company recorded an out of period adjustment which decreased “Realized investment gains (losses), net” by $48 million, resulting in a net decrease of $48 million to “Income (loss) from operations before income taxes” for the three months ended March 31, 2022. This adjustment relates to certain portions of reinsurance activity that had been incorrectly recorded during the fourth quarter of 2021. Management has evaluated the impact of all out of period adjustments, both individually and in the aggregate, and concluded that they are not material to any current or previously reported quarterly or annual financial statements.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of ~~September 30, 2021,~~March 31, 2022, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

ASU issued but not yet adopted as of ~~September 30, 2021~~March 31, 2022 — ASU 2018-12

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, ~~2018. In October 2019, the FASB issued~~2018, and was amended by ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date, ~~to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted)~~issued in October 2019, ~~representing a one year extension from the original effective date of January 1, 2021. As a result of the COVID-19 pandemic, in November 2020, the FASB issued~~and ASU 2020-11, Financial Services-Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. The transition relief would allow large, issued in November 2020. Large calendar-year public companies that early adopt ASU 2018-12 are allowed to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company ~~currently intends to~~will adopt ASU 2018-12 ~~effective January 1, 2023~~ using the modified retrospective transition method where permitted.

ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. The Company also expects the standard to have a significant financial statement impact ~~on the Financial Statements~~ and will significantly enhance disclosures. In addition to the significant impacts to the balance sheet, ~~upon adoption,~~ the Company also expects an impact to the pattern of earnings emergence following the transition date.

Outlined below are four key areas of change, although there are other less significant changes not noted below.

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Notes to Unaudited Interim Financial Statements—(Continued)

ASU 2018-12 Amended Topic

Description

Method of adoption

Effect on the financial statements or other significant matters

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

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

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

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

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

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

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

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

Amortization of DAC and other balances

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

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

The Company ~~currently intends to~~will adopt ~~this~~the guidance ~~effective January 1, 2023~~ using the modified retrospective transition method. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.

Market Risk Benefits ("MRB")

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

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

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

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Notes to Unaudited Interim Financial Statements—(Continued)

~~Modifications related to COVID-19~~

We assess modifications to certain fixed income instruments on a case-by-case basis to evaluate whether a troubled debt restructuring ("TDR") has occurred. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") provides a temporary suspension of TDR accounting for certain COVID-19 related modifications where the investment wasOther ASU issued but not ~~more than 30 days past due~~yet adopted as of ~~December~~March 31, 2019 (“TDR Relief”). The TDR Relief was set to expire on December 31, 2020, but was extended through December 31, 2021 by the Consolidated Appropriations Act of 2021. The Company elected to apply the TDR Relief beginning in the first quarter of 2021. The TDR Relief does not apply to modifications completed 60 days after the national emergency related to COVID-19 ends, or December 31, 2021, whichever comes earlier. As of September 30, 2021, any such modifications did not have a material impact on the Company's results of operations. For additional information regarding the Company’s policies for troubled debt restructurings, see Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2022

Standard

Description

Effective date and method of adoption

Effect on the financial statements or other significant matters

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosure

This ASU eliminates the accounting guidance for Troubled Debt Restructurings (“TDR”) for creditors and adds enhanced disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Following adoption of the ASU, all loan refinancings are subject to the modification guidance in ASC 310-20. This ASU also amends the guidance on the vintage disclosures to require disclosure of current-period gross write-offs by year of origination.

January 1, 2023 using the prospective method with an option to apply a modified retrospective transition method for the recognition and measurement of TDRs which will include a cumulative effect adjustment on the balance sheet in the period of adoption. Early adoption is permitted beginning January 1, 2022, including adoption in an interim period provided guidance is applied as of the beginning of the year.

The Company does not expect the adoption of the ASU to have a significant impact on the Financial Statements and Notes to the Financial Statements.

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Notes to Unaudited Interim Financial Statements—(Continued)

3. INVESTMENTS

Fixed Maturity Securities

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


		September 30, 2021											March 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	669,350	$	57,637	$	302	$	0	$	726,685	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	890,970	$	879	$	11,532	$	0	$	880,317
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	283,487		14,845		883		0		297,449		Obligations of U.S. states and their political subdivisions	260,080		2,389		5,863		0		256,606
Foreign government bonds	Foreign government bonds	164,023		14,207		813		0		177,417		Foreign government bonds	96,605		4,093		2,197		0		98,501
U.S. public corporate securities	U.S. public corporate securities	2,843,576		180,349		16,855		0		3,007,070		U.S. public corporate securities	2,456,029		30,784		110,327		0		2,376,486
U.S. private corporate securities	U.S. private corporate securities	2,037,889		73,950		6,759		2,226		2,102,854		U.S. private corporate securities	1,618,621		1,287		100,472		1,438		1,517,998
Foreign public corporate securities	Foreign public corporate securities	744,178		17,155		3,725		0		757,608		Foreign public corporate securities	861,488		2,448		51,253		0		812,683
Foreign private corporate securities	Foreign private corporate securities	1,311,604		43,078		23,911		0		1,330,771		Foreign private corporate securities	899,035		596		92,090		0		807,541
Asset-backed securities(1)	Asset-backed securities(1)	1,266,654		7,321		311		0		1,273,664		Asset-backed securities(1)	1,028,440		2,264		8,025		0		1,022,679
Commercial mortgage-backed securities	Commercial mortgage-backed securities	793,065		36,371		6,519		0		822,917		Commercial mortgage-backed securities	719,001		2,823		31,113		0		690,711
Residential mortgage-backed securities(2)	Residential mortgage-backed securities(2)	77,182		3,562		29		0		80,715		Residential mortgage-backed securities(2)	58,027		1,014		523		0		58,518
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	10,191,008	$	448,475	$	60,107	$	2,226	$	10,577,150	Total fixed maturities, available-for-sale	$	8,888,296	$	48,577	$	413,395	$	1,438	$	8,522,040

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

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


		December 31, 2020											December 31, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	7,283,403	$	1,631,715	$	12,686	$	0	$	8,902,432	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	654,389	$	73,618	$	1,182	$	0	$	726,825
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	258,135		19,512		156		0		277,491		Obligations of U.S. states and their political subdivisions	280,875		14,800		15		0		295,660
Foreign government bonds	Foreign government bonds	153,009		24,378		4		0		177,383		Foreign government bonds	106,240		8,848		722		0		114,366
U.S. public corporate securities	U.S. public corporate securities	3,112,420		339,348		1,361		0		3,450,407		U.S. public corporate securities	2,344,782		132,929		17,743		0		2,459,968
U.S. private corporate securities	U.S. private corporate securities	1,736,035		155,943		4,706		209		1,887,063		U.S. private corporate securities	1,635,200		24,316		13,858		1,086		1,644,572
Foreign public corporate securities	Foreign public corporate securities	513,204		29,029		408		0		541,825		Foreign public corporate securities	792,832		11,317		9,126		0		795,023
Foreign private corporate securities	Foreign private corporate securities	1,338,936		158,227		2,851		477		1,493,835		Foreign private corporate securities	920,062		5,361		33,706		0		891,717
Asset-backed securities(1)	Asset-backed securities(1)	984,318		9,870		1,605		0		992,583		Asset-backed securities(1)	1,057,995		5,120		757		0		1,062,358
Commercial mortgage-backed securities	Commercial mortgage-backed securities	728,522		57,522		102		0		785,942		Commercial mortgage-backed securities	692,232		22,149		8,061		0		706,320
Residential mortgage-backed securities(2)	Residential mortgage-backed securities(2)	69,909		5,818		3		0		75,724		Residential mortgage-backed securities(2)	71,629		2,603		75		0		74,157
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	16,177,891	$	2,431,362	$	23,882	$	686	$	18,584,685	Total fixed maturities, available-for-sale	$	8,556,236	$	301,061	$	85,245	$	1,086	$	8,770,966

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

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

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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


		September 30, 2021													March 31, 2022
		Less Than Twelve Months				Twelve Months or More				Total					Less Than Twelve Months				Twelve Months or More				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
		(in thousands)													(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:													Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	74,479	$	302	$	0	$	0	$	74,479	$	302	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	679,495	$	11,532	$	0	$	0	$	679,495	$	11,532
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	3,491		72		8,784		811		12,275		883		Obligations of U.S. states and their political subdivisions	172,605		5,863		0		0		172,605		5,863
Foreign government bonds	Foreign government bonds	18,592		813		0		0		18,592		813		Foreign government bonds	19,396		432		17,609		1,765		37,005		2,197
U.S. public corporate securities	U.S. public corporate securities	907,661		16,191		9,998		664		917,659		16,855		U.S. public corporate securities	1,410,269		88,098		155,244		22,229		1,565,513		110,327
U.S. private corporate securities	U.S. private corporate securities	479,408		6,722		2,491		37		481,899		6,759		U.S. private corporate securities	1,422,116		98,951		12,440		1,521		1,434,556		100,472
Foreign public corporate securities	Foreign public corporate securities	438,175		3,464		3,722		261		441,897		3,725		Foreign public corporate securities	638,720		44,732		62,333		6,521		701,053		51,253
Foreign private corporate securities	Foreign private corporate securities	589,332		23,737		2,848		174		592,180		23,911		Foreign private corporate securities	758,009		88,922		25,716		3,168		783,725		92,090
Asset-backed securities	Asset-backed securities	316,315		309		5,002		2		321,317		311		Asset-backed securities	915,803		8,025		0		0		915,803		8,025
Commercial mortgage-backed securities	Commercial mortgage-backed securities	214,547		6,226		6,971		293		221,518		6,519		Commercial mortgage-backed securities	349,679		9,186		174,036		21,927		523,715		31,113
Residential mortgage-backed securities	Residential mortgage-backed securities	7,245		26		74		3		7,319		29		Residential mortgage-backed securities	19,863		518		68		5		19,931		523
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	3,049,245	$	57,862	$	39,890	$	2,245	$	3,089,135	$	60,107	Total fixed maturities, available-for-sale	$	6,385,955	$	356,259	$	447,446	$	57,136	$	6,833,401	$	413,395


		December 31, 2020													December 31, 2021
		Less Than Twelve Months				Twelve Months or More				Total					Less Than Twelve Months				Twelve Months or More				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
		(in thousands)													(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:													Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	244,507	$	12,686	$	0	$	0	$	244,507	$	12,686	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	73,611	$	1,182	$	0	$	0	$	73,611	$	1,182
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	9,440		156		0		0		9,440		156		Obligations of U.S. states and their political subdivisions	4,939		15		0		0		4,939		15
Foreign government bonds	Foreign government bonds	257		1		87		3		344		4		Foreign government bonds	12,504		626		7,193		96		19,697		722
U.S. public corporate securities	U.S. public corporate securities	117,755		1,335		2,185		26		119,940		1,361		U.S. public corporate securities	695,982		11,466		152,722		6,277		848,704		17,743
U.S. private corporate securities	U.S. private corporate securities	35,411		2,614		16,071		2,092		51,482		4,706		U.S. private corporate securities	854,602		13,858		0		0		854,602		13,858
Foreign public corporate securities	Foreign public corporate securities	69,610		408		0		0		69,610		408		Foreign public corporate securities	521,995		7,777		49,812		1,349		571,807		9,126
Foreign private corporate securities	Foreign private corporate securities	11,679		188		50,809		2,663		62,488		2,851		Foreign private corporate securities	689,156		33,706		0		0		689,156		33,706
Asset-backed securities	Asset-backed securities	219,535		320		246,535		1,285		466,070		1,605		Asset-backed securities	498,944		757		0		0		498,944		757
Commercial mortgage-backed securities	Commercial mortgage-backed securities	45,617		102		0		0		45,617		102		Commercial mortgage-backed securities	156,808		4,597		75,483		3,464		232,291		8,061
Residential mortgage-backed securities	Residential mortgage-backed securities	0		0		80		3		80		3		Residential mortgage-backed securities	6,163		72		72		3		6,235		75
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	753,811	$	17,810	$	315,767	$	6,072	$	1,069,578	$	23,882	Total fixed maturities, available-for-sale	$	3,514,704	$	74,056	$	285,282	$	11,189	$	3,799,986	$	85,245

1714

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of ~~$53.7~~$371.2 million and ~~$17.4~~$72.9 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and ~~$6.4~~$42.2 million and ~~$6.5~~$12.3 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of ~~September 30, 2021,~~March 31, 2022, the ~~$2.2~~$57.1 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the consumer non-cyclical, capital goods ~~consumer non-cyclical,~~ and ~~utility~~finance sectors. As of December 31, ~~2020,~~2021, the ~~$6.1~~$11.2 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the ~~transportation,~~ consumer non-cyclical, capital goods and ~~energy sectors and in asset-backed securities.~~finance sectors.

In accordance with its policy described in Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at ~~September 30, 2021.~~March 31, 2022. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of ~~September 30, 2021,~~March 31, 2022, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

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


		September 30, 2021					March 31, 2022
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
		(in thousands)					(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:					Fixed maturities, available-for-sale:
Due in one year or less	Due in one year or less	$	134,591	$	136,840	Due in one year or less	$	258,777	$	260,320
Due after one year through five years	Due after one year through five years	1,851,380		1,895,997		Due after one year through five years	2,205,247		2,119,503
Due after five years through ten years	Due after five years through ten years	3,011,050		3,081,257		Due after five years through ten years	2,290,333		2,123,564
Due after ten years	Due after ten years	3,057,086		3,285,760		Due after ten years	2,328,471		2,246,745
Asset-backed securities	Asset-backed securities	1,266,654		1,273,664		Asset-backed securities	1,028,440		1,022,679
Commercial mortgage-backed securities	Commercial mortgage-backed securities	793,065		822,917		Commercial mortgage-backed securities	719,001		690,711
Residential mortgage-backed securities	Residential mortgage-backed securities	77,182		80,715		Residential mortgage-backed securities	58,027		58,518
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	10,191,008	$	10,577,150	Total fixed maturities, available-for-sale	$	8,888,296	$	8,522,040

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

1815

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)									(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:									Fixed maturities, available-for-sale:
Proceeds from sales(1)	Proceeds from sales(1)	$	215,523	$	20,268	$	8,008,956	$	352,945	Proceeds from sales(1)	$	293,825	$	7,557,132
Proceeds from maturities/prepayments	Proceeds from maturities/prepayments	195,328		88,208		606,621		220,109		Proceeds from maturities/prepayments	108,027		138,524
Gross investment gains from sales and maturities	Gross investment gains from sales and maturities	157,167		24		1,295,797		18,279		Gross investment gains from sales and maturities	443		1,136,902
Gross investment losses from sales and maturities	Gross investment losses from sales and maturities	(14,452)		(366)		(75,069)		(1,856)		Gross investment losses from sales and maturities	(20,680)		(55,349)

Write-downs recognized in earnings(2)		0		0		(22,619)		(693)

(Addition to) release of allowance for credit losses	(Addition to) release of allowance for credit losses	(1,891)		414		(1,540)		(568)		(Addition to) release of allowance for credit losses	(352)		(49)

(1)~~Includes $(243.3) million and $0.2 million of~~Excludes activity from non-cash related proceeds due to the timing of trade settlements of $20.3 million and $202.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

~~(2)Amounts represent write-downs on securities actively marketed for sale.~~

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

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

Three Months Ended September 30, 2021
U.S. Treasury Securities and Obligations of U.S. States Foreign Government Bonds U.S. and Foreign Corporate Securities Asset-Backed Securities Commercial Mortgage-Backed Securities Residential Mortgage-Backed Securities Total
(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period $ 0 $ 0 $ 335 $ 0 $ 0 $ 0 $ 335
Additions to allowance for credit losses not previously recorded 0 0 2,226 0 0 0 2,226
Reductions for securities sold during the period 0 0 (282) 0 0 0 (282)
Addition (reductions) on securities with previous allowance 0 0 (53) 0 0 0 (53)
Balance, end of period $ 0 $ 0 $ 2,226 $ 0 $ 0 $ 0 $ 2,226


		Three Months Ended September 30, 2020															Three Months Ended March 31, 2022
		U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total			U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
		(in thousands)															(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:															Fixed maturities, available-for-sale:
Balance, beginning of period	Balance, beginning of period	$	0	$	0	$	982	$	0	$	0	$	0	$	982	Balance, beginning of period	$	0	$	0	$	1,086	$	0	$	0	$	0	$	1,086
Additions to allowance for credit losses not previously recorded	Additions to allowance for credit losses not previously recorded	0		0		216		0		0		0		216		Additions to allowance for credit losses not previously recorded	0		0		0		0		0		0		0

Reductions for securities sold during the period	Reductions for securities sold during the period	0		0		0		0		0		0		0		Reductions for securities sold during the period	0		0		0		0		0		0		0

Addition (reductions) on securities with previous allowance	Addition (reductions) on securities with previous allowance	0		0		(630)		0		0		0		(630)		Addition (reductions) on securities with previous allowance	0		0		352		0		0		0		352

Balance, end of period	Balance, end of period	$	0	$	0	$	568	$	0	$	0	$	0	$	568	Balance, end of period	$	0	$	0	$	1,438	$	0	$	0	$	0	$	1,438

2016

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Nine Months Ended September 30, 2021
U.S. Treasury Securities and Obligations of U.S. States Foreign Government Bonds U.S. and Foreign Corporate Securities Asset-Backed Securities Commercial Mortgage-Backed Securities Residential Mortgage-Backed Securities Total
(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period $ 0 $ 0 $ 686 $ 0 $ 0 $ 0 $ 686
Additions to allowance for credit losses not previously recorded 0 0 2,658 0 0 0 2,658
Reductions for securities sold during the period 0 0 (295) 0 0 0 (295)
Addition (reductions) on securities with previous allowance 0 0 (823) 0 0 0 (823)
Balance, end of period $ 0 $ 0 $ 2,226 $ 0 $ 0 $ 0 $ 2,226


		Nine Months Ended September 30, 2020															Three Months Ended March 31, 2021
		U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total			U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
		(in thousands)															(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:															Fixed maturities, available-for-sale:
Balance, beginning of period	Balance, beginning of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Balance, beginning of period	$	0	$	0	$	686	$	0	$	0	$	0	$	686
Additions to allowance for credit losses not previously recorded	Additions to allowance for credit losses not previously recorded	0		0		1,384		0		0		0		1,384		Additions to allowance for credit losses not previously recorded	0		0		432		0		0		0		432

Reductions for securities sold during the period	Reductions for securities sold during the period	0		0		(2)		0		0		0		(2)		Reductions for securities sold during the period	0		0		(6)		0		0		0		(6)

Addition (reductions) on securities with previous allowance	Addition (reductions) on securities with previous allowance	0		0		(814)		0		0		0		(814)		Addition (reductions) on securities with previous allowance	0		0		(377)		0		0		0		(377)

Balance, end of period	Balance, end of period	$	0	$	0	$	568	$	0	$	0	$	0	$	568	Balance, end of period	$	0	$	0	$	735	$	0	$	0	$	0	$	735

See Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for additional information about the Company’s methodology for developing our allowance for credit losses.

For the three months ended ~~September 30, 2021,~~March 31, 2022, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in ~~the capital goods and transportation sectors within~~ private corporate ~~securities. For~~securities within the three months ended September 30, 2020, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to recoveries in the capital goods sector within private corporate securities.utility sector.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, the ~~net~~ increase in the allowance for credit losses on ~~available-for-sale~~fixed maturity securities was primarily related to ~~adverse projected cash flows~~private corporate securities within the energy and utility sectors, partially offset by a decrease in the allowance within the capital goods and transportation sectors within private corporate securities. For the nine months ended September 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows in the capital goods and utility sectors within private corporate securities.sector.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of both ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

Fixed Maturities, Trading

The net change in unrealized gains (losses) from fixed maturities, trading still held at period end, recorded within “Other income (loss),” was ~~$24.3~~$(0.8) million and ~~$1.2~~$(552.3) million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $(275.9) million and $62.8 million during the nine months ended September 30, 2021 and 2020,~~ respectively.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was ~~$(2.6)~~$(22.3) million and ~~$0.4~~$(15.7) million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $(11.6) million and $2.1 million during the nine months ended September 30, 2021 and 2020,~~ respectively.

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Commercial Mortgage and Other Loans

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


		September 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
		Amount (in thousands)		% of Total		Amount (in thousands)		% of Total			Amount (in thousands)		% of Total		Amount (in thousands)		% of Total
Commercial mortgage and agricultural property loans by property type:	Commercial mortgage and agricultural property loans by property type:									Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	Apartments/Multi-Family	$	471,521	23.0	%	$	369,764	20.9	%	Apartments/Multi-Family	$	360,825	24.4	%	$	384,878	25.5	%
Hospitality	Hospitality	28,525		1.4		16,679		0.9		Hospitality	17,006		1.1		17,247		1.1
Industrial	Industrial	814,100		39.7		590,231		33.3		Industrial	622,119		42.0		624,033		41.5
Office	Office	323,811		15.8		374,107		21.1		Office	195,116		13.2		196,221		13.0
Other	Other	218,338		10.7		187,643		10.6		Other	134,150		9.1		134,181		8.9
Retail	Retail	100,815		4.9		130,154		7.3		Retail	101,201		6.8		101,399		6.7
Total commercial mortgage loans	Total commercial mortgage loans	1,957,110		95.5		1,668,578		94.1		Total commercial mortgage loans	1,430,417		96.6		1,457,959		96.7
Agricultural property loans	Agricultural property loans	91,967		4.5		104,574		5.9		Agricultural property loans	49,881		3.4		50,300		3.3
Total commercial mortgage and agricultural property loans	Total commercial mortgage and agricultural property loans	2,049,077		100.0	%	1,773,152		100.0	%	Total commercial mortgage and agricultural property loans	1,480,298		100.0	%	1,508,259		100.0	%
Allowance for credit losses	Allowance for credit losses	(4,234)				(7,382)				Allowance for credit losses	(4,072)				(4,657)
Total net commercial mortgage and agricultural property loans	Total net commercial mortgage and agricultural property loans	$	2,044,843			$	1,765,770			Total net commercial mortgage and agricultural property loans	$	1,476,226			$	1,503,602

As of ~~September 30, 2021,~~March 31, 2022, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States ~~with~~(with the largest concentrations in California ~~(35%~~(34%), Texas ~~(16%~~(18%) and New York ~~(6%~~(7%)) and included loans secured by properties in Europe ~~(9%~~(6%) and Mexico (1%).

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

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

Three Months Ended September 30,
2021 2020
Commercial Mortgage Loans Agricultural Property Loans Total Commercial Mortgage Loans Agricultural Property Loans Total
(in thousands)
Allowance, beginning of period $ 5,392 $ 191 $ 5,583 $ 6,701 $ 178 $ 6,879
Addition to (release of) allowance for expected losses (1,236) (113) (1,349) 646 108 754
Allowance, end of period $ 4,156 $ 78 $ 4,234 $ 7,347 $ 286 $ 7,633


		Nine Months Ended September 30,													Three Months Ended March 31,
		2021						2020							2022						2021

		Commercial Mortgage Loans		Agricultural Property Loans		Total		Commercial Mortgage Loans		Agricultural Property Loans		Total			Commercial Mortgage Loans		Agricultural Property Loans		Total		Commercial Mortgage Loans		Agricultural Property Loans		Total
		(in thousands)													(in thousands)
Allowance, beginning of period	Allowance, beginning of period	$	7,116	$	266	$	7,382	$	2,622	$	41	$	2,663	Allowance, beginning of period	$	4,599	$	58	$	4,657	$	7,116	$	266	$	7,382
Cumulative effect of adoption of ASU 2016-13		0		0		0		3,118		39		3,157

Addition to (release of) allowance for expected losses	Addition to (release of) allowance for expected losses	(2,960)		(188)		(3,148)		1,607		206		1,813		Addition to (release of) allowance for expected losses	(583)		(2)		(585)		(379)		(2)		(381)

Allowance, end of period	Allowance, end of period	$	4,156	$	78	$	4,234	$	7,347	$	286	$	7,633	Allowance, end of period	$	4,016	$	56	$	4,072	$	6,737	$	264	$	7,001

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

See Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for additional information about the Company's methodology for developing our allowance and expected losses.

For both the three months ended ~~September 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage~~March 31, 2022 and other loans was primarily related to loan sales and the improving credit environment. For the three months ended September 30, 2020, the net increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to new loan originations.

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

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

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


		September 30, 2021												March 31, 2022
		Amortized Cost by Origination Year												Amortized Cost by Origination Year
		2021		2020		2019		2018		2017		Prior			Total			2022		2021		2020		2019		2018		Prior		Total
		(in thousands)												(in thousands)
Commercial Mortgage Loans	Commercial Mortgage Loans																Commercial Mortgage Loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	157,985	$	0	$	103,674	$	29,382	$	96,901	$	291,073		$	679,015	0%-59.99%	$	0	$	150,485	$	0	$	20,906	$	7,140	$	316,588	$	495,119
60%-69.99%	60%-69.99%	393,844		47,418		155,279		57,978		49,793		49,700			754,012		60%-69.99%	0		377,424		32,920		9,854		10,516		66,569		497,283
70%-79.99%	70%-79.99%	273,159		72,241		63,464		0		21,282		73,576			503,722		70%-79.99%	0		310,238		48,138		17,167		0		42,125		417,668
80% or greater	80% or greater	0		0		0		0		0		20,361			20,361		80% or greater	0		0		0		0		0		20,347		20,347
Total	Total	$	824,988	$	119,659	$	322,417	$	87,360	$	167,976	$	434,710		$	1,957,110	Total	$	0	$	838,147	$	81,058	$	47,927	$	17,656	$	445,629	$	1,430,417
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	802,988	$	119,659	$	291,455	$	76,739	$	134,416	$	409,620		$	1,834,877	Greater or Equal to 1.2x	$	0	$	838,147	$	81,058	$	47,927	$	7,140	$	406,501	$	1,380,773
1.0 - 1.2x	1.0 - 1.2x	22,000		0		19,890		10,621		12,278		4,846			69,635		1.0 - 1.2x	0		0		0		0		10,516		0		10,516
Less than 1.0x	Less than 1.0x	0		0		11,072		0		21,282		20,244			52,598		Less than 1.0x	0		0		0		0		0		39,128		39,128
Total	Total	$	824,988	$	119,659	$	322,417	$	87,360	$	167,976	$	434,710		$	1,957,110	Total	$	0	$	838,147	$	81,058	$	47,927	$	17,656	$	445,629	$	1,430,417
Agricultural Property Loans	Agricultural Property Loans																Agricultural Property Loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	38,000	$	26,970	$	13,711	$	1,238	$	2,701	$	9,347		$	91,967	0%-59.99%	$	0	$	39,720	$	829	$	0	$	0	$	9,332	$	49,881
60%-69.99%	60%-69.99%	0		0		0		0		0		0			0		60%-69.99%	0		0		0		0		0		0		0
70%-79.99%	70%-79.99%	0		0		0		0		0		0			0		70%-79.99%	0		0		0		0		0		0		0
80% or greater	80% or greater	0		0		0		0		0		0			0		80% or greater	0		0		0		0		0		0		0
Total	Total	$	38,000	$	26,970	$	13,711	$	1,238	$	2,701	$	9,347		$	91,967	Total	$	0	$	39,720	$	829	$	0	$	0	$	9,332	$	49,881
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	38,000	$	26,970	$	13,711	$	1,238	$	2,701	$	5,908		$	88,528	Greater or Equal to 1.2x	$	0	$	39,720	$	829	$	0	$	0	$	5,893	$	46,442
1.0 - 1.2x	1.0 - 1.2x	0		0		0		0		0		0			0		1.0 - 1.2x	0		0		0		0		0		0		0
Less than 1.0x	Less than 1.0x	0		0		0		0		0		3,439			3,439		Less than 1.0x	0		0		0		0		0		3,439		3,439
Total	Total	$	38,000	$	26,970	$	13,711	$	1,238	$	2,701	$	9,347		$	91,967	Total	$	0	$	39,720	$	829	$	0	$	0	$	9,332	$	49,881

2419

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


		December 31, 2020														December 31, 2021
		Amortized Cost by Origination Year														Amortized Cost by Origination Year
		2020		2019		2018		2017		2016		Prior		Total				2021		2020		2019		2018		2017		Prior		Total
		(in thousands)														(in thousands)
Commercial Mortgage Loans	Commercial Mortgage Loans																Commercial Mortgage Loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	0	$	114,636	$	36,423	$	116,130	$	175,740	$	255,848	$	698,777		0%-59.99%	$	150,485	$	0	$	20,966	$	7,140	$	92,932	$	232,249	$	503,772
60%-69.99%	60%-69.99%	174,507		204,112		59,935		90,954		57,569		54,530		641,607			60%-69.99%	389,476		32,920		9,870		10,558		39,001		27,621		509,446
70%-79.99%	70%-79.99%	81,671		51,333		10,806		80,257		56,169		46,855		327,091			70%-79.99%	316,790		48,138		17,207		0		21,130		21,121		424,386
80% or greater	80% or greater	0		0		0		0		0		1,103		1,103			80% or greater	0		0		0		0		0		20,355		20,355
Total	Total	$	256,178	$	370,081	$	107,164	$	287,341	$	289,478	$	358,336	$	1,668,578		Total	$	856,751	$	81,058	$	48,043	$	17,698	$	153,063	$	301,346	$	1,457,959
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	256,178	$	347,151	$	107,164	$	287,341	$	274,124	$	323,060	$	1,595,018		Greater or Equal to 1.2x	$	856,751	$	81,058	$	48,043	$	7,140	$	119,807	$	295,148	$	1,407,947
1.0 - 1.2x	1.0 - 1.2x	0		22,930		0		0		3,969		18,420		45,319			1.0 - 1.2x	0		0		0		10,558		0		0		10,558
Less than 1.0x	Less than 1.0x	0		0		0		0		11,385		16,856		28,241			Less than 1.0x	0		0		0		0		33,256		6,198		39,454
Total	Total	$	256,178	$	370,081	$	107,164	$	287,341	$	289,478	$	358,336	$	1,668,578		Total	$	856,751	$	81,058	$	48,043	$	17,698	$	153,063	$	301,346	$	1,457,959
Agricultural Property Loans	Agricultural Property Loans																Agricultural Property Loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	47,245	$	13,769	$	1,255	$	7,493	$	1,180	$	31,370	$	102,312		0%-59.99%	$	39,958	$	840	$	0	$	0	$	2,695	$	6,807	$	50,300
60%-69.99%	60%-69.99%	2,262		0		0		0		0		0		2,262			60%-69.99%	0		0		0		0		0		0		0
70%-79.99%	70%-79.99%	0		0		0		0		0		0		0			70%-79.99%	0		0		0		0		0		0		0
80% or greater	80% or greater	0		0		0		0		0		0		0			80% or greater	0		0		0		0		0		0		0
Total	Total	$	49,507	$	13,769	$	1,255	$	7,493	$	1,180	$	31,370	$	104,574		Total	$	39,958	$	840	$	0	$	0	$	2,695	$	6,807	$	50,300
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	49,507	$	13,769	$	1,255	$	4,277	$	1,180	$	27,783	$	97,771		Greater or Equal to 1.2x	$	39,958	$	840	$	0	$	0	$	2,695	$	3,368	$	46,861
1.0 - 1.2x	1.0 - 1.2x	0		0		0		0		0		0		0			1.0 - 1.2x	0		0		0		0		0		0		0
Less than 1.0x	Less than 1.0x	0		0		0		3,216		0		3,587		6,803			Less than 1.0x	0		0		0		0		0		3,439		3,439
Total	Total	$	49,507	$	13,769	$	1,255	$	7,493	$	1,180	$	31,370	$	104,574		Total	$	39,958	$	840	$	0	$	0	$	2,695	$	6,807	$	50,300

See Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for additional information about the Company’s commercial mortgage and other loans credit quality monitoring process.

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


		September 30, 2021													March 31, 2022
		Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)			Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
		(in thousands)													(in thousands)
Commercial mortgage loans	Commercial mortgage loans	$	1,957,110	$	0	$	0	$	0	$	1,957,110	$	0	Commercial mortgage loans	$	1,430,417	$	0	$	0	$	0	$	1,430,417	$	0
Agricultural property loans	Agricultural property loans	91,967		0		0		0		91,967		0		Agricultural property loans	49,881		0		0		0		49,881		0

Total	Total	$	2,049,077	$	0	$	0	$	0	$	2,049,077	$	0	Total	$	1,480,298	$	0	$	0	$	0	$	1,480,298	$	0

(1)As of ~~September 30,~~March 31, 2022, there were no 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, 2021.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


	December 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	$	1,457,959	$	0	$	0	$	0	$	1,457,959	$	0
Agricultural property loans	50,300		0		0		0		50,300		0

Total	$	1,508,259	$	0	$	0	$	0	$	1,508,259	$	0

(1)As of December 31, 2021, there were no loans in this category accruing interest.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

December 31, 2020
Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due(1) Total Loans Non-Accrual Status(2)
(in thousands)
Commercial mortgage loans $ 1,668,578 $ 0 $ 0 $ 0 $ 1,668,578 $ 0
Agricultural property loans 104,574 0 0 0 104,574 0
Total $ 1,773,152 $ 0 $ 0 $ 0 $ 1,773,152 $ 0

~~(1)As of December~~For both the three months ended March 31, ~~2020,~~2022 and 2021, there were no commercial mortgage and other loans ~~in this category accruing interest.~~

~~(2)~~acquired, other than those through direct origination. For ~~additional information regarding~~ the ~~Company's policies for accruing interest on~~three months ended March 31, 2022 and 2021, there were $29 million and $0 million, respectively, of commercial mortgage and other 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, 2020.~~sold.

The Company did not have any commercial mortgage and other loans purchased with credit deterioration as of both ~~September��30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

For both the three months ended September 30, 2021 and 2020, there were $0 million of commercial mortgage loans acquired, other than those through direct origination. For the three months ended September 30, 2021 and 2020, there were $707 million and $0 million, respectively, of commercial mortgage and other loans sold.

For the nine months ended September 30, 2021 and 2020, there were $167 million and $0 million, respectively, of commercial mortgage loans acquired, other than those through direct origination. For the nine months ended September 30, 2021 and 2020, there were $707 million and $0 million, respectively, of commercial mortgage and other loans sold.

Other Invested Assets

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


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)

LPs/LLCs:	LPs/LLCs:					LPs/LLCs:
Equity method:	Equity method:					Equity method:
Private equity	Private equity	$	21,756	$	28,955	Private equity	$	18,008	$	18,829
Hedge funds	Hedge funds	0		340,951		Hedge funds	0		0
Real estate-related	Real estate-related	60,578		244,041		Real estate-related	65,870		62,173
Subtotal equity method	Subtotal equity method	82,334		613,947		Subtotal equity method	83,878		81,002
Fair value:	Fair value:					Fair value:
Private equity	Private equity	3,829		4,220		Private equity	4,089		4,028
Hedge funds	Hedge funds	161		172		Hedge funds	166		166
Real estate-related	Real estate-related	5,639		6,220		Real estate-related	5,536		5,754
Subtotal fair value	Subtotal fair value	9,629		10,612		Subtotal fair value	9,791		9,948
Total LPs/LLCs	Total LPs/LLCs	91,963		624,559		Total LPs/LLCs	93,669		90,950

Derivative instruments	Derivative instruments	4,197		194,251		Derivative instruments	371,104		3,129
Total other invested assets	Total other invested assets	$	96,160	$	818,810	Total other invested assets	$	464,773	$	94,079

2621

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Accrued Investment Income

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


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Fixed maturities	Fixed maturities	$	69,573	$	116,342	Fixed maturities	$	56,707	$	57,757
Equity securities	Equity securities	0		1		Equity securities	0		0
Commercial mortgage and other loans	Commercial mortgage and other loans	4,345		4,828		Commercial mortgage and other loans	3,327		3,252
Policy loans	Policy loans	12		11		Policy loans	13		13

Short-term investments and cash equivalents	Short-term investments and cash equivalents	85		158		Short-term investments and cash equivalents	236		95
Other(1)		0		264

Total accrued investment income	Total accrued investment income	$	74,015	$	121,604	Total accrued investment income	$	60,283	$	61,117

~~(1)Primarily includes affiliated accrued income.~~

There were no write-downs on accrued investment income for both the three months ended March 31, 2022 and ~~nine months ended September 30, 2021 and 2020.~~2021.

Net Investment Income

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)									(in thousands)
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale	$	79,832	$	113,538	$	279,957	$	323,737	Fixed maturities, available-for-sale	$	61,123	$	109,041
Fixed maturities, trading	Fixed maturities, trading	2,009		3,972		27,631		9,474		Fixed maturities, trading	178		6,480
Equity securities	Equity securities	1,214		63		3,498		194		Equity securities	1,046		952
Commercial mortgage and other loans	Commercial mortgage and other loans	14,140		13,898		46,266		42,517		Commercial mortgage and other loans	10,898		15,269
Policy loans	Policy loans	222		182		462		538		Policy loans	121		(20)
Other invested assets	Other invested assets	10,791		15,102		49,085		20,968		Other invested assets	29,402		14,091
Short-term investments and cash equivalents	Short-term investments and cash equivalents	437		4,601		798		48,569		Short-term investments and cash equivalents	885		442
Gross investment income	Gross investment income	108,645		151,356		407,697		445,997		Gross investment income	103,653		146,255
Less: investment expenses	Less: investment expenses	(7,327)		(6,687)		(21,172)		(19,865)		Less: investment expenses	(4,595)		(6,996)
Net investment income	Net investment income	$	101,318	$	144,669	$	386,525	$	426,132	Net investment income	$	99,058	$	139,259

Realized Investment Gains (Losses), Net

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)									(in thousands)
Fixed maturities(1)	Fixed maturities(1)	$	140,824	$	72	$	1,196,569	$	15,162	Fixed maturities(1)	$	(20,589)	$	1,081,504

Commercial mortgage and other loans	Commercial mortgage and other loans	28,276		(753)		27,818		(2,489)		Commercial mortgage and other loans	261		300

Derivatives~~(2)~~	Derivatives~~(2)~~	4,906,067		(246,742)		6,139,403		(4,397,341)		Derivatives~~(2)~~	501,705		2,045,560
Other invested assets	Other invested assets	5,393		1,405		8,961		2,875		Other invested assets	(182)		1,745
Short-term investments and cash equivalents	Short-term investments and cash equivalents	131		44		112		2,364		Short-term investments and cash equivalents	(270)		27
Realized investment gains (losses), net	Realized investment gains (losses), net	$	5,080,691	$	(245,974)	$	7,372,863	$	(4,379,429)	Realized investment gains (losses), net	$	480,925	$	3,129,136

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

~~(2)~~

~~Includes the impact of the 2021 Variable Annuities Recapture. See Note 1 for additional information.~~

2722

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Net Unrealized Gains (Losses) on Investments within AOCI

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


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)

Fixed maturity securities, available-for-sale with an allowance	Fixed maturity securities, available-for-sale with an allowance	$	153	$	2	Fixed maturity securities, available-for-sale with an allowance	$	1	$	3
Fixed maturity securities, available-for-sale without an allowance	Fixed maturity securities, available-for-sale without an allowance	388,215		2,407,478		Fixed maturity securities, available-for-sale without an allowance	(364,819)		215,813
Derivatives designated as cash flow hedges(1)	Derivatives designated as cash flow hedges(1)	15,009		(43,000)		Derivatives designated as cash flow hedges(1)	28,642		24,543
Affiliated notes, available-for-sale		0		4,629

Net unrealized gains (losses) on investments	Net unrealized gains (losses) on investments	$	403,377	$	2,369,109	Net unrealized gains (losses) on investments	$	(336,176)	$	240,359

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

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. As of both ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had no repurchase ~~agreements or securities lending transactions.~~agreements.

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


	March 31, 2022						December 31, 2021
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in thousands)










Equity securities	$	205,301	$	0	$	205,301	$	0	$	0	$	0
Total cash collateral for loaned securities(1)	$	205,301	$	0	$	205,301	$	0	$	0	$	0

(1)The Company did not have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.

4. DERIVATIVES AND HEDGING

Types of Derivative Instruments and Derivative Strategies

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

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

•Equity contracts: futures, options and total return swaps

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

•Credit contracts: single and index reference credit default swaps

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

•Embedded derivatives

For detailed information on these contracts and the related strategies, see Note 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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Notes to Unaudited Interim Financial Statements—(Continued)

Primary Risks Managed by Derivatives

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


		September 30, 2021								December 31, 2020											March 31, 2022								December 31, 2021
Primary Underlying Risk/Instrument Type	Primary Underlying Risk/Instrument Type	Gross Notional			Fair Value					Gross Notional			Fair Value					Primary Underlying Risk/Instrument Type			Gross Notional			Fair Value					Gross Notional		Fair Value
				Assets			Liabilities					Assets			Liabilities					Assets				Liabilities				Assets			Liabilities
				(in thousands)																			(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:																		Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate	Currency/Interest Rate																	Currency/Interest Rate
Foreign Currency Swaps	Foreign Currency Swaps	$	898,672		$	26,388		$	(10,653)	$	1,376,290		$	23,167		$	(82,625)	Foreign Currency Swaps			$	527,122		$	34,878	$	0		$	637,001	$	29,028	$	(1,372)
Total Derivatives Designated as Hedge Accounting Instruments	Total Derivatives Designated as Hedge Accounting Instruments	$	898,672		$	26,388		$	(10,653)	$	1,376,290		$	23,167		$	(82,625)	Total Derivatives Designated as Hedge Accounting Instruments			$	527,122		$	34,878	$	0		$	637,001	$	29,028	$	(1,372)
Derivatives Not Qualifying as Hedge Accounting Instruments:	Derivatives Not Qualifying as Hedge Accounting Instruments:																	Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	Interest Rate																	Interest Rate
Interest Rate Futures	Interest Rate Futures	$	12,000		$	142		$	0	$	4,597,200		$	2,755		$	(1,621)	Interest Rate Futures			$	0		$	0	$	0		$	55,000	$	34	$	0
Interest Rate Swaps	Interest Rate Swaps	10,663,230			373,323			(375,201)		131,129,200			12,448,036			(9,540,941)		Interest Rate Swaps			10,513,400			117,862		(657,789)			10,520,230		338,731		(255,434)
Interest Rate Options	Interest Rate Options	0			0			0		10,198,000			608,538			(178,563)		Interest Rate Options			0			0		0			0		0		0
Interest Rate Forwards	Interest Rate Forwards	0			0			0		75,000			464			0		Interest Rate Forwards			0			0		0			0		0		0
Foreign Currency	Foreign Currency																	Foreign Currency
Foreign Currency Forwards	Foreign Currency Forwards	54,352			1,345			(123)		34,988			4			(557)		Foreign Currency Forwards			44,567			607		(1,250)			50,346		370		(536)
Currency/Interest Rate	Currency/Interest Rate																	Currency/Interest Rate
Foreign Currency Swaps	Foreign Currency Swaps	463,694			11,752			(1,645)		228,117			7,939			(8,440)		Foreign Currency Swaps			208,153			4,295		(1,373)			208,153		9,711		(826)
Credit	Credit																	Credit
Credit Default Swaps	Credit Default Swaps	1,672,000			45,520			0		1,574,173			38,875			(52)		Credit Default Swaps			75,000			4,146		0			1,745,550		48,147		0
Equity	Equity																	Equity
Equity Futures	Equity Futures	1,744,706			6,006			(7,336)		5,558,882			9,424			(24,688)		Equity Futures			2,067,205			22,169		0			855,432		892		(1,016)
Total Return Swaps	Total Return Swaps	4,336,238			54,807			(48,142)		22,121,729			62,362			(1,162,907)		Total Return Swaps			1,324,946			46		(32,225)			4,802,777		87,832		(80,808)
Equity Options	Equity Options	18,019,904			477,178			(804,210)		23,856,379			1,617,672			(952,452)		Equity Options			24,044,449			1,286,065		(1,117,154)			20,581,951		963,164		(1,028,221)
Total Derivatives Not Qualifying as Hedge Accounting Instruments	Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	36,966,124		$	970,073		$	(1,236,657)	$	199,373,668		$	14,796,069		$	(11,870,221)	Total Derivatives Not Qualifying as Hedge Accounting Instruments			$	38,277,720		$	1,435,190	$	(1,809,791)		$	38,819,439	$	1,448,881	$	(1,366,841)
Total Derivatives(1)(2)	Total Derivatives(1)(2)	$	37,864,796		$	996,461		$	(1,247,310)	$	200,749,958		$	14,819,236		$	(11,952,846)	Total Derivatives(1)(2)			$	38,804,842		$	1,470,068	$	(1,809,791)		$	39,456,440	$	1,477,909	$	(1,368,213)

(1)Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of ~~$4,200~~$3,393 million and ~~$17,314~~$4,060 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively included in “Future policy benefits” and ~~$1,458~~$1,933 million and ~~$580~~$2,041 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively included in “Policyholders’ account balances". Other assets included ~~$69~~$377 million and ~~$54~~$400 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively. Other liabilities included $31 million and $35 million as of September 30,~~ 2021, ~~and December 31, 2020,~~ respectively. The fair value of the related reinsurance, included in "Reinsurance recoverables" and/or "Reinsurance payables" was an asset of ~~$302~~$1,866 million and ~~$471~~$1,881 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

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

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Notes to Unaudited Interim Financial Statements—(Continued)

Offsetting Assets and Liabilities

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


		September 30, 2021											March 31, 2022
		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			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)											(in thousands)
Offsetting of Financial Assets:	Offsetting of Financial Assets:											Offsetting of Financial Assets:
Derivatives	Derivatives	$	996,461	$	(992,264)	$	4,197	$	0	$	4,197	Derivatives	$	1,470,068	$	(1,098,964)	$	371,104	$	(80,145)	$	290,959
Securities purchased under agreements to resell	Securities purchased under agreements to resell	0		0		0		0		0		Securities purchased under agreements to resell	0		0		0		0		0
Total Assets	Total Assets	$	996,461	$	(992,264)	$	4,197	$	0	$	4,197	Total Assets	$	1,470,068	$	(1,098,964)	$	371,104	$	(80,145)	$	290,959
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives	Derivatives	$	1,247,310	$	(960,518)	$	286,792	$	(286,792)	$	0	Derivatives	$	1,809,791	$	(1,809,791)	$	0	$	0	$	0
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	0		0		0		0		0		Securities sold under agreements to repurchase	0		0		0		0		0
Total Liabilities	Total Liabilities	$	1,247,310	$	(960,518)	$	286,792	$	(286,792)	$	0	Total Liabilities	$	1,809,791	$	(1,809,791)	$	0	$	0	$	0


		December 31, 2020											December 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			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)											(in thousands)
Offsetting of Financial Assets:	Offsetting of Financial Assets:											Offsetting of Financial Assets:
Derivatives	Derivatives	$	14,819,236	$	(14,624,985)	$	194,251	$	0	$	194,251	Derivatives	$	1,477,909	$	(1,474,780)	$	3,129	$	0	$	3,129
Securities purchased under agreements to resell	Securities purchased under agreements to resell	150,000		0		150,000		(150,000)		0		Securities purchased under agreements to resell	0		0		0		0		0
Total Assets	Total Assets	$	14,969,236	$	(14,624,985)	$	344,251	$	(150,000)	$	194,251	Total Assets	$	1,477,909	$	(1,474,780)	$	3,129	$	0	$	3,129
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives	Derivatives	$	11,952,846	$	(11,936,059)	$	16,787	$	(16,787)	$	0	Derivatives	$	1,368,213	$	(1,153,610)	$	214,603	$	(214,603)	$	0
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	0		0		0		0		0		Securities sold under agreements to repurchase	0		0		0		0		0
Total Liabilities	Total Liabilities	$	11,952,846	$	(11,936,059)	$	16,787	$	(16,787)	$	0	Total Liabilities	$	1,368,213	$	(1,153,610)	$	214,603	$	(214,603)	$	0

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

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “Credit Risk” below and Note 9. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Cash Flow Hedges

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

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Notes to Unaudited Interim Financial Statements—(Continued)

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


		Three Months Ended September 30, 2021									Three Months Ended March 31, 2022
		Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		AOCI(1)			Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Change in AOCI
		(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:									Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges	Cash flow hedges									Cash flow hedges
Currency/Interest Rate	Currency/Interest Rate	$	3,547	$	2,085	$	5,160	$	32,718	Currency/Interest Rate	$	1,257	$	1,489	$	2,232	$	4,100
Total cash flow hedges	Total cash flow hedges	3,547		2,085		5,160		32,718		Total cash flow hedges	1,257		1,489		2,232		4,100
Derivatives Not Qualifying as Hedge Accounting Instruments:	Derivatives Not Qualifying as Hedge Accounting Instruments:									Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	Interest Rate	(62,751)		0		0		0		Interest Rate	(526,657)		0		0		0
Currency	Currency	1,649		0		0		0		Currency	(269)		0		0		0
Currency/Interest Rate	Currency/Interest Rate	(9,413)		0		1		0		Currency/Interest Rate	(5,790)		0		19		0
Credit	Credit	1,631		0		0		0		Credit	(11,751)		0		0		0
Equity	Equity	(18,433)		0		0		0		Equity	58,545		0		0		0
Embedded Derivatives~~(2)~~	Embedded Derivatives~~(2)~~	4,989,837		0		0		0		Embedded Derivatives~~(2)~~	986,370		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	Total Derivatives Not Qualifying as Hedge Accounting Instruments:	4,902,520		0		1		0		Total Derivatives Not Qualifying as Hedge Accounting Instruments:	500,448		0		19		0
Total	Total	$	4,906,067	$	2,085	$	5,161	$	32,718	Total	$	501,705	$	1,489	$	2,251	$	4,100

Nine Months Ended September 30, 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 $ 7,789 $ 10,643 $ 10,662 $ 58,009
Total cash flow hedges 7,789 10,643 10,662 58,009
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate (1,852,373) 0 0 0
Currency 1,803 0 0 0
Currency/Interest Rate 816 0 (35) 0
Credit 10,991 0 0 0
Equity (1,798,400) 0 0 0
Embedded Derivatives(2) 9,768,777 0 0 0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: 6,131,614 0 (35) 0
Total $ 6,139,403 $ 10,643 $ 10,627 $ 58,009


	Three Months Ended March 31, 2021
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Change in AOCI
	(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

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

Three Months Ended September 30, 2020
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 $ (194) $ 4,581 $ (13,989) $ (45,498)
Total cash flow hedges (194) 4,581 (13,989) (45,498)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate (995,815) 0 0 0
Currency (837) 0 0 0
Currency/Interest Rate (17,813) 0 (105) 0
Credit (344) 0 0 0
Equity (2,116,755) 0 0 0
Embedded Derivatives 2,885,016 0 0 0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: (246,548) 0 (105) 0
Total $ (246,742) $ 4,581 $ (14,094) $ (45,498)

Nine Months Ended September 30, 2020
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 $ 4,373 $ 13,509 $ (6,694) $ 22,964
Total cash flow hedges 4,373 13,509 (6,694) 22,964
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate 5,974,212 0 0 0
Currency 250 0 0 0
Currency/Interest Rate 12,270 0 (36) 0
Credit (5,872) 0 0 0
Equity (1,931,846) 0 0 0
Embedded Derivatives (8,450,728) 0 0 0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: (4,401,714) 0 (36) 0
Total $ (4,397,341) $ 13,509 $ (6,730) $ 22,964

~~(1)Net change in AOCI.~~

~~(2)Includes the impact from 2021 Variable Annuities Recapture, see Note 1 for further details.~~

~~Table of Contents~~

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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


	(in thousands)
Balance, December 31, ~~2020~~2021	$	~~(43,000)~~24,543
Amount recorded in AOCI


Currency/Interest Rate	~~87,103~~9,076
Total amount recorded in AOCI	~~87,103~~9,076
Amount reclassified from AOCI to income


Currency/Interest Rate	~~(29,094)~~(4,977)
Total amount reclassified from AOCI to income	~~(29,094)~~(4,977)
Balance, ~~September 30, 2021~~March 31, 2022	$	~~15,009~~28,642

The changes in fair value of cash flow hedges are deferred in AOCI and are included in "Net unrealized investment gains (losses)" in the Unaudited Interim Statements of Operations and Comprehensive Income (Loss); these amounts are then reclassified to earnings when the hedged item affects earnings. Using ~~September 30, 2021~~March 31, 2022 values, it is estimated that a pre-tax gain of ~~$10~~$6 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending ~~September 30, 2022.~~March 31, 2023.

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

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

Credit Derivatives

Credit derivatives, where the Company has written credit protection on certain index references, had outstanding notional amounts of ~~$1,672~~$75 million and ~~$1,568~~$1,746 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. These credit derivatives are reported at fair value as an asset of ~~$45~~$4 million and ~~$39~~$48 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. As of ~~September 30, 2021~~March 31, 2022 the notional amount of these credit derivatives had the following NAIC rating: ~~$1,597 million in NAIC 3 and~~ $75 million in NAIC 6.3.

The Company has no exposure from credit derivative positions where it has purchased credit protection ~~using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. The Company has outstanding notional amounts of $0 million and $6 million reported~~ as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively, with a fair value of $0 million for both periods.~~2021.

Counterparty Credit Risk

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

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

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Notes to Unaudited Interim Financial Statements—(Continued)

5. FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

For a discussion of the Company's valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 5 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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Notes to Unaudited Interim Financial Statements—(Continued)

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


		September 30, 2021											March 31, 2022
		Level 1		Level 2		Level 3		Netting(1)		Total			Level 1		Level 2		Level 3		Netting(1)		Total
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S Treasury securities and obligations of U.S. government authorities and agencies	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	711,685	$	15,000	$		$	726,685	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	880,317	$	0	$		$	880,317
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	0		297,449		0				297,449		Obligations of U.S. states and their political subdivisions	0		256,606		0				256,606
Foreign government bonds	Foreign government bonds	0		177,417		0				177,417		Foreign government bonds	0		98,501		0				98,501
U.S. corporate public securities	U.S. corporate public securities	0		3,007,070		0				3,007,070		U.S. corporate public securities	0		2,376,486		0				2,376,486
U.S. corporate private securities	U.S. corporate private securities	0		1,999,725		103,129				2,102,854		U.S. corporate private securities	0		1,430,005		87,993				1,517,998
Foreign corporate public securities	Foreign corporate public securities	0		757,407		201				757,608		Foreign corporate public securities	0		812,500		183				812,683
Foreign corporate private securities	Foreign corporate private securities	0		1,210,413		120,358				1,330,771		Foreign corporate private securities	0		715,954		91,587				807,541
Asset-backed securities(2)	Asset-backed securities(2)	0		1,239,072		34,592				1,273,664		Asset-backed securities(2)	0		1,014,001		8,678				1,022,679
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		822,917		0				822,917		Commercial mortgage-backed securities	0		662,003		28,708				690,711
Residential mortgage-backed securities	Residential mortgage-backed securities	0		60,695		20,020				80,715		Residential mortgage-backed securities	0		48,554		9,964				58,518
Subtotal	Subtotal	0		10,283,850		293,300				10,577,150		Subtotal	0		8,294,927		227,113				8,522,040
Fixed maturities, trading	Fixed maturities, trading	0		340,174		1,750				341,924		Fixed maturities, trading	0		26,302		0				26,302
Equity securities	Equity securities	225,561		0		834				226,395		Equity securities	200,639		0		592				201,231
Short-term investments	Short-term investments	34,997		43,545		11,770				90,312		Short-term investments	104,989		34,632		0				139,621
Cash equivalents	Cash equivalents	354,986		930,245		0				1,285,231		Cash equivalents	0		545,711		0				545,711
Other invested assets(3)	Other invested assets(3)	6,148		990,313		0		(992,264)		4,197		Other invested assets(3)	22,170		1,447,898		0		(1,098,964)		371,104
Other assets	Other assets	0		0		69,396				69,396		Other assets	0		0		376,898				376,898
Reinsurance recoverables	Reinsurance recoverables	0		0		302,251				302,251		Reinsurance recoverables	0		0		1,866,253				1,866,253
Receivables from parent and affiliates		0		0		0				0

Subtotal excluding separate account assets	Subtotal excluding separate account assets	621,692		12,588,127		679,301		(992,264)		12,896,856		Subtotal excluding separate account assets	327,798		10,349,470		2,470,856		(1,098,964)		12,049,160
Separate account assets(4)	Separate account assets(4)	0		31,916,178		0				31,916,178		Separate account assets(4)	0		29,426,455		0				29,426,455
Total assets	Total assets	$	621,692	$	44,504,305	$	679,301	$	(992,264)	$	44,813,034	Total assets	$	327,798	$	39,775,925	$	2,470,856	$	(1,098,964)	$	41,475,615
Future policy benefits(5)	Future policy benefits(5)	$	0	$	0	$	4,199,893	$		$	4,199,893	Future policy benefits(5)	$	0	$	0	$	3,392,954	$		$	3,392,954
Policyholders' account balances	Policyholders' account balances	0		0		1,457,772				1,457,772		Policyholders' account balances	0		0		1,933,466				1,933,466
Payables to parent and affiliates	Payables to parent and affiliates	0		1,239,681		0		(957,128)		282,553		Payables to parent and affiliates	0		1,809,791		0		(1,809,791)		0

Other liabilities	Other liabilities	7,629		31,175		0		(3,390)		35,414		Other liabilities	0		0		0		0		0
Total liabilities	Total liabilities	$	7,629	$	1,270,856	$	5,657,665	$	(960,518)	$	5,975,632	Total liabilities	$	0	$	1,809,791	$	5,326,420	$	(1,809,791)	$	5,326,420

3529

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


		December 31, 2020											December 31, 2021
		Level 1		Level 2		Level 3		Netting(1)		Total			Level 1		Level 2		Level 3		Netting(1)		Total
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S Treasury securities and obligations of U.S. government authorities and agencies	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	8,887,432	$	15,000	$		$	8,902,432	U.S Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	726,825	$	0	$		$	726,825
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	0		277,491		0				277,491		Obligations of U.S. states and their political subdivisions	0		295,660		0				295,660
Foreign government bonds	Foreign government bonds	0		177,383		0				177,383		Foreign government bonds	0		114,366		0				114,366
U.S. corporate public securities	U.S. corporate public securities	0		3,450,407		0				3,450,407		U.S. corporate public securities	0		2,459,968		0				2,459,968
U.S. corporate private securities	U.S. corporate private securities	0		1,804,855		82,208				1,887,063		U.S. corporate private securities	0		1,555,501		89,071				1,644,572
Foreign corporate public securities	Foreign corporate public securities	0		541,644		181				541,825		Foreign corporate public securities	0		794,821		202				795,023
Foreign corporate private securities	Foreign corporate private securities	0		1,427,537		66,298				1,493,835		Foreign corporate private securities	0		790,915		100,802				891,717
Asset-backed securities(2)	Asset-backed securities(2)	0		974,041		18,542				992,583		Asset-backed securities(2)	0		1,038,978		23,380				1,062,358
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		785,942		0				785,942		Commercial mortgage-backed securities	0		673,894		32,426				706,320
Residential mortgage-backed securities	Residential mortgage-backed securities	0		75,724		0				75,724		Residential mortgage-backed securities	0		54,152		20,005				74,157
Subtotal	Subtotal	0		18,402,456		182,229				18,584,685		Subtotal	0		8,505,080		265,886				8,770,966
Fixed maturities, trading	Fixed maturities, trading	0		1,109,097		5,045				1,114,142		Fixed maturities, trading	0		27,237		0				27,237
Equity securities	Equity securities	234,452		39,477		4,153				278,082		Equity securities	321,366		0		515				321,881
Short-term investments	Short-term investments	0		143,161		10,000				153,161		Short-term investments	518,912		262,960		12,554				794,426
Cash equivalents	Cash equivalents	0		533,133		0				533,133		Cash equivalents	371,971		1,359,279		7,776				1,739,026
Other invested assets(3)	Other invested assets(3)	39,906		14,779,330		0		(14,624,985)		194,251		Other invested assets(3)	926		1,476,983		0		(1,474,780)		3,129
Other assets	Other assets	0		0		53,980				53,980		Other assets	0		0		400,441				400,441
Reinsurance recoverables	Reinsurance recoverables	0		62,232		409,013				471,245		Reinsurance recoverables	0		0		1,881,030				1,881,030
Receivables from parent and affiliates		0		56,026		0				56,026

Subtotal excluding separate account assets	Subtotal excluding separate account assets	274,358		35,124,912		664,420		(14,624,985)		21,438,705		Subtotal excluding separate account assets	1,213,175		11,631,539		2,568,202		(1,474,780)		13,938,136
Separate account assets(4)	Separate account assets(4)	0		32,205,296		0				32,205,296		Separate account assets(4)	0		32,266,921		0				32,266,921
Total assets	Total assets	$	274,358	$	67,330,208	$	664,420	$	(14,624,985)	$	53,644,001	Total assets	$	1,213,175	$	43,898,460	$	2,568,202	$	(1,474,780)	$	46,205,057
Future policy benefits(5)	Future policy benefits(5)	$	0	$	0	$	17,314,004	$		$	17,314,004	Future policy benefits(5)	$	0	$	0	$	4,060,214	$		$	4,060,214
Policyholders' account balances	Policyholders' account balances	0		0		580,184				580,184		Policyholders' account balances	0		0		2,040,532				2,040,532
Payables to parent and affiliates	Payables to parent and affiliates	0		11,926,536		0		(11,926,536)		0		Payables to parent and affiliates	0		1,366,789		0		(1,152,421)		214,368
Other liabilities	Other liabilities	26,309		33,416		0		(9,523)		50,202		Other liabilities	1,424		0		0		(1,189)		235
Total liabilities	Total liabilities	$	26,309	$	11,959,952	$	17,894,188	$	(11,936,059)	$	17,944,390	Total liabilities	$	1,424	$	1,366,789	$	6,100,746	$	(1,153,610)	$	6,315,349

(1)“Netting” amounts represent cash collateral of ~~$32~~$(711) million and ~~$2,689~~$321 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

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

(3)Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value ("NAV") per share (or its equivalent) as a practical expedient. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair values of such investments were ~~$9.6~~$9.8 million and ~~$10.6~~$9.9 million, respectively.

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

(5)As of ~~September 30, 2021,~~March 31, 2022, the net embedded derivative liability position of ~~$4,200~~$3,393 million includes ~~$58~~$62 million of embedded derivatives in an asset position and ~~$4,258~~$3,455 million of embedded derivatives in a liability position. As of December 31, ~~2020,~~2021, the net embedded derivative liability position of ~~$17,314~~$4,060 million includes ~~$455~~$62 million of embedded derivatives in an asset position and ~~$17,769~~$4,122 million of embedded derivatives in a liability position.

3630

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

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


		September 30, 2021												March 31, 2022
		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
		(in thousands)												(in thousands)
Assets:	Assets:												Assets:
Corporate securities(2)	Corporate securities(2)	$	190,885	Discounted cash flow	Discount rate	2.34	%	16.44	%	4.43	%	Decrease	Corporate securities(2)	$	154,669	Discounted cash flow	Discount rate	3.05	%	20	%	3.79	%	Decrease
				Market Comparables	EBITDA multiples(3)	6.5X		12.4X		8.9X		Increase				Market Comparables	EBITDA multiples(3)	6.5X		12.4X		9.2X		Increase
				Liquidation	Liquidation value	62.58	%	62.58	%	62.58	%	Increase				Liquidation	Liquidation value	62.58	%	62.58	%	62.58	%	Increase
Other assets													Other assets	$	376,898	Fair values are determined using the same unobservable inputs as policyholders' account balances
Reinsurance recoverables	Reinsurance recoverables	$	302,251	Fair values are determined using the same unobservable inputs as future policy benefits.									Reinsurance recoverables	$	1,866,253	Fair values are determined using the same unobservable inputs as future policy benefits and policyholders' account balances.
Liabilities:	Liabilities:												Liabilities:
Future policy benefits(4)	Future policy benefits(4)	$	4,199,893	Discounted cash flow	Lapse rate(6)	1	%	20	%			Decrease	Future policy benefits(4)	$	3,392,954	Discounted cash flow	Lapse rate(6)	1	%	20	%			Decrease
					Spread over LIBOR(7)	0.05	%	1.05	%			Decrease					Spread over LIBOR(7)	0.20	%	1.52	%			Decrease
					Utilization rate(8)	39	%	96	%			Increase					Utilization rate(8)	39	%	96	%			Increase
					Withdrawal rate	See table footnote (9) below.											Withdrawal rate	See table footnote (9) below.
					Mortality rate(10)	0	%	15	%			Decrease					Mortality rate(10)	0	%	15	%			Decrease
					Equity volatility curve	17	%	26	%			Increase					Equity volatility curve	18	%	26	%			Increase
Policyholders' account balances(5)	Policyholders' account balances(5)	$	1,457,772	Discounted cash flow	Lapse rate(6)	1	%	42	%			Decrease	Policyholders' account balances(5)	$	1,933,466	Discounted cash flow	Lapse rate(6)	1	%	42	%			Decrease
					Spread over LIBOR(7)	0.05	%	1.05	%			Decrease					Spread over LIBOR(7)	0.20	%	1.52	%			Decrease
					Equity volatility curve	6	%	34	%			Increase					Equity volatility curve	6	%	33	%			Increase


		December 31, 2020												December 31, 2021
		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)		Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
		(in thousands)												(in thousands)
Assets:	Assets:												Assets:
Corporate securities(2)	Corporate securities(2)	$	59,960	Discounted cash flow	Discount rate	0.99	%	20	%	6.53	%	Decrease	Corporate securities(2)	$	163,312	Discounted cash flow	Discount rate	2.34	%	10.17	%	2.82	%	Decrease
																Market Comparables	EBITDA multiples(3)	6.5X		12.4X		8.8X		Increase
																Liquidation	Liquidation value	62.58	%	62.58	%	62.58	%	Increase
Other assets													Other assets	$	400,441	Fair values are determined using the same unobservable inputs as policyholders' account balances
Reinsurance recoverables	Reinsurance recoverables	$	409,013	Fair values are determined using the same unobservable inputs as future policy benefits.									Reinsurance recoverables	$	1,881,030	Fair values are determined using the same unobservable inputs as future policy benefits and policyholders' account balances.
Liabilities:	Liabilities:												Liabilities:
Future policy benefits(4)	Future policy benefits(4)	$	17,314,004	Discounted cash flow	Lapse rate(6)	1	%	20	%			Decrease	Future policy benefits(4)	$	4,060,214	Discounted cash flow	Lapse rate(6)	1	%	20	%			Decrease
					Spread over LIBOR(7)	0.06	%	1.17	%			Decrease					Spread over LIBOR(7)	0.03	%	1.13	%			Decrease
					Utilization rate(8)	39	%	96	%			Increase					Utilization rate(8)	39	%	96	%			Increase
					Withdrawal rate	See table footnote (9) below.											Withdrawal rate	See table footnote (9) below.
					Mortality rate(10)	0	%	15	%			Decrease					Mortality rate(10)	0	%	15	%			Decrease
					Equity volatility curve	18	%	26	%			Increase					Equity volatility curve	16	%	25	%			Increase
Policyholders' account balances(5)	Policyholders' account balances(5)	$	580,184	Discounted cash flow	Lapse rate(6)	1	%	40	%			Decrease	Policyholders' account balances(5)	$	2,040,532	Discounted cash flow	Lapse rate(6)	1	%	42	%			Decrease
					Spread over LIBOR(7)	0.06	%	1.17	%			Decrease					Spread over LIBOR(7)	0.03	%	1.13	%			Decrease
					Equity volatility curve(11)	6	%	42	%			Increase					Equity volatility curve	6	%	31	%			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.

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

(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 weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

(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.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

(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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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%.

(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.

~~(11)Prior period amount has been updated.~~

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

Table of Contents

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, 2022
	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	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

Corporate securities(4)	190,075		(8,918)		5,000		(4,060)		0		(2,334)		0		0		0		179,763		(8,948)
Structured securities(5)	75,811		(3,805)		0		(10,000)		0		(1,656)		0		0		(13,000)		47,350		(3,853)
Other assets:
Fixed maturities, trading	0		0		0		0		0		0		0		0		0		0		0
Equity securities	515		62		15		0		0		0		0		0		0		592		62

Short term investments	12,554		0		0		0		0		(12,554)		0		0		0		0		0
Cash equivalents	7,776		0		0		0		0		(7,776)		0		0		0		0		0
Other assets	400,441		(21,277)		13,292		0		0		(15,558)		0		0		0		376,898		(5,720)
Reinsurance recoverables	1,881,030		200,858		4,097		0		0		19,290		(239,022)		0		0		1,866,253		222,445

Liabilities:
Future policy benefits	(4,060,214)		714,837		0		0		(47,577)		0		0		0		0		(3,392,954)		685,633
Policyholders' account balances(6)	(2,040,532)		124,492		0		0		0		(17,426)		0		0		0		(1,933,466)		89,242

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


		Three Months Ended September 30, 2021																							Three Months Ended March 31, 2022
		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)			Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(3)
		(in thousands)																							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)
Fixed maturities, available-for-sale:
U.S. government		$	15,000	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	15,000	$	0
																									(in thousands)
Corporate securities(4)		232,200		(6,046)		142,922		(10,700)		0		(14,040)		(122,057)		1,409		0		223,688		(5,886)
Structured securities(5)		216,363		2		32,350		0		0		(1,894)		(19,859)		0		(172,350)		54,612		323
Fixed maturities, available-for-sale																								Fixed maturities, available-for-sale	$	(303)	$	0	$	(12,455)	$	35		$	(352)	$	0	$	(12,449)
Other assets:	Other assets:																							Other assets:
Fixed maturities, trading	Fixed maturities, trading	5,350		0		1,750		0		0		0		0		0		(5,350)		1,750		0		Fixed maturities, trading	0		0		0		0			0		0		0
Equity securities	Equity securities	4,684		24		0		0		0		0		(3,874)		0		0		834		24		Equity securities	0		62		0		0			0		62		0

Short term investments		22,921		128		6,344		0		0		(17,567)		(56)		0		0		11,770		0
Cash equivalents		25		0		0		0		0		0		(25)		0		0		0		0

Other assets	Other assets	68,305		798		1,026		0		0		(733)		0		0		0		69,396		65		Other assets	(21,277)		0		0		0			(5,720)		0		0
Reinsurance recoverables	Reinsurance recoverables	302,009		(4,026)		4,268		0		0		0		0		0		0		302,251		(1,469)		Reinsurance recoverables	200,858		0		0		0			222,445		0		0

Liabilities:	Liabilities:																							Liabilities:
Future policy benefits	Future policy benefits	(12,530,109)		8,379,775		0		0		(49,559)		0		0		0		0		(4,199,893)		13,942		Future policy benefits	714,837		0		0		0			685,633		0		0
Policyholders' account balances(6)		(1,361,320)		(8,465)		0		0		(87,987)		0		0		0		0		(1,457,772)		543,302
Policyholders' account balances																								Policyholders' account balances	124,492		0		0		0			89,242		0		0


		Three Months Ended September 30, 2021													Three Months Ended March 31, 2021
		Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(3)					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(3)
		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:																			Fixed maturities, available-for-sale:
U.S. government																			U.S. government	$	15,000	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	15,000	$	0
		(in thousands)
Fixed maturities, available-for-sale		$	281	$	0	$	(6,335)	$	10		$	(2,172)	$	0		$	(3,391)
Corporate securities(4)																			Corporate securities(4)	148,687		(931)		10,634		0		0		(7,627)		0		15,147		0		165,910		(1,031)
Structured securities(5)																			Structured securities(5)	18,542		(107)		0		0		0		(1,479)		0		0		0		16,956		(106)
Other assets:	Other assets:																		Other assets:
Fixed maturities, trading	Fixed maturities, trading	0		0		0		0			0		0			0			Fixed maturities, trading	5,045		82		0		0		0		0		0		0		0		5,127		87
Equity securities	Equity securities	0		24		0		0			0		24			0			Equity securities	4,153		13		0		0		0		0		0		0		0		4,166		13

Short term investments	Short term investments	128		0		0		0			0		0			0			Short term investments	10,000		0		2,349		0		0		0		0		0		0		12,349		0
Cash equivalents	Cash equivalents	0		0		0		0			0		0			0			Cash equivalents	0		0		100		0		0		0		0		0		0		100		0
Other assets	Other assets	798		0		0		0			65		0			0			Other assets	53,980		8,572		2,653		0		0		(2,133)		0		0		0		63,072		6,439
Reinsurance recoverables	Reinsurance recoverables	(4,026)		0		0		0			(1,469)		0			0			Reinsurance recoverables	409,013		(141,885)		4,262		0		0		0		0		0		0		271,390		(135,675)

Liabilities:	Liabilities:																		Liabilities:
Future policy benefits	Future policy benefits	8,379,775		0		0		0			13,942		0			0			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		(8,465)		0		0		0			543,302		0			0
Policyholders' account balances(6)																			Policyholders' account balances(6)	(580,184)		(267,770)		0		0		(138,525)		0		0		0		0		(986,479)		(252,703)

3934

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

Nine Months Ended September 30, 2021
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 $ 15,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 15,000 $ 0
Corporate securities(4) 148,687 (4,632) 249,431 (10,700) 0 (45,362) (122,057) 16,556 (8,235) 223,688 (6,409)
Structured securities(5) 18,542 (838) 235,148 0 0 (6,031) (19,859) 0 (172,350) 54,612 (519)
Other assets:
Fixed maturities, trading 5,045 305 1,750 0 0 0 0 0 (5,350) 1,750 311
Equity securities 4,153 555 0 0 0 0 (3,874) 0 0 834 555
Short term investments 10,000 90 30,386 0 0 (29,290) 44 540 0 11,770 (34)
Cash equivalents 0 (13) 138 0 0 0 (125) 0 0 0 (13)
Other assets 53,980 14,077 7,492 0 0 (6,153) 0 0 0 69,396 7,924
Reinsurance recoverables 409,013 (119,574) 12,812 0 0 0 0 0 0 302,251 (106,025)
Liabilities:
Future policy benefits (17,314,004) 13,745,555 0 0 (631,444) 0 0 0 0 (4,199,893) 1,281,075
Policyholders' account balances(6) (580,184) (516,443) 0 0 (361,145) 0 0 0 0 (1,457,772) 79,361

Nine Months Ended September 30, 2021
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(3)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss) Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale $ (2,734) $ 0 $ (2,766) $ 30 $ (5,210) $ 0 $ (1,718)
Other assets:
Fixed maturities, trading 0 311 0 (6) 0 311 0
Equity securities 0 555 0 0 0 555 0
Short term investments 94 0 0 (4) (34) 0 0
Cash equivalents (13) 0 0 0 (13) 0 0
Other assets 14,077 0 0 0 7,924 0 0
Reinsurance recoverables (119,574) 0 0 0 (106,025) 0 0
Liabilities:
Future policy benefits 13,745,555 0 0 0 1,281,075 0 0
Policyholders' account balances (516,443) 0 0 0 79,361 0 0

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

Three Months Ended September 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 $ 12,216 $ 0 $ 1,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 13,216 $ 0
Corporate securities(4) 123,389 1,827 13,775 7,775 0 (8,624) (7,775) 7,819 (795) 137,391 1,689
Structured securities(5) 18,128 169 1,899 0 0 (599) 0 312 0 19,909 157
Other assets:
Fixed maturities, trading 4,301 365 0 0 0 0 0 0 0 4,666 371
Equity securities 5,242 938 0 0 0 0 0 0 0 6,180 939
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 27,136 2,844 10,789 0 0 (4) 0 0 0 40,765 2,840
Reinsurance recoverables 539,123 (55,075) 4,287 0 0 0 0 0 0 488,335 (51,944)
Liabilities:
Future policy benefits (23,998,671) 2,964,808 0 0 (291,756) 0 0 0 0 (21,325,619) 2,776,482
Policyholders' account balances(6) (226,072) (34,565) 0 0 (42,423) 0 0 0 0 (303,060) (22,855)

Three Months Ended September 30, 2020
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(3)
Realized investment gains (losses), net(1) Other income (loss)(7) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss)(7) Included in other comprehensive income (loss)
(in thousands)
Fixed maturities, available-for-sale $ 254 $ 0 $ 1,683 $ 59 $ 414 $ 0 $ 1,432
Other assets:
Fixed maturities, trading 0 371 0 (6) 0 371 0
Equity securities 0 938 0 0 0 939 0
Short term investments 0 0 0 0 0 0 0
Cash equivalents 0 0 0 0 0 0 0
Other assets 2,844 0 0 0 2,840 0 0
Reinsurance recoverables (55,075) 0 0 0 (51,944) 0 0
Liabilities:
Future policy benefits 2,964,808 0 0 0 2,776,482 0 0
Policyholders' account balances (34,565) 0 0 0 (22,855) 0 0

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

Nine Months Ended September 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 $ 2,669 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 13,216 $ 0
Corporate securities(4) 104,267 (4,337) 28,948 (1,190) 0 (14,434) (7,775) 32,951 (1,039) 137,391 (6,353)
Structured securities(5) 18,825 38 8,044 0 0 (1,674) 0 312 (5,636) 19,909 26
Other assets:
Fixed maturities, trading 4,464 202 0 0 0 0 0 0 0 4,666 218
Equity securities 5,247 933 0 0 0 0 0 0 0 6,180 934
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 3,789 28,923 0 0 (6) 0 0 0 40,765 3,784
Reinsurance recoverables 302,814 172,671 12,850 0 0 0 0 0 0 488,335 178,844
Liabilities:
Future policy benefits (11,822,998) (8,644,255) 0 0 (858,366) 0 0 0 0 (21,325,619) (8,923,218)
Policyholders' account balances(6) (196,892) (13,231) 0 0 (92,937) 0 0 0 0 (303,060) 9,727


		Nine Months Ended September 30, 2020															Three Months Ended March 31, 2021
		Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(3)							Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(3)
		Realized investment gains (losses), net(1)		Other income (loss)(7)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)(7)		Included in other comprehensive income (loss)				Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
		(in thousands)															(in thousands)
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale	$	87	$	0	$	(4,442)	$	56		$	(567)	$	0	$	(5,760)		Fixed maturities, available-for-sale	$	(44)	$	0	$	(987)	$	(7)	$	(37)	$	0	$	(1,100)
Other assets:	Other assets:																	Other assets:
Fixed maturities, trading	Fixed maturities, trading	0		218		0		(16)			0		218		0			Fixed maturities, trading	0		88		0		(6)		0		87		0
Equity securities	Equity securities	0		933		0		0			0		934		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	Other assets	3,789		0		0		0			3,784		0		0			Other assets	8,572		0		0		0		6,439		0		0
Reinsurance recoverables	Reinsurance recoverables	172,671		0		0		0			178,844		0		0			Reinsurance recoverables	(141,885)		0		0		0		(135,675)		0		0

Liabilities:	Liabilities:																	Liabilities:
Future policy benefits	Future policy benefits	(8,644,255)		0		0		0			(8,923,218)		0		0			Future policy benefits	7,093,338		0		0		0		6,900,120		0		0
Policyholders' account balances	Policyholders' account balances	(13,231)		0		0		0			9,727		0		0			Policyholders' account balances	(267,770)		0		0		0		(252,703)		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. ~~Refer to Note 1 for impacts to Realized investments gains (losses), net related to the 2021 Variable Annuities Recapture.~~

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

(2)~~For current year "Other"~~Other represents ~~noncash transfers~~an out of period adjustment related to certain portions of reinsurance activity that had been incorrectly recorded on the ~~2021 Variable Annuities Recapture. Refer to Note 1 for additional information. Prior year includes reclassifications~~balance sheet during the fourth quarter of ~~certain assets and liabilities between reporting categories.~~2021.

(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.

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

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

~~(7)Retitled to "Other income (loss)" to conform to current period presentation.~~

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.

September 30, 2021
Fair Value Carrying
Amount(1)
Level 1 Level 2 Level 3 Total Total
(in thousands)
Assets:
Commercial mortgage and other loans $ 0 $ 0 $ 2,109,355 $ 2,109,355 $ 2,044,843
Policy loans 0 0 11,871 11,871 11,871
Short-term investments 5,001 0 0 5,001 5,001
Cash and cash equivalents 128,100 0 0 128,100 128,100
Accrued investment income 0 74,015 0 74,015 74,015
Reinsurance recoverables 0 0 9,017 9,017 8,106
Receivables from parent and affiliates 0 54,706 0 54,706 54,706
Other assets 0 22,145 422,855 445,000 445,000
Total assets $ 133,101 $ 150,866 $ 2,553,098 $ 2,837,065 $ 2,771,642
Liabilities:
Policyholders’ account balances - investment contracts $ 0 $ 0 $ 2,384,386 $ 2,384,386 $ 2,372,734
Short-term debt 0 0 0 0 0
Long-term debt 0 0 0 0 0
Reinsurance payables 0 0 0 0 0
Payables to parent and affiliates 0 47,222 0 47,222 47,222
Other liabilities 0 493,697 0 493,697 493,697
Separate account liabilities - investment contracts 0 10 0 10 10
Total liabilities $ 0 $ 540,929 $ 2,384,386 $ 2,925,315 $ 2,913,663

4335

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


		December 31, 2020											March 31, 2022
		Fair Value								Carrying Amount(1)			Fair Value								Carrying Amount(1)
		Level 1		Level 2		Level 3		Total		Total			Level 1		Level 2		Level 3		Total		Total
		(in thousands)											(in thousands)
Assets:	Assets:											Assets:
Commercial mortgage and other loans	Commercial mortgage and other loans	$	0	$	0	$	1,836,633	$	1,836,633	$	1,765,770	Commercial mortgage and other loans	$	0	$	0	$	1,408,009	$	1,408,009	$	1,476,226
Policy loans	Policy loans	0		0		11,806		11,806		11,806		Policy loans	0		0		11,352		11,352		11,352

Short-term investments	Short-term investments	165,000		0		0		165,000		165,000		Short-term investments	34,000		0		0		34,000		34,000
Cash and cash equivalents	Cash and cash equivalents	386,078		150,000		0		536,078		536,078		Cash and cash equivalents	1,032,100		0		0		1,032,100		1,032,100
Accrued investment income	Accrued investment income	0		121,604		0		121,604		121,604		Accrued investment income	0		60,283		0		60,283		60,283
Reinsurance recoverables	Reinsurance recoverables	0		0		51,225		51,225		50,484		Reinsurance recoverables	0		0		10,470		10,470		9,893
Receivables from parent and affiliates	Receivables from parent and affiliates	0		31,594		0		31,594		31,594		Receivables from parent and affiliates	0		25,948		0		25,948		25,948
Other assets	Other assets	0		278,355		394,069		672,424		672,424		Other assets	0		1,675		2,262,826		2,264,501		2,264,501
Total assets	Total assets	$	551,078	$	581,553	$	2,293,733	$	3,426,364	$	3,354,760	Total assets	$	1,066,100	$	87,906	$	3,692,657	$	4,846,663	$	4,914,303
Liabilities:	Liabilities:											Liabilities:
Policyholders’ account balances - investment contracts	Policyholders’ account balances - investment contracts	$	0	$	0	$	2,426,471	$	2,426,471	$	2,406,100	Policyholders’ account balances - investment contracts	$	0	$	0	$	2,373,087	$	2,373,087	$	2,367,118
Cash collateral for loaned securities												Cash collateral for loaned securities	0		205,301		0		205,301		205,301

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	Payables to parent and affiliates	0		47,345		0		47,345		47,345		Payables to parent and affiliates	0		19,665		0		19,665		19,665
Other liabilities	Other liabilities	0		757,968		0		757,968		757,968		Other liabilities	0		93,918		0		93,918		93,918
Separate account liabilities - investment contracts	Separate account liabilities - investment contracts	0		30		0		30		30		Separate account liabilities - investment contracts	0		0		0		0		0
Total liabilities	Total liabilities	$	0	$	1,258,999	$	2,470,917	$	3,729,916	$	3,675,307	Total liabilities	$	0	$	318,884	$	2,373,087	$	2,691,971	$	2,686,002


	December 31, 2021
	Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	1,516,375	$	1,516,375	$	1,503,602
Policy loans	0		0		11,554		11,554		11,554
Short-term investments	81,000		0		0		81,000		81,000
Cash and cash equivalents	276,859		0		0		276,859		276,859
Accrued investment income	0		61,117		0		61,117		61,117
Reinsurance recoverables	0		0		8,958		8,958		8,153
Receivables from parent and affiliates	0		5,240		0		5,240		5,240
Other assets	0		4,170		2,275,214		2,279,384		2,279,384
Total assets	$	357,859	$	70,527	$	3,812,101	$	4,240,487	$	4,226,909
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	0	$	2,390,978	$	2,390,978	$	2,380,766
Cash collateral for loaned securities	0		0		0		0		0



Payables to parent and affiliates	0		35,581		0		35,581		35,581
Other liabilities	0		104,979		0		104,979		104,979
Separate account liabilities - investment contracts	0		5		0		5		5
Total liabilities	$	0	$	140,565	$	2,390,978	$	2,531,543	$	2,521,331

Table of Contents

Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

(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 1, 2021, the Company entered into a reinsurance agreement with Pruco Life under which the Company reinsured all of its variable indexed annuities. The reinsurance of the variable indexed annuities transfers all significant risks, including mortality risk, embedded in the reinsured contracts to Pruco Life. As a result of the agreement, Reinsurance payables includes the assumed modified coinsurance arrangement, which reflects the value of the invested assets retained by the Company and the associated asset returns.

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.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

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.

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

September 30, 2021 December 31, 2020
(in thousands)
Reinsurance recoverables $ 384,614 $ 694,040
Deferred policy acquisition costs (53,181) 3,414,620
Deferred sales inducements (25,952) 374,631
Value of business acquired (2,053) (2,124)
Other assets 55,470 61,471
Policyholders’ account balances 0 3,273,863
Future policy benefits 0 12,610,942
Reinsurance payables(1) 31,437 178,860
Other liabilities 0 262,462

~~(1)Includes $0 million and $2.3 million of unaffiliated activity as of September 30, 2021 and December 31, 2020, respectively.~~

~~The reinsurance recoverables by counterparty are broken out below:~~

September 30, 2021 December 31, 2020
(in thousands)
Prudential Insurance $ 384,614 $ 494,611
Pruco Life 0 198,547
Unaffiliated 0 882
Total reinsurance recoverables $ 384,614 $ 694,040

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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 March 31, 2022 and December 31, 2021 were as follows:


	March 31, 2022		December 31, 2021
	(in thousands)
Reinsurance recoverables	$	8,128,490	$	8,108,267
Deferred policy acquisition costs	(520,154)		(530,095)
Deferred sales inducements	(21,288)		(26,080)
Value of business acquired	(1,794)		(2,047)
Other assets	51,988		53,622


Reinsurance payables	6,999,679		7,182,652
Other liabilities	802,535		824,387

The reinsurance recoverables by counterparty are broken out below:


	March 31, 2022		December 31, 2021
	(in thousands)
Prudential Insurance	$	325,811	$	371,851
Pruco Life	7,802,679		7,736,416

Total reinsurance recoverables	$	8,128,490	$	8,108,267

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 nine~~ months ended ~~September 30,~~March 31, were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
		(in thousands)										(in thousands)
Premiums:	Premiums:									Premiums:
Direct	Direct	$	6,520	$	6,161	$	19,238	$	20,376	Direct		$	8,944	$	6,137
Assumed	Assumed	0		8,630		16,093		27,060		Assumed		0		10,076
Ceded	Ceded	(863)		(855)		(2,635)		(1,908)		Ceded		(1,393)		(451)
Net premiums	Net premiums	5,657		13,936		32,696		45,528		Net premiums		7,551		15,762
Policy charges and fee income:	Policy charges and fee income:									Policy charges and fee income:
Direct	Direct	112,675		102,669		328,795		304,593		Direct		102,008		107,332
Assumed	Assumed	0		395,381		819,191		1,161,236		Assumed		0		407,138
Ceded(1)	Ceded(1)	(6,538)		(8,610)		(20,118)		(23,838)		Ceded(1)		(5,164)		(6,887)
Net policy charges and fee income	Net policy charges and fee income	106,137		489,440		1,127,868		1,441,991		Net policy charges and fee income		96,844		507,583
Asset management and service fees(2):
Asset management and service fees:										Asset management and service fees:
Direct	Direct	24,892		22,904		73,375		67,147		Direct		22,256		23,916
Assumed	Assumed	0		78,549		165,177		227,614		Assumed		0		81,622
Ceded	Ceded	(2,207)		(2,034)		(6,296)		(5,852)		Ceded		(1,915)		(2,017)
Net asset management and service fees	Net asset management and service fees	22,685		99,419		232,256		288,909		Net asset management and service fees		20,341		103,521
Realized investment gains (losses), net:	Realized investment gains (losses), net:									Realized investment gains (losses), net:
Direct	Direct	(3,242,554)		(2,520,872)		(4,855,611)		1,878,766		Direct		312,198		(2,106,085)
Assumed	Assumed	8,328,213		2,332,646		12,350,171		(6,422,045)		Assumed		0		5,377,897
Ceded	Ceded	(4,968)		(57,748)		(121,697)		163,850		Ceded		168,727		(142,676)
Realized investment gains (losses), net	Realized investment gains (losses), net	5,080,691		(245,974)		7,372,863		(4,379,429)		Realized investment gains (losses), net		480,925		3,129,136
Policyholders' benefits (including change in reserves):	Policyholders' benefits (including change in reserves):									Policyholders' benefits (including change in reserves):
Direct	Direct	19,028		14,018		43,533		73,651		Direct		31,145		17,289
Assumed	Assumed	(256,596)		30,844		(253,812)		181,079		Assumed		0		12,390
Ceded~~(3)~~(2)	Ceded~~(3)~~(2)	(4,203)		(1,038)		(5,475)		(6,145)		Ceded~~(3)~~(2)		(4,891)		(51)
Net policyholders' benefits (including change in reserves)	Net policyholders' benefits (including change in reserves)	(241,771)		43,824		(215,754)		248,585		Net policyholders' benefits (including change in reserves)		26,254		29,628
Interest credited to policyholders’ account balances:	Interest credited to policyholders’ account balances:									Interest credited to policyholders’ account balances:
Direct	Direct	43,018		40,428		139,185		73,983		Direct		91,152		81,621
Assumed	Assumed	399,099		43,457		476,408		89,311		Assumed		0		70,946
Ceded	Ceded	(1,662)		(2,601)		(5,969)		(2,294)		Ceded		(6,509)		(4,657)
Net interest credited to policyholders’ account balances	Net interest credited to policyholders’ account balances	440,455		81,284		609,624		161,000		Net interest credited to policyholders’ account balances		84,643		147,910
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	1,193,211		307,043		1,707,648		890,849		Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization		(41,108)		339,711

(1)Includes ~~$(0.4)~~$0 million and ~~$(1.7)~~$(0.3) million of unaffiliated activity for the three months ended ~~September 30, 2021 and 2020, respectively, and $(0.4) million and $(2.4) million for the nine months ended September 30, 2021~~March 31, 2022 and ~~2020,~~2021, respectively.

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

~~(3)~~Includes ~~$(2.9)~~$0 million and ~~$0.1~~$(0.1) million of unaffiliated activity for the three months ended ~~September 30, 2021 and 2020, respectively, and $(3.3) million and $(0.3) million for the nine months ended September 30, 2021~~March 31, 2022 and ~~2020,~~2021, respectively.

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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 expense of ~~$1,247~~$77 million, or ~~20.71%~~17.71% of income (loss) from operations before income taxes in the first ~~nine~~three months of ~~2021,~~2022, compared to ~~an income tax benefit of $(965)~~$494 million, or ~~25.91%~~20.72%, in the first ~~nine~~three months of ~~2020.~~2021. 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 CARES Act was enacted into law. One provision of the CARES Act amended the Tax Cuts and Jobs Act (“TCJA”) and allowed companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. The Company has incorporated into the full year projected 2020 effective tax rate an income tax benefit of $156 million that resulted from carrying the estimated 2020 NOL back to tax years that have a 35% tax rate.

8. EQUITY

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Unaudited Interim Statements of Operations and Comprehensive Income (Loss). The balance of and changes in each component of AOCI as of and for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are as follows:


		Accumulated Other Comprehensive Income (Loss)							Accumulated Other Comprehensive Income (Loss)
		Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Total Accumulated Other Comprehensive Income (Loss)
		(in thousands)							(in thousands)
Balance, December 31, 2020		$	(708)	$	1,533,767	$	1,533,059
Balance, December 31, 2021								Balance, December 31, 2021	$	(1,179)	$	170,935	$	169,756
Change in OCI before reclassifications	Change in OCI before reclassifications	(117)		(354,151)		(354,268)		Change in OCI before reclassifications	25		(576,192)		(576,167)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		(1,225,663)		(1,225,663)		Amounts reclassified from AOCI	0		15,612		15,612
Income tax benefit (expense)	Income tax benefit (expense)	25		331,761		331,786		Income tax benefit (expense)	(5)		117,722		117,717
Balance, September 30, 2021		$	(800)	$	285,714	$	284,914
Balance, March 31, 2022								Balance, March 31, 2022	$	(1,159)	$	(271,923)	$	(273,082)


		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, 2020								Balance, December 31, 2020	$	(708)	$	1,533,767	$	1,533,059
Change in OCI before reclassifications	Change in OCI before reclassifications	(154)		1,586,843		1,586,689		Change in OCI before reclassifications	49		(694,704)		(694,655)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		(26,350)		(26,350)		Amounts reclassified from AOCI	0		(1,093,820)		(1,093,820)
Income tax benefit (expense)	Income tax benefit (expense)	32		(327,704)		(327,672)		Income tax benefit (expense)	(10)		375,590		375,580
Balance, September 30, 2020		$	(1,056)	$	1,662,335	$	1,661,279
Balance, March 31, 2021								Balance, March 31, 2021	$	(669)	$	120,833	$	120,164

(1)Includes cash flow hedges of ~~$15~~$29 million and ~~$(43)~~$25 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and ~~$23~~$(40) million and $0(43) million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

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Notes to Unaudited Interim Financial Statements—(Continued)

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(in thousands)									(in thousands)
Amounts reclassified from AOCI(1)(2):	Amounts reclassified from AOCI(1)(2):									Amounts reclassified from AOCI(1)(2):
Net unrealized investment gains (losses):	Net unrealized investment gains (losses):									Net unrealized investment gains (losses):
Cash flow hedges—Currency/ Interest rate(3)	Cash flow hedges—Currency/ Interest rate(3)	$	10,792	$	(9,602)	$	29,094	$	11,188	Cash flow hedges—Currency/ Interest rate(3)	$	4,977	$	12,316
Net unrealized investment gains (losses) on available-for-sale securities	Net unrealized investment gains (losses) on available-for-sale securities	140,824		73		1,196,569		15,162		Net unrealized investment gains (losses) on available-for-sale securities	(20,589)		1,081,504
Total net unrealized investment gains (losses)(4)	Total net unrealized investment gains (losses)(4)	151,616		(9,529)		1,225,663		26,350		Total net unrealized investment gains (losses)(4)	(15,612)		1,093,820
Total reclassifications for the period	Total reclassifications for the period	$	151,616	$	(9,529)	$	1,225,663	$	26,350	Total reclassifications for the period	$	(15,612)	$	1,093,820

(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)		Income Tax Benefit (Expense)		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)			Net Unrealized Gains (Losses) on Investments on Available-for-Sale Fixed Maturity Securities on which an allowance for credit losses has been recorded		Net Unrealized Gains (Losses) on All Other Investments(1)		DAC and Other Costs(2)		Future Policy Benefits and Other Liabilities(3)		Income Tax Benefit (Expense)		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
		(in thousands)													(in thousands)
Balance, December 31, 2020		$	2	$	2,369,107	$	(363,429)	$	(63,159)	$	(408,754)	$	1,533,767
Balance, December 31, 2021														Balance, December 31, 2021	$	3	$	240,356	$	(15,724)	$	(7,219)	$	(46,481)	$	170,935
Net investment gains (losses) on investments arising during the period	Net investment gains (losses) on investments arising during the period	2,017		(742,086)		0		0		155,611		(584,458)		Net investment gains (losses) on investments arising during the period	(2)		(592,145)		0		0		124,351		(467,796)
Reclassification adjustment for (gains) losses included in net income	Reclassification adjustment for (gains) losses included in net income	(1,991)		(1,223,672)		0		0		257,295		(968,368)		Reclassification adjustment for (gains) losses included in net income	0		15,612		0		0		(3,279)		12,333
Reclassification due to allowance for credit losses recorded during the period		125		(125)		0		0		0		0

Impact of net unrealized investment (gains) losses	Impact of net unrealized investment (gains) losses	0		0		325,247		60,671		(81,145)		304,773		Impact of net unrealized investment (gains) losses	0		0		9,750		6,205		(3,350)		12,605
Balance, September 30, 2021		$	153	$	403,224	$	(38,182)	$	(2,488)	$	(76,993)	$	285,714
Balance, March 31, 2022														Balance, March 31, 2022	$	1	$	(336,177)	$	(5,974)	$	(1,014)	$	71,241	$	(271,923)

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

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

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

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

9. RELATED PARTY TRANSACTIONS

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

Expense Charges and Allocations

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

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses include allocations of stock compensation expenses related to a stock-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was ~~$0.1 million and~~ $0.0 million for both the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020, respectively, and $0.4 million and $0.1 million for the nine months ended September 30, 2021 and 2020, respectively.~~2021. The expense charged to the Company for the deferred compensation program was ~~$0.3~~$0.0 million and ~~$0.2~~$0.7 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1.5 million and $0.5 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was ~~$2.4~~$0.0 million and ~~$0.9~~$2.3 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $7.1 million and $2.0 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was ~~$0.9~~$0.0 million and ~~$0.6~~$1.1 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $2.9 million and $1.6 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company's expense for its share of the voluntary savings plan was ~~$0.9~~$0.0 million and ~~$0.3~~$0.9 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $2.7 million and $0.8 million for the nine months ended September 30, 2021 and 2020,~~ 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 were ~~$110~~$29 million and ~~$61~~$120 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $347 million and $113 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was $7$9 million and $5$8 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $20 million and $11 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

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 $7$4 million and $6 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $18 million and $16 million for the nine months ended September 30, 2021 and 2020,~~ 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 $0 million ~~and $534 million~~ as of ~~September 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively.~~2021. "Net investment income" related to ~~these~~the ventures includes ano gain or loss ~~of $0 million~~for the three months ended March 31, 2022 and a gain of $8$4 million for the three months ended September 30, 2021 and 2020, respectively, and gains of $17 million and $5 million for the nine months ended September 30, 2021 and 2020, respectively. Effective July 1, 2021, the Company transferred these investments in joint ventures to Pruco Life. See Note 1 for additional information.March 31, 2021.

Affiliated Asset 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 ~~$24~~$22 million and $23 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $72 million and $66 million for the nine months ended September 30, 2021 and 2020,~~ respectively. These revenues are recorded as “Asset management and service fees” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

~~Affiliated Notes Receivable~~

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

Maturity Dates Interest Rates September 30, 2021 December 31, 2020
(in thousands)
U.S. dollar fixed rate notes 2026 - 2027 2.62% - 14.85 % $ 0 $ 56,025
Total long-term notes receivable - affiliated(1) $ 0 $ 56,025

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

The affiliated notes receivable shown above are classified as available-for-sale securities carried at fair value. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Insurance for loans due from affiliates. Effective August 2021, the Company transferred these affiliated loan receivables to Pruco Life at fair value.

Accrued interest receivable related to these loans was $0.0 million at both September 30, 2021 and December 31, 2020 and is included in “Other assets”. Revenues related to these loans were $0.2 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively, and are included in “Asset management and service fees”.

~~Table of Contents~~

~~Prudential Annuities Life Assurance Corporation~~

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

~~Affiliated Commercial Mortgage Loan~~

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

Maturity Date Interest Rate September 30, 2021 December 31, 2020
(in thousands)
Affiliated Commercial Mortgage Loan 2025 4.58% $ 0 $ 74,005

The commercial mortgage loan shown above is carried at unpaid principal balance, net of unamortized deferred loan origination fees and expenses, and net of an allowance for losses. The Company reviews the performance and credit quality of the commercial mortgage on an on-going basis. This affiliated commercial mortgage loan was transferred to Pruco Life as part of the 2021 Variable Annuities Recapture. See Note 1 for additional information.

Accrued interest receivable related to the loan was $0.0 million and $0.3 million at September 30, 2021 and December 31, 2020, respectively, and is included in "Accrued investment income". Revenues were $0.0 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $1.7 million and $1.2 million for the nine months ended September 30, 2021 and 2020, respectively, and are included in "Net investment income".

Affiliated Asset Transfers

The Company participates in affiliated asset trades with parent and sister companies. Book and market value differences for trades with a parent and sister are recognized within "Additional paid in capital" ("APIC") and "Realized investment gains (losses), net", respectively. The table below shows affiliated asset trades for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and for the year ended December 31, ~~2020,~~2021, excluding those related to the 2021 Variable Annuities Recapture effective July 1, 2021, as described in Note 1.1 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.


Affiliate	Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)		Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)
					(in thousands)												(in thousands)
Prudential International Insurance Service Company		March 2020	Purchase	Fixed Maturities	$	107,014	$	107,014	$	0	$	0
Prudential Insurance		March 2020	Purchase	Fixed Maturities	$	258,885	$	258,885	$	0	$	0
Prudential Insurance		April 2020	Purchase	Fixed Maturities	$	91,131	$	91,131	$	0	$	0
Prudential Insurance		June 2020	Sale	Fixed Maturities	$	65,646	$	57,699	$	0	$	7,947
Gibraltar Life Insurance Company		June 2020	Purchase	Fixed Maturities	$	222,091	$	222,091	$	0	$	0
Prudential Insurance	Prudential Insurance	April 2021	Purchase	Fixed Maturities	$	200,873	$	200,873	$	0	$	0	Prudential Insurance	April 2021	Purchase	Fixed Maturities	$	200,873	$	200,873	$	0	$	0
Prudential Insurance	Prudential Insurance	April 2021	Purchase	Commercial Mortgage Loan	$	176,904	$	176,904	$	0	$	0	Prudential Insurance	April 2021	Purchase	Commercial Mortgage Loan	$	176,904	$	176,904	$	0	$	0
Vantage Casualty Insurance Co.	Vantage Casualty Insurance Co.	June 2021	Purchase	Fixed Maturities	$	14,662	$	14,662	$	0	$	0	Vantage Casualty Insurance Co.	June 2021	Purchase	Fixed Maturities	$	14,662	$	14,662	$	0	$	0
Prudential Insurance	Prudential Insurance	June 2021	Sale	Equities	$	3,050	$	3,013	$	0	$	37	Prudential Insurance	June 2021	Sale	Equities	$	3,050	$	3,013	$	0	$	37
Pruco Life	Pruco Life	June 2021	Sale	Equities	$	40,284	$	38,026	$	0	$	2,258	Pruco Life	June 2021	Sale	Equities	$	40,284	$	38,026	$	0	$	2,258
Passaic Fund LLC	Passaic Fund LLC	June 2021	Transfer Out	Other Invested Assets	$	12,350	$	12,350	$	0	$	0	Passaic Fund LLC	June 2021	Transfer Out	Other Invested Assets	$	12,350	$	12,350	$	0	$	0
Passaic Fund LLC	Passaic Fund LLC	July 2021	Transfer Out	Other Invested Assets	$	195,776	$	195,926	$	0	$	(150)	Passaic Fund LLC	July 2021	Transfer Out	Other Invested Assets	$	195,776	$	195,926	$	0	$	(150)
Prudential Insurance	Prudential Insurance	September 2021	Purchase	Fixed Maturities	$	2,104	$	2,104	$	0	$	0	Prudential Insurance	September 2021	Purchase	Fixed Maturities	$	2,104	$	2,104	$	0	$	0
Prudential Insurance	Prudential Insurance	September 2021	Sale	Fixed Maturities	$	11,788	$	10,844	$	0	$	944	Prudential Insurance	September 2021	Sale	Fixed Maturities	$	11,788	$	10,844	$	0	$	944
Prudential Retirement Insurance and Annuity Company	Prudential Retirement Insurance and Annuity Company	September 2021	Sale	Fixed Maturities	$	26,086	$	24,349	$	0	$	1,737	Prudential Retirement Insurance and Annuity Company	September 2021	Sale	Fixed Maturities	$	26,086	$	24,349	$	0	$	1,737
Prudential Retirement Insurance and Annuity Company													Prudential Retirement Insurance and Annuity Company	September 2021	Purchase	Fixed Maturities	$	35,311	$	35,311	$	0	$	0
Prudential Insurance													Prudential Insurance	September 2021	Purchase	Derivatives	$	71	$	71	$	0	$	0

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)


Affiliate	Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)		Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)
					(in thousands)												(in thousands)
Prudential Retirement Insurance and Annuity Company	Prudential Retirement Insurance and Annuity Company	September 2021	Purchase	Fixed Maturities	$	35,311	$	35,311	$	0	$	0	Prudential Retirement Insurance and Annuity Company	September 2021	Purchase	Derivatives	$	(991)	$	(991)	$	0	$	0
Prudential Insurance		September 2021	Purchase	Derivatives	$	71	$	71	$	0	$	0
Prudential Retirement Insurance and Annuity Company		September 2021	Purchase	Derivatives	$	(991)	$	(991)	$	0	$	0
Prudential Financial													Prudential Financial	October 2021	Sale	Equities	$	10,000	$	10,000	$	0	$	0
Pruco Life													Pruco Life	November 2021	Sale	Derivatives	$	1,112	$	0	$	0	$	1,112
Prudential Arizona Reinsurance													Prudential Arizona Reinsurance	November 2021	Purchase	Fixed Maturities	$	55,304	$	55,304	$	0	$	0
Pruco Life													Pruco Life	December 2021	Transfer Out	Fixed Maturities	$	2,037,619	$	1,934,118	$	0	$	103,501
Pruco Life													Pruco Life	December 2021	Sale	Fixed Maturities	$	57,087	$	56,977	$	0	$	110
Prudential Financial													Prudential Financial	December 2021	Dividend	Fixed Maturities	$	166,676	$	166,676	$	0	$	0
Prudential Financial													Prudential Financial	December 2021	Sale	Fixed Maturities	$	144,465	$	138,020	$	0	$	6,445
Prudential Financial													Prudential Financial	December 2021	Purchase	Commercial Mortgage Loan	$	184,525	$	184,525	$	0	$	0
Pruco Life													Pruco Life	December 2021	Transfer Out	Commercial Mortgage Loan	$	538,152	$	517,309	$	0	$	20,843
Pruco Life													Pruco Life	December 2021	Sale	Derivatives	$	8,455	$	2,345	$	0	$	6,110
Pruco Life													Pruco Life	January 2022	Sale	Fixed Maturities	$	4,432	$	4,942	$	0	$	(510)
Prudential Financial													Prudential Financial	January 2022	Sale	Commercial Mortgage Loan	$	29,215	$	29,544	$	0	$	(329)
Pruco Life													Pruco Life	January 2022	Sale	Derivatives	$	404	$	404	$	0	$	0
Pruco Life													Pruco Life	February 2022	Sale	Fixed Maturities	$	128,909	$	138,478	$	0	$	(9,569)
Prudential Financial													Prudential Financial	March 2022	Sale	Fixed Maturities	$	32,541	$	33,463	$	0	$	(922)

Debt Agreements

~~The~~Through March 31, 2022, the Company iswas authorized to borrow funds up to $9 billion from Prudential Financial and its affiliates to meet its capital and other funding needs. ~~The following table provides the breakout~~As of ~~the Company's~~March 31, 2022 and December 31, 2021, there were no short and long-term debt to affiliates ~~as of September 30, 2021 and December 31, 2020:~~

Affiliate Date
Issued Amount of Notes - September 30, 2021 Amount of Notes - December 31, 2020 Interest Rate Date of Maturity
(in thousands)
Prudential Insurance 4/20/2016 $ 0 $ 93,671 3.47 % 6/20/2021
Prudential Insurance 4/20/2016 0 93,671 4.39 % 12/15/2023
Prudential Insurance 4/20/2016 0 28,102 4.39 % 12/15/2023
Prudential Insurance 4/20/2016 0 93,671 3.95 % 6/20/2024
Prudential Insurance 4/20/2016 0 37,468 3.95 % 6/20/2024
Prudential Insurance 4/20/2016 0 46,835 3.95 % 6/20/2024
Prudential Insurance 6/28/2016 0 26,000 2.59 % 6/28/2021
Total Loans Payable to Affiliates $ 0 $ 419,418

Effective August 2021, $300 million in long-term debt was transferred from the Company to Pruco Life based on the market value of the loans plus accrued interest which totaled $326 million. The Company recognized a loss of $24 million on the transfer. The $300 million debt was legally extinguished.outstanding.

The total interest expense to the Company related to affiliated loans and cash collateral with PGF was $1$0 million and $9$4 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $9 million and $45 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

Contributed Capital and Dividends

Through ~~September 2021~~March 2022 and December ~~2020,~~2021, the Company did not receive any capital contributions.

In March 2022, the Company had a return of capital in the amount of $306 million to PAI. In July 2021, in connection with the 2021 Variable Annuities Recapture, there was a $3,813 million return of capital to PAI. ~~In March, June, September and December 2020, there was a $207 million, $173 million, $192 million and $188 million return of capital, respectively, to PAI.~~

In March, June and ~~June~~December of 2021, the Company paid a dividend of $192 million, ~~and~~ $188 million and $451 million, respectively, ~~to PAI. In 2020, the Company did not pay any dividends~~ to PAI.

Reinsurance with Affiliates

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

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

10. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

The Company has made commitments to fund commercial mortgage loans. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the outstanding balances on these commitments were ~~$303~~$16 million and ~~$48~~$21 million, respectively. These amounts include unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was an allowance for credit losses of $0.0 million as of both ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. There was a change in allowance of $0.0 million for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. The Company also made commitments to purchase or fund investments, mostly private fixed maturities. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, $~~652~~50 million and ~~$305~~$96 million, respectively, of these commitments were outstanding. These amounts include unfunded commitments that are not unconditionally cancellable. There were no related charges for credit losses for ~~either~~both the three ~~or nine~~ months ended ~~September 30, 2021~~March 31, 2022 or ~~2020.~~2021.

Contingent Liabilities

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

The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements.

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

Litigation and Regulatory Matters

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

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but the matter, if material, is disclosed. The Company estimates that as of ~~September 30, 2021,~~March 31, 2022, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $150 million. This estimate is not an indication of expected loss, if any, or the Company’s maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

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Prudential Annuities Life Assurance Corporation

Notes to Unaudited Interim Financial Statements—(Continued)

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 15 to the Company's Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

~~Regulatory~~

~~Variable Products~~

The Company has received regulatory inquiries and requests for information from state and federal regulators, including a subpoena from the U.S. Securities and Exchange Commission, concerning the appropriatenessThere are no material developments in previously reported matters disclosed as of ~~variable product sales and replacement activity. The Company is cooperating with regulators and may become subject to additional regulatory inquiries and other actions related to this matter.~~December 31, 2021.

Summary

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of Prudential Annuities Life Assurance Corporation (“PALAC” or the “Company”) as of ~~September 30, 2021,~~March 31, 2022, compared with December 31, ~~2020,~~2021, and its results of operations for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. You should read the following analysis of our financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section, and the audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as well as the statements under “Forward-Looking Statements”, and the Unaudited Interim Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

The Company was established in 1969 and has been a provider of annuity contracts for the individual market in the United States. The Company’s products have been sold primarily to individuals to provide for long-term savings and retirement needs and to address the economic impact of premature death, estate planning concerns and supplemental retirement income.

The Company has sold a wide array of annuities, including deferred and immediate variable annuities with (1) fixed interest rate allocation options, subject to a market value adjustment, that are registered with the United States Securities and Exchange Commission (the “SEC”), and (2) fixed-rate allocation options subject to a limited market value adjustment or no market value adjustment and not registered with the SEC. The Company ceased offering these products in March 2010. In 2018, the Company resumed offering annuity products to new investors (except in New York).

Effective April 1, 2016, the Company ~~recaptured the risks related to its variable annuity living benefit guarantees that were previously reinsured to affiliates and~~ 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. Additionally, 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.

2021 Variable Annuities Recapture

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

Reinsurance Agreement with Pruco Life

Effective December 1, 2021, the Company entered into a reinsurance agreement with Pruco Life under which the Company reinsured all of its variable and fixed indexed annuities and fixed annuities with a guaranteed lifetime withdrawal income feature to Pruco Life.

Sale of PALAC

~~In September 2021,~~On April 1, 2022, Prudential Annuities, Inc. (“PAI”) ~~entered into a definitive agreement to sell~~, completed the sale of its equity interest in PALAC to Fortitude Group Holdings, ~~LLC. The transaction will result~~LLC (“FGH”). Following the sale, the Company is currently evaluating its accounting policies. Accordingly, the accounting policies and pronouncements described in ~~a benefit to Prudential Financial comprised of the purchase price for PALAC, a pre-closing net capital distribution by PALAC and an expected tax impact. The transaction is expected to close~~Note 2, as well as certain accounting policies described in ~~the first half of 2022, subject~~Note 2 to the ~~receipt of regulatory approvals and the satisfaction of customary closing conditions.~~

~~COVID-19~~

Since the first quarter of 2020, the novel coronavirus (“COVID-19”) has created extreme stress and disruption in the global economy and financial markets and has elevated mortality and morbidity experience for the global population. The COVID-19 pandemic continues to impact our results of operations in the current period and is expected to continue to impact our results of operations in future periods. The COVID-19 pandemic has moved in localized waves, with its impact worsening and then improving in different locations at different times in a repetitive but unpredictable pattern. During the third quarter of 2021, the mortality impacts to our businesses from COVID-19 increased compared to the second quarter. The Company has taken several measures to manage the impacts of this crisis. The actual and expected impacts of these events and other items areFinancial Statements included in the Company’s Annual Reporting on Form 10-K for the year ended December 31, 2021, may be updated following ~~update:~~the evaluation of its accounting policies. In addition, certain of the management strategies noted in the following sections, which include certain investment, hedging, capital management, and general business strategies will change following integration of the Company.

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COVID-19

Since the first quarter of 2020, the COVID-19 pandemic has at times caused extreme stress and disruption in the global economy and financial markets and elevated mortality and morbidity for the global population. The COVID-19 pandemic impacted our results of operations in the current period and is expected to impact our results of operations in future periods. The Company has taken several measures to manage the impacts of this crisis.

•Results of Operations. See “Results of Operations” for a discussion of results for the first quarter of 2022.

•Risk Factors. The COVID-19 pandemic has adversely impacted our results of operations, financial position, investment portfolio, new business opportunities and operations, and these impacts are expected to continue. For additional information on the risks to our business posed by the COVID-19 pandemic, see “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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

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

Impact of a Low Interest Rate Environment

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

•investment-related activity, including: investment income returns, net interest margins, net investment spread results, new money rates, mortgage loan prepayments and bond redemptions;

•hedging costs and other risk mitigation activities;

•insurance reserve levels, amortization of deferred policy acquisition costs (“DAC”)/value of business acquired (“VOBA”)/deferred sales inducements ("DSI") and market experience true-ups;

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

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

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

•policyholder behavior, including surrender or withdrawal activity.

For more information on interest rate risks, see “Risk Factors—Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Revenues and Expenses

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

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

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

•DAC, DSI and VOBA;

•Policyholder liabilities;

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

•Reinsurance recoverables;

•Taxes on income; and

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

Market Performance - Equity and Interest Rate Assumptions

DAC, DSI and VOBA associated with the variable and fixed annuity contracts are generally amortized over the expected lives of these policies in proportion to total gross profits. Total gross profits include both actual gross profits and estimates of gross profits for future periods. The quarterly adjustments for market performance reflect the impact of changes to our estimate of total gross profits to reflect actual fund performance and market conditions. A significant portion of gross profits for our variable annuity contracts are dependent upon the total rate of return on assets held in separate account investment options. This rate of return influences the fees we earn on variable annuity contracts, costs we incur associated with the guaranteed minimum death and guaranteed minimum income benefit features related to our variable annuity contracts, as well as other sources of profit. Returns that are higher than our expectations for a given period produce higher than expected account balances, which increase the future fees we expect to earn on variable annuity contracts and decrease the future costs we expect to incur associated with the guaranteed minimum death and guaranteed minimum income benefit features related to our variable annuity contracts. The opposite occurs when returns are lower than our expectations. The changes in future expected gross profits are used to recognize a cumulative adjustment to all prior periods’ amortization.

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

The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each product type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, DSI, and VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of ~~September 30, 2021,~~March 31, 2022, we assume an 8.0% long-term equity expected rate of return and a ~~0.4%~~0.9% near-term mean reversion equity expected rate of return.

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

For a discussion of the impact that could result from changes in certain key assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies and Pronouncements—Sensitivities for Insurance Assets and Liabilities” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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Future Adoption of New Accounting Pronouncements

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) on August 15, ~~2018. In October 2019, the FASB issued~~ 2018 and was amended by ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date, to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. As a result of the COVID-19 pandemic,issued in ~~November 2020 the FASB issued~~October 2019 and ASU 2020-11, Financial ~~Services—Insurance~~Services-Insurance (Topic 944): Effective Date and Early Application to defer for an additional one year the effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. The transition relief would allow large, issued in November 2020. Large calendar-year public companies that early adopt ASU 2018-12 are allowed to apply the guidance either as of January 1, 2020 or January 1, 2021 (and record transition adjustments as of January 1, 2020 or January 1, 2021, respectively) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. The Company ~~currently intends to~~will adopt ASU 2018-12 ~~effective January 1, 2023~~ using the modified retrospective transition method where permitted.

ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. The Company expects the standard to have a significant financial statement impact ~~on the Financial Statements~~ and will significantly enhance disclosures. In addition to the significant impacts to the balance sheet upon adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date. See Note 2 to the Unaudited Interim Financial Statements for a more detailed discussion of ASU 2018-12, as well as other accounting pronouncements issued but not yet adopted and newly adopted accounting pronouncements.

Changes in Financial Position

Total assets decreased ~~$14.1~~$4.2 billion from ~~$64.3~~$58.6 billion at December 31, ~~2020~~2021 to ~~$50.2~~$54.4 billion at ~~September 30, 2021.~~March 31, 2022. Significant components were:

•$~~9.2~~2.8 billion decrease in ~~Total investments and Cash and Cash equivalents~~Separate account assets primarily driven by ~~consideration paid related to the 2021 Variable Annuities Recapture~~unfavorable equity market performance and ~~dividend distributions; and~~

• ~~$3.2 billion decrease in Deferred policy acquisition costs, primarily due to the unwinding of assumed costs as part of the 2021 Variable Annuities Recapture.~~net outflows.

Total liabilities decreased ~~$13.4~~$3.8 billion from ~~$61.6~~$56.9 billion at December 31, ~~2020~~2021 to ~~$48.2~~$53.1 billion at ~~September 30, 2021.~~March 31, 2022. Significant components were:

• ~~$13.9~~$0.7 billion decrease in Future policy benefits ~~primarily~~ driven by ~~the 2021 Variable Annuities Recapture and~~ a decrease in reserves related to our variable annuity living benefit guarantees due to widening non-performance risk ("NPR") spreads and rising interest ~~rates and favorable equity market performance;~~
rates.

~~Partially offset by:~~

•$~~1.5~~2.8 billion ~~increase~~decrease in ~~Policyholders'~~Separate account ~~balances primarily driven by incremental general~~liabilities corresponding to the decrease in Separate account ~~product sales.~~assets, as discussed above.

Total equity decreased ~~$0.6~~$0.4 billion from ~~$2.7~~$1.7 billion at December 31, ~~2020~~2021 to ~~$2.1~~$1.3 billion at ~~September 30, 2021,~~March 31, 2022, primarily driven by ~~a return~~$0.4 billion of ~~capital of $3.8 billion related to the 2021 Variable Annuities Recapture and~~ unrealized losses on investments driven by rising interest rates reflected in Accumulated other comprehensive income (loss)~~, partially offset by an after-tax net income~~ and a return of ~~$4.8~~capital of $0.3 billion, partially offset by ~~dividend distributions~~net income of $0.4 billion.

Results of Operations

Income (loss) from Operations before Income Taxes

Three Months Comparison

Income (loss) from operations before income taxes ~~increased $3.8~~decreased $2 billion from a ~~loss~~gain of ~~$47.6~~$2.4 million for the three months ended ~~September 30, 2020~~March 31, 2021 to a gain of ~~$3.7~~$0.4 billion for the three months ended ~~September 30, 2021,~~March 31, 2022, primarily driven by:

•~~Significant~~ Realized investment gains (losses), net decrease reflecting aprior year's favorable impact related to the ~~2021 Variable Annuities Recapture and the portion~~portions of our U.S. GAAP liability before NPR, that are excluded from our hedge targets driven by rising interest ~~rates. Also contributing is an unfavorable NPR adjustment.~~rates and favorable prior year equity market performance.

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~~Nine Months Comparison~~

Income (loss) from operations before income taxes increased $9.7 billion from a loss of $3.7 billion for the nine months ended September 30, 2020 to income of $6.0 billion for the nine months ended September 30, 2021. Excluding the impact of our annual reviews and update of assumptions and other refinements, income (loss) from operations increased $9.7 billion primarily driven by:

•Significant Realized investment gains (losses), net reflecting a favorable impact related to the 2021 Variable Annuities Recapture and the portions of our U.S. GAAP liability before NPR, that are excluded from our hedge target driven by rising interest rates and favorable equity market performance. Also contributing is an unfavorable NPR adjustment.

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020			March 31, 2022		March 31, 2021
		(in millions)(1)				(in millions)(1)					(in millions)(1)
U.S. GAAP embedded derivative and hedging positions	U.S. GAAP embedded derivative and hedging positions									U.S. GAAP embedded derivative and hedging positions
Change in value of U.S.GAAP liability, pre-NPR(2)	Change in value of U.S.GAAP liability, pre-NPR(2)	$	47	$	3,164	$	5,628	$	(11,495)	Change in value of U.S.GAAP liability, pre-NPR(2)	$	459	$	7,464
Change in the NPR adjustment	Change in the NPR adjustment	(47)		(541)		(950)		2,179		Change in the NPR adjustment	156		(799)
Change in fair value of hedge assets, excluding capital hedges(3)	Change in fair value of hedge assets, excluding capital hedges(3)	63		(2,169)		(3,049)		5,633		Change in fair value of hedge assets, excluding capital hedges(3)	(392)		(4,446)
Change in fair value of capital hedges(4)	Change in fair value of capital hedges(4)	37		(366)		(766)		(129)		Change in fair value of capital hedges(4)	39		(300)
2021 Variable Annuities Recapture Impact		5,142		0		5,142		0
Other	Other	(203)		237		903		880		Other	218		528
Realized investment gains (losses), net, and related adjustments	Realized investment gains (losses), net, and related adjustments	5,039		325		6,908		(2,932)		Realized investment gains (losses), net, and related adjustments	480		2,447
Market experience updates(5)	Market experience updates(5)	(14)		6		147		(229)		Market experience updates(5)	(57)		69
Charges related to realized investments gains (losses), net	Charges related to realized investments gains (losses), net	14		(127)		(246)		20		Charges related to realized investments gains (losses), net	(97)		(334)
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs(6)	Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs(6)	$	5,039	$	204	$	6,809	$	(3,141)	Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs(6)	$	326	$	2,182

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

(2)Represents the change in the liability (excluding NPR) for our variable annuities which is measured utilizing a valuation methodology that is required under U.S. GAAP. This liability includes such items as risk margins which are required by U.S. GAAP but not included in our best estimate of the liability.

(3)Represents the changes in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.

(4)Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of our business against exposure to the equity markets.

(5)Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability.

(6)Excludes amounts from the changes in unrealized gains and losses from fixed income instruments recorded in ~~OCI~~other comprehensive income (versus net income) of ~~$(45)~~$(70) million and ~~$(30)~~$(1,742) million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $1,673 million and $1,563 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

For the three months ended ~~September 30, 2021,~~March 31, 2022, the gain of ~~$5,039 million was driven by favorable impact related to 2021 Variable Annuities Recapture. See Note 1 to the Unaudited Interim Financial Statements for further details.~~

~~For the three months ended September 30, 2020, the gain of $204~~$326 million was driven by a favorable impact related to the U.S. GAAP liability before NPR, net of the change in the fair value of hedge assets (excluding capital hedges) largely due to rising interest rates and favorable equity market performance. Also contributing are unfavorable NPR adjustment and losses on capital hedges driven by favorable equity market performance.

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For the nine months ended September 30, 2021, the gain of $6,809 million was driven by favorable impact related to 2021 Variable Annuities Recapture and the portions of our U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital ~~hedges) primarily driven by~~hedge) largely due to rising interest ~~rates and favorable equity market performance. Also contributing is an unfavorable NPR adjustment.~~rates.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the ~~loss~~gain of ~~$3,141~~$2,182 million was ~~primarly~~ driven by ~~unfavorable~~a favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) ~~primarily driven by declining~~largely due to rising interest rates and ~~widening~~favorable equity market performance, as well as favorable market experience updates from the impact of ~~credit spreads. Those losses~~favorable equity markets and rising interest rates. These impacts were partially offset by ~~a favorable~~an unfavorable NPR adjustment ~~reflecting the impact of widening of credit spreads.~~

driven by rising interest rates and losses associated with our capital hedge program.

Revenues, Benefits and Expenses

Three Months Comparison

Revenues ~~increased $4.8~~decreased $2.4 billion from a gain of ~~$0.5~~$3.1 billion for the three months ended ~~September 30, 2020~~March 31, 2021 to a gain of ~~$5.3~~$0.7 billion for the three months ended ~~September 30, 2021~~March 31, 2022 primarily driven by:

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Benefits and expenses ~~increased $0.9~~decreased $0.4 billion from ~~$0.6~~$0.7 billion for the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$1.5~~$0.3 billion for the three months ended ~~September 30, 2021~~March 31, 2022 primarily driven by:

•~~Higher Commission expense primarily~~Lower benefits and expenses driven by the ~~unwinding of assumed deferred acquisition costs, partially offset by ceding allowance received as part of the 2021~~ Variable ~~Annuities Recapture.~~Annuity recapture and new reinsurance with PALAC in 2021.

~~Nine Months Comparison~~

Revenues increased $10.7 billion from a loss of $2.1 billion for the nine months ended September 30, 2020 to a gain of $8.6 billion for the nine months ended September 30, 2021. Excluding the impact of our annual reviews and update to our assumptions and other refinements, revenues increased $10.8 billion primarily driven by:

Benefits and expenses increased $1.0 billion from $1.6 billion for the nine months ended September 30, 2020 to $2.6 billion for the nine months ended September 30, 2021. Excluding the impact of our annual reviews and update to our assumptions and other refinements, benefits and expenses increased $1.1 billion primarily driven by:

•~~Higher Commission expense primarily driven by the unwinding of assumed deferred acquisition costs, partially offset by ceding allowance received as part of the 2021 Variable Annuities Recapture.~~

Risks and Risk Mitigants

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

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Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection from premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides protection from lapse in the case of rising interest rates. We also manage these risk exposures through reinsurance.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. We manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, ii) our Asset Liability Management Strategy, and iii) our Capital Hedge Program as discussed below. We also manage these risk exposures through external reinsurance for certain of our variable annuity products. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020, and, in the third quarter of 2021, we announced that we had entered into an agreement to sell a portion of the in-force traditional variable annuity block, as described above.

Effective July 1, 2021, Pruco Life recaptured the risks related to its business that had previously been reinsured to the Company from April 1, 2016 through June 30, 2021. The recapture does not impact PLNJ, which will continue to reinsure its new and in force business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in the Company, were transferred to Pruco Life. In addition, the living benefit hedging program related to the previously reinsured living benefit riders ~~will be~~are being managed within Pruco Life. For more information on this transaction, see Note 1 to the Unaudited Interim Financial Statements.

i. Product Design Features:

A portion of the variable annuity contracts that we ~~offered~~offer include an asset transfer feature. This feature is implemented at the contract level, and transfers assets between certain variable investment sub-accounts selected by the annuity contractholder and, depending on the benefit feature, a fixed-rate account in the general account or a bond fund sub-account within the separate account. The objective of the asset transfer feature is to reduce our exposure to equity market risk and market volatility. The transfers are based on a static mathematical formula used with the particular benefit which considers a number of factors, including, but not limited to, the impact of investment performance on the contractholder’s total account value. Other product design features we utilize include, among others, asset allocation restrictions, minimum issuance age requirements and certain limitations on the amount of contractholder purchase payments, as well as a required minimum allocation to our general account for certain of our products. We continue to introduce products that diversify our risk profile and have incorporated provisions in product design allowing frequent revision of key pricing elements for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

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

We employ an ALM strategy that utilizes a combination of both traditional fixed income instruments and derivatives to ~~meet expected liabilities~~help defray potential claims associated with our variable annuity living benefit guarantees. The economic liability we manage with this ALM strategy consists of expected living benefit claims under less severe market conditions, which are managed using fixed income and derivative instruments, ~~derivatives, or a combination thereof,~~ and potential living benefit claims resulting from more severe market conditions, which are hedged using derivative instruments. For the portion of our ALM strategy executed with derivatives, we enter into a range of exchange-traded and over-the-counter ("OTC") equity, interest rate and credit derivatives, including, but not limited to: equity and treasury futures; total return, credit default and interest rate swaps; and options, including equity options, swaptions, and floors and caps. The intent of this strategy is to more efficiently manage the capital and liquidity associated with these products while continuing to mitigate fluctuations in net income due to movements in capital markets.

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

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		As of September 30, 2021		As of December 31, 2020(1)			As of March 31, 2022		As of December 31, 2021
		(in millions)					(in millions)
U.S. GAAP Liability, including NPR	U.S. GAAP Liability, including NPR	$	3,898	$	16,905	U.S. GAAP Liability, including NPR	$	3,154	$	3,769
NPR Adjustment	NPR Adjustment	517		3,705		NPR Adjustment	678		521
Subtotal	Subtotal	4,415		20,610		Subtotal	3,833		4,289
Adjustments including risk margins and valuation methodology differences	Adjustments including risk margins and valuation methodology differences	(1,353)		(4,596)		Adjustments including risk margins and valuation methodology differences	(1,173)		(1,331)
Economic liability managed by ALM strategy	Economic liability managed by ALM strategy	$	3,062	$	16,014	Economic liability managed by ALM strategy	$	2,659	$	2,959

~~(1)Prior period amounts have been updated to conform to current period presentation. Amounts are presented net of reinsurance recoverables.~~

As of ~~September 30, 2021,~~March 31, 2022, the fair value of our fixed income instruments and derivative assets exceed our economic liability.

Under our ALM strategy, we expect differences in the U.S. GAAP net income impact between the changes in value of the fixed income instruments (either designated as available-for-sale or designated as trading) and derivatives as compared to the changes in the embedded derivative liability these assets support. These differences can be primarily attributed to three distinct areas:

•Different valuation methodologies in measuring the liability we intend to cover with fixed income instruments and derivatives versus the liability reported under U.S. GAAP. The valuation methodology utilized in estimating the economic liability we intend to defray with fixed income instruments ~~(either designated as available-for-sale or designated as trading)~~ and derivatives is different from that required to be utilized to measure the liability under U.S. GAAP. Additionally, the valuation of the economic liability excludes certain items that are included within the U.S. GAAP liability, such as NPR in order to maximize protection irrespective of the possibility of our own default and risk margins (required by U.S. GAAP but different from our best estimate).

•Different accounting treatment between liabilities and assets supporting those liabilities. Under U.S. GAAP, changes in value of the embedded derivative liability, derivative instruments and fixed income instruments designated as trading immediately reflected in net income, while changes in the fair value of fixed income instruments that are designated as available-for-sale are recorded as unrealized gains (losses) in other comprehensive income.

•General hedge results. For the derivative portion of the ALM strategy, the net hedging impact (the extent to which the changes in value of the hedging instruments offset the change in value of the portion of the economic liability we are hedging) may be impacted by a number of factors, including: cash flow timing differences between our hedging instruments and the corresponding portion of the economic liability we are hedging, basis differences attributable to actual underlying contractholder funds to be hedged versus hedgeable indices, rebalancing costs related to dynamic rebalancing of hedging instruments as markets move, certain elements of the economic liability that may not be hedged (including certain actuarial assumptions), and implied and realized market volatility on the hedge positions relative to the portion of the economic liability we seek to hedge.

~~For information regarding the Risk Appetite Framework ("RAF") we use to evaluate and support the risks~~

Table of ~~the ALM strategy, see “—Liquidity and Capital Resources—Capital”.~~Contents

iii. Capital Hedge Program:

We employ a capital hedge program within the Company to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets. The capital hedge program is conducted using equity derivatives which include equity call and put options, total return swaps and futures contracts.

Income Taxes

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

Liquidity and Capital Resources

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

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Overview

Liquidity refers to the ability to generate sufficient cash resources to meet the payment obligations of the Company. Capital refers to the long-term financial resources available to support the operations of our business, fund business growth, and provide a cushion to withstand adverse circumstances. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our business, general economic conditions, our ability to borrow ~~from affiliates~~ and our access to ~~the~~ capital ~~markets through affiliates as described herein.~~markets.

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

Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital, leverage, liquidity, stress-testing, overall risk management, credit exposure reporting and credit concentration. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation" and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

In ~~September 2021,~~April 2022, PAI ~~entered into a definitive agreement to sell~~completed the sale of its equity related interest in PALAC, which includes a portion of its in-force traditional variable annuity block of business, to Fortitude Group Holdings, LLC. The transaction will result in a benefit to Prudential Financial comprised of the purchase price for PALAC, a pre-closing net capital distribution by PALAC and an expected tax impact. The transaction is expected to close in the first half of 2022, subjectSee Note 1 to the ~~receipt of regulatory approvals and the satisfaction of customary closing conditions.~~Unaudited Interim Financial Statements for additional information.

Capital

We manage PALAC to regulatory capital levels consistent with our “AA” ratings targets. We utilize the risk-based capital (“RBC”) ratio as a primary measure of capital adequacy. RBC is calculated based on statutory financial statements and risk formulas consistent with the practices of the National Association of Insurance Commissioners ("NAIC"). RBC considers, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public. The Company’s capital levels substantially exceed the minimum level required by applicable insurance regulations. Our regulatory capital levels may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators.

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

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The Company made distributions to its parent, PAI, for the three month periods indicated below.

Return of Capital Dividends
(in millions)
September 30, 2021 $ 3,813 $ 0
June 30, 2021 $ 0 $ 188
March 31, 2021 $ 0 $ 192
December 31, 2020 $ 188 $ 0
September 30, 2020 $ 192 $ 0

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	Return of Capital
	(in millions)
March 31, 2022	$	306
December 31, 2021	451
September 30, 2021	3,813
June 30, 2021	0
March 31, 2021	0

Liquidity

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

Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the liquidity profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios.

The principal sources of the Company’s liquidity are premiums and certain annuity considerations, investment and fee income, investment maturities, sales of investments and internal borrowings. The principal uses of that liquidity include benefits, claims, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan activity. Other uses of liquidity include commissions, general and administrative expenses, purchases of investments, the payment of dividends and returns of capital to the parent company, hedging and reinsurance activity and payments in connection with financing activities.

In managing liquidity, we consider the risk of policyholder and contractholder withdrawals of funds earlier than our assumptions when selecting assets to support these contractual obligations. We use surrender charges and other contract provisions to mitigate the extent, timing and profitability impact of withdrawals of funds by customers.

Liquid Assets

Liquid assets include cash and cash equivalents, short-term investments, U.S. Treasury fixed maturities and fixed maturities that are not designated as held-to-maturity, and public equity securities. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had liquid assets of ~~$12.7~~$10.5 billion and ~~$21.4~~$12 billion, respectively. The portion of liquid assets comprised cash and cash equivalents and short-term investments was ~~$1.5~~$1.8 billion and ~~$1.4~~$2.9 billion as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. As of ~~September 30, 2021, $10~~March 31, 2022, $8 billion, or ~~91%~~93%, of the fixed maturity investments in the Company's general account portfolios, were rated high or highest quality based on NAIC or equivalent rating.

Financing activities

Prudential Funding, LLC

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

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Hedging activities associated with living benefit guarantees

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

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

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Item 3. Quantitative and Qualitative Disclosures About ~~Market Risk~~

This section supplements, and should be read in conjunction with, the complete descriptions provided in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission.

Market Risk

Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, our products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and our strategies for managing this risk, vary by product. As ~~a result~~ of ~~the “2021 Variable Annuities Recapture” described below, as of September 30, 2021,~~March 31, 2022, there have been no material changes in our economic exposure to market risk from December 31, ~~2020,~~2021, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, ~~2020,~~2021, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission. See Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

Effective July 1, 2021, Pruco Life Insurance Company (“Pruco Life”) recaptured the risks related to its variable annuity business, including base contracts, along with the living benefit guarantees that had previously been reinsured to the Company from April 1, 2016 through June 30, 2021. The product risks related to the previously reinsured business that were being managed in the Company, were transferred to Pruco Life. In addition, the living benefit hedging program related to the previously reinsured living benefit riders will be managed within Pruco Life. See Note 1 to the Unaudited Interim Financial Statements for additional information.

~~Market Risk Related to Interest Rates~~

We assess the impact of interest rate movements on the value of our financial assets, financial liabilities and derivatives using hypothetical test scenarios that assume either upward or downward 100 basis point parallel shifts in the yield curve from prevailing interest rates, reflecting changes in either credit spreads or the risk-free rate. The following table sets forth the net estimated potential loss in fair value on these financial instruments from a hypothetical 100 basis point upward shift at September 30, 2021 and December 31, 2020. This table is presented on a gross basis and excludes offsetting impacts to insurance liabilities that are not considered financial liabilities under U.S. GAAP. This scenario results in the greatest net exposure to interest rate risk of the hypothetical scenarios tested at those dates. While the test scenario is for illustrative purposes only and does not reflect our expectations regarding future interest rates or the performance of fixed-income markets, it is a near-term, reasonably possible hypothetical change that illustrates the potential impact of such events. These test scenarios do not measure the changes in value that could result from non-parallel shifts in the yield curve which we would expect to produce different changes in discount rates for different maturities. As a result, the actual loss in fair value from a 100 basis point change in interest rates could be different from that indicated by these calculations. The estimated changes in fair values do not include separate account assets.

~~Table of Contents~~

September 30, 2021 December 31, 2020
Notional Fair Value Hypothetical
Change in
Fair Value Notional Fair Value Hypothetical
Change in
Fair Value
(in millions)
Financial assets with interest rate risk:
Fixed maturities(1) $ 10,919 $ (769) $ 19,699 $ (2,561)
Policy loans 12 0 12 0
Commercial mortgage and other loans 2,109 (102) 1,837 (79)
Derivatives:
Swaps $ 18,034 76 (884) $ 156,430 1,785 (4,322)
Futures 1,757 (1) (5) 10,156 (14) (149)
Options 18,020 (327) 136 34,054 1,095 (534)
Forwards 54 1 0 110 0 (6)
Embedded derivatives(2)(3) (5,658) 1,084 (16,722) 7,046
Financial liabilities with interest rate risk(4):
Policyholders' account balances-investment contracts (2,384) 4 (2,426) 4
Net estimated potential gain (loss) $ (536) $ (601)

~~__________~~

~~(1)Includes assets classified as "Fixed maturities, available-for-sale, at fair value" and "Fixed maturities, trading, at fair value."~~

~~(2)Excludes any offsetting impact of derivative instruments purchased to hedge changes in the embedded derivatives. Amounts reported gross of reinsurance.~~

~~(3)~~Embedded derivatives relate to certain features associated with variable annuity and indexed annuity contracts. The fair value and hypothetical change in fair value of each is $(4,200) million and $1,395 million, and $(1,458) million and $(311) million, respectively, as of September 30, 2021. The fair value and hypothetical change in fair value of each is $(17,302) million and $7,161 million, and $580 million and $(115) million, respectively, as of December 31, 2020.

~~(4)~~Excludes $13 billion and $25 billion as of September 30, 2021 and December 31, 2020, respectively, of insurance reserve and deposit liabilities which are not considered financial liabilities. We believe that the interest rate sensitivities of these insurance liabilities would serve as an offset to the net interest rate risk of the financial assets and financial liabilities, including investment contracts.

~~Market Risk Related to Equity Prices~~

We estimate our equity risk from a hypothetical 10% decline in equity benchmark levels. The following table sets forth the net estimated potential loss in fair value from such a decline as of September 30, 2021 and December 31, 2020. While these scenarios are for illustrative purposes only and do not reflect our expectations regarding future performance of equity markets or of our equity portfolio, they do represent near-term, reasonably possible hypothetical changes that illustrate the potential impact of such events. These scenarios consider only the direct impact on fair value of declines in equity benchmark market levels and not changes in asset-based fees recognized as revenue, changes in our estimates of total gross profits used as a basis for amortizing deferred policy acquisition and other costs, or changes in any other assumptions such as market volatility or mortality, utilization or persistency rates in our variable annuity contracts that could also impact the fair value of our living benefit features. In addition, these scenarios do not reflect the impact of basis risk, such as potential differences in the performance of the investment funds underlying the variable annuity products relative to the market indices we use as a basis for developing our hedging strategy. The impact of basis risk could result in larger differences between the change in fair value of the equity-based derivatives and the related living benefit features in comparison to these scenarios. In calculating these amounts, we exclude separate account equity securities.

~~Table of Contents~~

September 30, 2021 December 31, 2020
Notional Fair
Value Hypothetical
Change in
Fair Value Notional Fair
Value Hypothetical
Change in
Fair Value
(in millions)
Equity securities $ 226 $ (23) $ 278 $ (28)
Equity-based derivatives(1) $ 24,101 (322) (111) $ 51,537 (451) 2,031
Embedded derivatives(1)(2)(3) (5,658) 103 (16,722) (1,608)
Net estimated potential loss $ (31) $ 395

~~__________~~

~~(1)~~Both the notional amount and fair value of equity-based derivatives and the fair value of embedded derivatives are also reflected in amounts under “Market Risk Related to Interest Rates” above and are not cumulative.

~~(2)Excludes any offsetting impact of derivative instruments purchased to hedge changes in the embedded derivatives. Amounts reported gross of reinsurance.~~

~~(3)~~Embedded derivatives relate primarily to certain features associated with variable annuity and indexed annuity contracts. The fair value and hypothetical change in fair value of each is $(4,200) million and $(457) million, and $(1,458) million and $560 million, respectively, as of September 30, 2021. The fair value and hypothetical change in fair value of each is $(17,302) million and $(1,794) million, and $580 million and $186 million, respectively, as of December 31, 2020.

Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, ~~have~~has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule ~~13a-15(e)~~15d-15(e), as of ~~September 30, 2021.~~March 31, 2022. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2021,~~March 31, 2022, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rule ~~13a-15(f)~~15d-15(f), occurred during the quarter ended ~~September 30, 2021~~March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As discussed in Note 1 to the Unaudited Interim Financial Statements under “Sale of PALAC”, Fortitude Group Holdings, LLC initiated activities to integrate the acquisition into its internal controls over financial reporting. Certain of these activities will affect its internal control over financial reporting going forward. These changes may include activities such as (1) the implementation of new actuarial valuation models, (2) the re-design of its general ledger, (3) the establishment of service arrangements with third-party providers of variable annuity administration, (4) enhancement of controls over reinsurance accounting, as well as, (5) the automation of data feeds and transmission to support the actuarial valuation and financial accounting and reporting processes.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 and as presented below. These risks could materially affect our business, results of operations or financial condition ~~cause the trading price of our Common Stock to decline materially~~ or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q.

The Company is exposed to operational risks during the integration process following a change in ownership:

As a result of the change in ownership discussed in Note 1 to the Unaudited Interim Financial Statements under “Sale of PALAC”, the integration process by Fortitude Group Holdings, LLC (“FGH”) may be complex, costly, and time-consuming. The potential difficulties of integrating the operations of the Company include, among others:

•unanticipated issues in integrating logistics, information, communications, and other systems;

•hiring and training new employees to assume operations and compliance functions previously provided by Prudential Annuities, Inc. (“PAI”) or its affiliates; and

•consolidating corporate and administrative functions

Other than the additional risk presented above, there have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2021.

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Item 6. Exhibits


EXHIBIT INDEX

31.1 Section 302 Certification of the Chief Executive Officer

31.2 Section 302 Certification of the Chief Financial Officer

32.1 Section 906 Certification of the Chief Executive Officer

32.2 Section 906 Certification of the Chief Financial Officer

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

101.SCH - XBRL Taxonomy Extension Schema Document.

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

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

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SIGNATURES

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


PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION

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

Date: ~~November 19, 2021~~May 12, 2022

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	Balance as of June 30, 2021		Impacts of Recapture		Total as of July 1, 2021
	(in millions)
ASSETS
Total investments(1)(2)	$	20,501	$	(8,327)	$	12,174
Cash and cash equivalents	2,091		(409)		1,682
Deferred policy acquisition costs	4,215		(3,286)		929
Accrued investment income	110		(42)		68
Reinsurance recoverables	567		(181)		386
Income tax receivable	1,707		(787)		920
Value of business acquired	28		0		28
Deferred sales inducements	692		(388)		304
Receivables from parent and affiliates	114		(41)		73
Other assets	544		0		544
Separate account assets	32,934		0		32,934
TOTAL ASSETS	$	63,503	$	(13,461)	$	50,042
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	13,707	$	(9,048)	$	4,659
Policyholders’ account balances	12,617		(3,199)		9,418
Payables to parent and affiliates	34		0		34
Long-term debt	300		0		300
Reinsurance payable	148		(115)		33
Other liabilities	805		(245)		560
Separate account liabilities	32,934		0		32,934
Total Liabilities	60,545		(12,607)		47,938
EQUITY
Common stock	3		0		3
Additional paid-in capital(3)	4,383		(3,786)		597
Retained earnings	(1,782)		3,026		1,244
Accumulated other comprehensive income	354		(94)		260
Total equity	2,958		(854)		2,104
TOTAL LIABILITIES AND EQUITY	$	63,503	$	(13,461)	$	50,042


Affiliate	Period	Transaction	Security Type	Fair Value		Book Value		APIC Increase/(Decrease)		Realized Investment Gain/(Loss), Net		Derivative Gain/(Loss)
				(in millions)
Pruco Life	July 1, 2021	Sale	Derivatives, Fixed Maturities, Equity Securities, Commercial Mortgages and JV/LP Investments	$	4,908	$	4,720	$	0	$	173	$	15
PAI	July 1, 2021	Return of Capital	Fixed Maturities	$	3,420	$	3,420	$	(3,420)	$	0	$	0


	Nine Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in thousands)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	686	$	0	$	0	$	0	$	686
Additions to allowance for credit losses not previously recorded	0		0		2,658		0		0		0		2,658

Reductions for securities sold during the period	0		0		(295)		0		0		0		(295)

Addition (reductions) on securities with previous allowance	0		0		(823)		0		0		0		(823)


Balance, end of period	$	0	$	0	$	2,226	$	0	$	0	$	0	$	2,226


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

U.S. dollar fixed rate notes	2026 - 2027	2.62%	-	14.85	%	$	0	$	56,025
Total long-term notes receivable - affiliated(1)						$	0	$	56,025


	Maturity Date	Interest Rate	September 30, 2021		December 31, 2020
			(in thousands)
Affiliated Commercial Mortgage Loan	2025	4.58%	$	0	$	74,005


Affiliate	Date Issued	Amount of Notes - September 30, 2021		Amount of Notes - December 31, 2020		Interest Rate			Date of Maturity
		(in thousands)
Prudential Insurance	4/20/2016	$	0	$	93,671		3.47	%		6/20/2021
Prudential Insurance	4/20/2016	0		93,671			4.39	%		12/15/2023
Prudential Insurance	4/20/2016	0		28,102			4.39	%		12/15/2023
Prudential Insurance	4/20/2016	0		93,671			3.95	%		6/20/2024
Prudential Insurance	4/20/2016	0		37,468			3.95	%		6/20/2024
Prudential Insurance	4/20/2016	0		46,835			3.95	%		6/20/2024
Prudential Insurance	6/28/2016	0		26,000			2.59	%		6/28/2021



Total Loans Payable to Affiliates		$	0	$	419,418


	Return of Capital		Dividends
	(in millions)
September 30, 2021	$	3,813	$	0
June 30, 2021	$	0	$	188
March 31, 2021	$	0	$	192
December 31, 2020	$	188	$	0
September 30, 2020	$	192	$	0


	September 30, 2021						December 31, 2020
	Notional		Fair Value		Hypothetical Change in Fair Value		Notional		Fair Value		Hypothetical Change in Fair Value
	(in millions)
Financial assets with interest rate risk:
Fixed maturities(1)			$	10,919	$	(769)			$	19,699	$	(2,561)
Policy loans			12		0				12		0
Commercial mortgage and other loans			2,109		(102)				1,837		(79)
Derivatives:
Swaps	$	18,034	76		(884)		$	156,430	1,785		(4,322)
Futures	1,757		(1)		(5)		10,156		(14)		(149)
Options	18,020		(327)		136		34,054		1,095		(534)
Forwards	54		1		0		110		0		(6)
Embedded derivatives(2)(3)			(5,658)		1,084				(16,722)		7,046
Financial liabilities with interest rate risk(4):
Policyholders' account balances-investment contracts			(2,384)		4				(2,426)		4
Net estimated potential gain (loss)					$	(536)					$	(601)