FALSE2020Q3PRUCO LIFE INSURANCE OF NEW JERSEY000103850912/311,599,2641,437,79617,71814,2215,0655,13944816529,12224,72655400,000400,000400,000400,000400,000400,0000001038509cik1038509:PGIMMembersrt:AffiliatedEntityMember2019-01-012019-09-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


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

For the Transition Period from to

Commission File Number 333-18053

____________________________________________________________

Pruco Life Insurance Company of New Jersey

(Exact Name of Registrant as Specified in its Charter)


New Jersey						22-2426091
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

213 Washington Street

Newark, NJ 07102

(973) 802-6000

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

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


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

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

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

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


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

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

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

As of ~~November~~May 12, ~~2020,~~2021, 400,000 shares of the registrant’s Common Stock (par value $5) were outstanding. As of such date, Pruco Life Insurance Company, an Arizona corporation, owned all of the registrant’s Common Stock.

Pruco Life Insurance Company of New Jersey meets the conditions set

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

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

Table of Contents

TABLE OF CONTENTS


		Page Number
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Unaudited Interim Statements of Financial Position as of ~~September~~ ~~30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	4

	Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three ~~and~~ ~~nine~~months ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~	5

	Unaudited Interim Statements of Equity for the three ~~and~~ ~~nine~~months ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~	6

	Unaudited Interim Statements of Cash Flows for the ~~nine~~three months ended ~~September~~ ~~30,~~March 31, 2021 and 2020 ~~and 2019~~	87

	Notes to Unaudited Interim Financial Statements	98

	1. Business and Basis of Presentation	98

	2. Significant Accounting Policies and Pronouncements	109

	3. Investments	1511

	4. ~~Derivative Instruments~~Derivatives and Hedging	2421

	5. Fair Value of Assets and Liabilities	2926

	6. Reinsurance	3935

	7. Income Taxes	4339

	8. Equity	4439

	9. Related Party Transactions	4541

	10. Commitments and Contingent Liabilities	4943

	~~11. Revision to Prior Year Information~~	51

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5245

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6252

Item 4.	Controls and Procedures	6352

PART II—OTHER INFORMATION		6453

Item 1.	Legal Proceedings	6453

Item 1A.	Risk Factors	6453

Item 6.	Exhibits	6654

SIGNATURES		6755

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FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey and its subsidiary. There can be no assurance that future developments affecting Pruco Life Insurance Company of New Jersey and its subsidiary will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) the ongoing impact of the COVID-19 pandemic on the global economy, financial markets and our business, (2) losses on investments or financial contracts due to deterioration in credit quality or value, or counterparty default; (3) losses on insurance products due to mortality experience or policyholder behavior experience that differs significantly from our expectations when we price our products; (4) changes in interest rates and equity prices that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data (d) reliance on third parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) state insurance laws and developments regarding group-wide supervision, capital and reserves, and (e) privacy and cybersecurity regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) ratings downgrades; (11) market conditions that may adversely affect the sales or persistency of our products; (12) competition; and (13) reputational damage. Pruco Life Insurance Company of New Jersey does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in ~~this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and~~ the Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for discussion of certain risks relating to our business and investment in our securities.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Financial Position

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


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Fixed maturities available for sale, at fair value (amortized cost: 2020 - $1,599,264; 2019–$1,437,796)		$	1,808,546	$	1,550,096
Fixed maturities, trading, at fair value (amortized cost: 2020 - $17,718; 2019–$14,221)		17,857		13,700
Equity securities, at fair value (cost: 2020 - $5,065; 2019–$5,139)		8,438		7,512
Fixed maturities available for sale, at fair value (allowance for credit losses: 2021-$0; 2020-$0) (amortized cost: 2021-$1,691,841; 2020-$1,635,870)						Fixed maturities available for sale, at fair value (allowance for credit losses: 2021-$0; 2020-$0) (amortized cost: 2021-$1,691,841; 2020-$1,635,870)	$	1,824,338	$	1,894,195
Fixed maturities, trading, at fair value (amortized cost: 2021-$17,718; 2020-$17,718)						Fixed maturities, trading, at fair value (amortized cost: 2021-$17,718; 2020-$17,718)	18,639		19,269
Equity securities, at fair value (cost: 2021-$4,660; 2020-$4,660)						Equity securities, at fair value (cost: 2021-$4,660; 2020-$4,660)	5,978		6,218

Policy loans	Policy loans	212,519		211,986		Policy loans	211,807		212,163

Commercial mortgage and other loans (net of $448 and $165 allowance for credit losses at September 30, 2020 and December 31, 2019, respectively) (1)		136,705		143,098
Other invested assets (includes $29,122 and $24,726 of assets measured at fair value at September 30, 2020 and December 31, 2019, respectively)		103,429		89,536
Commercial mortgage and other loans (net of $466 and $440 allowance for credit losses at March 31, 2021 and December 31, 2020, respectively)						Commercial mortgage and other loans (net of $466 and $440 allowance for credit losses at March 31, 2021 and December 31, 2020, respectively)	132,441		133,115
Other invested assets (includes $15,487 and $17,581 of assets measured at fair value at March 31, 2021 and December 31, 2020, respectively)						Other invested assets (includes $15,487 and $17,581 of assets measured at fair value at March 31, 2021 and December 31, 2020, respectively)	103,134		97,509
Total investments	Total investments	2,287,494		2,015,928		Total investments	2,296,337		2,362,469
Cash and cash equivalents	Cash and cash equivalents	68,360		55,924		Cash and cash equivalents	71,205		68,527
Deferred policy acquisition costs	Deferred policy acquisition costs	213,072		178,813		Deferred policy acquisition costs	253,609		224,425
Accrued investment income	Accrued investment income	21,027		19,539		Accrued investment income	21,678		21,248
Reinsurance recoverables	Reinsurance recoverables	4,116,435		3,200,642		Reinsurance recoverables	3,331,052		3,860,612
Receivables from parent and affiliates	Receivables from parent and affiliates	32,775		32,820		Receivables from parent and affiliates	33,384		31,061

Income taxes receivable	Income taxes receivable	0		6,268		Income taxes receivable	10,937		0
Other assets	Other assets	20,042		21,203		Other assets	18,777		23,007
Separate account assets	Separate account assets	15,887,732		15,904,208		Separate account assets	17,151,428		17,117,510
TOTAL ASSETS	TOTAL ASSETS	$	22,646,937	$	21,435,345	TOTAL ASSETS	$	23,188,407	$	23,708,859
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
LIABILITIES	LIABILITIES					LIABILITIES
Policyholders’ account balances						Policyholders’ account balances	$	2,596,465	$	2,532,766
Future policy benefits	Future policy benefits	$	3,235,868	$	2,302,959	Future policy benefits	2,431,120		2,976,575
Policyholders’ account balances		2,508,775		2,424,120
Cash collateral for loaned securities	Cash collateral for loaned securities	2,731		2,481		Cash collateral for loaned securities	2,725		2,725

Income taxes payable~~(1)~~	Income taxes payable~~(1)~~	2,528		0		Income taxes payable~~(1)~~	0		10,821
Short-term debt to affiliates		0		89

Payables to parent and affiliates	Payables to parent and affiliates	13,661		24,958		Payables to parent and affiliates	13,596		16,250
Other liabilities~~(1)~~	Other liabilities~~(1)~~	163,252		140,628		Other liabilities~~(1)~~	192,841		187,620
Separate account liabilities	Separate account liabilities	15,887,732		15,904,208		Separate account liabilities	17,151,428		17,117,510
Total liabilities	Total liabilities	21,814,547		20,799,443		Total liabilities	22,388,175		22,844,267
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 ($5 par value; 400,000 shares authorized, issued and outstanding)	Common stock ($5 par value; 400,000 shares authorized, issued and outstanding)	2,000		2,000		Common stock ($5 par value; 400,000 shares authorized, issued and outstanding)	2,000		2,000
Additional paid-in capital	Additional paid-in capital	348,735		268,021		Additional paid-in capital	350,035		348,735
Retained earnings	Retained earnings	323,986		280,246		Retained earnings	352,588		328,450
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	157,669		85,635		Accumulated other comprehensive income (loss)	95,609		185,407
Total equity	Total equity	832,390		635,902		Total equity	800,232		864,592
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	22,646,937	$	21,435,345	TOTAL LIABILITIES AND EQUITY	$	23,188,407	$	23,708,859

~~(1)~~

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

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Operations and Comprehensive Income (Loss)

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
REVENUES	REVENUES									REVENUES
Premiums	Premiums	$	5,586	$	3,099	$	15,909	$	9,718	Premiums	$	7,559	$	5,194
Policy charges and fee income	Policy charges and fee income	14,623		10,344		56,835		52,798		Policy charges and fee income	28,318		23,969
Net investment income	Net investment income	23,260		18,059		60,908		56,272		Net investment income	23,545		16,965
Asset administration fees	Asset administration fees	1,756		1,500		4,867		4,292		Asset administration fees	2,026		1,565
Other income	Other income	3,371		452		3,062		3,095		Other income	(264)		(1,949)

Realized investment gains (losses), net	Realized investment gains (losses), net	2,535		2,719		8,088		(8,447)		Realized investment gains (losses), net	15,832		13,065
TOTAL REVENUES	TOTAL REVENUES	51,131		36,173		149,669		117,728		TOTAL REVENUES	77,016		58,809
BENEFITS AND EXPENSES	BENEFITS AND EXPENSES									BENEFITS AND EXPENSES
Policyholders’ benefits	Policyholders’ benefits	1,227		2,397		31,356		22,725		Policyholders’ benefits	18,835		16,686
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	10,836		13,759		33,014		32,817		Interest credited to policyholders’ account balances	10,711		10,191
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	6,297		3,519		13,576		10,918		Amortization of deferred policy acquisition costs	7,123		5,312
General, administrative and other expenses	General, administrative and other expenses	12,488		7,885		33,257		21,841		General, administrative and other expenses	14,084		10,374
TOTAL BENEFITS AND EXPENSES	TOTAL BENEFITS AND EXPENSES	30,848		27,560		111,203		88,301		TOTAL BENEFITS AND EXPENSES	50,753		42,563
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	20,283		8,613		38,466		29,427		INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	26,263		16,246
Income tax expense (benefit)	Income tax expense (benefit)	1,283		247		(5,441)		19		Income tax expense (benefit)	2,125		1,701
NET INCOME (LOSS)	NET INCOME (LOSS)	$	19,000	$	8,366	$	43,907	$	29,408	NET INCOME (LOSS)	$	24,138	$	14,545
Other comprehensive income (loss), before tax:	Other comprehensive income (loss), before tax:									Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	92		(64)		133		(60)		Foreign currency translation adjustments	(108)		(1)
Net unrealized investment gains (losses)	Net unrealized investment gains (losses)	14,591		40,681		91,050		133,542		Net unrealized investment gains (losses)	(113,561)		(20,968)
Total	Total	14,683		40,617		91,183		133,482		Total	(113,669)		(20,969)
Less: Income tax expense (benefit) related to other comprehensive income (loss)	Less: Income tax expense (benefit) related to other comprehensive income (loss)	3,083		8,530		19,149		28,031		Less: Income tax expense (benefit) related to other comprehensive income (loss)	(23,871)		(4,404)
Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes	11,600		32,087		72,034		105,451		Other comprehensive income (loss), net of taxes	(89,798)		(16,565)
Comprehensive income (loss)	Comprehensive income (loss)	$	30,600	$	40,453	$	115,941	$	134,859	Comprehensive income (loss)	$	(65,660)	$	(2,020)

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Equity

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


		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity			Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2019		$	2,000	$	268,021	$	280,246	$	85,635	$	635,902
Cumulative effect of adoption of accounting changes(1)						(167)				(167)
Balance, December 31, 2020												Balance, December 31, 2020	$	2,000	$	348,735	$	328,450	$	185,407	$	864,592

Contributed capital	Contributed capital			85,112						85,112		Contributed capital			1,300						1,300

Contributed (distributed) capital - parent/child asset transfers				(4,268)						(4,268)

Comprehensive income (loss):	Comprehensive income (loss):											Comprehensive income (loss):
Net income (loss)	Net income (loss)					14,545				14,545		Net income (loss)					24,138				24,138
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax							(16,565)		(16,565)		Other comprehensive income (loss), net of tax							(89,798)		(89,798)
Total comprehensive income (loss)	Total comprehensive income (loss)									(2,020)		Total comprehensive income (loss)									(65,660)
Balance, March 31, 2020		$	2,000	$	348,865	$	294,624	$	69,070	$	714,559
Balance, March 31, 2021												Balance, March 31, 2021	$	2,000	$	350,035	$	352,588	$	95,609	$	800,232

Contributed capital				0						0

Contributed (distributed) capital-parent/child asset transfers				(130)						(130)
Comprehensive income (loss):
Net income (loss)						10,362				10,362
Other comprehensive income (loss), net of taxes								76,999		76,999
Total comprehensive income (loss)										87,361
Balance, June 30, 2020		$	2,000	$	348,735	$	304,986	$	146,069	$	801,790

Contributed capital				0						0

Contributed (distributed) capital-parent/child asset transfers				0						0
Comprehensive income (loss):
Net income (loss)						19,000				19,000
Other comprehensive income (loss), net of taxes								11,600		11,600
Total comprehensive income (loss)										30,600
Balance, September 30, 2020		$	2,000	$	348,735	$	323,986	$	157,669	$	832,390

~~Table of Contents~~


		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity			Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, December 31, 2018		$	2,000	$	213,261	$	243,827	$	(14,367)	$	444,721
Balance, December 31, 2019												Balance, December 31, 2019	$	2,000	$	268,021	$	280,246	$	85,635	$	635,902
Cumulative effect of adoption of accounting changes~~(2)~~(1)	Cumulative effect of adoption of accounting changes~~(2)~~(1)					(336)				(336)		Cumulative effect of adoption of accounting changes~~(2)~~(1)					(167)				(167)
Contributed capital	Contributed capital			0						0		Contributed capital			85,112						85,112

Contributed (distributed) capital-parent/child asset transfers	Contributed (distributed) capital-parent/child asset transfers			0						0		Contributed (distributed) capital-parent/child asset transfers			(4,268)						(4,268)
Comprehensive income (loss):

Net income (loss)	Net income (loss)					10,545				10,545		Net income (loss)					14,545				14,545
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax							36,812		36,812		Other comprehensive income (loss), net of tax							(16,565)		(16,565)
Total comprehensive income (loss)	Total comprehensive income (loss)									47,357		Total comprehensive income (loss)									(2,020)
Balance, March 31, 2019		$	2,000	$	213,261	$	254,036	$	22,445	$	491,742
Balance, March 31, 2020												Balance, March 31, 2020	$	2,000	$	348,865	$	294,624	$	69,070	$	714,559

Contributed capital				0						0

Contributed (distributed) capital-parent/child asset transfers				0						0
Comprehensive income (loss):
Net income (loss)						10,497				10,497
Other comprehensive income (loss), net of tax								36,552		36,552
Total comprehensive income (loss)										47,049
Balance, June 30, 2019		$	2,000	$	213,261	$	264,533	$	58,997	$	538,791

Contributed capital				0						0

Contributed (distributed) capital-parent/child asset transfers				0						0
Comprehensive income (loss):
Net income (loss)						8,366				8,366
Other comprehensive income (loss), net of tax								32,087		32,087
Total comprehensive income (loss)										40,453
Balance, September 30, 2019		$	2,000	$	213,261	$	272,899	$	91,084	$	579,244

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

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

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Cash Flows

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

2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 43,907 $ 29,408
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income (1) (19,045) (13,874)
Interest credited to policyholders’ account balances 33,014 32,817
Realized investment (gains) losses, net (8,088) 8,447
Amortization and other non-cash items (4,695) (9,565)
Change in:
Future policy benefits 208,507 209,451
Reinsurance recoverables (187,085) (197,372)
Accrued investment income (1,488) (588)
Net payables to/receivables from parent and affiliates (12,876) (1,497)
Deferred policy acquisition costs (42,715) (16,068)
Income taxes (9,139) (9,256)
Derivatives, net 1,605 (1,548)
Other, net 882 (13,181)
Cash flows from (used in) operating activities 2,784 17,174
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale 35,035 45,863
Equity securities 84 3,298
Policy loans 20,129 19,997
Ceded policy loans (1,185) (967)
Commercial mortgage and other loans 9,737 9,163
Other invested assets 1,542 1,451
Payments for the purchase/origination of:
Fixed maturities, available-for-sale (117,524) (139,109)
Fixed maturities, trading (3,497) (6,776)
Equity securities 0 (50)
Policy loans (16,249) (17,942)
Ceded policy loans 3,381 1,749
Commercial mortgage and other loans (3,616) (25,088)
Other invested assets (7,923) (11,821)
Notes receivable from parent and affiliates, net 1,398 6,254
Derivatives, net 315 (173)
Other, net 93 (246)
Cash flows from (used in) investing activities (78,280) (114,397)
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders’ account deposits 403,557 425,091
Ceded policyholders’ account deposits (265,304) (259,621)
Policyholders’ account withdrawals (1) (247,216) (263,941)
Ceded policyholders’ account withdrawals 189,038 169,411
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities 250 (174)
Contributed (distributed) capital - parent/child asset transfers (5,567) 0
Net change in all other financing arrangements (maturities 90 days or less) (89) 0
Drafts outstanding 6,046 (5,652)
Other, net (1) 7,217 (7,606)
Cash flows from (used in) financing activities 87,932 57,508
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,436 (39,715)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 55,924 70,441
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 68,360 $ 30,726

~~(1) Prior period amounts have been revised to correct an error. See Note 11 for details.~~


	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	24,138	$	14,545
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income	(10,959)		(8,571)
Interest credited to policyholders’ account balances	10,711		10,191
Realized investment (gains) losses, net	(15,832)		(13,065)
Amortization and other non-cash items	(4,785)		1,063
Change in:
Future policy benefits	62,561		108,205
Reinsurance recoverables	(43,468)		(96,083)
Accrued investment income	(430)		(731)
Net payables to/receivables from parent and affiliates	(5,011)		(951)
Deferred policy acquisition costs	(18,981)		(12,994)
Income taxes	2,114		1,690

Derivatives, net	5,046		(251)
Other, net	14,388		1,313
Cash flows from (used in) operating activities	19,492		4,361
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	14,508		13,664


Policy loans	7,377		6,512
Ceded policy loans	(742)		(297)

Commercial mortgage and other loans	483		5,457
Other invested assets	390		857

Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(50,946)		(28,895)


Policy loans	(4,537)		(8,623)
Ceded policy loans	334		2,474

Commercial mortgage and other loans	0		(2,198)
Other invested assets	(4,149)		(3,452)

Notes receivable from parent and affiliates, net	(8)		75
Derivatives, net	(136)		(416)
Other, net	(104)		7
Cash flows from (used in) investing activities	(37,530)		(14,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders’ account deposits	108,982		136,986
Ceded policyholders’ account deposits	(79,213)		(91,138)
Policyholders’ account withdrawals	(72,274)		(73,651)
Ceded policyholders’ account withdrawals	57,352		57,603
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities	0		106



Net change in all other financing arrangements (maturities 90 days or less)	0		(89)


Drafts outstanding	(542)		5,000
Other, net	6,411		4,518
Cash flows from (used in) financing activities	20,716		39,335
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	2,678		28,861
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	68,527		55,924
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	71,205	$	84,785

Significant Non-Cash Transactions

There were 0 significant non-cash transactions for the three months ended March 31, 2021. For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, the Company received $85 million of non-cash assets from its parent, Pruco Life Insurance Company. ~~There were 0 significant non-cash transactions for the nine months ended September 30, 2019.~~ See Note 9 for additional information.

See Notes to Unaudited Interim Financial Statements

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

1. BUSINESS AND BASIS OF PRESENTATION

Pruco Life Insurance Company of New Jersey ("PLNJ") is a wholly-owned subsidiary of Pruco Life Insurance Company (“Pruco Life”), which in turn is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential Insurance”). Prudential Insurance is a direct wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). PLNJ is a stock life insurance company organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in New Jersey and New York only, and sells such products primarily through affiliated and unaffiliated distributors.

Basis of Presentation

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

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

Use of Estimates

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

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

COVID-19

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

~~Revision to Prior Period Financial Statements~~Reclassifications

~~The Company identified an error~~Certain amounts in ~~the presentation of certain cash flow activity related to policyholders' account balances that impacted several line items within previously issued Statements of Cash Flows. Prior period amounts~~prior periods have been ~~revised in the financial statements~~reclassified to correct this error. Management evaluated these adjustments and concluded they were not material to any previously reported quarterly or annual financial statements. See Note 11 for a more detailed description of the revision and for comparisons of amounts previously reportedconform to the ~~revised amounts.~~current period presentation.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

~~Reclassifications~~

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

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, 2020,~~March 31, 2021, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

~~Adoption of ASU 2016-13~~

The Company adopted ASU 2016-13, and related ASUs, effective January 1, 2020 using the modified retrospective method for certain financial assets carried at amortized cost and certain off-balance sheet exposures. The modified retrospective method results in a cumulative effect adjustment to opening retained earnings. The Company adopted the guidance related to fixed maturities, available-for-sale on a prospective basis.

This ASU requires the use of a new current expected credit loss (“CECL”) model to account for expected credit losses on certain financial assets reported at amortized cost (e.g., loans held for investment, reinsurance receivables, etc.) and certain off-balance sheet credit exposures (e.g., indemnification of serviced mortgage loans and certain loan commitments). The guidance requires an entity to estimate lifetime credit losses related to such financial assets and credit exposures based on relevant information about past events, current conditions, and reasonable and supportable forecasts that may affect the collectability of the reported amounts. The standard also modifies the OTTI guidance for fixed maturities, available-for-sale requiring the use of an allowance rather than a direct write-down of the investment.

The impacts of this ASU on the Company’s Financial Statements primarily include (1) A Cumulative Effect Adjustment Upon Adoption; (2) Changes to the Presentation of the Statements of Financial Position and Statements of Operations; and (3) Changes to Accounting Policies. Each of these impacts is described below. This section is meant to serve as an update to, and should be read in conjunction with, Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

~~(1) Cumulative Effect Adjustment Upon Adoption~~

Adoption of the standard resulted in a cumulative effect adjustment to opening retained earnings in the amount of $0.2 million, primarily related to commercial mortgage and other loans. The impact of adoption is not material to the following financial statement line items: income taxes payable and other liabilities. The prospective adoption of the portions of the standard related to fixed maturities, available-for-sale resulted in no impact to opening retained earnings.

~~(2) Changes to the Presentation of the Statements of Financial Position and Statements of Operations~~

The allowance for credit losses is presented parenthetically on relevant line items in the Statements of Financial Position. In the Statements of Operations, realized investment gains (losses), net are presented on one line item and will no longer reflect the breakout of OTTI on fixed maturity securities; OTTI on fixed maturity securities transferred to other comprehensive income (“OCI”); and other realized investment gains (losses), net. The presentation of this detail in prior periods is immaterial.

~~(3) Changes to Accounting Policies~~

~~This section has been updated to include the following changes in our accounting policies resulting from the adoption of ASU 2016-13.~~

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

~~Fixed maturities, available-for-sale~~

Fixed maturities, available-for-sale (“AFS debt securities”) are reported at fair value in the Statements of Financial Position. Interest income, and amortization of premium and accretion of discount are included in “Net investment income” under the effective yield method. For mortgage-backed and asset-backed securities, the effective yield is based on estimated cash flows, including interest rate and prepayment assumptions based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also vary based on other assumptions relating to the underlying collateral, including default rates and changes in value. These assumptions can significantly impact income recognition and the amount of impairments recognized in earnings and OCI. For mortgage-backed and asset-backed securities rated below AA, the effective yield is adjusted prospectively for any changes in the estimated timing and amount of cash flows unless the investment is impaired or purchased with credit deterioration. For impaired mortgage-backed and asset-backed securities rated below AA, the effective yield is adjusted prospectively only if subsequent favorable or adverse changes in expected cash flows are not reflected in the allowance for credit losses. Prior to the adoption of this standard, the effective yield was adjusted prospectively regardless of whether the investment was impaired or not.

AFS debt securities with unrealized losses are reviewed quarterly to determine whether the amortized cost basis of the security is recoverable. In evaluating whether the amortized cost basis is recoverable, the Company considers several factors including, but not limited to the extent of the decline and the reasons for the decline in value (credit events, currency or interest-rate related, including general credit spread widening), and the financial condition of the issuer.

When an AFS debt security is in an unrealized loss position and (1) the Company has the intent to sell the AFS debt security, or (2) it is more likely than not the Company will be required to sell the AFS debt security before its anticipated recovery, or (3) the Company has deemed the AFS debt security to be uncollectable, the amortized cost basis of the AFS debt security is written down to fair value and any previously recognized allowance is reversed. The impairment is reported in “Realized investment gains (losses), net.” The new cost basis is not adjusted for subsequent increases in estimated fair value.

For an AFS debt security in an unrealized loss position that does not meet these conditions, the Company analyzes its ability to recover the amortized cost by comparing the net present value of projected future cash flows (the “net present value”) with the amortized cost of the security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the AFS debt security at the date of acquisition. The Company may use the estimated fair value of collateral, if any, as a proxy for the net present value if it believes that the security is dependent on the liquidation of collateral for recovery of its investment. If the net present value is less than the amortized cost of the investment, an allowance for losses is recognized in earnings for the difference between amortized cost and the net present value and is limited to the difference between amortized cost and fair value of the AFS debt security. Any difference between the fair value and the net present value of the debt security at the impairment measurement date remains in “Other comprehensive income (loss).” Changes in the allowance for losses are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, any impairments on AFS debt securities were reported as an adjustment to the amortized cost basis of the security. Subsequent to the impairment, the AFS debt security was treated as if it were newly acquired at the date of impairment, and any increases in cash flows expected to be collected were accreted into net investment income over the life of the investment.

~~Commercial mortgage and other loans~~

Commercial mortgage and other loans are reported in the Statements of Financial Position at amortized cost net of the CECL allowance. Additionally, certain off-balance sheet credit exposures (e.g., indemnification of serviced mortgage loans, and certain unfunded mortgage loan commitments where the Company cannot unconditionally cancel the commitment) are also subject to a CECL allowance.

The CECL allowance represents the Company’s best estimate of expected credit losses over the remaining life of the assets or off-balance sheet credit exposures. The determination of the allowance considers historical credit loss experience, current conditions, and reasonable and supportable forecasts. The allowance is calculated separately for commercial mortgage loans, agricultural mortgage loans, and other collateralized and uncollateralized loans.

For commercial mortgage and agricultural mortgage loans (and related unfunded commitments where the Company cannot unconditionally cancel the commitment), the allowance is calculated using an internally developed CECL model.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Key inputs to the CECL model include unpaid principal balances, internal credit ratings, annual expected loss factors, average lives of the loans adjusted for prepayment considerations, current and historical interest rate assumptions, and other factors influencing the Company’s view of the current stage of the economic cycle and future economic conditions. Subjective considerations include a review of whether historical loss experience is representative of current market conditions and the Company’s view of the credit cycle. Model assumptions and factors are reviewed and updated as appropriate. Information about certain key inputs is detailed below.

Key factors in determining the internal credit ratings for commercial mortgage and agricultural mortgage loans include loan-to-value and debt-service-coverage ratios. Other factors include amortization, loan term, and estimated market value growth rate and volatility for the property type and region. The loan-to-value ratio compares the carrying amount of the loan to the fair value of the underlying property or properties collateralizing the loan and is commonly expressed as a percentage. Loan-to-value ratios greater than 100% indicate that the carrying amount of the loan exceeds the collateral value. A loan-to-value ratio less than 100% indicates an excess of collateral value over the carrying amount of the loan. The debt-service-coverage ratio is a property’s net operating income as a percentage of its debt service payments. Debt-service-coverage ratios less than 1.0 times indicate that a property’s operations do not generate enough income to cover the loan’s current debt payments. A debt-service-coverage ratio greater than 1.0 times indicates an excess of net operating income over the debt service payments. The values utilized in calculating these ratios are developed as part of the Company’s periodic review of the commercial mortgage and agricultural mortgage loan portfolios, which includes an internal appraisal of the underlying collateral value. The Company’s periodic review also includes a credit re-rating process, whereby the internal credit rating originally assigned at underwriting is updated based on current loan, property and market information using a proprietary credit quality rating system. See Note 3 for additional information related to the loan-to-value ratios and debt-service-coverage ratios related to the Company’s commercial mortgage and agricultural mortgage loan portfolios. Generally, every loan is re-rated at least annually.

~~Annual expected loss rates are based on historical default and loss experience factors. Using average lives, the annual expected loss rates are converted into life-of-loan loss expectations.~~

When individual loans no longer have the credit risk characteristics of the commercial or agricultural mortgage loan pools, they are removed from the pools and are evaluated individually for an allowance. The allowance is determined based on the outstanding loan balance less the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The CECL allowance on commercial mortgage and other loans can increase or decrease from period to period based on the factors noted above. The change in allowance is reported in “Realized investment gains (losses), net.” As it relates to unfunded commitments that are in scope of this guidance, the CECL allowance is reported in “Other liabilities”, and the change in the allowance is reported in “Realized investment gains (losses), net.”

When a commercial mortgage or other loan is deemed to be uncollectible, any allowance is reversed and a direct write-down of the carrying amount of the loan is recorded through "Realized investment gains (losses), net." The carrying amount of the loan is not adjusted for subsequent recoveries in value.

The CECL allowance for other collateralized and uncollateralized loans carried at amortized cost is determined based on probability of default and loss given default assumptions by sector, credit quality and average lives of the loans. Additions to or releases of the allowance are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, the impairments on commercial mortgage and other loans were collectively reviewed at a portfolio level for impairment based on probable incurred but not specifically identified losses with any such losses reflected in an allowance for credit losses. When a loan was individually identified to be impaired, the loan was individually evaluated for an allowance. Changes in these allowances were reported in “Realized investment gains (losses), net.” Additionally, an allowance for credit losses was not required on unfunded loan commitments.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

~~Reinsurance Recoverables~~

Reinsurance recoverables are reported on the Statements of Financial Position net of the CECL allowance. The CECL allowance considers the credit quality of the reinsurance counterparty and is generally determined based on the probability of default and loss given default assumptions, after considering any applicable collateral arrangements. The CECL allowance does not apply to reinsurance recoverables with affiliated counterparties under common control. Additions to or releases of the allowance are reported in “Policyholders’ benefits.”

Prior to the adoption of this standard, an allowance for credit losses for reinsurance recoverables was established only when it was deemed probable that a reinsurer may fail to make payments to us in a timely manner.

~~Other ASUs adopted during the nine months ended September 30, 2020.~~

~~Standard~~

~~Description~~

~~Effective date and method of adoption~~

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

~~ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation~~

~~of the Effects of Reference Rate Reform on Financial Reporting~~

This ASU provides optional relief for certain contracts impacted by reference rate reform. The standard permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU also temporarily (until December 31, 2022) allows hedge relationships to continue without de-designation upon changes due to reference rate reform.

~~March 12, 2020 to December 31, 2022 using the prospective method.~~

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

ASU issued but not yet adopted as of ~~September 30, 2020~~March 31, 2021 — ASU 2018-12

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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 options for method of adoption and the impacts of such methods are under assessment.

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

Requires discount rate assumptions to be based on an upper-medium grade fixed income instrument yield, 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.

Upon adoption, under either transition method, there will be an adjustment to AOCI as a result of remeasuring in force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment upon adoption will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed.

Amortization of DAC and other balances

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

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

The options for method of adoption and the impacts of such methods are under assessment. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.

Market Risk Benefits ~~(MRB)~~("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.

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.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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 was not more than 30 days past due as of December 31, 2019 (“TDR Relief”). The TDR Relief was set to expire on December 31, 2020, but was extended through December 31, 2021 by the Consolidated Appropriations Act of 2021. The Company elected to apply the TDR Relief beginning in the first quarter of 2021. The TDR Relief does not apply to modifications completed 60 days after the national emergency related to COVID-19 ends, or December 31, 2021, whichever comes earlier. As of March 31, 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.

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, 2020											March 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	$	10,694	$	1,144	$	0	$	0	$	11,838	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	10,581	$	883	$	0	$	0	$	11,464
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	162,327		18,590		0		0		180,917		Obligations of U.S. states and their political subdivisions	162,123		16,339		0		0		178,462
Foreign government bonds	Foreign government bonds	75,345		11,069		98		0		86,316		Foreign government bonds	98,897		6,352		1,753		0		103,496

U.S. public corporate securities	U.S. public corporate securities	743,982		132,179		1,045		0		875,116		U.S. public corporate securities	819,642		82,750		9,962		0		892,430
U.S. private corporate securities	U.S. private corporate securities	223,616		19,538		560		0		242,594		U.S. private corporate securities	219,742		14,690		432		0		234,000
Foreign public corporate securities	Foreign public corporate securities	61,164		8,119		624		0		68,659		Foreign public corporate securities	74,570		5,823		1,388		0		79,005
Foreign private corporate securities	Foreign private corporate securities	157,423		9,466		2,502		0		164,387		Foreign private corporate securities	146,199		10,526		1,280		0		155,445
Asset-backed securities(1)	Asset-backed securities(1)	18,027		632		47		0		18,612		Asset-backed securities(1)	16,540		681		1		0		17,220
Commercial mortgage-backed securities	Commercial mortgage-backed securities	143,234		12,821		0		0		156,055		Commercial mortgage-backed securities	140,516		8,796		0		0		149,312
Residential mortgage-backed securities(2)	Residential mortgage-backed securities(2)	3,452		600		0		0		4,052		Residential mortgage-backed securities(2)	3,031		473		0		0		3,504
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	1,599,264	$	214,158	$	4,876	$	0	$	1,808,546	Total fixed maturities, available-for-sale	$	1,691,841	$	147,313	$	14,816	$	0	$	1,824,338

(1)Includes credit-tranched securities collateralized by loan obligations and education loans.

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

December 31, 2019
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value OTTI
in AOCI(3)
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 14,983 $ 1,032 $ 0 $ 16,015 $ 0
Obligations of U.S. states and their political subdivisions 123,505 10,172 0 133,677 0
Foreign government bonds 70,287 6,993 0 77,280 0
U.S. public corporate securities 627,880 70,167 527 697,520 0
U.S. private corporate securities 222,952 10,416 153 233,215 0
Foreign public corporate securities 53,115 4,958 80 57,993 0
Foreign private corporate securities 161,597 4,505 2,210 163,892 0
Asset-backed securities(1) 17,816 753 27 18,542 0
Commercial mortgage-backed securities 141,593 5,796 0 147,389 0
Residential mortgage-backed securities(2) 4,068 509 4 4,573 (50)
Total fixed maturities, available-for-sale $ 1,437,796 $ 115,301 $ 3,001 $ 1,550,096 $ (50)

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

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	10,638	$	1,017	$	0	$	0	$	11,655
Obligations of U.S. states and their political subdivisions	162,227		20,399		0		0		182,626
Foreign government bonds	79,318		13,347		29		0		92,636

U.S. public corporate securities	791,616		158,087		118		0		949,585
U.S. private corporate securities	222,279		23,564		225		0		245,618
Foreign public corporate securities	60,376		10,022		51		0		70,347
Foreign private corporate securities	148,103		17,892		640		0		165,355
Asset-backed securities(1)	16,535		666		12		0		17,189
Commercial mortgage-backed securities	141,564		13,854		0		0		155,418
Residential mortgage-backed securities(2)	3,214		552		0		0		3,766
Total fixed maturities, available-for-sale	$	1,635,870	$	259,400	$	1,075	$	0	$	1,894,195

~~(3)~~

(1)~~Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $0.1 million of net unrealized gains on impaired available-for-sale~~Includes credit-tranched securities ~~relating to changes in the value of such~~collateralized by loan obligations and education loans.

(2)Includes publicly-traded agency pass-through securities ~~subsequent to the impairment measurement date.~~and collateralized mortgage obligations.

The following ~~table sets~~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 ~~date~~dates indicated:

September 30, 2020
Less Than Twelve Months Twelve Months or More Total
Fair Value   Gross
Unrealized
Losses Fair Value   Gross
Unrealized
Losses Fair Value   Gross
Unrealized
Losses
(in thousands)
Fixed maturities, available-for-sale:
Foreign government bonds $ 5,707 $ 98 $ 0 $ 0 $ 5,707 $ 98
U.S. public corporate securities 28,363 1,045 0 0 28,363 1,045
U.S. private corporate securities 10,349 560 0 0 10,349 560
Foreign public corporate securities 12,339 624 0 0 12,339 624
Foreign private corporate securities 5,819 149 35,064 2,353 40,883 2,502
Asset-backed securities 2,490 10 3,917 37 6,407 47
Residential mortgage-backed securities 0 0 0 0 0 0
Total fixed maturities, available-for-sale $ 65,067 $ 2,486 $ 38,981 $ 2,390 $ 104,048 $ 4,876

The following table sets forth the fair value and gross unrealized losses on fixed maturity securities aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the date indicated:

December 31, 2019
Less Than Twelve Months Twelve Months or More Total
Fair Value   Gross
Unrealized
Losses Fair Value   Gross
Unrealized
Losses Fair Value   Gross
Unrealized
Losses
(in thousands)
Fixed maturities, available-for-sale:
Foreign government bonds $ 0 $ 0 $ 400 $ 0 $ 400 $ 0
U.S. public corporate securities 16,892 190 1,073 337 17,965 527
U.S. private corporate securities 7,350 140 4,757 13 12,107 153
Foreign public corporate securities 2,054 23 2,427 57 4,481 80
Foreign private corporate securities 10,659 281 27,048 1,929 37,707 2,210
Asset-backed securities 1,488 12 2,985 15 4,473 27
Residential mortgage-backed securities 91 4 0 0 91 4
Total fixed maturities, available-for-sale $ 38,534 $ 650 $ 38,690 $ 2,351 $ 77,224 $ 3,001

As of September 30, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $3.8 million related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $1.1 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of September 30, 2020, the $2.4 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, consumer non-cyclical, and transportation sectors.


	March 31, 2021
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:


Foreign government bonds	$	29,269	$	1,753	$	0	$	0	$	29,269	$	1,753
U.S. public corporate securities	151,096		9,962		0		0		151,096		9,962
U.S. private corporate securities	15,403		262		5,180		170		20,583		432
Foreign public corporate securities	23,302		1,388		0		0		23,302		1,388
Foreign private corporate securities	11,241		208		11,585		1,072		22,826		1,280
Asset-backed securities	490		1		1,012		0		1,502		1


Total fixed maturities, available-for-sale	$	230,801	$	13,574	$	17,777	$	1,242	$	248,578	$	14,816

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


	December 31, 2020
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available-for-sale:


Foreign government bonds	$	2,122	$	29	$	0	$	0	$	2,122	$	29
U.S. public corporate securities	10,416		118		0		0		10,416		118
U.S. private corporate securities	9,635		225		0		0		9,635		225
Foreign public corporate securities	1,611		51		0		0		1,611		51
Foreign private corporate securities	0		0		12,017		640		12,017		640
Asset-backed securities	988		2		3,941		10		4,929		12

Residential mortgage-backed securities	0		0		0		0		0		0
Total fixed maturities, available-for-sale	$	24,772	$	425	$	15,958	$	650	$	40,730	$	1,075

As of March 31, 2021 and December 31, ~~2019,~~2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of ~~$2.4~~$13.8 million and $0.4 million, respectively, related to “1” highest quality or “2” high quality securities based on the ~~NAIC~~National Association of Insurance Commissioners (“NAIC”) or equivalent rating and ~~$0.6~~$1.0 million and $0.7 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of ~~December~~March 31, ~~2019,~~2021, the ~~$2.4~~$1.2 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, consumer non-cyclical and ~~energy~~transportation sectors. As of December 31, 2020, the $0.7 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance and consumer non-cyclical 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, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at ~~September 30, 2020. These conclusions were~~March 31, 2021. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to general credit spread widening, increases in interest rates, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of ~~September 30, 2020,~~March 31, 2021, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

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


		September 30, 2020					March 31, 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
		(in thousands)					(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:					Fixed maturities, available-for-sale:
Due in one year or less	Due in one year or less	$	38,528	$	38,910	Due in one year or less	$	45,685	$	45,656
Due after one year through five years	Due after one year through five years	203,196		213,078		Due after one year through five years	237,943		252,705
Due after five years through ten years	Due after five years through ten years	206,436		221,643		Due after five years through ten years	149,055		160,579
Due after ten years	Due after ten years	986,391		1,156,196		Due after ten years	1,099,071		1,195,362
Asset-backed securities	Asset-backed securities	18,027		18,612		Asset-backed securities	16,540		17,220
Commercial mortgage-backed securities	Commercial mortgage-backed securities	143,234		156,055		Commercial mortgage-backed securities	140,516		149,312
Residential mortgage-backed securities	Residential mortgage-backed securities	3,452		4,052		Residential mortgage-backed securities	3,031		3,504
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	1,599,264	$	1,808,546	Total fixed maturities, available-for-sale	$	1,691,841	$	1,824,338

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.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~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,
		2020		2019		2020		2019				2021		2020
		(in thousands)									(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:									Fixed maturities, available-for-sale:
Proceeds from sales(1)	Proceeds from sales(1)	$	810	$	482	$	3,105	$	12,121	Proceeds from sales(1)		$	2,922	$	1,410
Proceeds from maturities/prepayments	Proceeds from maturities/prepayments	14,331		11,536		31,946		33,742		Proceeds from maturities/prepayments		10,086		12,254
Gross investment gains from sales and maturities	Gross investment gains from sales and maturities	136		7		162		150		Gross investment gains from sales and maturities		25		24
Gross investment losses from sales and maturities	Gross investment losses from sales and maturities	1		(2)		(43)		(461)		Gross investment losses from sales and maturities		(167)		0
OTTI recognized in earnings(2)		N/A		(2,295)		N/A		(5,458)

Write-downs recognized in earnings~~(3)~~(2)	Write-downs recognized in earnings~~(3)~~(2)	0		N/A		(625)		N/A		Write-downs recognized in earnings~~(3)~~(2)		0		(625)
(Addition to) release of allowance for credit losses~~(4)~~	(Addition to) release of allowance for credit losses~~(4)~~	0		N/A		0		N/A		(Addition to) release of allowance for credit losses~~(4)~~		0		0

(1)Includes ~~$0.0~~$(1.5) million and $0.0 million of non-cash related proceeds due to the timing of trade settlements for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

(2)For the three and nine months ended September 30, 2019, amounts exclude the portion of OTTI amounts remaining in OCI, representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.

~~(3)For the three and nine months ended September 30, 2020, amounts~~Amounts represent ~~write-downs on securities approaching maturity related to foreign exchange movements and~~ securities actively marketed for sale.

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

For both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, there was 0 activity in the allowance for credit losses for fixed maturity securities.

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 about the Company's methodology for developing our allowance ~~and expected~~for credit losses.

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

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income,” was ~~$1.1~~$(0.2) million and ~~$0.0~~$(0.5) million during the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $1.0 million and $0.5 million during the nine months ended September 30, 2020 and 2019,~~ respectively.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~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, 2020				December 31, 2019					March 31, 2021				December 31, 2020
		Amount (in thousands)		% of Total		Amount (in thousands)		% of Total			Amount (in thousands)		% of Total		Amount (in thousands)		% of Total
Commercial mortgage and agricultural property loans by property type:	Commercial mortgage and agricultural property loans by property type:									Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	Apartments/Multi-Family	$	46,969	34.2	%	$	47,568	33.2	%	Apartments/Multi-Family	$	46,534	35.0	%	$	46,755	35.0	%
Hospitality	Hospitality	14,160		10.3		14,266		10.0		Hospitality	14,031		10.6		14,031		10.5
Industrial	Industrial	17,656		12.9		18,907		13.2		Industrial	13,884		10.4		13,936		10.4
Office	Office	23,143		16.9		24,035		16.7		Office	23,524		17.7		23,649		17.7
Other	Other	16,845		12.3		18,853		13.2		Other	16,801		12.6		16,929		12.7
Retail	Retail	15,945		11.6		16,174		11.3		Retail	15,772		11.9		15,857		11.9
Total commercial mortgage loans	Total commercial mortgage loans	134,718		98.2		139,803		97.6		Total commercial mortgage loans	130,546		98.2		131,157		98.2
Agricultural property loans	Agricultural property loans	2,435		1.8		3,460		2.4		Agricultural property loans	2,361		1.8		2,398		1.8
Total commercial mortgage and agricultural property loans	Total commercial mortgage and agricultural property loans	137,153		100.0	%	143,263		100.0	%	Total commercial mortgage and agricultural property loans	132,907		100.0	%	133,555		100.0	%
Allowance for credit losses	Allowance for credit losses	(448)				(165)				Allowance for credit losses	(466)				(440)

Total net commercial mortgage and other loans	Total net commercial mortgage and other loans	$	136,705			$	143,098			Total net commercial mortgage and other loans	$	132,441			$	133,115

As of ~~September 30, 2020,~~March 31, 2021, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States ~~with~~(with the largest concentrations in New York ~~(13%~~(14%), ~~Texas (11%~~Florida (10%), Illinois (9%) and ~~Illinois~~Texas (9%)) and included loans secured by properties in Europe ~~(10%~~(11%).

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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, 2020
Commercial Mortgage Loans Agricultural Property Loans Total
(in thousands)
Balance, beginning of period $ 457 $ 0 $ 457
Addition to (release of) allowance for expected losses (9) 0 (9)
Balance, end of period $ 448 $ 0 $ 448


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

Balance at December 31, 2019	$	164	$	1		$	165
Cumulative effect of adoption of ASU 2016-13	204		0			204
Addition to (release of) allowance for expected losses	80		(1)			79

Balance at September 30, 2020	$	448	$	0		$	448

Allowance, beginning of period								Allowance, beginning of period	$	440	$	0		$	440	$	164	$	1	$	165
Cumulative effect of adoption of ASU 2016-13								Cumulative effect of adoption of ASU 2016-13	0		0			0		204		0		204
Addition to (release of) allowance for expected losses								Addition to (release of) allowance for expected losses	26		0			26		73		0		73
Allowance, end of period								Allowance, end of period	$	466	$	0		$	466	$	441	$	1	$	442

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 about the Company's methodology for developing our allowance and expected losses.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, the increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to net negative credit migration. For the three months ended March 31, 2020, the increase in the allowance for credit losses on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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 date indicated:~~


		September 30, 2020																	March 31, 2021
		Amortized Cost by Origination Year																	Amortized Cost by Origination Year
		2020		2019		2018		2017		2016		Prior		Revolving Loans		Total			2021		2020		2019		2018		2017		Prior		Total
		(in thousands)																	(in thousands)
Commercial Mortgage Loans	Commercial Mortgage Loans																	Commercial Mortgage Loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:																	Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	0	$	10,359	$	0	$	8,440	$	9,751	$	58,431	$	0	$	86,981	0%-59.99%	$	0	$	0	$	6,246	$	1,466	$	10,713	$	64,251	$	82,676
60%-69.99%	60%-69.99%	2,198		20,944		1,488		4,005		3,192		11,798		0		43,625		60%-69.99%	0		2,198		27,745		0		1,016		12,153		43,112
70%-79.99%	70%-79.99%	0		4,112		0		0		0		0		0		4,112		70%-79.99%	0		0		1,870		0		0		1,914		3,784
80% or greater	80% or greater	0		0		0		0		0		0		0		0		80% or greater	0		0		0		0		974		0		974
Total	Total	$	2,198	$	35,415	$	1,488	$	12,445	$	12,943	$	70,229	$	0	$	134,718	Total	$	0	$	2,198	$	35,861	$	1,466	$	12,703	$	78,318	$	130,546
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																	Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	2,198	$	32,042	$	0	$	12,445	$	11,872	$	68,406	$	0	$	126,963	Greater or Equal to 1.2x	$	0	$	2,198	$	31,493	$	1,466	$	11,729	$	72,099	$	118,985
1.0 - 1.2x	1.0 - 1.2x	0		3,373		1,488		0		1,071		1,823		0		7,755		1.0 - 1.2x	0		0		3,364		0		974		6,219		10,557
Less than 1.0x	Less than 1.0x	0		0		0		0		0		0		0		0		Less than 1.0x	0		0		1,004		0		0		0		1,004
Total	Total	$	2,198	$	35,415	$	1,488	$	12,445	$	12,943	$	70,229	$	0	$	134,718	Total	$	0	$	2,198	$	35,861	$	1,466	$	12,703	$	78,318	$	130,546
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%	$	0	$	0	$	0	$	0	$	0	$	2,435	$	0	$	2,435	0%-59.99%	$	0	$	0	$	0	$	0	$	0	$	2,361	$	2,361
60%-69.99%	60%-69.99%	0		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		0		70%-79.99%	0		0		0		0		0		0		0
80% or greater	80% or greater	0		0		0		0		0		0		0		0		80% or greater	0		0		0		0		0		0		0
Total	Total	$	0	$	0	$	0	$	0	$	0	$	2,435	$	0	$	2,435	Total	$	0	$	0	$	0	$	0	$	0	$	2,361	$	2,361
Debt Service Coverage Ratio:	Debt Service Coverage Ratio:																	Debt Service Coverage Ratio:
Greater or Equal to 1.2x	Greater or Equal to 1.2x	$	0	$	0	$	0	$	0	$	0	$	2,435	$	0	$	2,435	Greater or Equal to 1.2x	$	0	$	0	$	0	$	0	$	0	$	2,361	$	2,361
1.0 - 1.2x	1.0 - 1.2x	0		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		0		0		0		Less than 1.0x	0		0		0		0		0		0		0
Total	Total	$	0	$	0	$	0	$	0	$	0	$	2,435	$	0	$	2,435	Total	$	0	$	0	$	0	$	0	$	0	$	2,361	$	2,361

Commercial mortgage loans
December 31, 2019
Debt Service Coverage Ratio
>1.2X 1.0X to <1.2X < 1.0X Total
(in thousands)
Loan-to-Value Ratio:
0%-59.99% $ 89,855 $ 1,131 $ 0 $ 90,986
60%-69.99% 42,726 1,877 0 44,603
70%-79.99% 2,695 1,519 0 4,214
80% or greater 0 0 0 0
Total commercial mortgage loans $ 135,276 $ 4,527 $ 0 $ 139,803

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


Agricultural property loans
		December 31, 2019
		Debt Service Coverage Ratio									December 31, 2020
		>1.2X		1.0X to <1.2X		< 1.0X		Total			Amortized Cost by Origination Year
		(in thousands)									2020		2019		2018		2017		2016		Prior		Total
											(in thousands)
Commercial Mortgage Loans										Commercial Mortgage Loans
Loan-to-Value Ratio:	Loan-to-Value Ratio:									Loan-to-Value Ratio:
0%-59.99%	0%-59.99%	$	3,460	$	0	$	0	$	3,460	0%-59.99%	$	0	$	6,285	$	0	$	6,349	$	9,731	$	45,261	$	67,626
60%-69.99%	60%-69.99%	0		0		0		0		60%-69.99%	2,198		27,970		1,478		5,381		3,191		18,533		58,751
70%-79.99%	70%-79.99%	0		0		0		0		70%-79.99%	0		1,870		0		0		0		1,931		3,801
80% or greater	80% or greater	0		0		0		0		80% or greater	0		0		0		979		0		0		979
Total agricultural property loans		$	3,460	$	0	$	0	$	3,460
Total										Total	$	2,198	$	36,125	$	1,478	$	12,709	$	12,922	$	65,725	$	131,157
Debt Service Coverage Ratio:										Debt Service Coverage Ratio:
Greater or Equal to 1.2x										Greater or Equal to 1.2x	$	2,198	$	31,751	$	1,478	$	11,730	$	11,872	$	60,499	$	119,528
1.0 - 1.2x										1.0 - 1.2x	0		3,364		0		979		1,050		5,226		10,619
Less than 1.0x										Less than 1.0x	0		1,010		0		0		0		0		1,010
Total										Total	$	2,198	$	36,125	$	1,478	$	12,709	$	12,922	$	65,725	$	131,157
Agricultural Property Loans										Agricultural Property Loans
Loan-to-Value Ratio:										Loan-to-Value Ratio:
0%-59.99%										0%-59.99%	$	0	$	0	$	0	$	0	$	0	$	2,398	$	2,398
60%-69.99%										60%-69.99%	0		0		0		0		0		0		0
70%-79.99%										70%-79.99%	0		0		0		0		0		0		0
80% or greater										80% or greater	0		0		0		0		0		0		0
Total										Total	$	0	$	0	$	0	$	0	$	0	$	2,398	$	2,398
Debt Service Coverage Ratio:										Debt Service Coverage Ratio:
Greater or Equal to 1.2x										Greater or Equal to 1.2x	$	0	$	0	$	0	$	0	$	0	$	2,398	$	2,398
1.0 - 1.2x										1.0 - 1.2x	0		0		0		0		0		0		0
Less than 1.0x										Less than 1.0x	0		0		0		0		0		0		0
Total										Total	$	0	$	0	$	0	$	0	$	0	$	2,398	$	2,398

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 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, 2020													March 31, 2021
		Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)			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	$	134,718	$	0	$	0	$	0	$	134,718	$	0	Commercial mortgage loans	$	130,546	$	0	$	0	$	0	$	130,546	$	0
Agricultural property loans	Agricultural property loans	2,435		0		0		0		2,435		0		Agricultural property loans	2,361		0		0		0		2,361		0

Total	Total	$	137,153	$	0	$	0	$	0	$	137,153	$	0	Total	$	132,907	$	0	$	0	$	0	$	132,907	$	0

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

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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	$	131,157	$	0	$	0	$	0	$	131,157	$	0
Agricultural property loans	2,398		0		0		0		2,398		0

Total	$	133,555	$	0	$	0	$	0	$	133,555	$	0

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

December 31, 2019
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 $ 139,803 $ 0 $ 0 $ 0 $ 139,803 $ 0
Agricultural property loans 3,460 0 0 0 3,460 0
Total $ 143,263 $ 0 $ 0 $ 0 $ 143,263 $ 0

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

~~(2)~~For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

~~There were 0 loans on non-accrual status with a related allowance for credit losses which recognized interest income for both the three and nine months ended September 30, 2020.~~

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

For both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ there were 0 commercial mortgage and other loans acquired, other than those through direct origination, and there were 0 commercial mortgage and other loans sold.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Other Invested Assets

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


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(in thousands)					(in thousands)
Company’s investment in separate accounts	Company’s investment in separate accounts	$	3,325	$	3,418	Company’s investment in separate accounts	$	3,373	$	3,269
LPs/LLCs:	LPs/LLCs:					LPs/LLCs:
Equity method:	Equity method:					Equity method:
Private equity	Private equity	34,157		26,609		Private equity	45,304		38,261
Hedge funds	Hedge funds	32,375		30,629		Hedge funds	34,050		33,773
Real estate-related	Real estate-related	4,450		4,154		Real estate-related	4,920		4,625
Subtotal equity method	Subtotal equity method	70,982		61,392		Subtotal equity method	84,274		76,659
Fair value:	Fair value:					Fair value:
Private equity	Private equity	586		774		Private equity	567		590
Hedge funds	Hedge funds	69		78		Hedge funds	56		69
Real estate-related	Real estate-related	2,320		2,490		Real estate-related	2,208		2,141
Subtotal fair value	Subtotal fair value	2,975		3,342		Subtotal fair value	2,831		2,800
Total LPs/LLCs	Total LPs/LLCs	73,957		64,734		Total LPs/LLCs	87,105		79,459
Derivative instruments	Derivative instruments	26,147		21,384		Derivative instruments	12,656		14,781
Total other invested assets	Total other invested assets	$	103,429	$	89,536	Total other invested assets	$	103,134	$	97,509

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Accrued Investment Income

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


	~~September 30, 2020~~
	~~(in thousands)~~
~~Fixed maturities~~	$	~~14,807~~
~~Equity securities~~	92
~~Commercial mortgage and other loans~~	~~380~~
~~Policy loans~~	~~5,735~~

~~Short-term investments and cash equivalents~~	13

~~Total accrued investment income~~	$	~~21,027~~


	March 31, 2021		December 31, 2020
	(in thousands)
Fixed maturities	$	15,458	$	15,178
Equity securities	92		1
Commercial mortgage and other loans	373		372
Policy loans	5,748		5,688

Short-term investments and cash equivalents	7		9

Total accrued investment income	$	21,678	$	21,248

There were 0 write-downs on accrued investment income for both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020.

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,
		2020		2019		2020		2019				2021		2020
		(in thousands)										(in thousands)
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale	$	15,531	$	13,858	$	45,374	$	41,664	Fixed maturities, available-for-sale		$	15,966	$	14,162
Fixed maturities, trading	Fixed maturities, trading	144		95		386		258		Fixed maturities, trading		167		121
Equity securities	Equity securities	91		91		273		273		Equity securities		91		91
Commercial mortgage and other loans	Commercial mortgage and other loans	1,331		1,283		4,175		3,784		Commercial mortgage and other loans		1,267		1,402
Policy loans	Policy loans	2,899		2,967		8,660		8,547		Policy loans		2,827		2,876
Other invested assets	Other invested assets	4,300		506		4,625		3,602		Other invested assets		4,243		(1,045)
Short-term investments and cash equivalents	Short-term investments and cash equivalents	40		143		399		745		Short-term investments and cash equivalents		22		303
Gross investment income	Gross investment income	24,336		18,943		63,892		58,873		Gross investment income		24,583		17,910
Less: investment expenses	Less: investment expenses	(1,076)		(884)		(2,984)		(2,601)		Less: investment expenses		(1,038)		(945)
Net investment income	Net investment income	$	23,260	$	18,059	$	60,908	$	56,272	Net investment income		$	23,545	$	16,965

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,
		2020		2019		2020		2019				2021		2020
		(in thousands)										(in thousands)
Fixed maturities(1)	Fixed maturities(1)	$	137	$	(2,290)	$	(506)	$	(5,769)	Fixed maturities(1)		$	(142)	$	(601)

Commercial mortgage and other loans	Commercial mortgage and other loans	9		(47)		(79)		(14)		Commercial mortgage and other loans		(26)		(73)
Other invested assets	Other invested assets	4		0		(55)		11		Other invested assets		34		(60)
Derivatives	Derivatives	2,393		5,053		8,771		(2,680)		Derivatives		15,970		13,871

Short term investments and cash equivalents	Short term investments and cash equivalents	(8)		3		(43)		5		Short term investments and cash equivalents		(4)		(72)
Realized investment gains (losses), net	Realized investment gains (losses), net	$	2,535	$	2,719	$	8,088	$	(8,447)	Realized investment gains (losses), net		$	15,832	$	13,065

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(in thousands)					(in thousands)
Fixed maturity securities, available-for-sale — with OTTI(1)		$ N/A		$	51
Fixed maturity securities, available-for-sale — all other(1)		N/A		112,249
Fixed maturity securities, available-for-sale with an allowance		0		N/A

Fixed maturity securities, available-for-sale without an allowance	Fixed maturity securities, available-for-sale without an allowance	209,282		N/A		Fixed maturity securities, available-for-sale without an allowance	$	132,497	$	258,325
Derivatives designated as cash flow hedges~~(2)~~(1)	Derivatives designated as cash flow hedges~~(2)~~(1)	6,634		3,193		Derivatives designated as cash flow hedges~~(2)~~(1)	(1,453)		(2,998)
Affiliated notes		253		480
Affiliated notes, available-for-sale						Affiliated notes, available-for-sale	212		254
Other investments	Other investments	52		66		Other investments	307		143
Net unrealized gains (losses) on investments	Net unrealized gains (losses) on investments	$	216,221	$	116,039	Net unrealized gains (losses) on investments	$	131,563	$	255,724

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

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

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 ~~September 30, 2020~~both March 31, 2021 and December 31, ~~2019,~~2020, the Company had 0 repurchase agreements.

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


		September 30, 2020						December 31, 2019							March 31, 2021						December 31, 2020
		Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements							Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
		Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total			Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
		(in thousands)													(in thousands)

Foreign public corporate securities	Foreign public corporate securities	$	2,731	$	0	$	2,731	$	2,481	$	0	$	2,481	Foreign public corporate securities	$	2,725	$	0	$	2,725	$	2,725	$	0	$	2,725

Total cash collateral for loaned securities(1)	Total cash collateral for loaned securities(1)	$	2,731	$	0	$	2,731	$	2,481	$	0	$	2,481	Total cash collateral for loaned securities(1)	$	2,725	$	0	$	2,725	$	2,725	$	0	$	2,725

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

4. ~~DERIVATIVE INSTRUMENTS~~DERIVATIVES AND HEDGING

Types of Derivative Instruments and Derivative Strategies

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

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

•Equity contracts: futures, options and total return swaps

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

•Credit contracts: single and index reference credit default swaps

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

•Embedded derivatives

For detailed information on these contracts and the related strategies, see Note 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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, 2020						December 31, 2019							March 31, 2021						December 31, 2020
Primary Underlying Risk/Instrument Type	Primary Underlying Risk/Instrument Type			Fair Value						Fair Value				Primary Underlying Risk/Instrument Type			Fair Value						Fair Value
		Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
		(in thousands)													(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:													Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate	Currency/Interest Rate													Currency/Interest Rate
Foreign Currency Swaps	Foreign Currency Swaps	$	128,688	$	6,257	$	(469)	$	131,212	$	4,653	$	(1,504)	Foreign Currency Swaps	$	126,312	$	2,685	$	(5,670)	$	126,806	$	2,404	$	(7,017)
Total Derivatives Designated as Hedge Accounting Instruments:	Total Derivatives Designated as Hedge Accounting Instruments:	$	128,688	$	6,257	$	(469)	$	131,212	$	4,653	$	(1,504)	Total Derivatives Designated as Hedge Accounting Instruments:	$	126,312	$	2,685	$	(5,670)	$	126,806	$	2,404	$	(7,017)
Derivatives Not Qualifying as Hedge Accounting Instruments:	Derivatives Not Qualifying as Hedge Accounting Instruments:													Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	Interest Rate													Interest Rate
Interest Rate Swaps	Interest Rate Swaps	$	30,200	$	4,851	$	0	$	32,075	$	3,005	$	(5)	Interest Rate Swaps	$	30,200	$	3,409	$	0	$	30,200	$	4,535	$	0
Credit	Credit													Credit
Credit Default Swaps	Credit Default Swaps	713		9		0		0		0		0		Credit Default Swaps	0		0		0		713		0		(6)
Currency/Interest Rate	Currency/Interest Rate													Currency/Interest Rate
Foreign Currency Swaps	Foreign Currency Swaps	33,224		3,626		(69)		33,224		2,691		(579)		Foreign Currency Swaps	33,224		2,230		(1,648)		33,224		2,374		(1,650)
Foreign Currency	Foreign Currency													Foreign Currency
Foreign Currency Forwards	Foreign Currency Forwards	2,690		33		(1)		1,858		0		(36)		Foreign Currency Forwards	3,466		127		(2)		3,087		0		(96)
Equity	Equity													Equity
Equity Options	Equity Options	429,925		27,273		(15,355)		379,350		24,064		(10,919)		Equity Options	454,675		41,498		(29,973)		441,725		41,582		(27,350)
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	Total Derivatives Not Qualifying as Hedge Accounting Instruments:	$	496,752	$	35,792	$	(15,425)	$	446,507	$	29,760	$	(11,539)	Total Derivatives Not Qualifying as Hedge Accounting Instruments:	$	521,565	$	47,264	$	(31,623)	$	508,949	$	48,491	$	(29,102)
Total Derivatives(1)(2)	Total Derivatives(1)(2)	$	625,440	$	42,049	$	(15,894)	$	577,719	$	34,413	$	(13,043)	Total Derivatives(1)(2)	$	647,877	$	49,949	$	(37,293)	$	635,755	$	50,895	$	(36,119)

(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 ~~$1,522~~$661 million and ~~$761~~$1,195 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively included in “Future policy benefits” and ~~$145~~$137 million and ~~$134~~$154 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively included in “Policyholders’ account balances". The fair value of the related reinsurance, included in "Reinsurance recoverables" or "Other liabilities" was an asset of ~~$1,522~~$661 million and ~~$761~~$1,195 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

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

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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, 2020											March 31, 2021
		Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount			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(1)	Derivatives(1)	$	42,049	$	(15,902)	$	26,147	$	(26,147)	$	0	Derivatives(1)	$	49,949	$	(37,293)	$	12,656	$	(12,656)	$	0
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	$	42,049	$	(15,902)	$	26,147	$	(26,147)	$	0	Total Assets	$	49,949	$	(37,293)	$	12,656	$	(12,656)	$	0
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives(1)	Derivatives(1)	$	15,894	$	(15,894)	$	0	$	0	$	0	Derivatives(1)	$	37,293	$	(37,293)	$	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	$	15,894	$	(15,894)	$	0	$	0	$	0	Total Liabilities	$	37,293	$	(37,293)	$	0	$	0	$	0


		December 31, 2019											December 31, 2020
		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(1)	Derivatives(1)	$	34,413	$	(13,029)	$	21,384	$	(21,384)	$	0	Derivatives(1)	$	50,895	$	(36,114)	$	14,781	$	(14,572)	$	209
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	$	34,413	$	(13,029)	$	21,384	$	(21,384)	$	0	Total Assets	$	50,895	$	(36,114)	$	14,781	$	(14,572)	$	209
Offsetting of Financial Liabilities:	Offsetting of Financial Liabilities:											Offsetting of Financial Liabilities:
Derivatives(1)	Derivatives(1)	$	13,043	$	(13,043)	$	0	$	0	$	0	Derivatives(1)	$	36,119	$	(36,119)	$	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	$	13,043	$	(13,043)	$	0	$	0	$	0	Total Liabilities	$	36,119	$	(36,119)	$	0	$	0	$	0

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

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “Credit Risk” below and Note 9. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

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.

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, 2020									Three Months Ended March 31, 2021
		Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI (1)			Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
		(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:									Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges	Cash flow hedges									Cash flow hedges
Currency/Interest Rate	Currency/Interest Rate	$	(92)	$	470	$	(763)	$	(6,962)	Currency/Interest Rate	$	(8)	$	401	$	159	$	1,545
Total cash flow hedges	Total cash flow hedges	(92)		470		(763)		(6,962)		Total cash flow hedges	(8)		401		159		1,545
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	(31)		0		0		0		Interest Rate	(827)		0		0		0
Currency	Currency	(96)		0		0		0		Currency	111		0		0		0
Currency/Interest Rate	Currency/Interest Rate	(1,733)		0		(16)		0		Currency/Interest Rate	3		0		(6)		0
Credit	Credit	(1)		0		0		0		Credit	(3)		0		0		0
Equity	Equity	4,281		0		0		0		Equity	1,965		0		0		0
Embedded Derivatives	Embedded Derivatives	65		0		0		0		Embedded Derivatives	14,729		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	Total Derivatives Not Qualifying as Hedge Accounting Instruments:	2,485		0		(16)		0		Total Derivatives Not Qualifying as Hedge Accounting Instruments:	15,978		0		(6)		0
Total	Total	$	2,393	$	470	$	(779)	$	(6,962)	Total	$	15,970	$	401	$	153	$	1,545


		Nine Months Ended September 30, 2020									Three Months Ended March 31, 2020
		Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI (1)			Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
		(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:	Derivatives Designated as Hedge Accounting Instruments:									Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges	Cash flow hedges									Cash flow hedges
Currency/Interest Rate	Currency/Interest Rate	$	(65)	$	1,436	$	(82)	$	3,441	Currency/Interest Rate	$	26	$	478	$	1,005	$	16,011
Total cash flow hedges	Total cash flow hedges	(65)		1,436		(82)		3,441		Total cash flow hedges	26		478		1,005		16,011
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	2,063		0		0		0		Interest Rate	1,839		0		0		0
Currency	Currency	(65)		0		0		0		Currency	73		0		0		0
Currency/Interest Rate	Currency/Interest Rate	1,830		0		4		0		Currency/Interest Rate	4,527		0		19		0
Credit	Credit	(71)		0		0		0		Credit	0		0		0		0
Equity	Equity	(376)		0		0		0		Equity	(10,384)		0		0		0
Embedded Derivatives	Embedded Derivatives	5,455		0		0		0		Embedded Derivatives	17,790		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	Total Derivatives Not Qualifying as Hedge Accounting Instruments:	8,836		0		4		0		Total Derivatives Not Qualifying as Hedge Accounting Instruments:	13,845		0		19		0
Total	Total	$	8,771	$	1,436	$	(78)	$	3,441	Total	$	13,871	$	478	$	1,024	$	16,011

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Three Months Ended September 30, 2019
Realized
Investment
Gains (Losses) Net
Investment
Income Other Income AOCI(1)
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate $ 597 $ 432 $ 376 $ 4,525
Total cash flow hedges 597 432 376 4,525
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate 432 0 0 0
Currency 83 0 0 0
Currency/Interest Rate 1,215 0 7 0
Credit 0 0 0 0
Equity 604 0 0 0
Embedded Derivatives 2,122 0 0 0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: 4,456 0 7 0
Total $ 5,053 $ 432 $ 383 $ 4,525

Nine Months Ended September 30, 2019
Realized
Investment
Gains (Losses) Net
Investment
Income Other Income AOCI(1)
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate $ 587 $ 1,241 $ 402 $ 5,851
Total cash flow hedges 587 1,241 402 5,851
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate 1,791 0 0 0
Currency 97 0 0 0
Currency/Interest Rate 1,817 0 8 0
Credit (1) 0 0 0
Equity 6,583 0 0 0
Embedded Derivatives (13,554) 0 0 0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: (3,267) 0 8 0
Total $ (2,680) $ 1,241 $ 410 $ 5,851

(1)Net change in AOCI.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~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, ~~2019~~2020	$	~~3,193~~ (2,998)
Amount recorded in AOCI


Currency/Interest Rate	~~4,730~~2,097
Total amount recorded in AOCI	~~4,730~~2,097
Amount reclassified from AOCI to income


Currency/Interest Rate	~~(1,289)~~(552)
Total amount reclassified from AOCI to income	~~(1,289)~~(552)
Balance, ~~September 30, 2020~~March 31, 2021	$	~~6,634~~ (1,453)

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, 2020~~March 31, 2021 values, it is estimated that a pre-tax gain of ~~$1.6~~$1.5 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending ~~September 30, 2021.~~March 31, 2022.

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

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

Credit Derivatives

The Company has no exposure from credit derivative positions where it has written credit protection as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

The Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. The Company has outstanding notional amounts of ~~$0.7~~$0 million and $0$0.7 million reported as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively with a fair value of $0 million for both periods.

Counterparty Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by ~~a counterparty~~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.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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:

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

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, ~~2019.~~2020.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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.


		As of September 30, 2020											March 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	$	11,838	$	0	$	0	$	11,838	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	11,464	$	0	$		$	11,464
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	0		180,917		0		0		180,917		Obligations of U.S. states and their political subdivisions	0		178,462		0				178,462
Foreign government bonds	Foreign government bonds	0		86,316		0		0		86,316		Foreign government bonds	0		103,496		0				103,496
U.S. corporate public securities	U.S. corporate public securities	0		875,116		0		0		875,116		U.S. corporate public securities	0		892,430		0				892,430
U.S. corporate private securities	U.S. corporate private securities	0		242,181		413		0		242,594		U.S. corporate private securities	0		233,567		433				234,000
Foreign corporate public securities	Foreign corporate public securities	0		68,659		0		0		68,659		Foreign corporate public securities	0		79,005		0				79,005
Foreign corporate private securities	Foreign corporate private securities	0		143,672		20,715		0		164,387		Foreign corporate private securities	0		133,547		21,898				155,445
Asset-backed securities(2)	Asset-backed securities(2)	0		18,612		0		0		18,612		Asset-backed securities(2)	0		17,220		0				17,220
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		156,055		0		0		156,055		Commercial mortgage-backed securities	0		149,312		0				149,312
Residential mortgage-backed securities	Residential mortgage-backed securities	0		4,052		0		0		4,052		Residential mortgage-backed securities	0		3,504		0				3,504
Subtotal	Subtotal	0		1,787,418		21,128		0		1,808,546		Subtotal	0		1,802,007		22,331				1,824,338
Fixed maturities, trading	Fixed maturities, trading	0		17,857		0		0		17,857		Fixed maturities, trading	0		18,639		0				18,639
Equity securities	Equity securities	0		126		8,312		0		8,438		Equity securities	0		121		5,857				5,978

Cash equivalents	Cash equivalents	0		61,000		0		0		61,000		Cash equivalents	0		63,555		0				63,555
Other invested assets(3)	Other invested assets(3)	0		42,049		0		(15,902)		26,147		Other invested assets(3)	0		49,949		0		(37,293)		12,656
Reinsurance recoverables	Reinsurance recoverables	0		0		1,521,833		0		1,521,833		Reinsurance recoverables	0		0		660,533				660,533
Receivables from parent and affiliates	Receivables from parent and affiliates	0		808		0		0		808		Receivables from parent and affiliates	0		782		0				782
Subtotal excluding separate account assets	Subtotal excluding separate account assets	0		1,909,258		1,551,273		(15,902)		3,444,629		Subtotal excluding separate account assets	0		1,935,053		688,721		(37,293)		2,586,481
Separate account assets(4)(5)	Separate account assets(4)(5)	0		13,926,414		0		0		13,926,414		Separate account assets(4)(5)	0		15,041,532		0				15,041,532
Total assets	Total assets	$	0	$	15,835,672	$	1,551,273	$	(15,902)	$	17,371,043	Total assets	$	0	$	16,976,585	$	688,721	$	(37,293)	$	17,628,013
Future policy benefits(6)	Future policy benefits(6)	$	0	$	0	$	1,521,833	$	0	$	1,521,833	Future policy benefits(6)	$	0	$	0	$	660,533	$		$	660,533
Policyholders' account balances	Policyholders' account balances	0		0		145,272		0		145,272		Policyholders' account balances	0		0		136,773				136,773
Payables to parent and affiliates	Payables to parent and affiliates	0		15,894		0		(15,894)		0		Payables to parent and affiliates	0		37,293		0		(37,293)		0
Total liabilities	Total liabilities	$	0	$	15,894	$	1,667,105	$	(15,894)	$	1,667,105	Total liabilities	$	0	$	37,293	$	797,306	$	(37,293)	$	797,306

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


		As of December 31, 2019											December 31, 2020
		Level 1		Level 2		Level 3		Netting(1)		Total			Level 1		Level 2		Level 3		Netting(1)		Total
		(in thousands)											(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	16,015	$	0	$	0	$	16,015	U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	11,655	$	0	$		$	11,655
Obligations of U.S. states and their political subdivisions	Obligations of U.S. states and their political subdivisions	0		133,677		0		0		133,677		Obligations of U.S. states and their political subdivisions	0		182,626		0				182,626
Foreign government bonds	Foreign government bonds	0		77,280		0		0		77,280		Foreign government bonds	0		92,636		0				92,636
U.S. corporate public securities	U.S. corporate public securities	0		697,520		0		0		697,520		U.S. corporate public securities	0		949,585		0				949,585
U.S. corporate private securities	U.S. corporate private securities	0		232,903		312		0		233,215		U.S. corporate private securities	0		245,194		424				245,618
Foreign corporate public securities	Foreign corporate public securities	0		57,993		0		0		57,993		Foreign corporate public securities	0		70,347		0				70,347
Foreign corporate private securities	Foreign corporate private securities	0		163,026		866		0		163,892		Foreign corporate private securities	0		141,734		23,621				165,355
Asset-backed securities(2)	Asset-backed securities(2)	0		18,542		0		0		18,542		Asset-backed securities(2)	0		17,189		0				17,189
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		147,389		0		0		147,389		Commercial mortgage-backed securities	0		155,418		0				155,418
Residential mortgage-backed securities	Residential mortgage-backed securities	0		4,573		0		0		4,573		Residential mortgage-backed securities	0		3,766		0				3,766
Subtotal	Subtotal	0		1,548,918		1,178		0		1,550,096		Subtotal	0		1,870,150		24,045				1,894,195
Fixed maturities, trading	Fixed maturities, trading	0		13,700		0		0		13,700		Fixed maturities, trading	0		19,269		0				19,269
Equity securities	Equity securities	0		207		7,305		0		7,512		Equity securities	0		123		6,095				6,218

Cash equivalents	Cash equivalents	0		55,896		0		0		55,896		Cash equivalents	0		60,879		0				60,879
Other invested assets(3)	Other invested assets(3)	0		34,413		0		(13,029)		21,384		Other invested assets(3)	0		50,895		0		(36,114)		14,781
Reinsurance recoverables	Reinsurance recoverables	0		0		760,558		0		760,558		Reinsurance recoverables	0		0		1,195,469				1,195,469
Receivables from parent and affiliates	Receivables from parent and affiliates	0		2,433		0		0		2,433		Receivables from parent and affiliates	0		815		0				815
Subtotal excluding separate account assets	Subtotal excluding separate account assets	0		1,655,567		769,041		(13,029)		2,411,579		Subtotal excluding separate account assets	0		2,002,131		1,225,609		(36,114)		3,191,626
Separate account assets(4)(5)	Separate account assets(4)(5)	0		13,927,275		0		0		13,927,275		Separate account assets(4)(5)	0		15,044,796		0				15,044,796
Total assets	Total assets	$	0	$	15,582,842	$	769,041	$	(13,029)	$	16,338,854	Total assets	$	0	$	17,046,927	$	1,225,609	$	(36,114)	$	18,236,422
Future policy benefits(6)	Future policy benefits(6)	$	0	$	0	$	760,558	$	0	$	760,558	Future policy benefits(6)	$	0	$	0	$	1,195,469	$		$	1,195,469
Policyholders' account balances	Policyholders' account balances	0		0		133,793		0		133,793		Policyholders' account balances	0		0		153,937				153,937
Payables to parent and affiliates	Payables to parent and affiliates	0		13,043		0		(13,043)		0		Payables to parent and affiliates	0		36,119		0		(36,119)		0
Total liabilities	Total liabilities	$	0	$	13,043	$	894,351	$	(13,043)	$	894,351	Total liabilities	$	0	$	36,119	$	1,349,406	$	(36,119)	$	1,349,406

(1)“Netting” amounts represent cash collateral of $0.0 million as of both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

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

(3)Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value ("NAV") per share (or its equivalent) as a practical expedient. As of ~~September 30, 2020~~both March 31, 2021 and December 31, ~~2019,~~2020, the fair values of such investments were ~~$3.0 million and $3.3 million, respectively.~~$2.8 million.

(4)Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and a corporate owned life insurance fund, for which fair value is measured at NAV per share (or its equivalent). At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value of such investments was ~~$1,961~~$2,110 million and ~~$1,977~~$2,073 million, respectively.

(5)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.

(6)As of ~~September 30, 2020,~~March 31, 2021, the net embedded derivative liability position of ~~$1,522~~$661 million includes ~~$31~~$80 million of embedded derivatives in an asset position and ~~$1,553~~$741 million of embedded derivatives in a liability position. As of December 31, ~~2019,~~2020, the net embedded derivative liability position of ~~$761~~$1,195 million includes ~~$60~~$51 million of embedded derivatives in an asset position and ~~$821~~$1,246 million of embedded derivatives in a liability position.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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.


		As of September 30, 2020													March 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)	$	21,128	Discounted cash flow	Discount rate	2.36	%	2.54	%		2.47	%	Decrease	Corporate securities(2)	$	22,331	Discounted cash flow	Discount rate	2.31	%	5.06	%	2.71	%	Decrease
Reinsurance recoverables	Reinsurance recoverables	$	1,521,833	Fair values are determined using the same unobservable inputs as future policy benefits.										Reinsurance recoverables	$	660,533	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:	Liabilities:													Liabilities:
Future policy benefits(3)	Future policy benefits(3)	$	1,521,833	Discounted cash flow	Lapse rate(5)	1	%	20	%				Decrease	Future policy benefits(3)	$	660,533	Discounted cash flow	Lapse rate(5)	1	%	20	%			Decrease
					Spread over LIBOR(6)	0.09	%	1.59	%				Decrease					Spread over LIBOR(6)	0.09	%	1.14	%			Decrease
					Utilization rate(7)	39	%	96	%				Increase					Utilization rate(7)	39	%	96	%			Increase
					Withdrawal rate					See table footnote (8) below.								Withdrawal rate	See table footnote (8) below.
					Mortality rate (9)	0	%	15	%				Decrease					Mortality rate (9)	0	%	15	%			Decrease
					Equity volatility curve	18	%	26	%				Increase					Equity volatility curve	17	%	25	%			Increase
Policyholders' account balances(4)	Policyholders' account balances(4)	$	145,272	Discounted cash flow	Lapse rate(5)	1	%	6	%				Decrease	Policyholders' account balances(4)	$	136,773	Discounted cash flow	Lapse rate(5)	1	%	6	%			Decrease
					Spread over LIBOR(6)	0.09	%	1.59	%				Decrease					Spread over LIBOR(6)	0.09	%	1.14	%			Decrease

					Mortality rate (9)	0	%	24	%				Decrease					Mortality rate (9)	0	%	24	%			Decrease
					Equity volatility curve	19	%	35	%				Increase					Equity volatility curve	14	%	27	%			Increase

As of December 31, 2019
Fair Value Valuation
Techniques Unobservable Inputs Minimum Maximum Weighted
Average Impact of Increase
in Input on Fair
Value(1)
(in thousands)
Assets:
Reinsurance recoverables $ 760,558 Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3) $ 760,558 Discounted cash flow Lapse rate(5) 1 % 18 % Decrease
Spread over LIBOR(6) 0.10 % 1.23 % Decrease
Utilization rate(7) 43 % 97 % Increase
Withdrawal rate See table footnote(8) below.
Mortality rate(9) 0 % 15 % Decrease
Equity volatility curve 13 % 23 % Increase
Policyholders' account balances(4) $ 133,793 Discounted cash flow Lapse rate(5) 1 % 6 % Decrease
Spread over LIBOR(6) 0.10 % 1.23 % Decrease
Mortality rate (9) 0 % 24 % Decrease
Equity volatility curve 10 % 23 % Increase

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


	December 31, 2020
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)
	(in thousands)
Assets:
Corporate securities(2)	$	24,045	Discounted cash flow	Discount rate	1.84	%	6.55	%	2.32	%	Decrease
Reinsurance recoverables	$	1,195,469	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3)	$	1,195,469	Discounted cash flow	Lapse rate(5)	1	%	20	%			Decrease
				Spread over LIBOR(6)	0.06	%	1.17	%			Decrease
				Utilization rate(7)	39	%	96	%			Increase
				Withdrawal rate	See table footnote(8) below.
				Mortality rate(9)	0	%	15	%			Decrease
				Equity volatility curve	18	%	26	%			Increase
Policyholders' account balances(4)	$	153,937	Discounted cash flow	Lapse rate(5)	1	%	6	%			Decrease
				Spread over LIBOR(6)	0.06	%	1.17	%			Decrease
				Mortality rate (9)	0	%	24	%			Decrease
				Equity volatility curve	15	%	30	%			Increase

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

(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.

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

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

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

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

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

(8)The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the minimum withdrawal rate assumption is 76% and ~~78% respectively. As of September 30, 2020 and December 31, 2019,~~ the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

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

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

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

Future Policy Benefits – The Company expects efficient benefit utilization and withdrawal rates to generally be correlated with lapse rates. However, behavior is generally highly dependent on the facts and circumstances surrounding the individual contractholder, such as their liquidity needs or tax situation, which could drive lapse behavior independent of other contractholder behavior assumptions. To the extent 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.

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.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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 Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3) $ 20,232 $ 895 $ 0 $ 1 $ 0 $ 0 $ 0 $ 0 $ 0 $ 21,128 $ 895
Structured securities(4) 0 0 0 0 0 0 0 0 0 0 0
Other assets:
Equity securities 7,187 1,125 0 0 0 0 0 0 0 8,312 1,125
Reinsurance recoverables 1,741,924 (247,857) 27,766 0 0 0 0 0 0 1,521,833 (236,111)
Liabilities:
Future policy benefits (1,741,924) 247,857 0 0 (27,766) 0 0 0 0 (1,521,833) 236,111
Policyholders' account balances(5) (143,242) (232) 0 0 (1,798) 0 0 0 0 (145,272) 1,809


		Three Months Ended September 30, 2020															Three Months Ended March 31, 2021
		Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)							Fair Value, beginning of period	Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
		Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)(6)					(in thousands)
Fixed maturities, available-for-sale:																			Fixed maturities, available-for-sale:
		(in thousands)
Fixed maturities, available-for-sale		$	0	$	0	$	895	$	0		$	0	$	0	$	895

Corporate securities(3)																			Corporate securities(3)	$	24,045	$	(1,714)	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	22,331	$	(1,713)

Other assets:	Other assets:																		Other assets:

Equity securities	Equity securities	0		1,125		0		0			0		1,125		0				Equity securities	6,095		(238)		0		0		0		0		0		0		0		5,857		(238)

Reinsurance recoverables	Reinsurance recoverables	(247,857)		0		0		0			(236,111)		0		0				Reinsurance recoverables	1,195,469		(562,720)		27,784		0		0		0		0		0		0		660,533		(551,773)

Liabilities:	Liabilities:																		Liabilities:
Future policy benefits	Future policy benefits	247,857		0		0		0			236,111		0		0				Future policy benefits	(1,195,469)		562,720		0		0		(27,784)		0		0		0		0		(660,533)		551,773
Policyholders' account balances		(232)		0		0		0			1,809		0		0
Policyholders' account balances(4)																			Policyholders' account balances(4)	(153,937)		14,042		0		0		0		3,122		0		0		0		(136,773)		16,277


	Three Months Ended March 31, 2021
	Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)		Included in other comprehensive income (loss)
	(in thousands)
Fixed maturities, available-for-sale	$	0	$	0	$	(1,714)	$	0		$	0	$	0	$	(1,713)
Other assets:

Equity securities	0		(238)		0		0			0		(238)		0



Reinsurance recoverables	(562,720)		0		0		0			(551,773)		0		0

Liabilities:
Future policy benefits	562,720		0		0		0			551,773		0		0
Policyholders' account balances	14,042		0		0		0			16,277		0		0

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


		Nine Months Ended September 30, 2020																							Three Months Ended March 31, 2020
		Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)			Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
		(in thousands)																							(in thousands)
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:																							Fixed maturities, available-for-sale:

Corporate securities(3)	Corporate securities(3)	$	1,178	$	1,080	$	0	$	(860)	$	0	$	0	$	0	$	19,730	$	0	$	21,128	$	1,085	Corporate securities(3)	$	1,178	$	(1,774)	$	0	$	(860)	$	0	$	0	$	0	$	19,730	$	0	$	18,274	$	(1,769)
Structured securities(4)		0		0		0		0		0		0		0		0		0		0		0

Other assets:	Other assets:																							Other assets:

Equity securities	Equity securities	7,305		1,007		0		0		0		0		0		0		0		8,312		1,007		Equity securities	7,305		(465)		0		0		0		0		0		0		0		6,840		(465)

Reinsurance recoverables	Reinsurance recoverables	760,558		680,424		80,851		0		0		0		0		0		0		1,521,833		697,223		Reinsurance recoverables	760,558		1,081,663		26,318		0		0		0		0		0		0		1,868,539		1,089,808

Liabilities:	Liabilities:																							Liabilities:
Future policy benefits	Future policy benefits	(760,558)		(680,424)		0		0		(80,851)		0		0		0		0		(1,521,833)		(697,223)		Future policy benefits	(760,558)		(1,081,663)		0		0		(26,318)		0		0		0		0		(1,868,539)		(1,089,808)
Policyholders' account balances~~(5)~~(4)	Policyholders' account balances~~(5)~~(4)	(133,793)		5,017		0		0		(16,496)		0		0		0		0		(145,272)		6,849		Policyholders' account balances~~(5)~~(4)	(133,793)		16,940		0		0		(6,755)		0		0		0		0		(123,608)		17,660

Nine Months Ended September 30, 2020
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss) Included in other comprehensive income (loss)(6)
(in thousands)
Fixed maturities, available-for-sale $ 32 $ 0 $ 1,040 $ 8 $ 0 $ 0 $ 1,085
Other assets:
Equity securities 0 1,007 0 0 0 1,007 0
Reinsurance recoverables 680,424 0 0 0 697,223 0 0
Liabilities:
Future policy benefits (680,424) 0 0 0 (697,223) 0 0
Policyholders' account balances 5,017 0 0 0 6,849 0 0

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Three Months Ended September 30, 2019
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3) $ 2,035 $ (1,017) $ 180 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,198 $ (1,731)
Structured securities(4) 0 0 0 0 0 0 0 0 0 0 0
Other assets:
Equity securities 7,206 (73) 0 0 0 0 0 0 0 7,133 (72)
Reinsurance recoverables 757,236 236,174 24,883 0 0 0 0 0 0 1,018,293 244,163
Liabilities:
Future policy benefits (757,236) (236,174) 0 0 (24,883) 0 0 0 0 (1,018,293) (244,163)
Policyholders' account balances(5) (112,417) 3,796 0 0 (14,467) 0 0 0 0 (123,088) 5,346

Three Months Ended September 30, 2019
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss)
(in thousands)
Fixed maturities, available-for-sale $ (1,730) $ 0 $ 688 $ 25 $ (1,731) $ 0
Other assets:
Equity securities 0 (73) 0 0 0 (72)
Reinsurance recoverables 236,174 0 0 0 244,163 0
Liabilities:
Future policy benefits (236,174) 0 0 0 (244,163) 0
Policyholders' account balances 3,796 0 0 0 5,346 0

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Nine Months Ended September 30, 2019
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3) $ 2,882 $ (2,113) $ 428 $ 0 $ 0 $ (638) $ 0 $ 639 $ 0 $ 1,198 $ (4,893)
Structured securities(4) 0 432 0 0 0 (68) 0 24,960 (25,324) 0 0
Other assets:
Equity securities 6,622 511 0 0 0 0 0 0 0 7,133 511
Reinsurance recoverables 488,825 458,557 70,911 0 0 0 0 0 0 1,018,293 470,731
Liabilities:
Future policy benefits (488,825) (458,557) 0 0 (70,911) 0 0 0 0 (1,018,293) (470,731)
Policyholders' account balances(5) (1,949) (99,712) 0 0 (21,427) 0 0 0 0 (123,088) (98,158)


		Nine Months Ended September 30, 2019													Three Months Ended March 31, 2020
		Total realized and unrealized gains (losses)								Unrealized gains (losses) for assets still held(2)					Total realized and unrealized gains (losses)						Unrealized gains (losses) for assets still held(2)
		Realized investment gains (losses), net(1)		Other income (loss)		Included in other comprehensive income (loss)		Net investment income			Realized investment gains (losses), net		Other income (loss)				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	$	(4,893)	$	0	$	3,041	$	171		$	(4,893)	$	0		Fixed maturities, available-for-sale	$	32	$	0	$	(1,814)	$	8	$	0	$	0	$	(1,769)
Other assets:	Other assets:															Other assets:

Equity securities	Equity securities	0		511		0		0			0		511			Equity securities	0		(465)		0		0		0		(465)		0

Reinsurance recoverables	Reinsurance recoverables	458,557		0		0		0			470,731		0			Reinsurance recoverables	1,081,663		0		0		0		1,089,808		0		0

Liabilities:	Liabilities:															Liabilities:
Future policy benefits	Future policy benefits	(458,557)		0		0		0			(470,731)		0			Future policy benefits	(1,081,663)		0		0		0		(1,089,808)		0		0
Policyholders' account balances	Policyholders' account balances	(99,712)		0		0		0			(98,158)		0			Policyholders' account balances	16,940		0		0		0		17,660		0		0

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

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

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

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

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

~~(6)~~Effective January 1, 2020, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period were added prospectively due to adoption of ASU 2018-13. ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~.

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Fair Value of Financial Instruments

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


		September 30, 2020											March 31, 2021
		Fair Value								Carrying Amount(1)			Fair Value								Carrying Amount(1)
		Level 1		Level 2		Level 3		Total		Total			Level 1		Level 2		Level 3		Total		Total
		(in thousands)											(in thousands)
Assets:	Assets:											Assets:

Commercial mortgage and other loans	Commercial mortgage and other loans	$	0	$	0	$	144,666	$	144,666	$	136,705	Commercial mortgage and other loans	$	0	$	0	$	139,514	$	139,514	$	132,441
Policy loans	Policy loans	0		0		212,519		212,519		212,519		Policy loans	0		0		211,807		211,807		211,807

Cash and cash equivalents	Cash and cash equivalents	7,360		0		0		7,360		7,360		Cash and cash equivalents	7,650		0		0		7,650		7,650
Accrued investment income	Accrued investment income	0		21,027		0		21,027		21,027		Accrued investment income	0		21,678		0		21,678		21,678
Reinsurance recoverables	Reinsurance recoverables	0		0		28,806		28,806		26,975		Reinsurance recoverables	0		0		28,123		28,123		27,309
Receivables from parent and affiliates	Receivables from parent and affiliates	0		31,967		0		31,967		31,967		Receivables from parent and affiliates	0		32,602		0		32,602		32,602
Other assets	Other assets	0		3,205		0		3,205		3,205		Other assets	0		3,086		0		3,086		3,086
Total assets	Total assets	$	7,360	$	56,199	$	385,991	$	449,550	$	439,758	Total assets	$	7,650	$	57,366	$	379,444	$	444,460	$	436,573
Liabilities:	Liabilities:											Liabilities:
Policyholders’ account balances - investment contracts	Policyholders’ account balances - investment contracts	$	0	$	214,695	$	41,800	$	256,495	$	254,662	Policyholders’ account balances - investment contracts	$	0	$	226,881	$	40,410	$	267,291	$	266,477

Cash collateral for loaned securities	Cash collateral for loaned securities	0		2,731		0		2,731		2,731		Cash collateral for loaned securities	0		2,725		0		2,725		2,725
Short-term debt to affiliates		0		0		0		0		0

Payables to parent and affiliates	Payables to parent and affiliates	0		13,661		0		13,661		13,661		Payables to parent and affiliates	0		13,596		0		13,596		13,596
Other liabilities	Other liabilities	0		44,052		0		44,052		44,052		Other liabilities	0		69,271		0		69,271		69,271
Total liabilities	Total liabilities	$	0	$	275,139	$	41,800	$	316,939	$	315,106	Total liabilities	$	0	$	312,473	$	40,410	$	352,883	$	352,069

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)


		December 31, 2019											December 31, 2020
		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	$	148,855	$	148,855	$	143,098	Commercial mortgage and other loans	$	0	$	0	$	140,921	$	140,921	$	133,115
Policy loans	Policy loans	0		0		211,986		211,986		211,986		Policy loans	0		0		212,163		212,163		212,163

Cash and cash equivalents	Cash and cash equivalents	28		0		0		28		28		Cash and cash equivalents	7,648		0		0		7,648		7,648
Accrued investment income	Accrued investment income	0		19,539		0		19,539		19,539		Accrued investment income	0		21,248		0		21,248		21,248
Reinsurance recoverables	Reinsurance recoverables	0		0		26,400		26,400		26,286		Reinsurance recoverables	0		0		28,654		28,654		26,915
Receivables from parent and affiliates	Receivables from parent and affiliates	0		30,387		0		30,387		30,387		Receivables from parent and affiliates	0		30,246		0		30,246		30,246
Other assets	Other assets	0		3,071		0		3,071		3,071		Other assets	0		6,205		0		6,205		6,205
Total assets	Total assets	$	28	$	52,997	$	387,241	$	440,266	$	434,395	Total assets	$	7,648	$	57,699	$	381,738	$	447,085	$	437,540
Liabilities:	Liabilities:											Liabilities:
Policyholders’ account balances - investment contracts	Policyholders’ account balances - investment contracts	$	0	$	192,239	$	40,475	$	232,714	$	232,600	Policyholders’ account balances - investment contracts	$	0	$	220,527	$	41,341	$	261,868	$	260,128

Cash collateral for loaned securities	Cash collateral for loaned securities	0		2,481		0		2,481		2,481		Cash collateral for loaned securities	0		2,725		0		2,725		2,725
Short-term debt to affiliates		0		89		0		89		89

Payables to parent and affiliates	Payables to parent and affiliates	0		24,958		0		24,958		24,958		Payables to parent and affiliates	0		16,250		0		16,250		16,250
Other liabilities	Other liabilities	0		41,310		0		41,310		41,310		Other liabilities	0		50,335		0		50,335		50,335
Total liabilities	Total liabilities	$	0	$	261,077	$	40,475	$	301,552	$	301,438	Total liabilities	$	0	$	289,837	$	41,341	$	331,178	$	329,438

(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 participates in reinsurance with its affiliates Prudential Arizona Reinsurance Captive Company (“PARCC”), Prudential Arizona Reinsurance Term Company (“PAR Term”), Prudential Arizona Reinsurance Universal Company (“PAR U”), Prudential Term Reinsurance Company (“Term Re”) and Dryden Arizona Reinsurance Term Company (“DART”), its parent companies, Pruco Life and Prudential Insurance, as well as third parties. The reinsurance agreements provide risk diversification and additional capacity for future growth, limit the maximum net loss potential, manage statutory capital, and facilitate the Company's capital market hedging program. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The Company believes a material reinsurance liability resulting from such inability of reinsurers to meet their obligations is unlikely.

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

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

��35

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

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

September 30, 2020 December 31, 2019
(in thousands)
Reinsurance recoverables(1) $ 4,116,435 $ 3,200,642
Policy loans (21,317) (18,627)
Deferred policy acquisition costs (665,414) (736,575)
Deferred sales inducements (40,283) (47,423)
Other assets 15,195 16,540
Other liabilities 112,754 93,557

~~(1)Includes $4 million of unaffiliated activity for both September 30, 2020 and December 31, 2019.~~


	March 31, 2021		December 31, 2020
	(in thousands)
Reinsurance recoverables	$	3,331,052	$	3,860,612
Policy loans	(21,220)		(21,466)
Deferred policy acquisition costs	(682,421)		(661,732)
Deferred sales inducements	(39,703)		(40,980)
Other assets	14,025		15,172
Other liabilities	117,088		127,234

Reinsurance recoverables by counterparty are broken out below:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(in thousands)					(in thousands)
Prudential Insurance	Prudential Insurance	$	2,044,812	$	1,245,450	Prudential Insurance	$	1,183,676	$	1,726,545
PAR U	PAR U	1,100,831		1,027,304		PAR U	1,136,200		1,119,545
PARCC	PARCC	438,289		458,441		PARCC	442,630		448,884
PAR Term	PAR Term	235,103		219,757		PAR Term	238,713		236,561
Term Re	Term Re	214,421		190,633		Term Re	235,709		232,398
DART	DART	59,500		38,651		DART	68,162		69,268
Pruco Life	Pruco Life	19,523		16,428		Pruco Life	22,253		24,744
Unaffiliated	Unaffiliated	3,956		3,978		Unaffiliated	3,709		2,667
Total reinsurance recoverables	Total reinsurance recoverables	$	4,116,435	$	3,200,642	Total reinsurance recoverables	$	3,331,052	$	3,860,612

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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,
		2020		2019		2020		2019			2021		2020
		(in thousands)									(in thousands)
Premiums:	Premiums:									Premiums:
Direct	Direct	$	59,724	$	62,203	$	187,332	$	187,147	Direct	$	64,350	$	64,633

Ceded	Ceded	(54,138)		(59,104)		(171,423)		(177,429)		Ceded	(56,791)		(59,439)
Net premiums	Net premiums	5,586		3,099		15,909		9,718		Net premiums	7,559		5,194
Policy charges and fee income:	Policy charges and fee income:									Policy charges and fee income:
Direct	Direct	101,644		96,550		305,653		309,054		Direct	107,538		109,072

Ceded(1)	Ceded(1)	(87,021)		(86,206)		(248,818)		(256,256)		Ceded(1)	(79,220)		(85,103)
Net policy charges and fee income	Net policy charges and fee income	14,623		10,344		56,835		52,798		Net policy charges and fee income	28,318		23,969
Net investment income:	Net investment income:									Net investment income:
Direct	Direct	23,433		18,232		61,499		56,775		Direct	23,753		17,192

Ceded	Ceded	(173)		(173)		(591)		(503)		Ceded	(208)		(227)
Net investment income	Net investment income	23,260		18,059		60,908		56,272		Net investment income	23,545		16,965
Asset administration fees:	Asset administration fees:									Asset administration fees:
Direct	Direct	10,196		9,761		29,211		28,034		Direct	10,806		9,725

Ceded	Ceded	(8,440)		(8,261)		(24,344)		(23,742)		Ceded	(8,780)		(8,160)
Net asset administration fees	Net asset administration fees	1,756		1,500		4,867		4,292		Net asset administration fees	2,026		1,565

Realized investment gains (losses), net:	Realized investment gains (losses), net:									Realized investment gains (losses), net:
Direct	Direct	250,085		(231,963)		(672,787)		(459,863)		Direct	577,847		(1,069,448)

Ceded	Ceded	(247,550)		234,682		680,875		451,416		Ceded	(562,015)		1,082,513
Realized investment gains (losses), net	Realized investment gains (losses), net	2,535		2,719		8,088		(8,447)		Realized investment gains (losses), net	15,832		13,065
Policyholders’ benefits (including change in reserves):	Policyholders’ benefits (including change in reserves):									Policyholders’ benefits (including change in reserves):
Direct	Direct	91,346		157,537		348,921		360,844		Direct	110,163		131,286

Ceded(2)	Ceded(2)	(90,119)		(155,140)		(317,565)		(338,119)		Ceded(2)	(91,328)		(114,600)
Net policyholders’ benefits (including change in reserves)	Net policyholders’ benefits (including change in reserves)	1,227		2,397		31,356		22,725		Net policyholders’ benefits (including change in reserves)	18,835		16,686
Interest credited to policyholders’ account balances:	Interest credited to policyholders’ account balances:									Interest credited to policyholders’ account balances:
Direct	Direct	20,388		22,351		58,707		54,839		Direct	21,312		22,258

Ceded	Ceded	(9,552)		(8,592)		(25,693)		(22,022)		Ceded	(10,601)		(12,067)
Net interest credited to policyholders’ account balances	Net interest credited to policyholders’ account balances	10,836		13,759		33,014		32,817		Net interest credited to policyholders’ account balances	10,711		10,191
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	(50,216)		(48,298)		(149,912)		(145,971)		Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	(36,429)		(75,533)

(1)Includes ~~$(4.0) million~~ ~~and~~ $0$0.0 million of unaffiliated activity for both the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively, and $(4.0) million and $(4) million for the nine months ended September 30, 2020 and 2019, respectively.~~2020.

(2)Includes ~~$(3.4)~~$(1) million and $~~(3.0)~~1 million of unaffiliated activity for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $(1.9) million and $(1.0) million for the nine months ended September 30, 2020 and 2019,~~ respectively.

The gross and net amounts of life insurance face amount in force as of ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


		2020		2019			2021		2020
		(in thousands)					(in thousands)
Direct gross life insurance face amount in force	Direct gross life insurance face amount in force	$	152,707,454	$	146,659,725	Direct gross life insurance face amount in force	$	154,519,117	$	149,522,280
Reinsurance ceded	Reinsurance ceded	(138,917,401)		(133,731,588)		Reinsurance ceded	(139,942,682)		(136,956,945)
Net life insurance face amount in force	Net life insurance face amount in force	$	13,790,053	$	12,928,137	Net life insurance face amount in force	$	14,576,435	$	12,565,335

Table of Contents


PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Information regarding significant affiliated reinsurance agreements is described below.

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. Effective July 1, 2017, this agreement was terminated for certain new business, primarily Universal Life business, and such business was reinsured to Pruco Life under a yearly renewable term reinsurance agreement. As of January 1, 2020, the remaining portions of new business (specifically Term policies) ceased being reinsured by the Company to Prudential Insurance, and a separate yearly renewable term reinsurance agreement was established with Pruco Life for Term policies. Effective April 1, 2016, the Company entered into a reinsurance agreement with Prudential Insurance to reinsure its variable annuity base contracts, along with the living benefit guarantees. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders. This discontinuation has no impact on the reinsurance agreement between Prudential Insurance and the Company.

PAR U

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

PARCC

The Company reinsures 90% of the risks under its term life insurance policies with effective dates prior to January 1, 2010 through an automatic coinsurance agreement with PARCC.

PAR Term

The Company reinsures 95% of the risks under its term life insurance policies, with effective dates January 1, 2010 through December 31, 2013, through an automatic coinsurance agreement with PAR Term.

Term Re

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

Pruco Life

Effective July 1, 2017, the Company entered into a yearly renewable term reinsurance agreement with Pruco Life for new business, primarily covering Universal Life policies. Effective January 1, 2020, the Company entered in a similar yearly renewable term reinsurance agreement with Pruco Life for new business relating to Term policies. Under these agreements the majority of all mortality risk is ceded to Pruco Life. The Company also reinsures certain Corporate Owned Life Insurance (“COLI”) policies with Pruco Life. Through March 31, 2016, the Company reinsured Prudential Defined Income ("PDI") living benefit guarantees with Pruco Life. Effective April 1, 2016, the Company recaptured PDI living benefit guarantees from Pruco Life and reinsured them, together with the related variable annuity base contracts, with Prudential Insurance.

DART

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

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

7. INCOME TAXES

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

The Company's income tax provision amounted to an income tax ~~benefit~~expense of ~~$(5.4)~~$2.1 million, or ~~(14.15)%~~8.09% of income (loss) from operations before income taxes in the first ~~nine~~three months of ~~2020,~~2021, compared to ~~an income tax expense of $0.0~~$1.7 million, or ~~0.06%~~10.47%, in the first ~~nine~~three months of ~~2019.~~2020. The Company’s current and prior effective tax rates differed from the U.S. statutory tax rate of 21% primarily due to non-taxable investment income and tax ~~credits, and the item discussed below.~~credits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. One provision of the CARES Act amends the Tax Cuts and Jobs Act (“TCJA”) and allows companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. The Company has incorporated into the full year projected effective tax rate an income tax benefit of $5 million that would result from carrying the estimated 2020 NOL back to tax years that have a 35% tax rate. This amount is an estimate and will change if the amount of, and sources of, 2020 net taxable income are different from forecast.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

8. EQUITY

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Unaudited Interim Statements of Operations and Comprehensive ~~Income.~~Income (Loss). The balance of and changes in each component of AOCI as of and for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ 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, 2019		$	(981)	$	86,616	$	85,635
Balance, December 31, 2020								Balance, December 31, 2020	$	(783)	$	186,190	$	185,407
Change in OCI before reclassifications	Change in OCI before reclassifications	133		91,833		91,966		Change in OCI before reclassifications	(108)		(113,151)		(113,259)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		(783)		(783)		Amounts reclassified from AOCI	0		(410)		(410)
Income tax benefit (expense)	Income tax benefit (expense)	(28)		(19,121)		(19,149)		Income tax benefit (expense)	23		23,848		23,871
Balance, September 30, 2020		$	(876)	$	158,545	$	157,669
Balance, March 31, 2021								Balance, March 31, 2021	$	(868)	$	96,477	$	95,609


		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, 2018		$	(989)	$	(13,378)	$	(14,367)
Balance, December 31, 2019								Balance, December 31, 2019	$	(981)	$	86,616	$	85,635
Change in OCI before reclassifications	Change in OCI before reclassifications	(60)		125,543		125,483		Change in OCI before reclassifications	(1)		(20,060)		(20,061)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	0		7,999		7,999		Amounts reclassified from AOCI	0		(908)		(908)
Income tax benefit (expense)	Income tax benefit (expense)	13		(28,044)		(28,031)		Income tax benefit (expense)	0		4,404		4,404
Balance, September 30, 2019		$	(1,036)	$	92,120	$	91,084
Balance, March 31, 2020								Balance, March 31, 2020	$	(982)	$	70,052	$	69,070

(1)Includes cash flow hedges of $7$(1) million and $(3) million as of March 31, 2021 and December 31, 2020, respectively, and $19 million and $3 million as of ~~September 30,~~March 31, 2020 and December 31, 2019, respectively ~~and $8 million and $2 million as of September 30, 2019 and December 31, 2018, respectively~~.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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,
		2020		2019		2020		2019				2021		2020
		(in thousands)										(in thousands)
Amounts reclassified from AOCI (1)(2):	Amounts reclassified from AOCI (1)(2):									Amounts reclassified from AOCI (1)(2):
Net unrealized investment gains (losses):	Net unrealized investment gains (losses):									Net unrealized investment gains (losses):
Cash flow hedges - Currency/ Interest rate(3)	Cash flow hedges - Currency/ Interest rate(3)	$	(384)	$	(1,405)	$	1,289	$	(2,230)	Cash flow hedges - Currency/ Interest rate(3)		$	552	$	1,509
Net unrealized investment gains (losses) on available-for-sale securities	Net unrealized investment gains (losses) on available-for-sale securities	137		(2,290)		(506)		(5,769)		Net unrealized investment gains (losses) on available-for-sale securities		(142)		(601)
Total net unrealized investment gains (losses)(4)	Total net unrealized investment gains (losses)(4)	(247)		(3,695)		783		(7,999)		Total net unrealized investment gains (losses)(4)		410		908
Total reclassifications for the period	Total reclassifications for the period	$	(247)	$	(3,695)	$	783	$	(7,999)	Total reclassifications for the period		$	410	$	908

(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, future policy benefits, policyholders’ account balances and other liabilities.

~~Table of Contents~~


~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

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. There are no0 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 as of ~~September 30, 2020.~~March 31, 2021. The amounts for the periods indicated below represent all other net unrealized investment gains (losses):

All Other Net Unrealized Investment Gains (Losses) in AOCI


		Net Unrealized Gains (Losses) on Investments(1)		DAC and Other Costs(3)		Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(4)		Deferred Income Tax (Liability) Benefit		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)			Net Unrealized Gains (Losses) on Investments(1)		DAC and Other Costs(2)		Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(3)		Deferred Income Tax (Liability) Benefit		Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
		(in thousands)
Balance, December 31, 2019(2)		$	116,039	$	8,973	$	(15,373)	$	(23,023)	$	86,616
Balance, December 31, 2020												Balance, December 31, 2020	$	255,724	$	28,241	$	(48,283)	$	(49,492)	$	186,190
Net investment gains (losses) on investments arising during the period	Net investment gains (losses) on investments arising during the period	100,965		0		0		(21,203)		79,762		Net investment gains (losses) on investments arising during the period	(123,751)		0		0		25,988		(97,763)
Reclassification adjustment for (gains) losses included in net income	Reclassification adjustment for (gains) losses included in net income	(783)		0		0		164		(619)		Reclassification adjustment for (gains) losses included in net income	(410)		0		0		86		(324)

Impact of net unrealized investment (gains) losses on DAC and other costs	Impact of net unrealized investment (gains) losses on DAC and other costs	0		18,403		0		(3,865)		14,538		Impact of net unrealized investment (gains) losses on DAC and other costs	0		(8,631)		0		1,813		(6,818)
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities	Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities	0		0		(27,535)		5,783		(21,752)		Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities	0		0		19,231		(4,039)		15,192
Balance, September 30, 2020		$	216,221	$	27,376	$	(42,908)	$	(42,144)	$	158,545
Balance, March 31, 2021												Balance, March 31, 2021	$	131,563	$	19,610	$	(29,052)	$	(25,644)	$	96,477

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

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

~~(3)~~"Other costs" primarily includes reinsurance recoverables and deferred reinsurance losses.

~~(4)~~(3)"Other liabilities" primarily includes reinsurance payables.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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.

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~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

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

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was ~~$0.5~~$0.3 million and $0.6 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $1.5 million and $1.7 million for the nine months ended September 30, 2020 and 2019,~~ 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 ~~$0.5~~$0.4 million and $0.7 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $1.6 million and $2.1 million for the nine months ended September 30, 2020 and 2019,~~ respectively.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company’s expense for its share of the voluntary savings plan was ~~$0.2~~$0.1 million and ~~$0.3~~$0.2 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $0.6 million and $0.8 million for the nine months ended September 30, 2020 and 2019,~~ respectively.

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

The Company pays commissions and certain other fees to Prudential Annuities Distributors, Inc. (“PAD”) in consideration for PAD’s marketing and underwriting of the Company’s annuity products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s annuity products. Commissions and fees paid by the Company to PAD were ~~$12~~$9 million and ~~$21~~$17 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $41 million and $60 million for the nine months ended September 30, 2020 and 2019,~~ respectively.

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

Corporate-Owned Life Insurance

The Company has sold 3 Corporate-Owned Life Insurance ("COLI") policies to Prudential Insurance and 1 to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was ~~$2,852~~$3,168 million at ~~September 30, 2020~~March 31, 2021 and ~~$2,743~~$3,071 million at December 31, ~~2019.~~2020. Fees related to these COLI policies were $7 million and $6$8 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $21 million and $20 million for the nine months ended September 30, 2020 and 2019,~~ respectively. The Company retains 10% of the mortality risk associated with these COLI policies up to $0.1 million per individual policy.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
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 ~~$0.8~~$0.7 million and $0.6 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $2.1 million and $1.7 million for the nine months ended September 30, 2020 and 2019,~~ respectively. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

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 ~~$39~~$42 million and ~~$37~~$41 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. "Net investment income" related to these ventures includes a gain of ~~$2.1~~$0.8 million and ~~$0.0~~a loss of $1.7 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and a gain of $2.4 million and $2.2 million for the nine months ended September 30, 2020 and 2019,~~ respectively.

Affiliated Asset Administration Fee Income

The Company has a revenue sharing agreement with AST Investment Services, Inc. ("ASTISI") and PGIM Investments LLC ("PGIM Investments") whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust. Income received from ASTISI and PGIM Investments related to this agreement was $9 million and $8 million for ~~both~~ the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, and $24 million for both the nine months ended September 30, 2020 and 2019.~~respectively. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

The Company has a revenue sharing agreement with PGIM Investments, whereby the Company receives fee income based on policyholders' separate account balances invested in The Prudential Series Fund. Income received from PGIM Investments related to this agreement was $2 million and $1 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $5 million and $4 million for the nine months ended September 30, 2020 and 2019,~~ respectively. These revenues are recorded as “Asset administration 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, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows:


		Maturity Date		Interest Rates				September 30, 2020		December 31, 2019			Maturity Date		Interest Rates				March 31, 2021		December 31, 2020
								(in thousands)											(in thousands)

U.S. dollar fixed rate notes	U.S. dollar fixed rate notes		2027	0.00%	-	14.85	%	$	808	$	2,433	U.S. dollar fixed rate notes		2027	0.00%	-	14.85	%	$	782	$	815
Total notes receivable - affiliated(1)								$	808	$	2,433
Total long-term notes receivable - affiliated(1)												Total long-term notes receivable - affiliated(1)							$	782	$	815

(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 ~~and other trading assets~~ carried at fair value. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Insurance for loans due from affiliates.

Accrued interest receivable related to these loans was $0.0 million at both March 31, 2021 and December 31, 2020 and is included in “Other assets”. Revenues related to these loans were $0.0 million for both the three months ended March 31, 2021 and 2020, and are included in “Other income”.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Accrued interest receivable related to these loans was $0.0 million at both September 30, 2020 and December 31, 2019 and is included in “Other assets”. Revenues related to these assets were $0.0 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $0.1 million for both the nine months ended September 30, 2020 and 2019, and are included in “Other 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, 2020~~March 31, 2021 and for the year ended December 31, ~~2019.~~2020.


Affiliate	Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)		Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)
					(in thousands)												(in thousands)
Prudential Annuities Life Assurance Corporation		April 2019	Sale	Equity Securities	$	3,293	$	2,995	$	0	$	298
Prudential Insurance	Prudential Insurance	April 2020	Purchase	Fixed Maturities	$	3,485	$	3,320	$	(130)	$	0	Prudential Insurance	April 2020	Purchase	Fixed Maturities	$	3,485	$	3,320	$	(130)	$	0

Debt Agreements

The Company is authorized to borrow funds up to $200 million from affiliates to meet its capital and other funding needs. As of ~~September 30,~~March 31, 2021 and December 31, 2020, there was 0 debt outstanding. ~~The short-term debt was $0.1 million as of December 31, 2019.~~

The total interest expense to the Company related to loans payable to affiliates was $0.0 million ~~and $0.1 million~~ for both the three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively, and $0.0 million and $0.1 million for the nine months ended September 30, 2020 and 2019, respectively.~~2020.

Contributed Capital and Dividends

In March 2021, the Company received a capital contribution in the amount of $1 million from Pruco Life. In March 2020, the Company received a capital contribution in the amount of $85 million from Pruco Life. ~~In December 2019, the Company received a capital contribution in the amount of $60 million from Pruco Life.~~

Through ~~September~~March 2021 and December 2020, ~~the Company did 0t pay any dividends. In 2019,~~ the Company did 0t pay any dividends to Pruco Life.

Reinsurance with Affiliates

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

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~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~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, 2020 and December~~March 31, ~~2019,~~2021, the outstanding ~~balances~~balance on these commitments ~~were $0.4~~was $2 million and ~~$4 million, respectively. The above amount includes~~0 outstanding balance as of December 31, 2020. These amounts include unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was an0 allowance for credit losses of ~~$0.0 million~~as of ~~September 30, 2020, which is~~March 31, 2021 or December 31, 2020. For the three months ended March 31, 2021, there was 0 change in allowance and a ~~chan~~gechange of $0.0 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020. The Company has made commitments to purchase or fund investments, mostly private fixed maturities. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, $70~~2020, $69 million and ~~$48~~$74 million, respectively, of these commitments were outstanding. The ~~above amount includes~~amounts include unfunded commitments that are not unconditionally cancellable. There were 0 related charges for credit losses for ~~both~~ the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 or 2020.

Contingent Liabilities

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

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

For additional discussion of these matters, see “Litigation and Regulatory Matters” below.

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

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

Litigation and Regulatory Matters

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

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but the matter, if material, is disclosed. The Company estimates that as of ~~September 30, 2020,~~March 31, 2021, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $10 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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~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 14 to the Company's Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

~~Behfarin v. Pruco Life~~Regulatory

~~In June 2020,~~

Variable Products

The Company has received regulatory inquiries and requests for information from state and federal regulators, including a subpoena from the ~~court issued an order: (i) granting plaintiffs’ motion for certification~~U.S. Securities and Exchange Commission, concerning the appropriateness of ~~the settlement class; (ii) approving the proposed nationwide class settlement agreement; (iii) approving the class notice; (iv) awarding attorneys’ fees~~variable product sales and ~~costs~~replacement activity. The Company is cooperating with regulators and may become subject to ~~plaintiffs~~additional regulatory inquiries and ~~a reduced incentive award~~other actions related to ~~Behfarin; and (v) dismissing the action with prejudice, but maintaining jurisdiction over the settlement.~~this matter.

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 ~~position.~~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 ~~position.~~statements.

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~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~
~~Notes to Unaudited Interim Financial Statements—(Continued)~~

~~11. REVISION TO PRIOR YEAR INFORMATION~~

~~Revision to 2019 Financial Statements~~

The Company identified an error in the presentation of certain cash flow activity related to policyholders' account balances that impacted several line items within previously issued Statements of Cash Flows. While these items affect the cash flows from operating and financing activities, they had no impact on the net increase (decrease) in cash and cash equivalents for the previously reported periods. Prior period amounts have been revised in the financial statements to correct this error as shown below.

Management assessed the materiality of the misstatement described above on prior period financial statements in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC 250-10, Accounting Changes and Error Corrections ("ASC 250"), and concluded that these misstatements were not material to any prior annual or interim periods. Accordingly, in accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the financial statements for the nine months ended September 30, 2019, which are presented herein, have been revised. Similarly, impacted prior periods presented within the Annual Report on Form 10-K for the year ended December 31, 2020 will be revised.

~~The following are selected line items from the financial statements illustrating the effects of these revisions:~~

~~Statements of Cash Flows~~

Nine Months Ended September 30, 2019
As Previously Reported Revision As Revised
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Policy charges and fee income $ (37,295) $ 23,421 $ (13,874)
Cash flows from (used in) operating activities (6,247) 23,421 17,174
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account withdrawals (248,126) (15,815) (263,941)
Other, net 0 (7,606) (7,606)
Cash flows from (used in) financing activities 80,929 (23,421) 57,508

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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 Pruco Life Insurance Company of New Jersey, or the “Company,” as of ~~September 30, 2020,~~March 31, 2021, compared with December 31, ~~2019,~~2020, and its results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. 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, ~~2019,~~2020, as well as the statements under “Forward-Looking Statements”, ~~the "Risk Factors" section~~ and the Unaudited Interim Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

The Company ~~sells~~is licensed to sell variable annuities, universal life insurance, variable life insurance and term life insurance in New Jersey and New ~~York~~York. The Company only ~~and~~ sells such products in New York primarily through affiliated and unaffiliated distributors. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders.

COVID-19

Beginning in the first quarter of 2020, the outbreak of the ~~2019~~ novel coronavirus (“COVID-19”) created extreme stress and disruption in the global economy and financial markets and elevated mortality and morbidity experience for the global population. ~~These events impacted~~The pandemic continues to impact our results of operations in the current period and ~~are~~is expected to ~~drive~~continue to be a driver of future impacts to our results of operations. The Company has taken several measures to manage the impacts of this crisis. The actual and expected impacts of these events and other items are included in the following update:

•Outlook. We expect COVID-19 to continue to contribute to elevated levels of mortality, resulting in increased life insurance claims in the near-term. ~~We have taken pricing and product actions~~ to ensure we realize appropriate returns for the current economic environment, and to diversify our product mix to further limit our sensitivity to interest rates, while maintaining a solid value proposition for our customers. These actions included the suspension in July 2020 of our single life guaranteed universal life product~~, and a pivot to less rate-sensitive annuities products with the decision to discontinue sales of traditional variable annuities with guaranteed living benefits effective December 31, 2020.~~In addition, while ~~our distribution platforms include a suite~~we have seen strong sales of ~~digital, hybrid, and in-person options, mandated~~key products, social distancing ~~has limited in-person engagement between customers and financial professionals. Collectively, we expect the product actions we have taken and the constrained distribution environment to~~associated with COVID-19 could adversely impact ~~our~~ sales prospects in the near-term.

•Results of Operations. For the three months ~~and nine months~~ ended ~~September 30, 2020~~March 31, 2021 we reported a net ~~gain~~income of ~~$19 million and $44 million, respectively, inclusive of the unfavorable financial market conditions that impacted our reported results.~~$24 million. See “Results of Operations” for a discussion of results for the ~~third~~first quarter ~~and the first nine months~~ of ~~2020.~~

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

•~~Capital Resources~~. As of September 30, 2020, we maintained capital levels consistent with our ratings targets. However, market conditions could negatively impact our statutory capital and constrain our overall capital flexibility. Adverse market conditions could require us to take additional management actions to maintain capital consistent with our ratings objectives, which may include redeploying financial resources from internal sources, or using available affiliate sources of capital or seeking additional sources. See “Liquidity and Capital Resources-Capital” for a discussion of our capital resources.2021.

•Risk ~~Factors~~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.”~~Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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•Business ~~Continuity~~Continuity.~~. One of the main impacts of~~ Throughout the COVID-19 pandemic, ~~has~~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.

•~~CARES Act and Other Regulatory Developments~~. In March 2020 Congress enacted the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act"), which provides $2 trillion in economic stimulus to taxpayers, small businesses, and corporations through various grant and loan programs, tax provisions and regulatory relief. One provision of the CARES Act amends the Tax Cuts and Jobs Act ("TCJA") and allows companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. See Note 7 to the Unaudited Interim Financial Statements for more information.

Other governments and regulators, including the NAIC and state insurance regulators, have implemented, or are considering, a number of actions in response to the crisis, including delaying implementation of certain regulatory changes, temporarily waiving certain regulatory requirements and requiring or requesting insurers to waive premium payments and policy provisions and exclusions for certain periods of time.

~~The Company is not aware of any new or proposed government mandates that could materially impact the Company’s solvency or liquidity position.~~

~~Regulatory Developments~~

~~DOL Fiduciary Rules~~

In June 2020, the Department of Labor ("DOL") announced that it is proposing a new exemption to replace the previously vacated “best interest contract exemption." This proposed exemption would allow fiduciaries meeting the requirements of the exemption to receive compensation, including as a result of advice to roll over assets from a qualified plan to an Individual Retirement Account (“IRA”), and to purchase from or sell certain investments to qualified plans and IRAs. The DOL also reinstated the prior investment advice regulation and other existing exemptions and provided its current interpretation of the pre-2016 fiduciary investment advice regulation. We cannot predict what impact the newly proposed exemption or interpretative guidance will have on the Company.

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”) and market experience true-ups;

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

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

•policyholder behavior, including surrender or withdrawal activity.

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For more information on interest rate risks, see ~~"Risk Factors" in this Quarterly Report on Form 10-Q and~~ “Risk Factors—Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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Revenues and Expenses

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

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

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

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

•Policyholder liabilities;

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

•Reinsurance recoverables;

•Taxes on income; and

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

Market Performance - Equity and Interest Rate Assumptions

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

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

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The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each product type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, other costs and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and variable life insurance products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of ~~September 30, 2020,~~March 31, 2021, our variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a ~~3.5%~~0.7% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and liabilities for future policy benefits for certain of our products, we generally update the long-term and near-term future rates used to project fixed income returns annually and quarterly, respectively. As a result of our 2020 annual reviews and update of assumptions and other refinements, which were performed in the second quarter, we reduced our long-term expectation of the 10-year U.S. Treasury rate by 50 basis points and now 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, ~~2019~~2020.

Future Adoption of New Accounting Pronouncements

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

Changes in Financial Position

Total assets ~~increased $1.2~~decreased $0.5 billion from ~~$21.4~~$23.7 billion at December 31, ~~2019~~2020 to ~~$22.6~~$23.2 billion at ~~September 30, 2020.~~March 31, 2021. Significant ~~component was:~~components were:

•Reinsurance recoverables ~~increased $0.9 billion~~decreased $530 million primarily related to the variable annuity reinsured living benefit liabilities resulting from ~~an increase~~rising interest rates and favorable equity market performance;

Partially offset by:

•Separate account assets increased $34 million primarily driven by favorable equity market performance offset by net outflows and policy charges.

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Total liabilities decreased $0.4 billion from $22.8 billion at December 31, 2020 to $22.4 at March 31, 2021. Significant components were:

•Future policy benefits decreased $545 million primarily driven by a decrease in reserves related to our variable annuity living benefit ~~guarantees~~liabilities, as discussed above;

Partially offset by:

•Separate account liabilities increased $34 million, corresponding to the increase in Separate account assets, as discussed above.

Total equity decreased $65 million from $865 million at December 31, 2020 to $800 million at March 31, 2021 primarily driven by ~~declining~~unrealized losses on fixed maturity investments driven by rising interest rates ~~and the widening of credit spreads,~~reflected in accumulated other comprehensive income, partially offset by ~~a favorable non-performance risk adjustment.~~

~~Total liabilities increased $1.0 billion from $20.8 billion at December 31, 2019 to $21.8 billion at September~~ ~~30, 2020. Significant component was:~~

•~~Future policy benefits increased $0.9 billion primarily driven by~~ an ~~increase in reserves related to our variable annuity living benefit guarantees, as discussed above, as well as growth in universal and term life.~~

~~Table~~after-tax net income of ~~Contents~~

Total equity increased $0.2 billion from $0.6 billion at December 31, 2019 to $0.8 billion at September 30, 2020, primarily driven by a capital contribution from Pruco Life to fund additional reserve requirements.

$24 million.

Results of Operations

Income (loss) from Operations before Income Taxes

Three Months Comparison

Income (loss) from operations before income taxes increased ~~$11.7~~$10 million from ~~$8.6~~$16 million for the three months ended ~~September 30, 2019~~March 31, 2020 to ~~$20.3~~$26 million for the three months ended ~~September 30, 2020~~March 31, 2021 primarily driven by:

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

•Higher Policy charges and fee income due to favorable equity markets driving increased variable life account values and higher amortization from unearned revenue ~~from sales of principle-based reserving (“PBR”) products;~~

•~~Higher Net investment income~~reserves due to ~~higher non-coupon investment results from favorable market conditions; and~~

•~~Higher Premiums from continued growth in PBR term policies retained within the Company;~~business growth;

Partially offset by:

•Higher Policyholders' benefits from ~~an increase~~continued growth in ~~guaranteed minimum death benefit ("GMDB") reserves due to business growth from sales of PBR~~retained products ~~and projected low interest rates;~~driving higher mortality; and

•Higher ~~General, administrative and other expenses~~Amortization of deferred policy acquisition costs driven by ~~an unfavorable comparative impact from commission and expense allowance ceded due to lower annuity sales.~~

~~Nine Months Comparison~~

Income (loss) from operations before income taxes increased $9.1 million from $29.4 million for the nine months ended September 30, 2019 to $38.5 million for the nine months ended September 30, 2020. Excluding the impact of our annual reviews and update of assumptions and other refinements, income (loss) increased $6 million primarily driven by:

•~~Higher Policyholders' benefits from an increase in benefit reserves from continued growth in retained PBR term products and higher GMDB reserves due to~~ business growth primarily from ~~sales of PBR products and unfavorable interest rate environment; and~~

•~~Higher General, administrative and other expenses driven by an unfavorable comparative impact from commission and expense allowance ceded due to lower annuity sales;~~

~~Partially offset by:~~

•~~Higher Premiums from continued growth in PBR term policies; and~~

•~~Higher Policy charges and fee income due to higher revenue from sales of PBR products.~~variable life sales.

Revenues, Benefits and Expenses

Three Months Comparison

Revenues increased ~~$14.9~~$18 million from a gain of ~~$36.2~~$59 million for the three months ended ~~September 30, 2019~~March 31, 2020 to a gain of ~~$51.1~~$77 million for the three months ended ~~September 30, 2020~~March 31, 2021 primarily driven by:

•Higher Net investment income due to ~~an increase in revenue~~higher invested assets from ~~non-coupon investments;~~the retained Life business, partially offset by lower reinvestment yields; and

•~~Higher Premiums from continued growth in PBR term policies.~~

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Benefits and expenses increased ~~$3.3~~$8 million from an expense of ~~$27.6~~$43 million for the three months ended ~~September 30, 2019~~March 31, 2020 to an expense of ~~$30.9~~$51 million for the three months ended ~~September 30, 2020~~March 31, 2021 primarily driven by:

•Higher General, administrative and other expenses driven by an unfavorable comparative impact from commission and expense allowance ceded due to lower ~~annuity sales; and~~

•~~Higher Amortization of deferred policy acquisitions costs primarily driven~~sales partially offset by ~~higher retained business growth in the Company;~~

~~Partially offset by:~~

•~~Lower Interest credited to policyholders' account balances primarily driven by an offsetting Index Universal Life refinement impact to Realized investment gains (losses), net.~~

~~Nine Months Comparison~~

Revenues increased $32 million from a gain of $117.7 million for the nine months ended September 30, 2019 to a gain of $149.7 million for the nine months ended September 30, 2020. Excluding the impact of our annual reviews and update of assumptions and other refinements, Revenues increased $32 million primarily driven by:

•~~Higher Policy charges and fee income~~lower expenses due to ~~higher revenue from sales of PBR products that are fully retained in the Company;~~

•Higher Realized Investment gains (losses), net driven by an increase in living benefit fees ceded as reserves on the living benefit guarantees increased relatively more than prior year with an offsetting impact in Policy charges and fee income; and

•~~Higher Premiums from continued growth in PBR term policies.~~

Benefits and expenses increased $22.9 million from an expense of $88.3 million for the nine months ended September 30, 2019 to an expense of $111.2 million for the nine months ended September 30, 2020. Excluding the impact of our annual reviews and update of assumptions and other refinements, Benefits and expenses increased $26 million primarily driven by:

•~~Higher General, administrative and other expenses driven by an unfavorable comparative impact from commission and expense allowance ceded due to lower annuity sales;~~company initiatives; and

•Higher Policyholders' benefits from ~~an increase in benefit reserves from~~ continued growth in retained ~~PBR term~~ products driving higher mortality.

Risks and ~~higher GMDB reserves due to business growth from sales of PBR products and unfavorable interest rate environment.~~Risk Mitigants

Variable Annuity Risks and Risk ~~Mitigants~~Mitigants:

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

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 ~~earnings~~returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. Prudential Financial manages our exposure to certain risks driven by fluctuations in capital markets ~~fluctuations~~ primarily through a combination of Product Design Features and an Asset Liability Management Strategy ("ALM"), as discussed below.

~~Table~~ Sales of ~~Contents~~

traditional variable annuities with guaranteed living benefit riders have been discontinued as of December 31, 2020.

Product Design ~~Features~~

Features:

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

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

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

Income Taxes

For information regarding income taxes, see Note 7 to the Unaudited Interim 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, ~~2019.~~

2020.

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.

The Company is 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, 2019.

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~~COVID-19 and Related Market Disruptions~~

Beginning in the first quarter of 2020, broad market concerns over the impact of COVID-19 have led to significant volatility and disruptions in the global economy and financial markets. Given this macro environment and the global pandemic, as examined through our stress testing, in the first nine months of the year we accelerated our product diversification strategy and repriced certain products, which are expected to support the capital position over time.

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

~~Capital.~~ As of September 30, 2020, the Company maintained capital levels consistent with its ratings targets. However, market conditions could negatively impact the statutory capital and constrain our overall capital flexibility. For example, adverse market conditions may lead to increased defaults and/or further deterioration in the credit quality or fair values of our investment portfolio, which would negatively impact our statutory capital. Adverse market conditions could require us to take additional management actions to maintain capital consistent with our ratings objectives, which may include redeploying financial resources from internal sources or using available external sources of capital or seeking additional sources.

~~Liquidity and Capital Risk Management.~~Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon. We use a Risk Appetite Framework ~~(“RAF”~~("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.

Capital

We manage the Company to regulatory capital levels consistent with our "AA" ratings targets. We ~~utilized~~utilize the risk-based capital ~~("RBC"~~(“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.

~~Affiliated~~ Captive Reinsurance ~~Companies~~

Companies:

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Capital-Affiliated Captive Reinsurance Companies” included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, for a discussion of our use of captive reinsurance companies.

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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~~LLC’s ("Prudential Funding"), a wholly-owned subsidiary of Prudential Insurance, financing capacity on liquidity is considered in the internal liquidity measures of the Company.

Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets ~~(e.g.,~~(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.

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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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had liquid assets of ~~$1,903~~$1,920 million and ~~$1,627~~$1,988 million, respectively. The portion of liquid assets comprised cash and cash equivalents was ~~$68~~$71 million and ~~$56~~$69 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. As of ~~September 30, 2020, $1,734~~March 31, 2021, $1,750 million, or 96%, of the fixed maturity investments in the Company's general account portfolios, were rated high or highest quality based on NAIC or equivalent rating.

Term and Universal Life Reserve Financing

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

As of ~~September 30, 2020,~~March 31, 2021, the affiliated captive reinsurance companies have entered into agreements with external counterparties providing for the issuance of up to an aggregate of ~~$14,825~~$14,700 million of surplus notes by our affiliated captive reinsurers in return for the receipt of credit-linked notes (“Credit-Linked Note Structures”), of which ~~$12,849~~$12,644 million of surplus notes was outstanding, compared to an aggregate ~~insurance~~issuance capacity of ~~$13,700~~$14,825 million, of which ~~$12,009~~$12,919 million was outstanding as of December 31, ~~2019. The amounts reflect a $1,200 million Credit-Linked Note Structure entered into in June 2020 for Guideline AXXX reserves, of which $700 million was outstanding as of September 30,~~ 2020. Under the agreements, the affiliated captive receives in exchange for the surplus notes one or more credit-linked notes issued by a special-purpose affiliate of the Company with an aggregate principal amount equal to the surplus notes outstanding. The affiliated captive holds the credit-linked notes as assets supporting Regulation XXX or Guideline AXXX non-economic reserves, as applicable. For more information on our Credit-Linked Note Structures, see “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—~~Operation—Liquidity and Capital Resources—Financing Activities” in ~~our~~the Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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As of ~~September 30, 2020,~~March 31, 2021, our affiliated captive reinsurance companies had outstanding an aggregate of ~~$2.3 billion~~$2,775 million of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which approximately ~~$0.7 billion~~$1,175 million relates to Regulation XXX reserves and approximately ~~$1.6 billion~~$1,600 million relates to Guideline AXXX reserves. In addition, as of ~~September 30, 2020,~~March 31, 2021, for purposes of financing Guideline AXXX reserves, one of our affiliated captives had approximately ~~$4.0 billion~~$3,982 million of surplus notes outstanding that were issued to affiliates.

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

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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Notes to Unaudited Interim Financial Statements—(Continued)

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, our products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and our strategies for managing this risk, vary by product. As of ~~September 30, 2020,~~March 31, 2021, there have been no material changes in our economic exposure to market risk from December 31, ~~2019,~~2020, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, ~~2019,~~2020, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission. See ~~“Risk Factors” in this Quarterly Report on Form 10-Q and~~ Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

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Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule 13a-15(e), as of ~~September 30, 2020.~~March 31, 2021. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2020,~~March 31, 2021, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), occurred during the quarter ended ~~September 30, 2020,~~March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10 to the Unaudited Interim 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, ~~2019.~~2020. These risks could materially affect our business, results of operations or financial condition, cause the trading price of our Common Stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” ~~above~~ and the risks of our ~~business~~businesses described elsewhere in this Quarterly Report on Form 10-Q. ~~The following should be read in conjunction with and supplements and amends the section titled “Risk Factors” in our Annual Report on Form 10-K.~~

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Item 6. Exhibits


EXHIBIT INDEX

31.1 Section 302 Certification of the Chief Executive Officer

31.2 Section 302 Certification of the Chief Financial Officer

32.1 Section 906 Certification of the Chief Executive Officer

32.2 Section 906 Certification of the Chief Financial Officer

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

101.SCH - XBRL Taxonomy Extension Schema Document.

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

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

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SIGNATURES

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


			Pruco Life Insurance Company of New Jersey

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

Date: ~~November~~May 12, ~~2020~~2021


	Three Months Ended September 30, 2019
	Realized Investment Gains (Losses)		Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	597	$	432	$	376	$	4,525
Total cash flow hedges	597		432		376		4,525
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	432		0		0		0
Currency	83		0		0		0
Currency/Interest Rate	1,215		0		7		0
Credit	0		0		0		0
Equity	604		0		0		0
Embedded Derivatives	2,122		0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	4,456		0		7		0
Total	$	5,053	$	432	$	383	$	4,525


	Nine Months Ended September 30, 2019
	As Previously Reported		Revision		As Revised
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Policy charges and fee income	$	(37,295)	$	23,421	$	(13,874)
Cash flows from (used in) operating activities	(6,247)		23,421		17,174
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account withdrawals	(248,126)		(15,815)		(263,941)
Other, net	0		(7,606)		(7,606)
Cash flows from (used in) financing activities	80,929		(23,421)		57,508