Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations (“MD&A”) addresses the consolidated monetary situation of Pruco Life
Insurance coverage Firm, or the “Firm,” as of September 30, 2021, in contrast with
December 31, 2020, and its consolidated outcomes of operations for the three and
9 months ended September 30, 2021 and 2020. You need to learn the next
evaluation of our consolidated monetary situation and outcomes of operations in
conjunction with the MD&A, the “Threat Elements” part, and the audited
Consolidated Monetary Statements included within the Firm’s Annual Report on
Type 10-Ok for the yr ended December 31, 2020, in addition to the statements beneath
“Ahead-Wanting Statements” , and the Unaudited Interim Consolidated Monetary
Statements included elsewhere on this Quarterly Report on Type 10-Q.

Overview

The Firm sells variable annuities, common life insurance coverage, variable life
insurance coverage and time period life insurance coverage primarily by means of affiliated and unaffiliated
distributors in the US. As of December 31, 2020, the Firm
discontinued the gross sales of conventional variable annuities with assured dwelling
profit riders.

Efficient July 1, 2021, the Firm recaptured the dangers associated to its variable
annuity base contracts, together with the dwelling profit ensures, that had
beforehand been reinsured to Prudential Annuities Life Assurance Company
(“PALAC”) from April 1, 2016 by means of June 30, 2021. The recapture doesn’t
affect Pruco Life Insurance coverage Firm of New Jersey, which can proceed to
reinsure its new and in power enterprise to The Prudential Insurance coverage of America.
The product dangers associated to the beforehand reinsured enterprise that had been being
managed in PALAC, had been transferred to the Firm. As well as, the dwelling
profit hedging program associated to the beforehand reinsured dwelling profit
riders will probably be managed throughout the Firm. This transaction is known as
the “2021 Variable Annuities Recapture”. For extra info on this
transition, see Word 1 to the Unaudited Interim Consolidated Monetary
Statements.
COVID-19
Because the first quarter of 2020, the novel coronavirus (“COVID-19”) has created
excessive stress and disruption within the international economic system and monetary markets and
has elevated mortality and morbidity expertise for the worldwide inhabitants. The
COVID-19 pandemic continues to affect our outcomes of operations within the present
interval and is anticipated to proceed to affect our outcomes of operations in future
durations. The COVID-19 pandemic has moved in localized waves, with its affect
worsening after which bettering in numerous areas at completely different instances in a
repetitive however unpredictable sample. In the course of the third quarter of 2021, the
mortality impacts to our companies from COVID-19 elevated in comparison with the
second quarter. The Firm has taken a number of measures to handle the impacts of
this disaster. The precise and anticipated impacts of those occasions and different gadgets are
included within the following replace:
•Outlook. We count on COVID-19 to proceed to contribute to elevated ranges of
mortality, leading to elevated life insurance coverage claims within the near-term. The
pandemic may affect gross sales volumes.

•Threat Elements. The COVID-19 pandemic has adversely impacted our outcomes of
operations, monetary place, funding portfolio, new enterprise alternatives
and operations, and these impacts are anticipated to proceed. For added
info on the dangers to our enterprise posed by the COVID-19 pandemic, see
“Threat Elements” included within the Firm’s Annual Report on Type 10-Ok for the yr
ended December 31, 2020.

•Enterprise Continuity. All through the COVID-19 pandemic, now we have been executing
Prudential Monetary Inc.’s (“Prudential Monetary”) and our enterprise continuity
protocols to make sure our staff are protected and capable of serve our clients. This
included successfully transitioning the overwhelming majority of our staff to distant
work preparations.

We imagine we will maintain distant work and social distancing for an indefinite
interval whereas guaranteeing that important enterprise operations are sustained. In
addition, we’re managing COVID-19-related impacts on third-party supplied
providers, and don’t anticipate important interruption in important operations.

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Impression of a Low Curiosity Price Setting

As a worldwide monetary providers firm, market rates of interest are a key driver
of our outcomes of operations and monetary situation. Adjustments in rates of interest
can have an effect on our outcomes of operations and/or our monetary situation in a number of
methods, together with favorable or hostile impacts to:

• investment-related exercise, together with: funding revenue returns, internet
curiosity margins, internet funding unfold outcomes
new cash charges, mortgage mortgage prepayments and bond redemptions;
• hedging prices and different threat mitigation actions;
• insurance coverage reserve ranges, amortization of deferred coverage acquisition prices
(“DAC”) and market expertise true-ups:
• buyer account values, together with their affect on charge revenue;
• product choices, design options, crediting charges and gross sales combine; and
• policyholder habits, together with give up or withdrawal exercise.

For extra info on rate of interest dangers, see “Threat Elements-Market Threat”
included in our Annual Report on Type 10-Ok for the yr ended December 31, 2020.

Revenues and Bills

The Firm earns revenues principally from insurance coverage premiums, mortality and
expense charges, asset administration charges from insurance coverage and funding merchandise,
and from internet funding revenue on the funding of common account and different
funds. The Firm receives premiums primarily from the sale of particular person life
insurance coverage and annuity merchandise. The Firm earns mortality and expense charges,
and asset administration charges, primarily from the sale and servicing of
common life insurance coverage and separate account merchandise together with variable life
insurance coverage and variable annuities. The Firm’s working bills principally
encompass insurance coverage advantages supplied and reserves established for anticipated
future insurance coverage advantages, common enterprise bills, reinsurance premiums,
commissions and different prices of promoting and servicing the varied merchandise bought
and curiosity credited on common account liabilities.

Accounting Insurance policies & Pronouncements

Software of Vital Accounting Estimates

The preparation of monetary statements in conformity with U.S. GAAP requires
the applying of accounting insurance policies that usually contain a big diploma
of judgment. Administration, on an ongoing foundation, critiques estimates and assumptions
used within the preparation of monetary statements. If administration determines that
modifications in assumptions and estimates are applicable given present information
and circumstances, the Firm’s outcomes of operations and monetary place as
reported within the Unaudited Interim Consolidated Monetary Statements may change
considerably.

Administration believes the accounting insurance policies regarding the next areas are
most depending on the applying of estimates and assumptions and require
administration’s most tough, subjective, or advanced judgments:

•DAC and different prices, together with deferred gross sales inducements (“DSI”);
•Policyholder liabilities;
•Valuation of investments, together with derivatives, measurement of allowance for
credit score losses, and recognition of other-than-temporary impairments;
•Reinsurance recoverables;
•Taxes on revenue; and
•Reserves for contingencies, together with reserves for losses in reference to
unresolved authorized issues.

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Market Efficiency – Fairness and Curiosity Price Assumptions

DAC and different prices related to the variable and common life insurance policies and
the variable and stuck annuity contracts are typically amortized over the
anticipated lives of those insurance policies in proportion to whole gross earnings. Complete
gross earnings embody each precise gross earnings and estimates of gross earnings
for future durations. The quarterly changes for market efficiency replicate the
affect of modifications to our estimate of whole gross earnings to replicate precise fund
efficiency and market situations. A good portion of gross earnings for
our variable annuity contracts and, to a lesser diploma, our variable life
contracts are dependent upon the entire fee of return on belongings held in separate
account funding choices. This fee of return influences the charges we earn on
variable annuity and variable life contracts, prices we incur related to the
assured minimal dying and assured minimal revenue profit options associated
to our variable annuity contracts and anticipated claims to be paid on variable
life contracts, in addition to different sources of revenue. Returns which might be increased than
our expectations for a given interval produce increased than anticipated account
balances, which enhance the long run charges we count on to earn on variable annuity
and variable life contracts and reduce the long run prices we count on to incur
related to the assured minimal dying and assured minimal revenue
profit options associated to our variable annuity contracts and anticipated claims
to be paid on variable life contracts. The alternative happens when returns are
decrease than our expectations. The modifications in future anticipated gross earnings are
used to acknowledge a cumulative adjustment to all prior durations’ amortization.

Moreover, the calculation of the estimated legal responsibility for future coverage
advantages associated to sure insurance coverage merchandise contains an estimate of
related revenues and bills which might be depending on each historic market
efficiency in addition to estimates of market efficiency sooner or later. Just like
DAC and different prices described above, these liabilities are topic to quarterly
changes for expertise together with market efficiency, along with annual
changes ensuing from our annual critiques of assumptions.

The weighted common fee of return assumptions utilized in creating estimated
market returns think about many components particular to every product sort, together with
asset durations, asset allocations and different components. With regard to fairness
market assumptions, the near-term future fee of return assumption utilized in
evaluating DAC, different prices and liabilities for future coverage advantages for
sure of our merchandise, primarily our home variable annuity and variable
life insurance coverage merchandise, is usually up to date every quarter and is derived utilizing
a reversion to the imply method, a standard business follow. Below this
method, we think about historic fairness returns and modify projected fairness
returns over an preliminary future interval of 5 years (the “near-term”) in order that
fairness returns converge to the long-term anticipated fee of return. If the
near-term projected future fee of return is bigger than our near-term most
future fee of return of 15.0%, we use our most future fee of return. If the
near-term projected future fee of return is decrease than our near-term minimal
future fee of return of 0%, we use our minimal future fee of return. As of
September 30, 2021, our variable annuities and variable life insurance coverage
companies assume an 8.0% long-term fairness anticipated fee of return and a 0.4%
near-term imply reversion fairness anticipated fee of return.

With regard to rate of interest assumptions utilized in evaluating DAC, DSI and
liabilities for future coverage advantages for sure of our merchandise, we typically
replace the long-term and near-term future charges used to venture fastened revenue
returns yearly and quarterly, respectively. Because of our 2021 annual
critiques and replace of assumptions and different refinements, we saved our long-term
expectation of the 10-year U.S.Treasury fee unchanged and proceed to grade to
a fee of three.25% over ten years. As a part of our quarterly market expertise
updates, we replace our near-term projections of rates of interest to replicate
modifications in present charges.

For a dialogue of the affect that would outcome from modifications in sure key
assumptions, see “Administration’s Dialogue and Evaluation of Monetary Situation
and Outcomes of Operations-Accounting Insurance policies and Pronouncements-Sensitivities
for Insurance coverage Belongings and Liabilities” in our Annual Report on Type 10-Ok for the
yr ended December 31, 2020.

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Future Adoption of New Accounting Pronouncements

ASU 2018-12, Monetary Providers – Insurance coverage (Matter 944): Focused Enhancements
to the Accounting for Lengthy-Length Contracts, was issued by the Monetary
Accounting Requirements Board (“FASB”) on August 15, 2018. In October 2019, the
FASB issued ASU 2019-09, Monetary Providers – Insurance coverage (Matter 944): Efficient
Date to affirm its resolution to defer the efficient date of ASU 2018-12 to
January 1, 2022 (with early adoption permitted), representing a one yr
extension from the unique efficient date of January 1, 2021. Because of
the COVID-19 pandemic, in November 2020 the FASB issued ASU 2020-11, Monetary
Providers-Insurance coverage (Matter 944): Efficient Date and Early Software to defer
for a further one yr the efficient date of ASU 2018-12 from January 1,
2022 to January 1, 2023, and to offer transition reduction to facilitate the
early adoption of the ASU. The transition reduction would permit giant calendar-year
public firms that early undertake ASU 2018-12 to use the steerage both as of
January 1, 2020 or January 1, 2021 (and report transition changes as of
January 1, 2020 or January 1, 2021, respectively) within the 2022 monetary
statements. Corporations that don’t early undertake ASU 2018-12 would apply the
steerage as of January 1, 2021 (and report transition changes as of January
1, 2021) within the 2023 monetary statements. The Firm at present intends to
undertake ASU 2018-12 efficient January 1, 2023 utilizing the modified retrospective
transition methodology the place permitted.

ASU 2018-12 will affect, not less than to some extent, the accounting and disclosure
necessities for all long-duration insurance coverage and funding contracts issued by
the Firm. The Firm expects the usual to have a big monetary
affect on the Consolidated Monetary Statements and can considerably improve
disclosures. Along with important impacts to the stability sheet upon
adoption, the Firm additionally expects an affect to the sample of earnings
emergence following the transition date. See Word 2 to the Unaudited Interim
Consolidated Monetary Statements for a extra detailed dialogue of ASU 2018-12,
in addition to different accounting pronouncements issued however not but adopted and newly
adopted accounting pronouncements.

Adjustments in Monetary Place

Complete belongings decreased $1.7 billion from $208.3 billion at December 31, 2020 to
$206.6 billion at September 30, 2021. Important elements had been:

•Reinsurance recoverables decreased $17.5 billion primarily pushed by the
recapture of the dwelling profit ensures as a part of the 2021 Variable
Annuities Recapture;

Partially offset by:

•Complete investments elevated $8.8 billion primarily pushed by consideration
acquired associated to the 2021 Variable Annuities Recapture;
•Deferred coverage acquisition prices elevated $3.8 billion primarily because of the
unwinding of ceded prices because of the 2021 Variable Annuities Recapture;
and
•Separate account belongings elevated $1.1 billion primarily pushed by favorable
fairness efficiency, partially offset by internet outflows and coverage expenses.
Complete liabilities decreased $3.1 billion from $204.3 billion at December 31,
2020 to $201.2 billion at September 30, 2021. Important elements had been:
•Future coverage advantages decreased $5.1 billion primarily pushed by a lower in
reserves associated to our variable annuity dwelling profit liabilities attributable to
rising charges and favorable fairness efficiency;
Partially offset by:
•Separate account liabilities elevated $1.1 billion, comparable to the
enhance in Separate account belongings, as mentioned above.
Complete fairness elevated $1.4 billion from $4.0 billion at December 31, 2020 to
$5.4 billion at September 30, 2021 pushed by a capital contribution of $3.8
billion because of the 2021 Variable Annuities Recapture, partially offset
by after-tax internet lack of $2.4 billion.

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Outcomes of Operations

Earnings (loss) from Operations earlier than Earnings Taxes

Three Months Comparability

Earnings (loss) from operations earlier than revenue taxes decreased $3,229 million from
revenue of $33 million for the three months ended September 30, 2020 to a lack of
$3,196 million for the three months ended September 30, 2021 primarily pushed
by:
•Important Realized funding beneficial properties (losses), internet reflecting an unfavorable
affect because of the 2021 Variable Annuities Recapture. See Word 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars;
Partially offset by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.

9 Months Comparability

Earnings (loss) from operations earlier than revenue taxes decreased $3,249 million from
revenue of $85 million for the 9 months ended September 30, 2020 to a lack of
$3,164 million for the 9 months ended September 30, 2021. This contains an
unfavorable comparative internet lack of $24 million from our annual critiques and
replace of assumptions and different refinements, as talked about above. Excluding the
affect of our annual critiques and replace of assumptions and different refinements,
revenue (loss) from operations decreased $3,225 million primarily pushed by:
•Important Realized funding beneficial properties (losses), internet reflecting an unfavorable
affect because of the 2021 Variable Annuities Recapture. See Word 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars;
Partially offset by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.

The next desk supplies the online affect to the Unaudited Interim Statements
of Operations, which is primarily pushed by the modifications within the U.S. GAAP
embedded spinoff legal responsibility and hedge positions beneath the Asset Legal responsibility
Administration (“ALM”) technique, and the associated amortization of DAC and different
prices.

Three Months Ended
September 30, 2021
(in tens of millions)(1)

U.S. GAAP embedded spinoff and hedging positions
Change in worth of U.S.GAAP legal responsibility, pre-NPR(2)

$ 266
Change within the NPR adjustment (217)
Change in honest worth of hedge belongings, excluding capital hedges(3) (453)
Change in honest worth of capital hedges(4) (54)
2021 Variable Annuities Recapture (4,953)
Different 426
Realized funding beneficial properties (losses), internet, and associated changes (4,985)
Market expertise updates(5) (26)
Expenses associated to realized investments beneficial properties (losses), internet 0

Web affect from modifications within the U.S. GAAP embedded spinoff and
hedge positions, after the affect of NPR, DAC and different prices(6) $

(5,011)

(1)Optimistic quantity represents revenue; destructive quantity represents a loss.
(2)Represents the change within the legal responsibility (excluding NPR) for our variable
annuities which is measured using a valuation methodology that’s required
beneath U.S. GAAP. This legal responsibility contains such gadgets as threat margins that are
required by U.S. GAAP however not included in our greatest estimate of the legal responsibility.
(3)Represents the modifications in honest worth of the derivatives utilized to hedge
potential claims related to our variable annuity dwelling profit ensures.
(4)Represents the modifications in honest worth of fairness derivatives of the capital
hedge program supposed to guard a portion of the general capital place of
our enterprise in opposition to publicity to the fairness markets.
(5)Represents the rapid impacts in present interval outcomes from modifications in
present market situations on estimates of profitability.

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(6)Excludes quantities from the modifications in unrealized beneficial properties and losses from fastened
revenue devices recorded in OCI (versus internet revenue) of $20 million for the
three months ended September 30, 2021.

For the three months ended September 30, 2021, the lack of $5.0 billion was
primarily pushed by the 2021 Variable Annuities Recapture. See Word 1 to the
Unaudited Interim Consolidated Monetary Statements for additional particulars.

Revenues, Advantages and Bills
Three Months Comparability
Revenues decreased $4,317 million from $302 million for the three months ended
September 30, 2020 to $(4,015) million for the three months ended September 30,
2021 primarily pushed by:
•Important Realized funding beneficial properties (losses), internet reflecting an unfavorable
affect because of the 2021 Variable Annuities Recapture. See Word 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars.
Advantages and bills decreased $1,089 million from $270 million for the three
months ended September 30, 2020 to $(819) million for the three months ended
September 30, 2021 primarily pushed by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.
9 Months Comparability
Revenues decreased $4,235 million from $846 million for the 9 months ended
September 30, 2020 to $(3,389) million for the 9 months ended September 30,
2021. This contains an unfavorable comparative internet lower of $43 million from
our annual critiques and replace of assumptions and different refinements, as talked about
above. Excluding the affect of our annual critiques and replace of assumptions and
different refinements, Revenues decreased $4,191 million primarily pushed by:
•Important Realized funding beneficial properties (losses), internet reflecting an unfavorable
affect because of the 2021 Variable Annuities Recapture. See Word 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars.

Advantages and bills decreased $986 million from $761 million for the 9
months ended September 30, 2020 to $(225) million for the 9 months ended
September 30, 2021. This features a favorable comparative internet lower of $19
million from our annual critiques and replace of assumptions and different refinements,
as talked about above. Excluding the affect of our annual critiques and replace of
assumptions and different refinements, Advantages and bills decreased $966 million
primarily pushed by:
•Decrease Normal, administrative and different bills primarily pushed by the
unwinding of ceded deferred acquisition prices, partially offset by ceding
allowance paid as a part of the 2021 Variable Annuities Recapture.
Dangers and Threat Mitigants
Variable Annuity Dangers and Threat Mitigants:
The first threat exposures of our variable annuity contracts relate to precise
deviations from, or modifications to, the assumptions used within the unique pricing of
these merchandise, together with capital markets assumptions corresponding to fairness market
returns, rates of interest and market volatility, together with actuarial assumptions
corresponding to contractholder mortality, the timing and quantity of annuitization and
withdrawals, and contract lapses. For these threat exposures, achievement of our
anticipated returns is topic to the chance that precise expertise will differ from
the assumptions used within the unique pricing of those merchandise. Prudential
Monetary manages our publicity to sure dangers pushed by fluctuations in
capital markets primarily by means of a mixture of Product Design Options and
an Asset Legal responsibility Administration Technique (“ALM”), as mentioned beneath. The Firm
additionally manages these threat exposures by means of reinsurance for sure of our
variable annuity merchandise. For info on our reinsurance agreements, see
Word 6 to the Unaudited Interim Consolidated Monetary Statements. Gross sales of
conventional variable annuities with assured dwelling profit riders had been
discontinued as of December 31, 2020.
Efficient July 1, 2021, the Firm recaptured the dangers associated to its variable
annuity base contracts, together with the dwelling profit ensures, that had
beforehand been reinsured to PALAC from April 1, 2016 by means of June 30, 2021. The
recapture doesn’t affect PLNJ, which can proceed to reinsure its new and in
power enterprise to Prudential Insurance coverage. The product dangers associated to the
beforehand reinsured enterprise that had been being managed in PALAC, had been transferred
to the Firm. As well as, the dwelling profit hedging program associated to the
beforehand reinsured dwelling profit riders will probably be managed throughout the Firm.
For extra info on this transaction, see Word 1 to the Unaudited Interim
Consolidated Monetary Statements.

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Product Design Options:
A portion of the variable annuity contracts that we provided embody an asset
switch characteristic. This characteristic is applied on the contract degree, and
transfers belongings between sure variable funding sub-accounts chosen by
the annuity contractholder and, relying on the profit characteristic, a fixed-rate
account within the common account or a bond fund sub-account throughout the separate
account. The target of the asset switch characteristic is to cut back our publicity
to fairness market threat and market volatility.
The asset switch characteristic related to highest day by day dwelling profit merchandise
makes use of a chosen bond fund sub-account throughout the separate account. The
transfers are based mostly on a static mathematical formulation used with the actual
profit which considers numerous components, together with, however not restricted to, the
affect of funding efficiency on the contractholder’s whole account worth.
Different product design options we make the most of embody, amongst others, asset allocation
restrictions, minimal issuance age necessities and sure limitations on the
quantity of contractholder buy funds, in addition to a required minimal
allocation to our common account for sure of our merchandise. As well as,
there’s range in our charge preparations, as sure charges are based totally
on the profit assure quantity, the contractholder account worth and/or
premiums, which helps protect sure income streams when market fluctuations
trigger account values to say no.
Asset Legal responsibility Administration Technique (together with fastened revenue devices and
derivatives):
We make use of an ALM technique that makes use of a mixture of each conventional fastened
revenue devices and derivatives to fulfill anticipated liabilities related to
our variable annuity dwelling profit ensures. The financial legal responsibility we handle
with this ALM technique consists of anticipated dwelling profit claims beneath much less
extreme market situations, that are managed utilizing fastened revenue devices,
derivatives, or a mixture thereof, and potential dwelling profit claims
ensuing from extra extreme market situations, that are hedged utilizing spinoff
devices. For the portion of our ALM technique executed with derivatives, we
enter into a variety of exchange-traded and over-the-counter fairness, rate of interest
and credit score derivatives, together with, however not restricted to: fairness and treasury
futures; whole return, credit score default and rate of interest swaps; and choices,
together with fairness choices, swaptions, and flooring and caps. The intent of this
technique is to extra effectively handle the capital and liquidity related to
these merchandise whereas persevering with to mitigate fluctuations in internet revenue attributable to
actions in capital markets.
The valuation of the financial legal responsibility we search to defray excludes sure gadgets
which might be included throughout the U.S. GAAP legal responsibility, corresponding to NPR to be able to
maximize safety no matter the opportunity of our personal default, as effectively
as threat margins (required by U.S. GAAP however completely different from our greatest estimate) and
valuation methodology variations. The next desk supplies a reconciliation
between the legal responsibility reported beneath U.S. GAAP and the financial legal responsibility we
handle by means of our ALM technique, internet of reinsurance recoverables, as of the
interval indicated:
As of September 30, 2021
(in tens of millions)
U.S. GAAP Legal responsibility, together with NPR $ 8,269
NPR Adjustment 2,033
Subtotal 10,302
Changes together with threat margins and valuation
methodology variations (1,785)
Financial legal responsibility managed by ALM technique $ 8,517

As of September 30, 2021, the honest worth of our fastened revenue devices and
spinoff belongings exceed our financial legal responsibility.
Below our ALM technique, we count on variations within the U.S. GAAP internet revenue affect
between the modifications in worth of the fastened revenue devices (both designated
as available-for-sale or designated as buying and selling) and derivatives as in comparison with
the modifications within the embedded spinoff legal responsibility these belongings assist. These
variations might be primarily attributed to 3 distinct areas:
•Completely different valuation methodologies in measuring the legal responsibility we intend to cowl
with fastened revenue devices and derivatives versus the legal responsibility reported
beneath U.S. GAAP. The valuation methodology utilized in estimating the financial
legal responsibility we intend to defray with fastened revenue devices (both designated
as available-for-sale or designated as buying and selling) and derivatives is completely different
from that required to be utilized to measure the legal responsibility beneath U.S. GAAP.
Moreover, the valuation of the financial legal responsibility excludes sure gadgets
which might be included throughout the U.S. GAAP legal responsibility, corresponding to NPR to be able to
maximize safety no matter the opportunity of our personal default and threat
margins (required by U.S. GAAP however completely different from our greatest estimate).

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•Completely different accounting remedy between liabilities and belongings supporting these
liabilities. Below U.S. GAAP, modifications in worth of the embedded spinoff
legal responsibility, spinoff devices and stuck revenue devices designated as
buying and selling instantly mirrored in internet revenue, whereas modifications within the honest worth of
fastened revenue devices which might be designated as available-for-sale are recorded
as unrealized beneficial properties (losses) in different complete revenue.
•Normal hedge outcomes. For the spinoff portion of the ALM technique, the online
hedging affect (the extent to which the modifications in worth of the hedging
devices offset the change in worth of the portion of the financial legal responsibility
we’re hedging) could also be impacted by numerous components, together with: money stream
timing variations between our hedging devices and the corresponding portion
of the financial legal responsibility we’re hedging, foundation variations attributable to
precise underlying contractholder funds to be hedged versus hedgeable indices,
rebalancing prices associated to dynamic rebalancing of hedging devices as
markets transfer, sure parts of the financial legal responsibility that might not be hedged
(together with sure actuarial assumptions), and implied and realized market
volatility on the hedge positions relative to the portion of the financial
legal responsibility we search to hedge.
For info concerning the Threat Urge for food Framework (“RAF”) we use to judge
and assist the dangers of the ALM technique, see “-Liquidity and Capital
Assets-Capital”
Capital Hedge Program:
We make use of a capital hedge program throughout the Firm to guard a portion of the
total capital place of the variable annuities enterprise in opposition to its publicity
to the fairness markets. The capital hedge program is performed utilizing fairness
derivatives which embody fairness name and put choices, whole return swaps and
futures contracts.

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Earnings Taxes

For info concerning revenue taxes, see Word 7 to the Unaudited Interim
Consolidated Monetary Statements.

Liquidity and Capital Assets
This part dietary supplements and needs to be learn along side “Administration’s
Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations-Liquidity and Capital Assets” included in our Annual Report on
Type 10-Ok for the yr ended December 31, 2020.
Overview
Liquidity refers back to the capability to generate enough money sources to fulfill
the fee obligations of the Firm. Capital refers back to the long-term
monetary sources out there to assist the operations of our enterprise, fund
enterprise development, and supply a cushion to resist hostile circumstances. Our
capability to generate and preserve enough liquidity and capital relies on the
profitability of our enterprise, common financial situations, our capability to
borrow from associates and our entry to the capital markets by means of associates
as described herein.
Efficient and prudent liquidity and capital administration is a precedence throughout the
group. Administration screens the liquidity of the Firm each day
and initiatives borrowing and capital wants over a multi-year time horizon. We use
a Threat Urge for food Framework (“RAF”) to make sure that all dangers taken by the Firm
aligns with our capability and willingness to take these dangers. The RAF supplies a
dynamic evaluation of capital and liquidity stress impacts, together with situations
just like, and extra extreme than, these occurring attributable to COVID-19, and is
supposed to make sure that enough sources can be found to soak up these
impacts. We imagine that our capital and liquidity sources are enough to
fulfill the capital and liquidity necessities of the Firm.
Our companies are topic to complete regulation and supervision by
home and worldwide regulators. These rules at present embody
necessities (lots of that are the topic of ongoing rule-making) regarding
capital, leverage, liquidity, stress-testing, total threat administration, credit score
publicity reporting and credit score focus. For info on these regulatory
initiatives and their potential affect on us, see “Enterprise-Regulation” and
“Threat Elements” included in our Annual Report on Type 10-Ok for the yr ended
December 31, 2020.
Capital
We handle the Firm to regulatory capital ranges per our “AA”
scores targets. We make the most of the risk-based capital (“RBC”) ratio as a major
measure of capital adequacy. RBC is calculated based mostly on statutory monetary
statements and threat formulation per the practices of the Nationwide
Affiliation of Insurance coverage Commissioners (“NAIC”). RBC considers, amongst different
issues, dangers associated to the sort and high quality of the invested belongings,
insurance-related dangers related to an insurer’s merchandise and liabilities,
rate of interest dangers and common enterprise dangers. RBC ratio calculations are
supposed to help insurance coverage regulators in measuring an insurer’s solvency and
capability to pay future claims. The reporting of RBC measures isn’t supposed for
the aim of rating any insurance coverage firm or to be used in reference to any
advertising, promoting or promotional actions, however is accessible to the
public. The Firm’s capital ranges considerably exceed the minimal degree
required by relevant insurance coverage rules. Our regulatory capital ranges might
be affected sooner or later by modifications to the relevant rules, proposals
for that are at present into account by each home and worldwide
insurance coverage regulators.
The regulatory capital degree of the Firm might be materially impacted by
rate of interest and fairness market fluctuations, modifications within the values of
derivatives, the extent of impairments recorded, and credit score high quality migration of
the funding portfolio, amongst different gadgets. As well as, the reinsurance of
enterprise or the recapture of enterprise topic to reinsurance preparations attributable to
defaults by, or credit score high quality migration affecting, the reinsurers or for different
causes may negatively affect regulatory capital ranges. The Firm’s
regulatory capital degree can be affected by statutory accounting guidelines, which
are topic to alter by every relevant insurance coverage regulator.
Captive Reinsurance Corporations:
See “Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations-Liquidity and Capital Assets-Capital-Affiliated Captive
Reinsurance Corporations” included in our Annual Report on Type 10-Ok for the yr
ended December 31, 2020, for a dialogue of our use of captive reinsurance
firms.
Liquidity
Our liquidity is managed to make sure secure, dependable and cost-effective sources
of money flows to fulfill all of our obligations. Liquidity is supplied by a range
of sources, as described extra absolutely beneath, together with portfolios of liquid
belongings. Our funding portfolios are integral to the general liquidity of the
Firm. We use a projection course of for money flows from

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operations to make sure enough liquidity to fulfill projected money outflows,
together with claims. The affect of Prudential Funding, LLC’s (“Prudential
Funding”), a wholly-owned subsidiary of Prudential Insurance coverage, financing capability
on liquidity is taken into account within the inside liquidity measures of the Firm.
Liquidity is measured in opposition to internally-developed benchmarks that take into
account the traits of each the asset portfolio and the liabilities that
they assist. We think about attributes of the varied classes of liquid belongings
(for instance, sort of asset and credit score high quality) in calculating inside
liquidity measures to judge our liquidity beneath numerous stress situations,
together with company-specific and market-wide occasions. We proceed to imagine that
money generated by ongoing operations and the liquidity profile of our belongings
present enough liquidity beneath moderately foreseeable stress situations.
The principal sources of the Firm’s liquidity are premiums and sure
annuity issues, funding and charge revenue, funding maturities, gross sales
of investments and inside borrowings. The principal makes use of of that liquidity
embody advantages, claims, and funds to policyholders and contractholders in
reference to surrenders, withdrawals and internet coverage mortgage exercise. Different makes use of
of liquidity embody commissions, common and administrative bills, purchases
of investments, the fee of dividends and returns of capital to the dad or mum
firm, hedging and reinsurance exercise and funds in reference to
financing actions.
In managing liquidity, we think about the chance of policyholder and contractholder
withdrawals of funds sooner than our assumptions when deciding on belongings to
assist these contractual obligations. We use give up expenses and different
contract provisions to mitigate the extent, timing and profitability affect of
withdrawals of funds by clients.
Liquid Belongings
Liquid belongings embody money and money equivalents, short-term investments, U.S.Treasury fastened maturities, and stuck maturities that aren’t designated as
held-to-maturity and public fairness securities. As of September 30, 2021 and
December 31, 2020, the Firm had liquid belongings of $15,692 million and $7,681
million, respectively. The portion of liquid belongings comprised money and money
equivalents and short-term investments was $1,185 million and $477 million as of
September 30, 2021 and December 31, 2020, respectively. As of September 30,
2021, $6,677 million, or 93%, of the fastened maturity investments within the Firm’s
common account portfolios, had been rated excessive or highest high quality based mostly on NAIC or
equal score.

Time period and Common Life Reserve Financing
The Firm makes use of affiliated captive reinsurance subsidiaries to finance the
portion of the statutory reserves required to be held beneath Regulation XXX and
Guideline AXXX that’s thought of to be non-economic. The financing preparations
contain the reinsurance of time period and common life enterprise to our affiliated
captive reinsurers and the issuance of surplus notes by these affiliated
captives which might be handled as capital for statutory functions. These surplus notes
are subordinated to policyholder obligations, and the fee of principal and
curiosity on the excess notes can solely be made with prior insurance coverage regulatory
approval.

As of September 30, 2021, the affiliated captive reinsurance firms have
entered into agreements with exterior counterparties offering for the issuance
of as much as an combination of $14,700 million of surplus notes by our affiliated
captive reinsurers in return for the receipt of credit-linked notes
(“Credit score-Linked Word Constructions”), of which $12,746 million of surplus notes was
excellent, in comparison with an combination issuance capability of $14,825 million, of
which $12,919 million was excellent as of December 31, 2020. Below the
agreements, the affiliated captive receives in alternate for the excess notes
a number of credit-linked notes issued by a special-purpose affiliate of the
Firm with an combination principal quantity equal to the excess notes
excellent. The affiliated captive holds the credit-linked notes as belongings
supporting Regulation XXX or Guideline AXXX non-economic reserves, as
relevant. For extra info on our Credit score-Linked Word Constructions, see
“Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operation-Liquidity and Capital Assets-Financing Actions” within the Annual
Report on Type 10-Ok for the yr ended December 31, 2020.

As of September 30, 2021, our affiliated captive reinsurance firms had
excellent an combination of $2,775 million of debt issued for the aim of
financing Regulation XXX and Guideline AXXX non-economic reserves, of which
roughly $1,175 million pertains to Regulation XXX reserves and
roughly $1,600 million pertains to Guideline AXXX reserves. As well as, as
of September 30, 2021, for functions of financing Guideline AXXX reserves, considered one of
our affiliated captives had roughly $3,982 million of surplus notes
excellent that had been issued to associates.

The Firm has launched up to date variations of its particular person life merchandise in
conjunction with the requirement to undertake principle-based reserving by January
1, 2020. These up to date merchandise are at present priced to assist the
principle-based statutory reserve degree with out the necessity for reserve financing.

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