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 March 31, 2022, in contrast with
December 31, 2021, and its consolidated outcomes of operations for the three
months ended March 31, 2022 and 2021. You need to learn the next evaluation of
our consolidated monetary situation and outcomes of operations in conjunction
with the MD&A, the “Danger Components” part, and the audited Consolidated
Monetary Statements included within the Firm’s Annual Report on Kind 10-Ok for
the 12 months ended December 31, 2021, in addition to the statements below
“Ahead-Wanting Statements” , and the Unaudited Interim Consolidated Monetary
Statements included elsewhere on this Quarterly Report on Kind 10-Q.

Overview

The Firm sells variable annuities, common life insurance coverage, variable life
insurance coverage and time period life insurance coverage primarily by 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 June 30, 2021. The recapture doesn’t
influence Pruco Life Insurance coverage Firm of New Jersey (“PLNJ”), which is able to proceed
to reinsure its new and in pressure enterprise to Prudential Insurance coverage. The product
dangers associated to the beforehand reinsured enterprise that have been being managed in
PALAC, have been transferred to the Firm. As well as, the dwelling profit hedging
program associated to the beforehand reinsured dwelling profit riders are being
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 Consolidated Monetary Statements.

Efficient December 1, 2021, the Firm entered right into a reinsurance settlement
with PALAC below which the Firm assumed all of its variable and stuck listed
annuities and stuck annuities with a assured lifetime withdrawal revenue
function from PALAC.

Yearly throughout the second quarter of every 12 months, we carry out a complete
overview of actuarial assumptions. As a part of this overview, we could replace these
assumptions and make refinements to our fashions primarily based upon rising expertise,
future expectations and different knowledge, together with any observable market knowledge. For
further info, see “Accounting Insurance policies & Pronouncements-Software of
Vital Accounting Estimates” under in addition to the Firm’s Annual Report on
Kind 10-Ok for the 12 months ended December 31, 2021.

COVID-19

For the reason that first quarter of 2020, the COVID-19 pandemic has brought about excessive stress
and disruption within the international financial system and monetary markets and elevated
mortality and morbidity for the worldwide inhabitants. The COVID-19 pandemic
impacted our outcomes of operations within the present interval and is predicted to
influence our outcomes of operations in future intervals. 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 objects are included within the following replace:

•Outlook. We count on COVID-19 to proceed to contribute within the close to time period to
elevated ranges of mortality, leading to elevated life insurance coverage claims.

•Outcomes of Operations. See “Outcomes of Operations” for a dialogue of outcomes
for the primary quarter of 2022.

•Danger Components. 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 extra
info on the dangers to our enterprise posed by the COVID-19 pandemic, see
“Danger Components” included within the Firm’s Annual Report on Kind 10-Ok for the 12 months
ended December 31, 2021.

•Enterprise Continuity. All through the COVID-19 pandemic, we have now been executing
Prudential Monetary Inc.’s (“Prudential Monetary”) and our enterprise continuity
protocols to make sure workers are protected and capable of serve our prospects. This
included successfully transitioning the overwhelming majority of workers to distant work
preparations. In March 2022, Prudential Monetary’s workplaces have been reopened to
workers and we count on that many of the workforce will undertake a hybrid
association for the foreseeable future.

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We imagine we are able to maintain long-term hybrid or absolutely distant work preparations
whereas making certain that vital enterprise operations are sustained. As well as, we
are managing COVID-19 associated impacts on third-party supplied providers, and do
not anticipate important interruption in vital operations.

Influence of a Low Curiosity Fee 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 opposed impacts to:

• investment-related exercise, together with: funding revenue returns, web
curiosity margins, web 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 influence 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 “Danger Components-Market Danger”
included in our Annual Report on Kind 10-Ok for the 12 months ended December 31, 2021.

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 web 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 offered
and curiosity credited on common account liabilities.

Accounting Insurance policies & Pronouncements

Software of Vital Accounting Estimates

The preparation of economic statements in conformity with U.S. GAAP requires
the appliance of accounting insurance policies that usually contain a big diploma
of judgment. Administration, on an ongoing foundation, evaluations estimates and assumptions
used within the preparation of economic statements. If administration determines that
modifications in assumptions and estimates are applicable given present details
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 appliance of estimates and assumptions and require
administration’s most troublesome, 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 Fee 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 complete gross earnings. Whole
gross earnings embrace each precise gross earnings and estimates of gross earnings
for future intervals. The quarterly changes for market efficiency mirror the
influence of adjustments to our estimate of complete gross earnings to mirror precise fund
efficiency and market circumstances. A good portion of gross earnings for
our variable annuity contracts and, to a lesser diploma, our variable life
contracts are dependent upon the whole charge of return on property held in separate
account funding choices. This charge 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 can be larger than
our expectations for a given interval produce larger than anticipated account
balances, which improve 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 other happens when returns are
decrease than our expectations. The adjustments in future anticipated gross earnings are
used to acknowledge a cumulative adjustment to all prior intervals’ amortization.

Moreover, the calculation of the estimated legal responsibility for future coverage
advantages associated to sure insurance coverage merchandise consists of an estimate of
related revenues and bills which can be depending on each historic market
efficiency in addition to estimates of market efficiency sooner or later. Much 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 evaluations of assumptions.

The weighted common charge of return assumptions utilized in creating estimated
market returns contemplate many elements particular to every product sort, together with
asset durations, asset allocations and different elements. With regard to fairness
market assumptions, the near-term future charge 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 observe. Below this
method, we contemplate 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 charge of return. If the
near-term projected future charge of return is larger than our near-term most
future charge of return of 15.0%, we use our most future charge of return. If the
near-term projected future charge of return is decrease than our near-term minimal
future charge of return of 0%, we use our minimal future charge of return. As of
March 31, 2022, our variable annuities and variable life insurance coverage companies
assume an 8.0% long-term fairness anticipated charge of return and a 0.9% near-term
imply reversion fairness anticipated charge 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 undertaking mounted revenue
returns yearly and quarterly, respectively. Because of our 2021 annual
evaluations and replace of assumptions and different refinements, we saved our long-term
expectation of the 10-year U.S. Treasury charge unchanged and proceed to grade to
a charge 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 mirror
adjustments in present charges.

In accordance with our established observe, we’ll replace actuarial
assumptions throughout the second quarter of 2022. We now have a complete course of
that may embrace, amongst different issues, the overview of long-term rates of interest,
inflation, COVID-19 mortality expertise, and business research, together with
evaluating business knowledge as to its applicability to the Firm’s expertise. We
have lately obtained business knowledge that displays expertise that’s extra
opposed than the assumptions we at present use in our particular person life enterprise.
We’re evaluating the applicability of this info to our block of enterprise
and the extent to which it could trigger a rise in reserves and corresponding
decline in earnings inside our particular person life enterprise. The general course of to
replace assumptions is ongoing and the end result throughout our companies is
unsure.

For additional dialogue of impacts that would end result from adjustments in sure key
assumptions, see “Administration’s Dialogue and Evaluation of Monetary Situation
and Outcomes of Operations-Accounting Insurance policies and Pronouncements-Software of
Vital Accounting Estimates” in our Annual Report on Kind 10-Ok for the 12 months
ended December 31, 2021.

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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,and was amended by ASU
2019-09, Monetary Providers – Insurance coverage (Matter 944): Efficient Date, issued in
October 2019, and ASU 2020-11, Monetary Providers-Insurance coverage (Matter 944):
Efficient Date and Early Software, issued in November 2020. The Firm will
undertake ASU 2018-12 efficient January 1, 2023 utilizing the modified retrospective
transition technique the place permitted, and apply the steering as of January 1, 2021
(and file transition changes as of January 1, 2021) within the 2023 monetary
statements.

ASU 2018-12 will influence, no 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
influence on the Consolidated Monetary Statements and can considerably improve
disclosures. Along with the numerous impacts to the stability sheet upon
adoption, the Firm additionally expects an influence 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

Whole property decreased $13 billion from $222 billion at December 31, 2021 to
$209 billion at March 31, 2022. Important parts have been:

•Separate account property decreased $12.1 billion primarily pushed by unfavorable
fairness efficiency and web outflows;

•Invested property decreased $1.9 billion pushed by $1.0 in unrealized losses on
funding primarily attributable to rising rates of interest and a $0.9 billion lower in
coverage loans from ceding a portion of the variable life enterprise to Lotus
Reinsurance Firm Ltd. (“Lotus Re”);

Partially offset by:

•Money and money equivalents elevated $0.9 primarily as a result of $0.8 billion money
consideration as a part of the preliminary ceding fee from the ceding of a
portion of the variable life enterprise to Lotus Re; and

•Reinsurance recoverables elevated $0.8 billion as a result of ceding of a portion
of the variable life enterprise to Lotus Re partially offset by decreases in ceded
assured minimal dying profit liabilities from the common life enterprise
attributable to unrealized losses, primarily attributable to rising rates of interest.

Whole liabilities decreased $12 billion from $216 billion at December 31, 2021
to $204 billion at March 31, 2022. Important parts have been:

•Separate account liabilities decreased $12.1 billion, comparable to the
lower in Separate account property, as mentioned above;

•Future coverage advantages decreased $2.7 billion pushed by a lower in reserves
associated to our variable annuity dwelling profit ensures attributable to widening
non-performance threat (“NPR”) spreads and rising rates of interest, partially offset
by unfavorable fairness market efficiency;

Partially offset by:

•Policyholder account balances elevated $1.6 billion pushed by incremental
listed product gross sales; and

•Different liabilities elevated $1.2 billion pushed by the deferred reinsurance
acquire from ceding a portion of the variable life enterprise to Lotus Re, partially
offset by a lower to value of reinsurance liabilities.

Whole fairness decreased $1 billion from $6 billion at December 31, 2021 to $5
billion at March 31, 2022 pushed by $1.0 billion of unrealized losses on
investments pushed by rising rates of interest mirrored in Accrued different
complete revenue (loss).

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Outcomes of Operations

Revenue (loss) from Operations earlier than Revenue Taxes

Three Months Comparability

Revenue (loss) from operations earlier than revenue taxes decreased $88 million from
revenue of $58 million for the three months ended March 31, 2021 to a lack of $30
million for the three months ended March 31, 2022 primarily pushed by:

•Larger Advantages and bills pushed by the variable annuity recapture and new
reinsurance with PALAC in 2021;

Partially offset by:

•Larger coverage costs and charge revenue is pushed by the variable annuity
recapture, partially offset by the charge paid to The Prudential Insurance coverage Firm
of America (“Prudential Insurance coverage”) for the recapture of the yearly renewable
time period (“YRT”) reinsurance for many of the Firm’s variable life insurance coverage
insurance policies and by ceding a portion of the variable life enterprise to Lotus Re.

The next desk offers the online influence to the Unaudited Interim Statements
of Operations, which is primarily pushed by the adjustments within the U.S. GAAP
embedded by-product legal responsibility and hedge positions below the Asset Legal responsibility
Administration (“ALM”) technique, and the associated amortization of DAC and different
prices.

Three Months Ended
March 31, 2022
(in hundreds of thousands)(1)

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

$ 1,376
Change within the NPR adjustment 477
Change in truthful worth of hedge property, excluding capital hedges(3) (1,392)
Change in truthful worth of capital hedges(4) 181
Different (326)
Realized funding good points (losses), web, and associated changes 316
Market expertise updates(5) (77)
Costs associated to realized investments good points (losses), web (201)

Web influence from adjustments within the U.S. GAAP embedded by-product and
hedge positions, after the influence of NPR, DAC and different prices(6) $

38

(1)Constructive quantity represents revenue; damaging 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
below U.S. GAAP. This legal responsibility consists of such objects as threat margins that are
required by U.S. GAAP however not included in our greatest estimate of the legal responsibility.
(3)Represents the adjustments in truthful worth of the derivatives utilized to hedge
potential claims related to our variable annuity dwelling profit ensures.
(4)Represents the adjustments in truthful worth of fairness derivatives of the capital
hedge program supposed to guard a portion of the general capital place of
our enterprise towards publicity to the fairness markets.
(5)Represents the fast impacts in present interval outcomes from adjustments in
present market circumstances on estimates of profitability.
(6)Excludes quantities from the adjustments in unrealized good points and losses from mounted
revenue devices recorded in OCI (versus web revenue) of ($80) million for the
three months ended March 31, 2022.

For the three months ended March 31, 2022, the acquire of $38 million was primarily
pushed by a positive influence associated to the parts of our U.S. GAAP legal responsibility
earlier than NPR, which can be excluded from hedge goal pushed by rising rates of interest,
partially offset by unfavorable influence associated to the change within the truthful worth
of hedge property.

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Revenues, Advantages and Bills

Three Months Comparability

Revenues elevated $585 million from $396 million for the three months ended
March 31, 2021 to $981 million for the three months ended March 31, 2022
primarily pushed by:

•Important Realized funding good points (losses), web reflecting a positive
influence associated to the parts of our U.S. GAAP legal responsibility earlier than NPR, which can be
excluded from hedge goal pushed by rising rates of interest; and

•Larger coverage costs and charge revenue is pushed by the variable annuity
recapture, partially offset by the charge paid to Prudential Insurance coverage for the
recapture of the YRT reinsurance for many of the Firm’s variable life
insurance coverage insurance policies and by ceding a portion of the variable life enterprise to
Lotus Re.

Advantages and bills elevated $673 million from $338 million for the three
months ended March 31, 2021 to $1,011 million for the three months ended March
31, 2022 primarily pushed by:

•Larger advantages and bills pushed by the Variable Annuities Recapture and new
reinsurance with PALAC in 2021.

Dangers and Danger Mitigants

Variable Annuity Dangers and Danger Mitigants:

The first threat exposures of our variable annuity contracts relate to precise
deviations from, or adjustments to, the assumptions used within the authentic pricing of
these merchandise, together with capital markets assumptions reminiscent of fairness market
returns, rates of interest and market volatility, together with actuarial assumptions
reminiscent of 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 authentic pricing of those merchandise. Prudential
Monetary manages our publicity to sure dangers pushed by fluctuations in
capital markets primarily by a mix of Product Design Options and
an Asset Legal responsibility Administration Technique (“ALM”), as mentioned under. The Firm
additionally manages these threat exposures by exterior reinsurance for sure of
our variable annuity merchandise.

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 June 30, 2021. The
recapture doesn’t influence PLNJ, which is able to proceed to reinsure its new and in
pressure enterprise to Prudential Insurance coverage. The product dangers associated to the
beforehand reinsured enterprise that have been being managed in PALAC, have been transferred
to the Firm. As well as, the dwelling profit hedging program associated to the
beforehand reinsured dwelling profit riders might be managed throughout the Firm.
For extra info on this transaction, see Word 1 to the Consolidated
Monetary Statements.

Fastened Annuity Dangers and Danger Mitigants. Efficient December 1, 2021, the Firm
entered right into a reinsurance settlement with PALAC below which the Firm assumed
all of its mounted listed annuities and stuck annuities with a assured
lifetime withdrawal revenue function from PALAC. The first threat publicity of
these mounted annuity merchandise pertains to funding dangers we bear for offering
prospects a minimal assured rate of interest or an index-linked rate of interest
required to be credited to the shopper’s account worth, which embrace curiosity
charge fluctuations and/or sustained intervals of low rates of interest, and credit score
threat associated to the underlying investments. We handle these threat exposures
primarily by our funding methods and product design options, which
embrace credit score charge resetting topic to the minimal assured rate of interest,
in addition to give up costs utilized throughout the early years of the contract that
assist to supply safety for untimely withdrawals. As well as, a portion of
our mounted annuity merchandise has a market worth adjustment provision that affords
safety of lapse within the case of rising rates of interest. We additionally handle these
threat exposures by exterior reinsurance for sure of our mounted annuity
merchandise.

Listed Variable Annuity Dangers and Danger Mitigants. Efficient December 1, 2021,
the Firm entered right into a reinsurance settlement with PALAC below which the
Firm assumed all of its listed variable annuities from PALAC. The first
threat publicity of those listed variable annuity merchandise pertains to the
funding dangers we bear with a purpose to credit score to the shopper’s account stability
the required crediting charge primarily based on the efficiency of the elected indices at
the tip of every time period. We handle this threat primarily by our funding
methods together with derivatives and product design options, which embrace
credit score charge resetting topic to contractual minimums in addition to give up
costs utilized throughout the early years of the contract that assist to supply
safety for untimely withdrawals. As well as, our listed variable annuity
methods have an interim worth provision that gives safety from lapse
within the case of rising rates of interest.

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Product Design Options:

A portion of the variable annuity contracts that we provide embrace an asset
switch function. This function is carried out on the contract stage, and
transfers property between sure variable funding sub-accounts chosen by
the annuity contractholder and, relying on the profit function, a fixed-rate
account within the common account or a bond fund sub-account throughout the separate
account. The target of the asset switch function is to cut back our publicity
to fairness market threat and market volatility. The asset switch function
related to currently-sold highest day by day dwelling profit merchandise makes use of a
designated bond fund sub-account throughout the separate account. The transfers are
primarily based on a static mathematical method used with the actual profit which
considers numerous elements, together with, however not restricted to, the influence of
funding efficiency on the contractholder’s complete account worth. Different
product design options we make the most of embrace, 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. We proceed to
introduce merchandise that diversify our threat profile and have integrated
provisions in product design permitting frequent revisions of key pricing components
for sure of our merchandise. As well as, there’s variety in our charge
preparations, as sure charges are based 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
decline.

Asset Legal responsibility Administration Technique (together with mounted revenue devices and
derivatives):

We make use of an ALM technique that makes use of a mix of each conventional mounted
revenue devices and derivatives to satisfy 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 below much less
extreme market circumstances, that are managed utilizing mounted revenue devices,
derivatives, or a mix thereof, and potential dwelling profit claims
ensuing from extra extreme market circumstances, that are hedged utilizing by-product
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; complete 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 web revenue attributable to
actions in capital markets.

The valuation of the financial legal responsibility we search to defray excludes sure objects
which can be included throughout the U.S. GAAP legal responsibility, reminiscent of NPR with a purpose to
maximize safety no matter the potential of our personal default, as nicely
as threat margins (required by U.S. GAAP however totally different from our greatest estimate) and
valuation methodology variations. The next desk offers a reconciliation
between the legal responsibility reported below U.S. GAAP and the financial legal responsibility we
handle by our ALM technique, web of reinsurance recoverables, as of the
interval indicated:

As of March 31, 2022
(in hundreds of thousands)
U.S. GAAP Legal responsibility, together with NPR $ 6,264
NPR Adjustment 2,523
Subtotal 8,787
Changes together with threat margins and valuation
methodology variations (1,717)
Financial legal responsibility managed by ALM technique $ 7,071

As of March 31, 2022, the truthful worth of our mounted revenue devices and
by-product property exceed our financial legal responsibility.

Below our ALM technique, we count on variations within the U.S. GAAP web revenue influence
between the adjustments in worth of the mounted revenue devices (both designated
as available-for-sale or designated as buying and selling) and derivatives as in comparison with
the adjustments within the embedded by-product legal responsibility these property assist. These
variations might be primarily attributed to a few distinct areas:

•Completely different valuation methodologies in measuring the legal responsibility we intend to cowl
with mounted revenue devices and derivatives versus the legal responsibility reported
below U.S. GAAP. The valuation methodology utilized in estimating the financial
legal responsibility we intend to defray with mounted revenue devices (both designated
as available-for-sale or designated as buying and selling) and derivatives is totally different
from that required to be utilized to measure the legal responsibility below U.S. GAAP.
Moreover, the valuation of the financial legal responsibility excludes sure objects
which can be included throughout the U.S. GAAP legal responsibility, reminiscent of NPR with a purpose to
maximize safety no matter the potential of our personal default and threat
margins (required by U.S. GAAP however totally different from our greatest estimate).

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•Completely different accounting remedy between liabilities and property supporting these
liabilities. Below U.S. GAAP, adjustments in worth of the embedded by-product
legal responsibility, by-product devices and stuck revenue devices designated as
buying and selling instantly mirrored in web revenue, whereas adjustments within the truthful worth of
mounted revenue devices which can be designated as available-for-sale are recorded
as unrealized good points (losses) in different complete revenue.

•Basic hedge outcomes. For the by-product portion of the ALM technique, the online
hedging influence (the extent to which the adjustments 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 elements, together with: money circulate
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 components 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.

Capital Hedge Program:

We make use of a capital hedge program throughout the Firm to guard a portion of the
general capital place of the variable annuities enterprise towards its publicity
to the fairness markets. The capital hedge program is carried out utilizing fairness
derivatives which embrace fairness name and put choices, complete return swaps and
futures contracts.

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Revenue Taxes

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

Liquidity and Capital Sources

Overview

Liquidity refers back to the skill to generate enough money assets to satisfy
the fee obligations of the Firm. Capital refers back to the long-term
monetary assets accessible to assist the operations of our enterprise, fund
enterprise progress, and supply a cushion to face up to opposed circumstances. Our
skill to generate and preserve enough liquidity and capital relies on the
profitability of our enterprise, common financial circumstances, our skill to
borrow from associates and our entry to the capital markets by associates
as described herein.

Efficient and prudent liquidity and capital administration is a precedence throughout the
group. Administration displays the liquidity of the Firm every day
and initiatives borrowing and capital wants over a multi-year time horizon. We use
a Danger Urge for food Framework (“RAF”) to make sure that all dangers taken by the Firm
align with our capability and willingness to take these dangers. The RAF offers a
dynamic evaluation of capital and liquidity stress impacts, together with eventualities
just like, and extra extreme than, these occurring attributable to COVID-19, and is
supposed to make sure that enough assets can be found to soak up these
impacts. We imagine that our capital and liquidity assets 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 embrace
necessities (a lot of that are the topic of ongoing rule-making) regarding
capital, leverage, liquidity, stress-testing, general threat administration, credit score
publicity reporting and credit score focus. For info on these regulatory
initiatives and their potential influence on us, see “Enterprise-Regulation” and
“Danger Components” included in our Annual Report on Kind 10-Ok for the 12 months ended
December 31, 2021.

Capital

We handle the Firm to regulatory capital ranges in line with our “AA”
scores targets. We make the most of the risk-based capital (“RBC”) ratio as a main
measure of capital adequacy. RBC is calculated primarily based on statutory monetary
statements and threat formulation in line with the practices of the Nationwide
Affiliation of Insurance coverage Commissioners (“NAIC”). RBC considers, amongst different
issues, dangers associated to the kind and high quality of the invested property,
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
skill to pay future claims. The reporting of RBC measures will not be supposed for
the aim of rating any insurance coverage firm or to be used in reference to any
advertising and marketing, promoting or promotional actions, however is accessible to the
public. The Firm’s capital ranges considerably exceed the minimal stage
required by relevant insurance coverage rules. Our regulatory capital ranges could
be affected sooner or later by adjustments to the relevant rules, proposals
for that are at present into account by each home and worldwide
insurance coverage regulators.

The regulatory capital stage of the Firm might be materially impacted by
rate of interest and fairness market fluctuations, adjustments within the values of
derivatives, the extent of impairments recorded, and credit score high quality migration of
the funding portfolio, amongst different objects. 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 influence regulatory capital ranges. The Firm’s
regulatory capital stage can be affected by statutory accounting guidelines, which
are topic to vary 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 Sources-Capital-Affiliated Captive
Reinsurance Corporations” included in our Annual Report on Kind 10-Ok for the 12 months
ended December 31, 2021, for a dialogue of our use of captive reinsurance
corporations.

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Liquidity

Our liquidity is managed to make sure steady, dependable and cost-effective sources
of money flows to satisfy all of our obligations. Liquidity is supplied by a range
of sources, as described extra absolutely under, together with portfolios of liquid
property. Our funding portfolios are integral to the general liquidity of the
Firm. We use a projection course of for money flows from operations to make sure
enough liquidity to satisfy projected money outflows, together with claims. The
influence of Prudential Funding, LLC’s (“Prudential Funding”), a wholly-owned
subsidiary of Prudential Insurance coverage, financing capability on liquidity (as
described under) is taken into account within the inner liquidity measures of the
Firm.

Liquidity is measured towards internally-developed benchmarks that take into
account the traits of each the asset portfolio and the liabilities that
they assist. We contemplate attributes of the varied classes of liquid property
(for instance, sort of asset and credit score high quality) in calculating inner
liquidity measures to guage our liquidity below numerous stress eventualities,
together with company-specific and market-wide occasions. We proceed to imagine that
money generated by ongoing operations and the liquidity profile of our property
present enough liquidity below moderately foreseeable stress eventualities.

The principal sources of the Firm’s liquidity are premiums and sure
annuity concerns, funding and charge revenue, funding maturities, gross sales
of investments and inner borrowings. The principal makes use of of that liquidity
embrace advantages, claims, and funds to policyholders and contractholders in
reference to surrenders, withdrawals and web coverage mortgage exercise. Different makes use of
of liquidity embrace commissions, common and administrative bills, purchases
of investments, the fee of dividends and returns of capital to the mum or dad
firm, hedging and reinsurance exercise and funds in reference to
financing actions.

In managing liquidity, we contemplate the chance of policyholder and contractholder
withdrawals of funds sooner than our assumptions when deciding on property to
assist these contractual obligations. We use give up costs and different
contract provisions to mitigate the extent, timing and profitability influence of
withdrawals of funds by prospects.

Liquid Property

Liquid property embrace money and money equivalents, short-term investments, U.S.
Treasury mounted maturities, and stuck maturities that aren’t designated as
held-to-maturity and public fairness securities. As of March 31, 2022 and
December 31, 2021, the Firm had liquid property of $17,629 million and $17,793
million, respectively. The portion of liquid property comprised money and money
equivalents and short-term investments was $1,880 million and $1,101 million as
of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022,
$11,752 million, or 90%, of the mounted maturity investments within the Firm’s
common account portfolios, have been rated excessive or highest high quality primarily based on NAIC or
equal ranking.

Prudential Funding, LLC

Prudential Monetary and Prudential Funding borrow funds within the capital markets
primarily by the direct issuance of economic paper. The borrowings serve
as an extra supply of financing to satisfy our working capital wants.
Prudential Funding operates below a assist settlement with Prudential Insurance coverage
whereby Prudential Insurance coverage has agreed to take care of Prudential Funding’s
constructive tangible web price always.

Hedging actions related to dwelling profit ensures

The hedging portion of our threat administration technique related to our dwelling
profit ensures is being managed throughout the Firm. For the portion of the
threat administration technique executed by hedging, we enter into a variety of
exchange-traded, cleared and different OTC fairness and rate of interest derivatives in
order to hedge sure dwelling profit ensures accounted for as embedded
derivatives towards adjustments in sure capital market dangers above a chosen
threshold. The portion of the chance administration technique comprising the hedging
portion requires entry to liquidity to satisfy the Firm’s fee obligations
relating to those derivatives, reminiscent of funds for periodic settlements,
purchases, maturities and terminations. These liquidity wants can fluctuate
materially attributable to, amongst different objects, adjustments in rates of interest, fairness markets,
mortality and policyholder habits.

The hedging portion of the chance administration technique may additionally lead to
derivative-related collateral postings to (once we are in a web pay place) or
from (once we are in a web obtain place) counterparties. The online collateral
place relies on adjustments in rates of interest and fairness markets associated to the
quantity of the exposures hedged. Relying on market circumstances, the collateral
posting necessities can lead to materials liquidity wants once we are in a web
pay place.

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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 below Regulation XXX and
Guideline AXXX that’s thought-about 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 can 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 March 31, 2022, the affiliated captive reinsurance corporations have entered
into agreements with exterior counterparties offering for the issuance of as much as
an combination of $14,600 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 $12,821 million of surplus notes was excellent,
in comparison with an combination issuance capability of $14,600 million, of which $12,721
million was excellent as of December 31, 2021. 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 property 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
Sources-Financing Actions” within the Annual Report on Kind 10-Ok for the 12 months
ended December 31, 2021.

As of March 31, 2022, our affiliated captive reinsurance corporations had
excellent an combination of $3,025 million of debt issued for the aim of
financing Regulation XXX and Guideline AXXX non-economic reserves, of which
roughly $1,125 million pertains to Regulation XXX reserves and
roughly $1,900 million pertains to Guideline AXXX reserves. As well as, as
of March 31, 2022, for functions of financing Guideline AXXX reserves, one among our
affiliated captives had roughly $3,982 million of surplus notes
excellent that have 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 stage with out the necessity for reserve financing.

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