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
Kind 10-Ok for the 12 months 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 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 way of affiliated and unaffiliated
distributors in the USA. As of December 31, 2020, the Firm
discontinued the gross sales of conventional variable annuities with assured residing
profit riders.

Efficient July 1, 2021, the Firm recaptured the dangers associated to its variable
annuity base contracts, together with the residing profit ensures, that had
beforehand been reinsured to Prudential Annuities Life Assurance Company
(“PALAC”) from April 1, 2016 by way of June 30, 2021. The recapture doesn’t
impression Pruco Life Insurance coverage Firm of New Jersey, which is able to 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 have been being
managed in PALAC, have been transferred to the Firm. As well as, the residing
profit hedging program associated to the beforehand reinsured residing profit
riders can be managed inside the Firm. This transaction is known as
the “2021 Variable Annuities Recapture”. For extra data on this
transition, see Observe 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 financial system and monetary markets and
has elevated mortality and morbidity expertise for the worldwide inhabitants. The
COVID-19 pandemic continues to impression our outcomes of operations within the present
interval and is anticipated to proceed to impression our outcomes of operations in future
intervals. The COVID-19 pandemic has moved in localized waves, with its impression
worsening after which enhancing in several 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 anticipate COVID-19 to proceed to contribute to elevated ranges of
mortality, leading to elevated life insurance coverage claims within the near-term. The
pandemic might also impression 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 extra
data on the dangers to our enterprise posed by the COVID-19 pandemic, see
“Threat Elements” included within the Firm’s Annual Report on Kind 10-Ok for the 12 months
ended December 31, 2020.

•Enterprise Continuity. All through the COVID-19 pandemic, we now 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 prospects. This
included successfully transitioning the overwhelming majority of our staff to distant
work preparations.

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

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Influence of a Low Curiosity Price Surroundings

As a world monetary companies 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 earnings 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 impression on charge earnings;
• product choices, design options, crediting charges and gross sales combine; and
• policyholder conduct, together with give up or withdrawal exercise.

For extra data on rate of interest dangers, see “Threat Elements-Market Threat”
included in our Annual Report on Kind 10-Ok for the 12 months 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 web funding earnings on the funding of basic 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
include insurance coverage advantages offered and reserves established for anticipated
future insurance coverage advantages, basic enterprise bills, reinsurance premiums,
commissions and different prices of promoting and servicing the assorted merchandise bought
and curiosity credited on basic account liabilities.

Accounting Insurance policies & Pronouncements

Software of Essential Accounting Estimates

The preparation of monetary statements in conformity with U.S. GAAP requires
the applying of accounting insurance policies that usually contain a major diploma
of judgment. Administration, on an ongoing foundation, evaluations estimates and assumptions
used within the preparation of monetary statements. If administration determines that
modifications in assumptions and estimates are acceptable 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 referring to the next areas are
most depending on the applying of estimates and assumptions and require
administration’s most tough, subjective, or complicated 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 earnings; 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 glued annuity contracts are typically amortized over the
anticipated lives of those insurance policies in proportion to complete gross earnings. Complete
gross earnings embrace each precise gross earnings and estimates of gross earnings
for future intervals. The quarterly changes for market efficiency mirror the
impression of adjustments to our estimate of complete gross earnings to mirror 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 whole 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 demise and assured minimal earnings 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 increased than
our expectations for a given interval produce increased than anticipated account
balances, which enhance the long run charges we anticipate to earn on variable annuity
and variable life contracts and reduce the long run prices we anticipate to incur
related to the assured minimal demise and assured minimal earnings
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 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 fee of return assumptions utilized in creating estimated
market returns take into account 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 trade observe. Beneath this
method, we take into account 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 larger 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 challenge mounted earnings
returns yearly and quarterly, respectively. Because of our 2021 annual
evaluations and replace of assumptions and different refinements, we stored 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 mirror
adjustments in present charges.

For a dialogue of the impression that might 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-Sensitivities
for Insurance coverage Belongings and Liabilities” in our Annual Report on Kind 10-Ok for the
12 months ended December 31, 2020.

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Future Adoption of New Accounting Pronouncements

ASU 2018-12, Monetary Companies – 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 Companies – 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 12 months
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
Companies-Insurance coverage (Matter 944): Efficient Date and Early Software to defer
for a further one 12 months the efficient date of ASU 2018-12 from January 1,
2022 to January 1, 2023, and to supply transition aid to facilitate the
early adoption of the ASU. The transition aid 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 file transition changes as of
January 1, 2020 or January 1, 2021, respectively) within the 2022 monetary
statements. Firms that don’t early undertake ASU 2018-12 would apply the
steerage as of January 1, 2021 (and file 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 technique the place permitted.

ASU 2018-12 will impression, 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 major monetary
impression 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 impression to the sample of earnings
emergence following the transition date. See Observe 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 have been:

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

Partially offset by:

•Complete investments elevated $8.8 billion primarily pushed by consideration
obtained associated to the 2021 Variable Annuities Recapture;
•Deferred coverage acquisition prices elevated $3.8 billion primarily as a result of
unwinding of ceded prices on account of the 2021 Variable Annuities Recapture;
and
•Separate account belongings elevated $1.1 billion primarily pushed by favorable
fairness efficiency, partially offset by web outflows and coverage prices.
Complete liabilities decreased $3.1 billion from $204.3 billion at December 31,
2020 to $201.2 billion at September 30, 2021. Important elements have been:
•Future coverage advantages decreased $5.1 billion primarily pushed by a lower in
reserves associated to our variable annuity residing profit liabilities resulting from
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 on account of the 2021 Variable Annuities Recapture, partially offset
by after-tax web lack of $2.4 billion.

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Outcomes of Operations

Revenue (loss) from Operations earlier than Revenue Taxes

Three Months Comparability

Revenue (loss) from operations earlier than earnings taxes decreased $3,229 million from
earnings 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 positive factors (losses), web reflecting an unfavorable
impression as a result of 2021 Variable Annuities Recapture. See Observe 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars;
Partially offset by:
•Decrease Basic, 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

Revenue (loss) from operations earlier than earnings taxes decreased $3,249 million from
earnings 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 consists of an
unfavorable comparative web lack of $24 million from our annual evaluations and
replace of assumptions and different refinements, as talked about above. Excluding the
impression of our annual evaluations and replace of assumptions and different refinements,
earnings (loss) from operations decreased $3,225 million primarily pushed by:
•Important Realized funding positive factors (losses), web reflecting an unfavorable
impression as a result of 2021 Variable Annuities Recapture. See Observe 1 to the Unaudited
Interim Consolidated Monetary Statements for additional particulars;
Partially offset by:
•Decrease Basic, 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 impression to the Unaudited Interim Statements
of Operations, which is primarily pushed by the adjustments 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 thousands and thousands)(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 positive factors (losses), web, and associated changes (4,985)
Market expertise updates(5) (26)
Expenses associated to realized investments positive factors (losses), web 0

Internet impression from adjustments within the U.S. GAAP embedded spinoff and
hedge positions, after the impression of NPR, DAC and different prices(6) $

(5,011)

(1)Optimistic quantity represents earnings; unfavorable 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 consists of 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 adjustments in honest worth of the derivatives utilized to hedge
potential claims related to our variable annuity residing profit ensures.
(4)Represents the adjustments 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 quick impacts in present interval outcomes from adjustments in
present market situations on estimates of profitability.

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(6)Excludes quantities from the adjustments in unrealized positive factors and losses from mounted
earnings devices recorded in OCI (versus web earnings) 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 Observe 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 positive factors (losses), web reflecting an unfavorable
impression as a result of 2021 Variable Annuities Recapture. See Observe 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 Basic, 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 consists of an unfavorable comparative web lower of $43 million from
our annual evaluations and replace of assumptions and different refinements, as talked about
above. Excluding the impression of our annual evaluations and replace of assumptions and
different refinements, Revenues decreased $4,191 million primarily pushed by:
•Important Realized funding positive factors (losses), web reflecting an unfavorable
impression as a result of 2021 Variable Annuities Recapture. See Observe 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 web lower of $19
million from our annual evaluations and replace of assumptions and different refinements,
as talked about above. Excluding the impression of our annual evaluations and replace of
assumptions and different refinements, Advantages and bills decreased $966 million
primarily pushed by:
•Decrease Basic, 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 adjustments to, the assumptions used within the unique pricing of
these merchandise, together with capital markets assumptions akin to fairness market
returns, rates of interest and market volatility, together with actuarial assumptions
akin 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 way of a mixture of Product Design Options and
an Asset Legal responsibility Administration Technique (“ALM”), as mentioned under. The Firm
additionally manages these threat exposures by way of reinsurance for sure of our
variable annuity merchandise. For data on our reinsurance agreements, see
Observe 6 to the Unaudited Interim Consolidated Monetary Statements. Gross sales of
conventional variable annuities with assured residing profit riders have 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 residing profit ensures, that had
beforehand been reinsured to PALAC from April 1, 2016 by way of June 30, 2021. The
recapture doesn’t impression PLNJ, which is able to proceed to reinsure its new and in
power 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 residing profit hedging program associated to the
beforehand reinsured residing profit riders can be managed inside the Firm.
For extra data on this transaction, see Observe 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 embrace an asset
switch characteristic. This characteristic is applied on the contract stage, 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 basic account or a bond fund sub-account inside the separate
account. The target of the asset switch characteristic is to scale back our publicity
to fairness market threat and market volatility.
The asset switch characteristic related to highest every day residing profit merchandise
makes use of a chosen bond fund sub-account inside the separate account. The
transfers are based mostly on a static mathematical method used with the actual
profit which considers plenty of components, together with, however not restricted to, the
impression 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 basic 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 mounted earnings devices and
derivatives):
We make use of an ALM technique that makes use of a mixture of each conventional mounted
earnings devices and derivatives to satisfy anticipated liabilities related to
our variable annuity residing profit ensures. The financial legal responsibility we handle
with this ALM technique consists of anticipated residing profit claims beneath much less
extreme market situations, that are managed utilizing mounted earnings devices,
derivatives, or a mixture thereof, and potential residing 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 spread 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 earnings resulting from
actions in capital markets.
The valuation of the financial legal responsibility we search to defray excludes sure gadgets
which can be included inside the U.S. GAAP legal responsibility, akin to NPR with a purpose to
maximize safety regardless of the potential for our personal default, as properly
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 way of our ALM technique, web of reinsurance recoverables, as of the
interval indicated:
As of September 30, 2021
(in thousands and thousands)
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 mounted earnings devices and
spinoff belongings exceed our financial legal responsibility.
Beneath our ALM technique, we anticipate variations within the U.S. GAAP web earnings impression
between the adjustments in worth of the mounted earnings devices (both designated
as available-for-sale or designated as buying and selling) and derivatives as in comparison with
the adjustments within the embedded spinoff legal responsibility these belongings assist. These
variations might be primarily attributed to a few distinct areas:
•Totally different valuation methodologies in measuring the legal responsibility we intend to cowl
with mounted earnings 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 mounted earnings 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 can be included inside the U.S. GAAP legal responsibility, akin to NPR with a purpose to
maximize safety regardless of the potential for our personal default and threat
margins (required by U.S. GAAP however completely different from our greatest estimate).

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•Totally different accounting remedy between liabilities and belongings supporting these
liabilities. Beneath U.S. GAAP, adjustments in worth of the embedded spinoff
legal responsibility, spinoff devices and glued earnings devices designated as
buying and selling instantly mirrored in web earnings, whereas adjustments within the honest worth of
mounted earnings devices which can be designated as available-for-sale are recorded
as unrealized positive factors (losses) in different complete earnings.
•Basic hedge outcomes. For the spinoff portion of the ALM technique, the online
hedging impression (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 plenty of components, 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 will 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 data relating to the Threat Urge for food Framework (“RAF”) we use to guage
and assist the dangers of the ALM technique, see “-Liquidity and Capital
Sources-Capital”
Capital Hedge Program:
We make use of a capital hedge program inside the Firm to guard a portion of the
general capital place of the variable annuities enterprise in opposition to 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 data relating to earnings taxes, see Observe 7 to the Unaudited Interim
Consolidated Monetary Statements.

Liquidity and Capital Sources
This part dietary supplements and must be learn along side “Administration’s
Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations-Liquidity and Capital Sources” included in our Annual Report on
Kind 10-Ok for the 12 months ended December 31, 2020.
Overview
Liquidity refers back to the capability to generate ample money assets to satisfy
the fee obligations of the Firm. Capital refers back to the long-term
monetary assets obtainable to assist the operations of our enterprise, fund
enterprise progress, and supply a cushion to resist opposed circumstances. Our
capability to generate and preserve ample liquidity and capital is dependent upon the
profitability of our enterprise, basic financial situations, our capability to
borrow from associates and our entry to the capital markets by way of associates
as described herein.
Efficient and prudent liquidity and capital administration is a precedence throughout the
group. Administration displays 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
much like, and extra extreme than, these occurring resulting from COVID-19, and is
supposed to make sure that ample assets can be found to soak up these
impacts. We imagine that our capital and liquidity assets are ample 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 (lots of that are the topic of ongoing rule-making) referring to
capital, leverage, liquidity, stress-testing, general threat administration, credit score
publicity reporting and credit score focus. For data on these regulatory
initiatives and their potential impression on us, see “Enterprise-Regulation” and
“Threat Elements” included in our Annual Report on Kind 10-Ok for the 12 months ended
December 31, 2020.
Capital
We handle the Firm to regulatory capital ranges in keeping with our “AA”
rankings 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 in keeping 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 belongings,
insurance-related dangers related to an insurer’s merchandise and liabilities,
rate of interest dangers and basic 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 is just not 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 on the market 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 consideration 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 gadgets. As well as, the reinsurance of
enterprise or the recapture of enterprise topic to reinsurance preparations resulting from
defaults by, or credit score high quality migration affecting, the reinsurers or for different
causes may negatively impression regulatory capital ranges. The Firm’s
regulatory capital stage can also be affected by statutory accounting guidelines, which
are topic to vary by every relevant insurance coverage regulator.
Captive Reinsurance Firms:
See “Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations-Liquidity and Capital Sources-Capital-Affiliated Captive
Reinsurance Firms” included in our Annual Report on Kind 10-Ok for the 12 months
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 satisfy all of our obligations. Liquidity is offered by a range
of sources, as described extra totally under, 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 ample liquidity to satisfy projected money outflows,
together with claims. The impression 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 inner 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 take into account attributes of the assorted classes of liquid belongings
(for instance, sort of asset and credit score high quality) in calculating inner
liquidity measures to guage 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 ample liquidity beneath fairly foreseeable stress situations.
The principal sources of the Firm’s liquidity are premiums and sure
annuity concerns, funding and charge earnings, 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, basic and administrative bills, purchases
of investments, the fee of dividends and returns of capital to the mother or father
firm, hedging and reinsurance exercise and funds in reference to
financing actions.
In managing liquidity, we take into account 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 prices and different
contract provisions to mitigate the extent, timing and profitability impression of
withdrawals of funds by prospects.
Liquid Belongings
Liquid belongings embrace money and money equivalents, short-term investments, U.S.
Treasury mounted maturities, and glued 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 mounted maturity investments within the Firm’s
basic account portfolios, have been rated excessive or highest high quality based mostly on NAIC or
equal ranking.

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-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 September 30, 2021, the affiliated captive reinsurance firms have
entered into agreements with exterior counterparties offering for the issuance
of as much as an mixture of $14,700 million of surplus notes by our affiliated
captive reinsurers in return for the receipt of credit-linked notes
(“Credit score-Linked Observe Buildings”), of which $12,746 million of surplus notes was
excellent, in comparison with an mixture issuance capability of $14,825 million, of
which $12,919 million was excellent as of December 31, 2020. Beneath the
agreements, the affiliated captive receives in trade for the excess notes
a number of credit-linked notes issued by a special-purpose affiliate of the
Firm with an mixture 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 data on our Credit score-Linked Observe Buildings, 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, 2020.

As of September 30, 2021, our affiliated captive reinsurance firms had
excellent an mixture 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, 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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