Item 1. Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

September 30, 2021 and December 31, 2020 (in millions, except share amounts)


	September 30, 2021		December 31, 2020
ASSETS
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2021-$92; 2020-$133) (amortized cost: 2021-$332,957; 2020-$354,470)(1)	$	373,252	$	412,905
Fixed maturities, held-to-maturity, at amortized cost, net of allowance for credit losses (allowance for credit losses: 2021-$6; 2020-$9) (fair value: 2021-$1,956; 2020-$2,298)(1)	1,644		1,930
Fixed maturities, trading, at fair value (amortized cost: 2021-$9,583; 2020-$3,670)(1)	9,548		3,914
Assets supporting experience-rated contractholder liabilities, at fair value	3,424		24,115
Equity securities, at fair value (cost: 2021-$5,100; 2020-$5,968)(1)	7,727		8,135
Commercial mortgage and other loans (net of $117 and $235 allowance for credit losses; includes $1,106 and $1,092 of loans measured at fair value under the fair value option at September 30, 2021 and December 31, 2020, respectively)(1)	57,786		65,425
Policy loans	10,471		11,271

Other invested assets (net of $2 and $2 allowance for credit losses; includes $6,965 and $6,407 of assets measured at fair value at September 30, 2021 and December 31, 2020, respectively)(1)	20,205		18,125
Short-term investments (net of allowance for credit losses: 2021-$0; 2020-$1)	4,733		7,800
Total investments	488,790		553,620
Cash and cash equivalents(1)	15,605		13,701
Accrued investment income(1)	2,808		3,193
Deferred policy acquisition costs	18,067		19,027
Value of business acquired	815		1,103
Assets held-for-sale(2)	143,910		0
Other assets (net of allowance for credit losses: 2021-$16; 2020-$11)(1)	20,735		22,801
Separate account assets	241,852		327,277
TOTAL ASSETS	$	932,582	$	940,722
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	291,721	$	306,343
Policyholders’ account balances	122,337		161,682
Policyholders’ dividends	8,448		9,524
Securities sold under agreements to repurchase	9,899		10,894
Cash collateral for loaned securities	4,382		3,499
Income taxes	10,540		12,022
Short-term debt	909		925
Long-term debt	18,687		19,718
Liabilities held-for-sale(2)	140,736		0
Other liabilities (net of allowance for credit losses: 2021-$21; 2020-$20 )(1)	20,230		20,323
Notes issued by consolidated variable interest entities(1)	282		305
Separate account liabilities	241,852		327,277
Total liabilities	870,023		872,512
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)
EQUITY
Preferred Stock ($0.01 par value; 10,000,000 shares authorized; none issued)	0		0
Common Stock ($0.01 par value; 1,500,000,000 shares authorized; 666,305,189 shares issued as of both September 30, 2021 and December 31, 2020)	6		6
Additional paid-in capital	25,680		25,584
Common Stock held in treasury, at cost (287,361,658 and 269,867,738 shares at September 30, 2021 and December 31, 2020, respectively)	(21,522)		(19,652)
Accumulated other comprehensive income (loss)	21,836		30,738
Retained earnings	35,887		30,749
Total Prudential Financial, Inc. equity	61,887		67,425
Noncontrolling interests	672		785
Total equity	62,559		68,210
TOTAL LIABILITIES AND EQUITY	$	932,582	$	940,722

(1)See Note 4 for details of balances associated with variable interest entities.

(2)See Note 1 for details of the assets and liabilities classified as “held-for-sale” as of September 30, 2021.

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2021 and 2020 (in millions, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
REVENUES
Premiums	$	13,193	$	7,482	$	27,515	$	22,839
Policy charges and fee income	1,570		1,464		4,460		4,476
Net investment income	4,717		4,446		13,651		12,834
Asset management and service fees	1,229		1,120		3,603		3,144
Other income (loss)	500		992		2,135		(125)
Realized investment gains (losses), net	432		(79)		3,146		(2,164)
Total revenues	21,641		15,425		54,510		41,004
BENEFITS AND EXPENSES
Policyholders’ benefits	14,401		8,312		30,126		25,768
Interest credited to policyholders’ account balances	917		1,151		2,759		3,375
Dividends to policyholders	602		554		2,039		1,008
Amortization of deferred policy acquisition costs	529		638		1,662		1,882
General and administrative expenses	3,386		3,323		9,931		10,194
Total benefits and expenses	19,835		13,978		46,517		42,227
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	1,806		1,447		7,993		(1,223)
Total income tax expense (benefit)	259		(50)		1,504		7
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	1,547		1,497		6,489		(1,230)
Equity in earnings of operating joint ventures, net of taxes	18		10		63		62


NET INCOME (LOSS)	1,565		1,507		6,552		(1,168)
Less: Income (loss) attributable to noncontrolling interests	35		20		36		25
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	1,530	$	1,487	$	6,516	$	(1,193)
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	3.92	$	3.72	$	16.44	$	(3.06)
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	3.90	$	3.70	$	16.32	$	(3.06)

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, 2021 and 2020 (in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
NET INCOME (LOSS)	$	1,565	$	1,507	$	6,552	$	(1,168)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	(160)		329		(889)		122
Net unrealized investment gains (losses)	(1,740)		(1,853)		(10,515)		6,894
Defined benefit pension and postretirement unrecognized periodic benefit (cost)	69		74		239		218
Total	(1,831)		(1,450)		(11,165)		7,234
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(397)		(620)		(2,254)		1,265
Other comprehensive income (loss), net of taxes	(1,434)		(830)		(8,911)		5,969
Comprehensive income (loss)	131		677		(2,359)		4,801
Less: Comprehensive income (loss) attributable to noncontrolling interests	42		26		27		32
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	89	$	651	$	(2,386)	$	4,769

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity

Three and Nine Months Ended September 30, 2021 (in millions)


	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held In Treasury		Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2020	$	6	$	25,584	$	30,749	$	(19,652)	$	30,738	$	67,425	$	785	$	68,210

Common Stock acquired							(375)				(375)				(375)

Contributions from noncontrolling interests													3		3
Distributions to noncontrolling interests													(6)		(6)

Stock-based compensation programs			(5)				149				144				144
Dividends declared on Common Stock					(467)						(467)				(467)
Comprehensive income:
Net income (loss)					2,828						2,828		(24)		2,804
Other comprehensive income (loss), net of tax									(11,519)		(11,519)		(18)		(11,537)
Total comprehensive income (loss)											(8,691)		(42)		(8,733)
Balance, March 31, 2021	6		25,579		33,110		(19,878)		19,219		58,036		740		58,776
Common Stock acquired							(875)				(875)				(875)

Contributions from noncontrolling interests													9		9
Distributions to noncontrolling interests													(22)		(22)
Consolidations (deconsolidations) of noncontrolling interests													(118)		(118)
Stock-based compensation programs			65				66				131				131
Dividends declared on Common Stock					(460)						(460)				(460)
Comprehensive income:
Net income (loss)					2,158						2,158		25		2,183
Other comprehensive income (loss), net of tax									4,058		4,058		2		4,060
Total comprehensive income (loss)											6,216		27		6,243
Balance, June 30, 2021	6		25,644		34,808		(20,687)		23,277		63,048		636		63,684
Common Stock acquired							(875)				(875)				(875)

Contributions from noncontrolling interests													16		16
Distributions to noncontrolling interests													(22)		(22)

Stock-based compensation programs			36				40				76				76
Dividends declared on Common Stock					(451)						(451)				(451)
Comprehensive income:
Net income (loss)					1,530						1,530		35		1,565
Other comprehensive income (loss), net of tax									(1,441)		(1,441)		7		(1,434)
Total comprehensive income (loss)											89		42		131
Balance, September 30, 2021	$	6	$	25,680	$	35,887	$	(21,522)	$	21,836	$	61,887	$	672	$	62,559

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity—Continued

Three and Nine Months Ended September 30, 2020 (in millions)






	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held In Treasury		Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2019	$	6	$	25,532	$	32,991	$	(19,453)	$	24,039	$	63,115	$	604	$	63,719
Cumulative effect of adoption of accounting changes(1)					(99)						(99)				(99)
Common Stock acquired							(500)				(500)				(500)

Contributions from noncontrolling interests													31		31
Distributions to noncontrolling interests													(11)		(11)

Stock-based compensation programs			(26)				112				86				86
Dividends declared on Common Stock					(445)						(445)				(445)
Comprehensive income:
Net income (loss)					(271)						(271)		1		(270)
Other comprehensive income (loss), net of tax									(1,439)		(1,439)		0		(1,439)
Total comprehensive income (loss)											(1,710)		1		(1,709)
Balance, March 31, 2020	6		25,506		32,176		(19,841)		22,600		60,447		625		61,072
Common Stock acquired
Contributions from noncontrolling interests													4		4
Distributions to noncontrolling interests													(23)		(23)
Stock-based compensation programs			7				56				63				63
Dividends declared on Common Stock					(441)						(441)				(441)
Comprehensive income:
Net income (loss)					(2,409)						(2,409)		4		(2,405)
Other comprehensive income (loss), net of tax									8,237		8,237		1		8,238
Total comprehensive income (loss)											5,828		5		5,833
Balance, June 30, 2020	6		25,513		29,326		(19,785)		30,837		65,897		611		66,508
Common Stock acquired
Contributions from noncontrolling interests													50		50
Distributions to noncontrolling interests													(14)		(14)

Stock-based compensation programs			50				60				110				110
Dividends declared on Common Stock					(441)						(441)				(441)
Comprehensive income:
Net income (loss)					1,487						1,487		20		1,507
Other comprehensive income (loss), net of tax									(836)		(836)		6		(830)
Total comprehensive income (loss)											651		26		677
Balance, September 30, 2020	$	6	$	25,563	$	30,372	$	(19,725)	$	30,001	$	66,217	$	673	$	66,890

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

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

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


	Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	6,552	$	(1,168)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses, net	(3,146)		2,164
Policy charges and fee income	(1,730)		(1,995)
Interest credited to policyholders’ account balances	2,759		3,375
Depreciation and amortization	87		448
(Gains) losses on assets supporting experience-rated contractholder liabilities, net	167		(393)
Change in:
Deferred policy acquisition costs	(287)		(206)
Future policy benefits and other insurance liabilities	5,779		7,656
Income taxes	506		(331)
Derivatives, net	(2,893)		6,477
Other, net	(1,315)		(3,146)
Cash flows from (used in) operating activities	6,479		12,881
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	48,950		31,989
Fixed maturities, held-to-maturity	155		76
Fixed maturities, trading	2,357		444
Assets supporting experience-rated contractholder liabilities	13,878		22,534
Equity securities	3,463		1,974
Commercial mortgage and other loans	5,506		3,629
Policy loans	1,591		1,862
Other invested assets	2,151		1,376
Short-term investments	24,692		35,401
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(46,831)		(39,692)

Fixed maturities, trading	(5,525)		(869)
Assets supporting experience-rated contractholder liabilities	(15,187)		(24,390)
Equity securities	(2,959)		(2,025)
Commercial mortgage and other loans	(5,624)		(3,913)
Policy loans	(924)		(1,700)
Other invested assets	(2,434)		(2,089)
Short-term investments	(21,641)		(40,009)

Dispositions, net of cash disposed	132		1,454
Derivatives, net	(622)		434
Other, net	(531)		(225)
Cash flows from (used in) investing activities	597		(13,739)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	23,582		33,268
Policyholders’ account withdrawals	(22,131)		(26,944)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	(110)		50
Cash dividends paid on Common Stock	(1,374)		(1,325)
Net change in financing arrangements (maturities 90 days or less)	108		(56)
Common Stock acquired	(2,097)		(500)
Common Stock reissued for exercise of stock options	150		106
Proceeds from the issuance of debt (maturities longer than 90 days)	73		2,948
Repayments of debt (maturities longer than 90 days)	(1,167)		(2,113)

Repayments of notes issued by consolidated VIEs	0		(19)

Other, net	(561)		(349)
Cash flows from (used in) financing activities	(3,527)		5,066
Effect of foreign exchange rate changes on cash balances	(252)		122
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS INCLUDING BALANCES CLASSIFIED AS HELD-FOR-SALE	3,297		4,330
NET CHANGE IN CASH BALANCES CLASSIFIED AS HELD-FOR-SALE	1,499		0
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS	1,798		4,330
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR	13,855		16,474
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	15,653	$	20,804

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

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


	Nine Months Ended September 30,
	2021		2020
HELD-FOR-SALE CLASSIFICATION(1)
Assets classified as held-for-sale	$	143,910	$	0
Liabilities classified as held-for-sale	140,736		0
Net assets classified as held-for-sale	$	3,174	$	0

NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs	$	135	$	147

Significant Pension Risk Transfer transactions:
Assets received, excluding cash and cash equivalents	$	5,377	$	317
Liabilities assumed	6,397		584
Net cash received	$	1,020	$	267





RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Cash and cash equivalents	$	15,605	$	20,658
Restricted cash and restricted cash equivalents (included in “Other assets”)	48		146
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	15,653	$	20,804

(1)See Note 1 for details of the assets and liabilities classified as “held-for-sale” as of September 30, 2021.

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Prudential Financial, Inc. (“Prudential Financial”) and its subsidiaries (collectively, “Prudential” or the “Company”) provide a wide range of insurance, investment management, and other financial products and services to both individual and institutional customers throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities, retirement-related services, mutual funds and investment management.

The Company’s principal operations consist of PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the Retirement, Group Insurance, Individual Annuities, Individual Life and Assurance IQ businesses), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included in Corporate and Other operations. Divested and Run-off Businesses consist of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind-down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments as well as the Divested and Run-off Businesses described above.

Basis of Presentation

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner and variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. See Note 4 for additional information on the Company’s consolidated variable interest entities. Intercompany balances and transactions have been eliminated.

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

Use of Estimates

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

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

Reclassifications

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

COVID-19

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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

Business Dispositions

Prudential Annuities Life Assurance Corporation, Representing a Portion of Individual Annuities’ Traditional Variable Annuity Block of Business

In September 2021, the Company entered into a definitive agreement to sell its equity interest in Prudential Annuities Life Assurance Corporation (“PALAC”), which represents a portion of its in-force traditional variable annuity block of business, to Fortitude Group Holdings, LLC. The transaction has a total value of approximately $2.2 billion, comprising the sales price for PALAC, a pre-closing net capital release to the Company and the expected tax impact from the sale. The PALAC block primarily consists of non-New York traditional variable annuities with guaranteed living benefits that were issued prior to 2011, which constitute approximately $30 billion or 18% of Prudential’s total in-force individual annuity account values as of September 30, 2021. The Company will retain, through a reinsurance agreement, its interest in all FlexGuard products and all fixed annuities and fixed indexed annuities remaining in PALAC.

The Company expects to record a gain on the sale of the business upon the closing of the transaction, which is expected to occur in the first half of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.

Beginning with the third quarter of 2021, the Company is reporting the assets and liabilities of this block of business as “held-for-sale” with results continuing to be reported within the Individual Annuities segment.

Full Service Retirement Business

In July 2021, the Company entered into a definitive agreement with Great-West Life & Annuity Insurance Company (“Great-West”) pursuant to which the Company has agreed to sell to Great-West the Company’s Full Service Retirement business, primarily through a combination of (i) the sale of all of the outstanding equity interests of certain legal entities, including Prudential Retirement Insurance and Annuity Company (“PRIAC”); (ii) the ceding of certain insurance policies through reinsurance; and (iii) the sale, transfer and/or novation of certain in-scope contracts and brokerage accounts.

The Company expects to record a gain on the sale of the business upon the closing of the transaction, which is expected to occur by the end of the first quarter of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.

Total proceeds from the sale are expected to be approximately $2.8 billion, which includes cash consideration for the sale of PRIAC, ceding commission for the reinsured business and capital available to be released from PICA. Separately, the Company expects to incur approximately $400 million of taxes and transaction related costs.

Beginning with the third quarter of 2021, the Company is reporting the assets and liabilities of the Full Service Retirement business as “held-for-sale” and has transferred the results of this business to Divested and Run-off Businesses within Corporate and Other operations. All prior period amounts have been restated, which impacts both segment reporting and adjusted operating income, but does not impact results reported under GAAP. The Full Service Retirement business generated pre-tax income of $18 million and $117 million for the three and nine months ended September 30, 2021, respectively, and pre-tax income of $49 million and $158 million for the three and nine months ended September 30, 2020, respectively. These amounts exclude the impacts of overhead costs, retained in the Company’s Corporate and Other operations, that will not be transferred to the buyer or eliminated with the sale.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The table below reflects the carrying amounts of assets and liabilities held-for-sale related to the pending dispositions described above:


	September 30, 2021
	Retirement Full Service		Individual Annuities PALAC		Total
	(in millions)
Assets held-for-sale(1):
Fixed maturities, available-for-sale, at fair value	$	5,062	$	10,581	$	15,643
Fixed maturities, trading, at fair value	383		342		725
Assets supporting experience-rated contractholder liabilities, at fair value	18,031		0		18,031
Equity securities	0		236		236
Commercial mortgage and other loans(2)	5,503		2,036		7,539
Policy loans	0		12		12
Other invested assets	64		96		160
Short-term investments	6		91		97
Cash and cash equivalents	86		1,413		1,499
Accrued investment income	159		74		233
Deferred policy acquisition costs	102		1,051		1,153
Value of business acquired	186		29		215
Other assets	812		1,179		1,991
Separate account assets	64,460		31,916		96,376
Total assets held-for-sale	$	94,854	$	49,056	$	143,910
Liabilities held-for-sale(1):
Future policy benefits	$	111	$	4,651	$	4,762
Policyholders’ account balances	28,186		10,719		38,905
Cash collateral for loaned securities	3		0		3

Other liabilities	414		276		690
Separate account liabilities	64,460		31,916		96,376
Total liabilities held-for-sale	$	93,174	$	47,562	$	140,736

(1)Under the terms of the sales agreements, certain of these assets and liabilities held-for-sale may be subject to capital transactions or substituted for other similar items prior to the closing of each transaction.

(2)Net of allowance for credit losses of $12 million as of September 30, 2021.

The Prudential Life Insurance Company of Taiwan Inc.

In June 2021, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. (the “Buyer”) for cash consideration of approximately NT5.5 billion, equal to approximately $200 million at then current exchange rates, and contingent consideration with a fair value of approximately $21 million as of September 30, 2021. The fair value of the contingent consideration is tied to the level of yields for the 10-year Taiwanese Government bond for two years after the signing of the transaction and can result in a maximum payout of $100 million if yields increase by 40 basis points. In connection with the transaction, the Company recognized a liability with a fair value of approximately $34 million as of September 30, 2021, representing its financial guarantee of certain insurance obligations of POT.

The after-tax loss on the sale of POT was approximately $400 million, of which approximately $350 million was recorded during 2020, and approximately $40 million and $10 million were recorded during the first and second quarters of 2021, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Prior to the sale, in the third quarter of 2020, the Company transferred the results of POT and the anticipated impact of its sale from the International Businesses segment to Divested and Run-off Businesses within Corporate & Other operations. Prior period amounts were restated at that time, which impacted both segment reporting and adjusted operating income, but did not impact results reported under GAAP. Results for the nine months ended September 30, 2020 contained herein reflect this restatement.

Pramerica SGR (PGIM Italy Joint Venture)

In March 2021, the Company sold its 35% ownership stake in Pramerica SGR, PGIM’s asset management joint venture in Italy, to its partner UBI Banca, which was acquired in 2020 by Intesa Sanpaolo Group. The after-tax gain on the sale of Pramerica SGR was approximately $330 million, which was recognized in adjusted operating income in the first quarter of 2021.

The Prudential Life Insurance Company of Korea, Ltd.

In August 2020, PIIH completed the sale of The Prudential Life Insurance Company of Korea, Ltd. (“POK”) to KB Financial Group Inc., for cash consideration of approximately ₩2.3 trillion, equal to approximately $1.9 billion. The Company recognized an approximate $800 million after-tax loss on the transaction in 2020.

Prior to the sale, in the second quarter of 2020, the Company transferred the results of POK and the anticipated impact of its sale from the International Businesses segment to Divested and Run-off Businesses within Corporate & Other operations. Prior period amounts were restated at that time, which impacted both segment reporting and adjusted operating income, but did not impact results reported under GAAP. Results for the nine months ended September 30, 2020 contained herein reflect this restatement.

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

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

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

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

ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. The Company expects the standard to have a significant financial impact on the Consolidated Financial Statements and it requires significantly enhanced disclosures. In addition to the significant impacts to the balance sheet upon adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date. Outlined below are four key areas of change, although there are other less significant changes not noted below.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


ASU 2018-12 Amended Topic	Description	Method of adoption	Effect on the financial statements or other significant matters
Cash flow assumptions used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products	Requires an entity to review and, if necessary, update the cash flow assumptions used to measure the liability for future policy benefits, for both changes in future assumptions and actual experience, at least annually using a retrospective update method with a cumulative catch-up adjustment recorded in a separate line item in the Consolidated Statements of Operations.	An entity may choose one of two adoption methods for the liability for future policy benefits: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in Accumulated other comprehensive income (loss) (“AOCI”) or (2) a full retrospective transition method.	The Company currently intends to adopt this guidance effective January 1, 2023 using the modified retrospective transition method. The impacts of electing such method are currently under assessment.
Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products	Requires discount rate assumptions to be based on an upper-medium grade fixed income instrument yield, which will be updated each quarter with the impact recorded through OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the discount rate assumptions.	As noted above, an entity may choose either a modified retrospective transition method or full retrospective transition method for the liability for future policy benefits. Under either method, for balance sheet remeasurement purposes, the liability for future policy benefits will be remeasured using current discount rates as of either the beginning of the prior year (if early adoption is elected) or the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.	As noted above, the Company currently intends to adopt the guidance for the liability for future policy benefits effective January 1, 2023 using the modified retrospective transition method. Upon adoption, there will be an adjustment to AOCI as a result of remeasuring in-force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment upon adoption will largely reflect the difference between discount rates locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


Amortization of deferred acquisition costs (DAC) and other balances						Requires DAC and other balances, such as unearned revenue reserves and DSI, to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.						An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or (2) if an entity chooses a full retrospective transition method for its liability for future policy benefits, as described above, it is required to also use a full retrospective transition method for DAC and other balances.						The Company currently intends to adopt this guidance effective January 1, 2023 using the modified retrospective transition method. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.
Market Risk Benefits (“MRB”)						Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record MRB assets and liabilities separately on the Consolidated Statements of Financial Position. Changes in fair value of market risk benefits are recorded in net income, except for the portion of the change in MRB liabilities attributable to changes in an entity’s non-performance risk (“NPR”), which is recognized in OCI.						An entity shall adopt the guidance for market risk benefits using the retrospective transition method, which includes a cumulative effect adjustment on the balance sheet as of either the beginning of prior year (if early adoption is elected) or the beginning of the earliest period presented. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption.						The Company currently intends to adopt this guidance effective January 1, 2023 using the retrospective transition method. Upon adoption, the Company expects an impact to retained earnings for the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., guaranteed minimum death benefits on variable annuities) and an impact from reclassifying the cumulative effect of changes in NPR from retained earnings to AOCI. The magnitude of such adjustments is currently being assessed.

Modifications related to COVID-19

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

3. INVESTMENTS

Fixed Maturity Securities

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


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	27,512	$	5,491	$	97	$	0	$	32,906
Obligations of U.S. states and their political subdivisions	10,444		1,774		15		0		12,203
Foreign government bonds	85,627		12,594		475		0		97,746
U.S. public corporate securities	97,127		13,819		452		12		110,482
U.S. private corporate securities(2)	34,035		2,903		150		54		36,734
Foreign public corporate securities	24,995		2,806		95		18		27,688
Foreign private corporate securities	26,712		1,669		355		8		28,018
Asset-backed securities(3)	11,120		140		15		0		11,245
Commercial mortgage-backed securities	12,480		728		14		0		13,194
Residential mortgage-backed securities(4)	2,905		143		12		0		3,036
Total fixed maturities, available-for-sale(1)(2)	$	332,957	$	42,067	$	1,680	$	92	$	373,252


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	859	$	235	$	0	$	1,094	$	0	$	859
Foreign public corporate securities	500		54		0		554		6		494
Foreign private corporate securities	81		1		0		82		0		81


Residential mortgage-backed securities(4)	210		16		0		226		0		210
Total fixed maturities, held-to-maturity(5)	$	1,650	$	306	$	0	$	1,956	$	6	$	1,644

(1)Excludes “Assets held-for-sale” with amortized cost of $14,985 million, fair value of $15,643 million, unrealized gains of $783 million, unrealized losses of $123 million and allowance for credit losses of $2 million. See Note 1 for additional information on the pending dispositions.

(2)Excludes notes with amortized cost of $5,616 million (fair value, $5,693 million), which have been offset with the associated debt under a netting agreement.

(3)Includes credit-tranched securities collateralized by loan obligations, auto loans, education loans, credit cards and other asset types.

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

(5)Excludes notes with amortized cost of $5,000 million (fair value, $5,727 million), which have been offset with the associated debt under a netting agreement.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	30,766	$	9,699	$	17	$	0	$	40,448
Obligations of U.S. states and their political subdivisions	10,668		2,144		1		0		12,811
Foreign government bonds	94,110		16,373		239		0		110,244
U.S. public corporate securities	95,299		18,516		213		47		113,555
U.S. private corporate securities(1)	36,894		4,196		134		19		40,937
Foreign public corporate securities	25,857		3,768		64		24		29,537
Foreign private corporate securities	28,668		3,183		226		33		31,592
Asset-backed securities(2)	14,489		176		74		0		14,591
Commercial mortgage-backed securities	15,036		1,288		11		10		16,303
Residential mortgage-backed securities(3)	2,683		205		1		0		2,887
Total fixed maturities, available-for-sale(1)	$	354,470	$	59,548	$	980	$	133	$	412,905


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	935	$	270	$	0	$	1,205	$	0	$	935
Foreign public corporate securities	651		68		0		719		9		642
Foreign private corporate securities	87		1		0		88		0		87


Residential mortgage-backed securities(3)	266		20		0		286		0		266
Total fixed maturities, held-to-maturity(4)	$	1,939	$	359	$	0	$	2,298	$	9	$	1,930

(1)Excludes notes with amortized cost of $5,966 million (fair value, $6,100 million), which have been offset with the associated debt under a netting agreement.

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

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

(4)Excludes notes with amortized cost of $4,998 million (fair value, $5,821 million), which have been offset with the associated debt under a netting agreement.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	September 30, 2021
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	4,478	$	94	$	30	$	3	$	4,508	$	97
Obligations of U.S. states and their political subdivisions	575		13		17		2		592		15
Foreign government bonds	4,586		192		6,680		283		11,266		475
U.S. public corporate securities	13,162		371		1,027		73		14,189		444
U.S. private corporate securities	2,832		66		866		84		3,698		150
Foreign public corporate securities	2,839		57		584		36		3,423		93
Foreign private corporate securities	5,386		196		1,399		156		6,785		352
Asset-backed securities	3,995		14		301		1		4,296		15
Commercial mortgage-backed securities	524		10		146		4		670		14
Residential mortgage-backed securities	657		12		1		0		658		12
Total fixed maturities, available-for-sale(1)	$	39,034	$	1,025	$	11,051	$	642	$	50,085	$	1,667

(1)Excludes “Assets held-for-sale” with fair value of $4,068 million and gross unrealized losses of $123 million. See Note 1 for additional information on the pending dispositions.


	December 31, 2020
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	750	$	17	$	0	$	0	$	750	$	17
Obligations of U.S. states and their political subdivisions	73		1		0		0		73		1
Foreign government bonds	6,536		231		39		8		6,575		239
U.S. public corporate securities	3,905		87		1,197		106		5,102		193
U.S. private corporate securities	1,712		52		843		82		2,555		134
Foreign public corporate securities	1,412		30		376		23		1,788		53
Foreign private corporate securities	798		34		2,371		192		3,169		226
Asset-backed securities	4,132		25		4,685		49		8,817		74
Commercial mortgage-backed securities	284		8		93		3		377		11
Residential mortgage-backed securities	116		1		1		0		117		1
Total fixed maturities, available-for-sale	$	19,718	$	486	$	9,605	$	463	$	29,323	$	949

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of September 30, 2021 and December 31, 2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $1,303 million and $636 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $364 million and $313 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of September 30, 2021, the $642 million of gross unrealized losses of twelve months or more were concentrated in the consumer non-cyclical, finance and utility sectors within corporate securities and foreign government securities. As of December 31, 2020, the $463 million of gross unrealized losses of twelve months or more were concentrated in corporate securities within the energy, utility and finance sectors.

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

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


	September 30, 2021
	Available-for-Sale(1)				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost, Net of Allowance		Fair Value
	(in millions)
Fixed maturities:
Due in one year or less	$	10,255	$	10,668	$	0	$	0
Due after one year through five years	47,749		51,188		566		627
Due after five years through ten years	68,170		75,046		31		33
Due after ten years(2)	180,278		208,875		837		1,070
Asset-backed securities	11,120		11,245		0		0
Commercial mortgage-backed securities	12,480		13,194		0		0
Residential mortgage-backed securities	2,905		3,036		210		226
Total	$	332,957	$	373,252	$	1,644	$	1,956

(1)Excludes “Assets held-for-sale” with amortized cost of $14,985 million and fair value of $15,643 million. See Note 1 for additional information on the pending dispositions.

(2)Excludes available-for-sale notes with amortized cost of $5,616 million (fair value, $5,693 million) and held-to-maturity notes with amortized cost of $5,000 million (fair value, $5,727 million), which have been offset with the associated debt under a netting agreement.

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	7,273	$	4,284	$	27,041	$	14,654
Proceeds from maturities/prepayments	7,040		7,181		21,936		17,603
Gross investment gains from sales and maturities	301		578		2,264		1,451
Gross investment losses from sales and maturities	(69)		(129)		(558)		(339)

Write-downs recognized in earnings(2)	0		(134)		0		(289)
(Addition to) release of allowance for credit losses	(12)		86		41		(152)
Fixed maturities, held-to-maturity:
Proceeds from maturities/prepayments(3)	$	11	$	14	$	155	$	77
(Addition to) release of allowance for credit losses	1		0		3		0

(1)Includes $27 million and $268 million of non-cash related proceeds due to the timing of trade settlements for the nine months ended September 30, 2021 and 2020, respectively.

(2)Amounts represent write-downs on credit adverse securities, write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.

(3)Includes $0 million and $1 million of non-cash related proceeds due to the timing of trade settlements for the nine months ended September 30, 2021 and 2020, respectively.

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


	Three Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	80	$	0	$	0	$	0	$	80
Additions to allowance for credit losses not previously recorded	0		0		35		0		0		0		35

Reductions for securities sold during the period	0		0		(16)		0		0		0		(16)

Additions (reductions) on securities with previous allowance	0		0		(5)		0		0		0		(5)
Reclassified to “Assets held-for-sale”(1)	0		0		(2)		0		0		0		(2)

Balance, end of period	$	0	$	0	$	92	$	0	$	0	$	0	$	92

(1)See Note 1 for additional information on the pending dispositions.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	38	$	199	$	0	$	1	$	0	$	238
Additions to allowance for credit losses not previously recorded	0		1		33		0		0		0		34

Reductions for securities sold during the period	0		(38)		(73)		0		0		0		(111)

Additions (reductions) on securities with previous allowance	0		0		(12)		0		3		0		(9)


Balance, end of period	$	0	$	1	$	147	$	0	$	4	$	0	$	152


	Nine Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	123	$	0	$	10	$	0	$	133
Additions to allowance for credit losses not previously recorded	0		0		75		0		0		0		75

Reductions for securities sold during the period	0		0		(46)		0		(9)		0		(55)

Additions (reductions) on securities with previous allowance	0		0		(58)		0		(1)		0		(59)
Reclassified to “Assets held-for-sale”(1)	0		0		(2)		0		0		0		(2)

Balance, end of period	$	0	$	0	$	92	$	0	$	0	$	0	$	92

(1)See Note 1 for additional information on the pending dispositions.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Additions to allowance for credit losses not previously recorded	0		39		238		0		1		0		278

Reductions for securities sold during the period	0		(38)		(101)		0		0		0		(139)

Additions (reductions) on securities with previous allowance	0		0		10		0		3		0		13


Balance, end of period	$	0	$	1	$	147	$	0	$	4	$	0	$	152


	Three Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	7	$	0	$	0	$	0	$	7

Current period provision for expected losses	0		0		0		0		0		0		0



Change in foreign exchange	0		0		(1)		0		0		0		(1)
Balance, end of period	$	0	$	0	$	6	$	0	$	0	$	0	$	6


	Three Months Ended September 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	9	$	0	$	0	$	0	$	9






Balance, end of period	$	0	$	0	$	9	$	0	$	0	$	0	$	9

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	9	$	0	$	0	$	0	$	9

Current period provision for expected losses	0		0		(3)		0		0		0		(3)




Balance, end of period	$	0	$	0	$	6	$	0	$	0	$	0	$	6


	Nine Months Ended September 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Cumulative effect of adoption of ASU 2016-13	0		0		9		0		0		0		9





Balance, end of period	$	0	$	0	$	9	$	0	$	0	$	0	$	9

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

For the three months ended September 30, 2021, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to net additions in the transportation and capital goods sectors within corporate securities due to adverse projected cash flows, partially offset by a net release on restructured securities in the energy sector within corporate securities. For the three months ended September 30, 2020, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to a release on restructured securities in the energy sector within corporate securities and foreign government securities, partially offset by net additions concentrated in the energy and utility sectors within corporate securities due to adverse projected cash flows.

For the nine months ended September 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the overall improving credit environment in the energy and consumer cyclical sectors within corporate securities, partially offset by net additions in the transportation and utility sectors within corporate securities due to adverse projected cash flows. For the nine months ended September 30, 2020, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to securities within the energy, communications and consumer cyclical sectors within corporate securities due to adverse projected cash flows, partially offset by a release on restructured securities in the energy sector within corporate securities and foreign government securities.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of September 30, 2021 or December 31, 2020.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Assets Supporting Experience-Rated Contractholder Liabilities

The following table sets forth the composition of “Assets supporting experience-rated contractholder liabilities,” as of the dates indicated:


	September 30, 2021								December 31, 2020
					Assets Held-for-Sale(1)
	Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	65	$	65	$	965	$	965	$	658	$	658
Fixed maturities:
Corporate securities	106		108		11,414		11,899		14,442		15,472
Commercial mortgage-backed securities	0		0		1,661		1,717		1,743		1,839
Residential mortgage-backed securities(2)	0		0		720		755		964		1,018
Asset-backed securities(3)	0		0		1,843		1,860		1,665		1,697
Foreign government bonds	790		791		206		204		934		945
U.S. government authorities and agencies and obligations of U.S. states	188		197		244		304		371		443
Total fixed maturities(4)	1,084		1,096		16,088		16,739		20,119		21,414
Equity securities	1,805		2,263		328		327		1,661		2,043
Total assets supporting experience-rated contractholder liabilities(5)	$	2,954	$	3,424	$	17,381	$	18,031	$	22,438	$	24,115

(1)See Note 1 for additional information on the pending dispositions.

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

(3)Includes collateralized loan obligations, auto loans, education loans, home equity and other asset types. Collateralized loan obligations at fair value, included “Assets held-for-sale” were $1,358 million and $1,102 million as of September 30, 2021 and December 31, 2020, respectively, all of which were rated A or higher.

(4)As a percentage of amortized cost, 97% and 94% of the portfolio including “Assets held-for-sale” was considered high or highest quality based on NAIC or equivalent ratings, as of September 30, 2021 and December 31, 2020, respectively.

(5)As a percentage of amortized cost, 94% and 79% of the portfolio including “Assets held-for-sale” consisted of public securities as of September 30, 2021 and December 31, 2020, respectively.

The net change in unrealized gains (losses) from assets supporting experience-rated contractholder liabilities, including “Assets held-for-sale” still held at period end, recorded within “Other income (loss),” was $(263) million and $255 million during the three months ended September 30, 2021 and 2020, respectively, and $(557) million and $397 million during the nine months ended September 30, 2021 and 2020, respectively.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, including “Assets held-for-sale” recorded within “Other income (loss),” was $19 million and $324 million during the three months ended September 30, 2021 and 2020, respectively, and $457 million and $(332) million during the nine months ended September 30, 2021 and 2020, respectively.

Concentrations of Financial Instruments

The Company monitors its concentrations of financial instruments and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any single issuer.

As of the dates indicated, the Company’s exposure to concentrations of credit risk of single issuers greater than 10% of the Company’s equity included securities of the U.S. government and certain U.S. government agencies and securities guaranteed by the U.S. government, as well as the securities disclosed below:

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale	$	75,703	$	86,011	$	80,273	$	92,764
Fixed maturities, held-to-maturity	838		1,066		912		1,173
Fixed maturities, trading	24		24		25		25
Assets supporting experience-rated contractholder liabilities	971		968		849		855


Total	$	77,536	$	88,069	$	82,059	$	94,817

Commercial Mortgage and Other Loans

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


	September 30, 2021				December 31, 2020
	Amount (in millions)		% of Total		Amount (in millions)		% of Total
Commercial mortgage and agricultural property loans by property type:
Office	$	10,534	18.4	%	$	12,750	19.7	%
Retail	6,694		11.7		7,326		11.3
Apartments/Multi-Family	16,769		29.3		18,330		28.3
Industrial	13,004		22.7		14,954		23.1
Hospitality	1,879		3.3		2,395		3.7
Other	4,192		7.3		4,981		7.7
Total commercial mortgage loans	53,072		92.7		60,736		93.8
Agricultural property loans	4,114		7.3		4,048		6.2
Total commercial mortgage and agricultural property loans	57,186		100.0	%	64,784		100.0	%
Allowance for credit losses	(112)				(227)
Total net commercial mortgage and agricultural property loans	57,074				64,557
Other loans:
Uncollateralized loans	574				655
Residential property loans	74				101
Other collateralized loans	69				120
Total other loans	717				876
Allowance for credit losses	(5)				(8)
Total net other loans	712				868
Total net commercial mortgage and other loans(1)(2)	$	57,786			$	65,425

(1)Excludes “Assets held-for-sale” of $7,539 million net of allowance for credit losses of $12 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

(2)Includes loans held for sale which are carried at fair value and are collateralized primarily by apartment complexes. As of September 30, 2021 and December 31, 2020, the net carrying value of these loans was $1,106 million and $1,092 million, respectively.

As of September 30, 2021, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California (29%), Texas (8%) and New York (7%)) and included loans secured by properties in Europe (7%), Australia (1%) and Asia (2%).

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	Three Months Ended September 30, 2021
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	160	$	6	$	0	$	2	$	4	$	172

Addition to (release of) allowance for expected losses	(40)		(2)		0		(2)		0		(44)
Reclassified to “Asset held-for-sale”(1)	(12)		0		0		0		0		(12)



Other	0		0		0		1		0		1
Allowance, end of period	$	108	$	4	$	0	$	1	$	4	$	117

(1)See Note 1 for additional information on the pending dispositions.


	Three Months Ended September 30, 2020
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	230	$	8	$	0	$	3	$	4	$	245

Addition to (release of) allowance for expected losses	(5)		1		0		0		1		(3)

Write-downs charged against the allowance	(7)		0		0		0		0		(7)


Other	0		0		0		0		0		0
Allowance, end of period	$	218	$	9	$	0	$	3	$	5	$	235


	Nine Months Ended September 30, 2021
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	218	$	9	$	0	$	3	$	5	$	235

Addition to (release of) allowance for expected losses	(98)		(5)		0		(2)		(1)		(106)
Reclassified to “Assets held-for-sale”(1)	(12)		0		0		0		0		(12)



Other	0		0		0		0		0		0
Allowance, end of period	$	108	$	4	$	0	$	1	$	4	$	117

(1)See Note 1 for additional information on the pending dispositions.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2020
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	114	$	3	$	0	$	0	$	4	$	121
Cumulative effect of adoption of ASU 2016-13	110		5		0		0		0		115
Addition to (release of) allowance for expected losses	1		1		0		0		1		3

Write-downs charged against the allowance	(7)		0		0		0		0		(7)


Other	0		0		0		3		0		3
Allowance, end of period	$	218	$	9	$	0	$	3	$	5	$	235

For the three months ended September 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment. For the three months ended September 30, 2020, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily due to a release related to a loan payoff.

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2021
	Amortized Cost by Origination Year
	2021		2020		2019		2018		2017		Prior		Total(1)
	(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	967	$	590	$	2,437	$	3,191	$	2,977	$	14,587	$	24,749
60%-69.99%	2,207		1,861		3,848		3,791		1,543		5,260		18,510
70%-79.99%	1,561		1,360		2,026		978		904		2,228		9,057
80% or greater	46		0		0		61		68		581		756
Total	$	4,781	$	3,811	$	8,311	$	8,021	$	5,492	$	22,656	$	53,072
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	4,361	$	3,583	$	7,309	$	7,398	$	4,934	$	19,811	$	47,396
1.0 - 1.2x	364		97		676		398		271		1,718		3,524
Less than 1.0x	56		131		326		225		287		1,127		2,152
Total	$	4,781	$	3,811	$	8,311	$	8,021	$	5,492	$	22,656	$	53,072
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	578	$	753	$	482	$	316	$	354	$	1,311	$	3,794
60%-69.99%	60		123		39		62		26		10		320
70%-79.99%	0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0
Total	$	638	$	876	$	521	$	378	$	380	$	1,321	$	4,114
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	630	$	853	$	510	$	371	$	322	$	1,214	$	3,900
1.0 - 1.2x	8		23		10		1		58		41		141
Less than 1.0x	0		0		1		6		0		66		73
Total	$	638	$	876	$	521	$	378	$	380	$	1,321	$	4,114

(1)Excludes “Assets held-for-sale” of $7,551 million. See Note 1 for additional information on the pending dispositions.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Total
	(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	828	$	2,693	$	3,217	$	3,854	$	3,223	$	15,360	$	29,175
60%-69.99%	2,678		4,981		4,291		2,239		2,667		4,058		20,914
70%-79.99%	2,492		2,587		1,500		1,057		918		1,409		9,963
80% or greater	23		3		61		69		23		505		684
Total	$	6,021	$	10,264	$	9,069	$	7,219	$	6,831	$	21,332	$	60,736
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	5,901	$	9,429	$	8,587	$	6,954	$	6,382	$	18,904	$	56,157
1.0 - 1.2x	118		711		383		263		384		1,719		3,578
Less than 1.0x	2		124		99		2		65		709		1,001
Total	$	6,021	$	10,264	$	9,069	$	7,219	$	6,831	$	21,332	$	60,736
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	956	$	494	$	349	$	527	$	367	$	1,254	$	3,947
60%-69.99%	8		51		39		3		0		0		101
70%-79.99%	0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0
Total	$	964	$	545	$	388	$	530	$	367	$	1,254	$	4,048
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	941	$	544	$	381	$	468	$	308	$	1,202	$	3,844
1.0 - 1.2x	23		0		1		59		1		40		124
Less than 1.0x	0		1		6		3		58		12		80
Total	$	964	$	545	$	388	$	530	$	367	$	1,254	$	4,048

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

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


	September 30, 2021
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)
Commercial mortgage loans	$	53,072	$	0	$	0	$	0	$	0	$	53,072	$	2
Agricultural property loans	4,106		0		4		4		8		4,114		19
Residential property loans	73		0		0		1		1		74		1
Other collateralized loans	69		0		0		0		0		69		0
Uncollateralized loans	574		0		0		0		0		574		0
Total(3)	$	57,894	$	0	$	4	$	5	$	9	$	57,903	$	22

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(1)As of September 30, 2021, there were no loans in this category accruing interest.

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

(3)Excludes “Assets held-for-sale” of $7,551 million. See Note 1 for additional information on the pending dispositions.


	December 31, 2020
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)
Commercial mortgage loans	$	60,614	$	3	$	119	$	0	$	122	$	60,736	$	5
Agricultural property loans	3,996		37		0		15		52		4,048		15
Residential property loans	99		1		0		1		2		101		1
Other collateralized loans	120		0		0		0		0		120		0
Uncollateralized loans	655		0		0		0		0		655		0
Total	$	65,484	$	41	$	119	$	16	$	176	$	65,660	$	21

(1)As of December 31, 2020, there were no loans in this category accruing interest.

Loans on non-accrual status recognized interest income of $2 million for both the three months and nine months ended September 30, 2021 and 2020, respectively. Loans on non-accrual status that did not have a related allowance for credit losses were $20 million and $15 million as of September 30, 2021 and December 31, 2020, respectively.

The Company did not have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of both September 30, 2021 and December 31, 2020.

Other Invested Assets

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


	September 30, 2021		December 31, 2020
	(in millions)
LPs/LLCs:
Equity method:
Private equity(1)	$	5,952	$	4,311
Hedge funds	2,807		2,451
Real estate-related(1)	2,179		1,985
Subtotal equity method	10,938		8,747
Fair value:
Private equity	1,903		1,786
Hedge funds	2,168		2,036
Real estate-related	311		314
Subtotal fair value	4,382		4,136
Total LPs/LLCs	15,320		12,883
Real estate held through direct ownership(2)	1,753		2,027
Derivative instruments	2,218		1,915
Other(3)	914		1,300
Total other invested assets(4)	$	20,205	$	18,125

(1)Prior period amounts have been updated to conform to current period presentation.

(2)As of September 30, 2021 and December 31, 2020, real estate held through direct ownership had mortgage debt of $276 million and $409 million, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(3)Primarily includes strategic investments made by investment management operations, leveraged leases and member and activity stock held in the Federal Home Loan Banks of New York. For additional information regarding the Company’s holdings in the Federal Home Loan Banks of New York, see Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

(4)Excludes “Assets held-for-sale” of $160 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

Accrued Investment Income

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


	September 30, 2021		December 31, 2020
	(in millions)
Fixed maturities	$	2,339	$	2,676



Equity securities	7		7
Commercial mortgage and other loans	175		205
Policy loans	264		274
Other invested assets	21		27
Short-term investments and cash equivalents	2		4
Total accrued investment income(1)	$	2,808	$	3,193

(1)Excludes “Assets held-for-sale” of $233 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

Write-downs on accrued investment income were less than $1 million and $3 million for the three months ended September 30, 2021 and 2020, respectively, and less than $1 million and $15 million for the nine months ended September 30, 2021 and 2020, respectively.

Net Investment Income

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Fixed maturities, available-for-sale(1)	$	2,995	$	3,113	$	9,000	$	9,292
Fixed maturities, held-to-maturity(1)	56		59		169		176
Fixed maturities, trading	53		32		114		100
Assets supporting experience-rated contractholder liabilities	148		179		474		527
Equity securities	23		36		104		119
Commercial mortgage and other loans	621		608		1,882		1,866
Policy loans	132		147		403		450

Other invested assets	806		415		1,939		693
Short-term investments and cash equivalents	18		30		48		182
Gross investment income	4,852		4,619		14,133		13,405
Less: investment expenses	(135)		(173)		(482)		(571)
Net investment income	$	4,717	$	4,446	$	13,651	$	12,834

(1)Includes income on credit-linked notes which are reported on the same financial statement line items as related surplus notes, as conditions are met for right to offset.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Realized Investment Gains (Losses), Net

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Fixed maturities(1)	$	221	$	401	$	1,750	$	671
Commercial mortgage and other loans	67		41		158		65
Investment real estate	49		5		113		15
LPs/LLCs	(43)		8		(26)		2
Derivatives	131		(537)		1,145		(2,926)
Other	7		3		6		9
Realized investment gains (losses), net	$	432	$	(79)	$	3,146	$	(2,164)

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

Net Unrealized Gains (Losses) on Investments within AOCI

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


	September 30, 2021		December 31, 2020
	(in millions)


Fixed maturity securities, available-for-sale with an allowance(1)	$	22	$	(25)
Fixed maturity securities, available-for-sale without an allowance(1)	41,025		58,593
Derivatives designated as cash flow hedges(2)	867		(168)
Derivatives designated as fair value hedges(2)	(29)		10
Other investments(3)	11		7
Net unrealized gains (losses) on investments	$	41,896	$	58,417

(1)Includes net unrealized gains of $660 million on “Assets held-for-sale” as of September 30, 2021.

(2)For additional information on cash flow and fair value hedges, see Note 5.

(3)As of September 30, 2021, there were no net unrealized losses on held-to-maturity securities that were previously transferred from available-for-sale. Includes net unrealized gains on certain joint ventures that are strategic in nature and are included in “Other assets.”

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. The following table sets forth the composition of “Securities sold under agreements to repurchase,” as of the dates indicated:

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2021				December 31, 2020
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	8,842	$	479	$	9,321	$	9,548	$	546	$	10,094



Commercial mortgage-backed securities	338		0		338		463		0		463
Residential mortgage-backed securities	240		0		240		337		0		337

Total securities sold under agreements to repurchase(1)	$	9,420	$	479	$	9,899	$	10,348	$	546	$	10,894

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

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


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

Obligations of U.S. states and their political subdivisions	$	75	$	0	$	75	$	108	$	0	$	108
Foreign government bonds	222		0		222		426		0		426
U.S. public corporate securities	2,943		0		2,943		2,360		0		2,360
Foreign public corporate securities	709		0		709		567		0		567


Equity securities	433		0		433		38		0		38
Total cash collateral for loaned securities(1)(2)	$	4,382	$	0	$	4,382	$	3,499	$	0	$	3,499

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

(2)Excludes “Liabilities held-for-sale” of $3 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

4. VARIABLE INTEREST ENTITIES

In the normal course of its activities, the Company enters into relationships with various special-purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). For additional information, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Consolidated Variable Interest Entities

The table below reflects the carrying amount and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported. The liabilities primarily comprise obligations under debt instruments issued by the VIEs. The creditors of these VIEs do not have recourse to the Company in excess of the assets contained within the VIEs.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Consolidated VIEs for which the Company is the Investment Manager(1)				Other Consolidated VIEs(1)
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
	(in millions)
Fixed maturities, available-for-sale	$	127	$	110	$	271	$	296
Fixed maturities, held-to-maturity	81		87		816		882
Fixed maturities, trading	174		160		0		0
Equity securities	74		42		0		0
Commercial mortgage and other loans	949		975		0		0
Other invested assets	2,668		2,221		142		127
Cash and cash equivalents	172		101		0		0
Accrued investment income	2		2		3		4
Other assets	469		594		798		768
Total assets of consolidated VIEs	$	4,716	$	4,292	$	2,030	$	2,077
Other liabilities	$	565	$	256	$	3	$	2
Notes issued by consolidated VIEs(2)	282		305		0		0
Total liabilities of consolidated VIEs	$	847	$	561	$	3	$	2

(1)Total assets of consolidated VIEs reflect $2,747 million and $2,538 million as of September 30, 2021 and December 31, 2020, respectively, related to VIEs whose beneficial interests are wholly-owned by consolidated subsidiaries.

(2)Recourse is limited to the assets of the respective VIE and does not extend to the general credit of the Company. As of September 30, 2021, the maturity of this obligation was within 3 years.

Unconsolidated Variable Interest Entities

The Company has determined that it is not the primary beneficiary of certain VIEs for which it is the investment manager. The Company’s maximum exposure to loss resulting from its relationship with unconsolidated VIEs for which it is the investment manager is limited to its investment in the VIEs, which was $960 million and $935 million at September 30, 2021 and December 31, 2020, respectively. These investments are reflected in “Fixed maturities, available-for-sale,” “Fixed maturities, trading,” “Equity securities” and “Other invested assets.” There are no liabilities associated with these unconsolidated VIEs on the Company’s Unaudited Interim Consolidated Statements of Financial Position.

In the normal course of its activities, the Company will invest in limited partnerships and limited liability companies (“LPs/LLCs”), which include hedge funds, private equity funds and real estate-related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company classifies these investments as “Other invested assets” and its maximum exposure to loss associated with these entities, excluding “Assets held-for-sale,” was $15,320 million and $12,883 million as of September 30, 2021 and December 31, 2020, respectively.

In addition, in the normal course of its activities, the Company will invest in structured investments including VIEs for which it is not the investment manager. These structured investments typically invest in fixed income investments and are managed by third-parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The Company’s maximum exposure to loss on these structured investments, both VIEs and non-VIEs, is limited to the amount of its investment. See Note 3 for details regarding the carrying amounts and classification of these assets. The Company has not provided material financial or other support that was not contractually required to these structures. The Company has determined that it is not the primary beneficiary of these structures due to the fact that it does not control these entities.

5. DERIVATIVES AND HEDGING

Types of Derivative and Hedging Instruments

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Interest rate contracts: futures, swaps, forwards, options, caps and floors
Equity contracts: futures, options and total return swaps
Foreign exchange contracts: futures, options, forwards, swaps, and foreign currency debt instruments
Credit contracts: single and index reference credit default swaps

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

To-be-announced (“TBA”) forward contracts, loan commitments, embedded derivatives and synthetic guaranteed investment contracts (“GICs”).

For detailed information on these contracts and the related strategies, see Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Primary Risks Managed by Derivatives

The table below provides a summary of the gross notional amount and fair value of derivatives contracts by the primary underlying risks, excluding embedded derivatives and associated reinsurance recoverables. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements and cash collateral. This netting impact results in total derivative assets of $2,213 million and $1,906 million as of September 30, 2021 and December 31, 2020, respectively, and total derivative liabilities of $1,185 million and $792 million as of September 30, 2021 and December 31, 2020, respectively, reflected in the Unaudited Interim Consolidated Statements of Financial Position.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


Primary Underlying Risk /Instrument Type	September 30, 2021									December 31, 2020
			Fair Value									Fair Value
Gross Notional			Assets			Liabilities			Gross Notional			Assets			Liabilities
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	3,182		$	716		$	(76)		$	3,065		$	978		$	(90)
Interest Rate Forwards	298			8			(11)			249			0			(8)
Foreign Currency
Foreign Currency Forwards	4,258			59			(101)			2,577			68			(116)
Currency/Interest Rate
Foreign Currency Swaps	20,908			1,097			(268)			22,642			878			(1,037)
Total Derivatives Designated as Hedge Accounting Instruments	$	28,646		$	1,880		$	(456)		$	28,533		$	1,924		$	(1,251)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	196,080		$	10,549		$	(14,874)		$	178,803		$	17,174		$	(13,172)
Interest Rate Futures	17,449			6			(14)			15,778			99			(5)
Interest Rate Options	15,368			532			(240)			14,593			914			(233)
Interest Rate Forwards	3,509			26			(4)			2,910			25			0
Foreign Currency
Foreign Currency Forwards	28,903			930			(1,061)			35,478			764			(647)
Foreign Currency Options	0			0			0			0			0			0
Currency/Interest Rate
Foreign Currency Swaps	11,493			661			(257)			13,661			537			(601)
Credit
Credit Default Swaps	6,849			168			0			3,360			63			(28)
Equity
Equity Futures	4,329			0			(43)			5,668			10			(25)
Equity Options	35,514			405			(682)			36,250			1,731			(1,028)
Total Return Swaps	13,990			287			(20)			22,489			32			(1,277)
Other
Other(1)	1,258			0			0			1,262			0			0
Synthetic GICs	83,200			1			0			86,264			0			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	417,942		$	13,565		$	(17,195)		$	416,516		$	21,349		$	(17,016)
Total Derivatives(2)(3)(4)	$	446,588		$	15,445		$	(17,651)		$	445,049		$	23,273		$	(18,267)

(1)“Other” primarily includes derivative contracts used to improve the balance of the Company’s tail longevity and mortality risk. Under these contracts, the Company’s gains (losses) are capped at the notional amount.

(2)Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of $9,994 million and $20,119 million as of September 30, 2021 and December 31, 2020, respectively, primarily included in “Future policy benefits.”

(3)Recorded in “Other invested assets” and “Other liabilities” on the Unaudited Interim Consolidated Statements of Financial Position.

(4)Excludes “Assets held-for-sale” with fair value of $1,282 million and “Liabilities held-for-sale” with fair value of $1,309 million with outstanding gross notional amounts of $38,690 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of September 30, 2021, the following amounts were recorded on the Unaudited Interim Consolidated Statements of Financial Position related to the carrying amount of the hedged assets (liabilities) and cumulative basis adjustments included in the carrying amount for fair value hedges.


	September 30, 2021				December 31, 2020
Balance Sheet Line Item in which Hedged Item is Recorded	Carrying Amount of the Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)		Carrying Amount of the Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)

	(in millions)
Fixed maturities, available-for-sale, at fair value	$	418	$	59	$	402	$	79
Commercial mortgage and other loans	$	18	$	1	$	20	$	2
Policyholders’ account balances	$	(1,533)	$	(166)	$	(1,627)	$	(303)
Future policy benefits	$	(2,539)	$	(252)	$	(1,585)	$	(372)

(1)There were no material fair value hedging adjustments for hedged assets and liabilities for which hedge accounting has been discontinued.

Most of the Company’s derivatives do not qualify for hedge accounting for various reasons. For example: (i) derivatives that economically hedge embedded derivatives do not qualify for hedge accounting because changes in the fair value of the embedded derivatives are already recorded in net income; (ii) derivatives that are utilized as macro hedges of the Company’s exposure to various risks typically do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedge accounting rules; and (iii) synthetic GICs, which are product standalone derivatives, do not qualify as hedging instruments under hedge accounting rules.

Offsetting Assets and Liabilities

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


	September 30, 2021
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in millions)
Offsetting of Financial Assets:(2)
Derivatives	$	15,301	$	(13,233)	$	2,068	$	(787)	$	1,281
Securities purchased under agreement to resell	69		0		69		(69)		0
Total assets	$	15,370	$	(13,233)	$	2,137	$	(856)	$	1,281
Offsetting of Financial Liabilities:(2)
Derivatives	$	17,646	$	(16,466)	$	1,180	$	(956)	$	224
Securities sold under agreement to repurchase	9,899		0		9,899		(9,561)		338
Total liabilities	$	27,545	$	(16,466)	$	11,079	$	(10,517)	$	562

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in millions)
Offsetting of Financial Assets:
Derivatives	$	23,144	$	(21,367)	$	1,777	$	(806)	$	971
Securities purchased under agreement to resell	252		0		252		(252)		0
Total assets	$	23,396	$	(21,367)	$	2,029	$	(1,058)	$	971
Offsetting of Financial Liabilities:
Derivatives	$	18,265	$	(17,475)	$	790	$	(790)	$	0
Securities sold under agreement to repurchase	10,894		0		10,894		(10,432)		462
Total liabilities	$	29,159	$	(17,475)	$	11,684	$	(11,222)	$	462

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

(2)Excludes “Assets held-for-sale” with fair value of $1,282 million and “Liabilities held-for-sale” with fair value of $1,309 million. See Note 1 for additional information on the pending dispositions.

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

Cash Flow, Fair Value and Net Investment Hedges

The primary derivative and non-derivative instruments used by the Company in its fair value, cash flow and net investment hedge accounting relationships are interest rate swaps, currency swaps, currency forwards, and foreign currency denominated debts. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, or equity derivatives in any of its fair value, cash flow or net investment hedge accounting relationships.

The following table provides the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, including the offset of the hedged item in fair value hedge relationships.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2021
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	3	$	(2)	$	0	$	0	$	(16)	$	(15)	$	0
Currency	1		0		0		0		0		(16)		0
Total gains (losses) on derivatives designated as hedge instruments	4		(2)		0		0		(16)		(31)		0
Gains (losses) on the hedged item:
Interest Rate	(9)		4		0		0		27		21		0
Currency	0		0		0		0		0		16		0
Total gains (losses) on hedged item	(9)		4		0		0		27		37		0
Amortization for gains (losses) excluded from assessment of the effectiveness

Currency	0		0		0		0		0		(1)		(12)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness	0		0		0		0		0		(1)		(12)
Total gains (losses) on fair value hedges net of hedged item	(5)		2		0		0		11		5		(12)
Cash flow hedges
Interest Rate	(7)		0		0		0		0		0		0
Currency	(1)		0		0		0		0		0		55
Currency/Interest Rate	18		66		145		0		0		0		551
Total gains (losses) on cash flow hedges	10		66		145		0		0		0		606
Net investment hedges
Currency	0		0		0		0		0		0		1
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		0		0		0		0		1
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(413)		0		0		0		0		0		0
Currency	88		0		1		0		0		0		0
Currency/Interest Rate	205		0		2		0		0		0		0
Credit	1		0		0		0		0		0		0
Equity	(111)		0		0		0		0		0		0
Other	(1)		0		0		0		0		0		0
Embedded Derivatives	354		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	123		0		3		0		0		0		0
Total	$	128	$	68	$	148	$	0	$	11	$	5	$	595

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2021
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	17	$	(7)	$	0	$	0	$	(108)	$	(93)	$	0
Currency	(1)		0		0		0		0		(8)		0
Total gains (losses) on derivatives designated as hedge instruments	16		(7)		0		0		(108)		(101)		0
Gains (losses) on the hedged item:
Interest Rate	(22)		12		0		0		138		109		0
Currency	1		1		0		0		0		8		0
Total gains (losses) on hedged item	(21)		13		0		0		138		117		0
Amortization for gains (losses) excluded from assessment of the effectiveness

Currency	0		0		0		0		0		(4)		(39)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness	0		0		0		0		0		(4)		(39)
Total gains (losses) on fair value hedges net of hedged item	(5)		6		0		0		30		12		(39)
Cash flow hedges
Interest Rate	6		1		0		0		0		0		(30)
Currency	(4)		0		0		0		0		0		53
Currency/Interest Rate	56		204		175		0		0		0		1,012
Total gains (losses) on cash flow hedges	58		205		175		0		0		0		1,035
Net investment hedges
Currency	0		0		0		0		0		0		(12)
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		0		0		0		0		(12)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(2,969)		0		0		0		0		0		0
Currency	(249)		0		(3)		0		0		0		0
Currency/Interest Rate	620		0		1		0		0		0		0
Credit	28		0		0		0		0		0		0
Equity	(2,017)		0		0		0		0		0		0
Other	1		0		0		0		0		0		0
Embedded Derivatives	5,673		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	1,087		0		(2)		0		0		0		0
Total	$	1,140	$	211	$	173	$	0	$	30	$	12	$	984

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2020
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	5	$	(2)	$	0	$	0	$	(35)	$	(37)	$	0
Currency	(1)		0		0		0		0		15		0
Total gains (losses) on derivatives designated as hedge instruments	4		(2)		0		0		(35)		(22)		0
Gains (losses) on the hedged item:
Interest Rate	(6)		4		0		0		49		48		0
Currency	0		0		0		0		0		(15)		0
Total gains (losses) on hedged item	(6)		4		0		0		49		33		0

Amortization for gains (losses) excluded from assessment of the effectiveness
Currency	0		0		0		0		0		(1)		2
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness	0		0		0		0		0		(1)		2
Total gains (losses) on fair value hedges net of hedged item	(2)		2		0		0		14		10		2
Cash flow hedges
Interest Rate	19		0		0		0		0		0		(15)
Currency	0		0		0		0		0		0		(65)
Currency/Interest Rate	55		78		(210)		0		0		0		(1,011)
Total gains (losses) on cash flow hedges	74		78		(210)		0		0		0		(1,091)
Net investment hedges
Currency	(6)		0		142		0		0		0		(143)
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	(6)		0		142		0		0		0		(143)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(1,163)		0		0		0		0		0		0
Currency	(44)		0		2		0		0		0		0
Currency/Interest Rate	(394)		0		(3)		0		0		0		0
Credit	(15)		0		0		0		0		0		0
Equity	(2,243)		0		0		0		0		0		0
Other	1		0		0		0		0		0		0
Embedded Derivatives	3,254		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(604)		0		(1)		0		0		0		0
Total	$	(538)	$	80	$	(69)	$	0	$	14	$	10	$	(1,232)

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2020
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	(24)	$	(6)	$	0	$	0	$	295	$	242	$	0
Currency	1		0		0		0		0		17		0
Total gains (losses) on derivatives designated as hedge instruments	(23)		(6)		0		0		295		259		0
Gains (losses) on the hedged item:
Interest Rate	23		13		0		0		(269)		(222)		0
Currency	(1)		1		0		0		0		(17)		0
Total gains (losses) on hedged item	22		14		0		0		(269)		(239)		0
Amortization for gains (losses) excluded from assessment of the effectiveness

Currency	0		0		0		0		0		(1)		(1)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness	0		0		0		0		0		(1)		(1)
Total gains (losses) on fair value hedges net of hedged item	(1)		8		0		0		26		19		(1)

Cash flow hedges
Interest Rate	27		0		0		0		0		0		29
Currency	4		0		0		0		0		0		27
Currency/Interest Rate	121		239		(17)		0		0		0		519
Total gains (losses) on cash flow hedges	152		239		(17)		0		0		0		575
Net investment hedges
Currency	(6)		0		142		0		0		0		(133)
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	(6)		0		142		0		0		0		(133)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	7,829		0		0		0		0		0		0
Currency	186		0		(5)		0		0		0		0
Currency/Interest Rate	337		0		(1)		0		0		0		0
Credit	(56)		0		0		0		0		0		0
Equity	(2,028)		0		0		0		0		0		0
Other	1		0		0		0		0		0		0
Embedded Derivatives	(9,339)		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(3,070)		0		(6)		0		0		0		0
Total	$	(2,925)	$	247	$	119	$	0	$	26	$	19	$	441

(1)Net change in AOCI, excluding changes related to net investment hedges using non-derivative instruments, of $(7) million and $7 million for the three and nine months ended September 30, 2021, respectively, and $(17) million for both the three and nine months ended September 30, 2020.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	(in millions)
Balance, December 31, 2020	$	(168)
Amount recorded in AOCI:
Interest Rate	(23)
Currency	49
Currency/Interest Rate	1,447
Total amount recorded in AOCI	1,473
Amount reclassified from AOCI to income:
Interest Rate	(7)
Currency	4
Currency/Interest Rate	(435)
Total amount reclassified from AOCI to income	(438)
Balance, September 30, 2021	$	867

The changes in fair value of cash flow hedges are deferred in AOCI and are included in “Net unrealized investment gains (losses)” in the Unaudited Interim Consolidated Statements of Comprehensive Income; these amounts are then reclassified to earnings when the hedged item affects earnings. Using September 30, 2021 values, it is estimated that a pre-tax gain of approximately $262 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending September 30, 2022.

The exposures the Company is hedging with these qualifying cash flow hedges include the variability of future cash flows from forecasted transactions denominated in foreign currencies, the purchases of invested assets, and the receipt or payment of variable interest on existing financial instruments. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 10 years.

There were no material amounts reclassified from AOCI into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging. In addition, there were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.

For net investment hedges, in addition to derivatives, the Company uses foreign currency denominated debt to hedge the risk of change in the net investment in a foreign subsidiary due to changes in exchange rates. For effective net investment hedges, the amounts, before applicable taxes, recorded in the cumulative translation adjustment within AOCI were $(6) million and $(5) million for the three and nine months ended September 30, 2021, respectively, and $(160) million and $(150) million for the three and nine months ended September 30, 2020, respectively.

Credit Derivatives

The following table provides a summary of the notional and fair value of written credit protection. The Company’s maximum amount at risk under these credit derivatives, assuming the value of the underlying referenced securities become worthless, is equal to the notional amounts. These credit derivatives have maturities of less than 11 years and less than 26 years for Single name and Index Reference.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2021
	NAIC Rating Designation of Underlying Credit Obligation(1)
	NAIC 1				NAIC 2				NAIC 3				NAIC 4				NAIC 5				NAIC 6				Total(3)
	Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value
	(in millions)
Single name reference(2)	$	49	$	0	$	0	$	0	$	685	$	7	$	0	$	0	$	0	$	0	$	223	$	20	$	957	$	27
Index reference(2)	0		0		0		0		5,125		84		0		0		0		0		757		57		5,882		141
Total	$	49	$	0	$	0	$	0	$	5,810	$	91	$	0	$	0	$	0	$	0	$	980	$	77	$	6,839	$	168


	December 31, 2020
	NAIC Rating Designation of Underlying Credit Obligation(1)
	NAIC 1				NAIC 2				NAIC 3				NAIC 4				NAIC 5				NAIC 6				Total
	Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value
	(in millions)
Single name reference(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Index reference(2)	50		0		0		0		3,003		63		0		0		0		0		0		0		3,053		63
Total	$	50	$	0	$	0	$	0	$	3,003	$	63	$	0	$	0	$	0	$	0	$	0	$	0	$	3,053	$	63

(1)The NAIC rating designations are based on availability and the lowest ratings among Moody's Investors Service, Inc. ("Moody's"), Standard & Poor’s Rating Services (“S&P”) and Fitch Ratings Inc. (“Fitch”). If no rating is available from a rating agency, a NAIC 6 rating is used.

(2)Single name credit default swaps may reference the credit of corporate debt, sovereign debt, and structured finance. Index references NAIC designations are based on the lowest rated single name reference included in the index.

(3)Excludes “Assets-held-for-sale” with fair value of $48 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

In addition to writing credit protection, the Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. As of September 30, 2021 and December 31, 2020, the Company had $10 million and $307 million of outstanding notional amounts and reported at fair value as a liability of $0 million and $28 million, respectively.

Counterparty Credit Risk

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

Substantially all of the Company’s derivative agreements have zero thresholds which require daily full collateralization by the party in a liability position. In addition, certain of the Company’s derivative agreements contain credit-risk related contingent features; if the credit rating of one of the parties to the derivative agreement is to fall below a certain level, the party with positive fair value could request termination at the then fair value or demand immediate full collateralization from the party whose credit rating fell and is in a net liability position.

As of September 30, 2021, there were no net liability derivative positions with counterparties with credit risk-related contingent features. All derivatives have been appropriately collateralized by the Company or the counterparty in accordance with the terms of the derivative agreements.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

6. FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

For a discussion of Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of September 30, 2021(1)
	Level 1		Level 2		Level 3		Netting(2)		Total
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	32,771	$	135	$		$	32,906
Obligations of U.S. states and their political subdivisions	0		12,195		8				12,203
Foreign government bonds	0		97,736		10				97,746
U.S. corporate public securities	0		110,351		131				110,482
U.S. corporate private securities(3)	0		34,521		2,213				36,734
Foreign corporate public securities	0		27,560		128				27,688
Foreign corporate private securities	0		25,124		2,894				28,018
Asset-backed securities(4)	0		10,484		761				11,245
Commercial mortgage-backed securities	0		13,194		0				13,194
Residential mortgage-backed securities	0		2,710		326				3,036
Subtotal	0		366,646		6,606				373,252
Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	0		197		0				197
Obligations of U.S. states and their political subdivisions	0		0		0				0
Foreign government bonds	0		791		0				791
Corporate securities	0		108		0				108
Asset-backed securities(4)	0		0		0				0
Commercial mortgage-backed securities	0		0		0				0
Residential mortgage-backed securities	0		0		0				0
Equity securities	817		1,446		0				2,263
All other(5)	4		54		0				58
Subtotal	821		2,596		0				3,417
Fixed maturities, trading	0		9,184		364				9,548
Equity securities	5,447		1,363		757				7,567
Commercial mortgage and other loans	0		1,106		0				1,106
Other invested assets(6)	167		15,273		376		(13,233)		2,583
Short-term investments	357		2,817		327				3,501
Cash equivalents	3,009		4,181		0				7,190
Other assets	0		0		111				111
Separate account assets(7)(8)	13,456		201,978		1,291				216,725
Total assets	$	23,257	$	605,144	$	9,832	$	(13,233)	$	625,000
Future policy benefits(9)	$	0	$	0	$	9,230	$		$	9,230
Policyholders’ account balances	0		0		1,320				1,320
Other liabilities	62		17,151		0		(16,466)		747
Notes issued by consolidated VIEs	0		0		0				0
Total liabilities	$	62	$	17,151	$	10,550	$	(16,466)	$	11,297

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of December 31, 2020
	Level 1		Level 2		Level 3		Netting(2)		Total
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	40,298	$	150	$		$	40,448
Obligations of U.S. states and their political subdivisions	0		12,807		4				12,811
Foreign government bonds	0		110,233		11				110,244
U.S. corporate public securities	0		113,486		69				113,555
U.S. corporate private securities(3)	0		38,689		2,248				40,937
Foreign corporate public securities	0		29,384		153				29,537
Foreign corporate private securities	0		28,727		2,865				31,592
Asset-backed securities(4)	0		14,068		523				14,591
Commercial mortgage-backed securities	0		16,294		9				16,303
Residential mortgage-backed securities	0		2,876		11				2,887
Subtotal	0		406,862		6,043				412,905
Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	0		212		0				212
Obligations of U.S. states and their political subdivisions	0		231		0				231
Foreign government bonds	0		926		19				945
Corporate securities	0		14,990		482				15,472
Asset-backed securities(4)	0		1,583		114				1,697
Commercial mortgage-backed securities	0		1,839		0				1,839
Residential mortgage-backed securities	0		1,018		0				1,018
Equity securities	1,784		259		0				2,043
All other(5)	50		549		20				619
Subtotal	1,834		21,607		635				24,076
Fixed maturities, trading	0		3,671		243				3,914
Equity securities	6,207		1,131		660				7,998
Commercial mortgage and other loans	0		1,092		0				1,092
Other invested assets(6)	227		23,045		366		(21,367)		2,271
Short-term investments	405		5,728		177				6,310
Cash equivalents	1,476		4,005		1				5,482
Other assets	0		0		268				268
Separate account assets(7)(8)	51,826		250,623		1,821				304,270
Total assets	$	61,975	$	717,764	$	10,214	$	(21,367)	$	768,586
Future policy benefits(9)	$	0	$	0	$	18,879	$		$	18,879
Policyholders’ account balances	0		0		1,914				1,914
Other liabilities	32		17,828		0		(17,475)		385
Notes issued by consolidated VIEs	0		0		0				0
Total liabilities	$	32	$	17,828	$	20,793	$	(17,475)	$	21,178

(1)Excludes amounts for financial instruments reclassified to “Assets held-for-sale of $128,234 million and “Liabilities held-for-sale” of $5,790 million. Assets held-for-sale and liabilities held-for-sale are valued on a basis consistent with similar instruments described herein. See Note 1 for additional information on the pending dispositions.

(2)“Netting” amounts represent cash collateral of $(3,233) and $3,892 million as of September 30, 2021 and December 31, 2020, respectively.

(3)Excludes notes with fair value of $5,693 million (carrying amount of $5,616 million) and $6,100 million (carrying amount of $5,966 million) as of September 30, 2021 and December 31, 2020, respectively, which have been offset with the associated payables under a netting agreement.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(5)All other represents cash equivalents and short-term investments.

(6)Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. As of September 30, 2021 and December 31, 2020, the fair values of such investments were $4,382 and $4,136 million respectively.

(7)Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and other invested assets. As of September 30, 2021 and December 31, 2020, the fair value of such investments was $25,127 and $23,007 million, respectively.

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

(9)As of September 30, 2021, the net embedded derivative liability position of $9.2 billion includes $0.6 billion of embedded derivatives in an asset position and $9.8 billion of embedded derivatives in a liability position. As of December 31, 2020, the net embedded derivative liability position of $18.9 billion includes $0.5 billion of embedded derivatives in an asset position and $19.4 billion of embedded derivatives in a liability position.

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


	As of September 30, 2021
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum	Maximum	Weighted Average	Impact of Increase in Input on Fair Value(1)
	(in millions)
Assets:
Corporate securities(2)(3)	$	4,539	Discounted cash flow	Discount rate	0.06%	20%	4.91%	Decrease
			Market comparables	EBITDA multiples(4)	1.3X	15.0X	9.1X	Increase
			Liquidation	Liquidation value	12.37%	62.58%	48.50%	Increase
Equity securities	$	288	Discounted cash flow(5)	Discount rate	0.5%	20%		Decrease
			Market comparables	EBITDA multiples(4)	1.0X	9.7X	3.1X	Increase
			Net Asset Value	Share price	$0	$1,498	$507	Increase
Separate account assets-commercial mortgage loans(6)	$	158	Discounted cash flow	Spread	0.95%	1.89%	1.08%	Decrease
Liabilities:
Future policy benefits(7)	$	9,230	Discounted cash flow	Lapse rate(9)	1%	20%		Decrease
				Spread over LIBOR(10)	0.05%	1.05%		Decrease
				Utilization rate(11)	39%	96%		Increase
				Withdrawal rate	See table footnote (12) below.
				Mortality rate(13)	0%	15%		Decrease
				Equity volatility curve	17%	26%		Increase
Policyholders’ account balances(8)	$	1,320	Discounted cash flow	Lapse rate(9)	1%	6%		Decrease
				Spread over LIBOR(10)	0.05%	1.07%		Decrease
				Mortality rate(13)	0%	23%		Decrease
				Equity volatility curve	13%	30%		Increase

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of December 31, 2020
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum	Maximum	Weighted Average	Impact of Increase in Input on Fair Value(1)
	(in millions)
Assets:
Corporate securities(2)(3)	$	3,697	Discounted cash flow	Discount rate	0.40%	25%	4.28%	Decrease
			Market comparables	EBITDA multiples(4)	7.0X	15.0X	9.0X	Increase
			Liquidation	Liquidation value	12.13%	15.00%	13.02%	Increase
Equity securities	$	195	Discounted cash flow(5)	Discount rate	0.5%	20%		Decrease
			Market comparables	EBITDA multiples(4)	1X	8.8X	3.3X	Increase
			Net Asset Value	Share price	$1	$1,414	$495	Increase
Separate account assets-commercial mortgage loans(6)	$	775	Discounted cash flow	Spread	1.60%	2.98%	1.80%	Decrease
Liabilities:
Future policy benefits(7)	$	18,879	Discounted cash flow	Lapse rate(9)	1%	20%		Decrease
				Spread over LIBOR(10)	0.06%	1.17%		Decrease
				Utilization rate(11)	39%	96%		Increase
				Withdrawal rate	See table footnote (12) below.
				Mortality rate(13)	0%	15%		Decrease
				Equity volatility curve	18%	26%		Increase
Policyholders’ account balances(8)	$	1,914	Discounted cash flow	Lapse rate(9)	1%	42%		Decrease
				Spread over LIBOR(10)	0.06%	1.17%		Decrease
				Mortality rate(13)	0%	24%		Decrease
				Equity volatility curve	6%	42%		Increase

(1)Conversely, the impact of a decrease in input would have the opposite impact on fair value as that presented in the table.

(2)Includes assets classified as fixed maturities available-for-sale, assets supporting experience-rated contractholder liabilities and fixed maturities trading.

(3)Excludes notes which have been offset with the associated payables under a netting agreement.

(4)Represents multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and are amounts used when the Company has determined that market participants would use such multiples when valuing the investments.

(5)For these investments, a range of discount rates is typically used (10% to 20%) and is therefore a more meaningful representation of the unobservable inputs used in the valuation rather than weighted average.

(6)Changes in the fair value of separate account assets are borne by customers and thus are offset by changes in separate account liabilities on the Company’s Unaudited Interim Consolidated Statements of Financial Position. As a result, changes in value associated with these investments are not reflected in the Company’s Unaudited Interim Consolidated Statements of Operations.

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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

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

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

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

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

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

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

*Asset-Backed Securities—*Interrelationships may exist between the prepayment rate, the default rate and/or loss severity, depending on specific market conditions. In stronger economic cycles, prepayment rates are generally driven by overall market interest rates and accompanied by lower default rates and loss severity. During weaker economic cycles, prepayments may decline, as default rates and loss severity increase. Additionally, the impact of these factors on average life varies with the structure and subordination. Generally, a change in the assumption used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

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

Changes in Level 3 Assets and Liabilities—The following tables describe changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods. When a determination is made to classify assets and liabilities within Level 3, the determination is based on significance of the unobservable inputs in the overall fair value measurement. All transfers are based on changes in the observability of the valuation inputs, including the availability of pricing service information that the Company can validate. Transfers into Level 3 are generally the result of unobservable inputs utilized within valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the Company can validate.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(3)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	150	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	(15)	$	135	$	0
U.S. states	9		0		0		0		0		0		(1)		0		0		8		0
Foreign government	10		0		0		0		0		1		(1)		0		0		10		0
Corporate securities(4)	5,528		(67)		496		(12)		18		(374)		(1)		97		(319)		5,366		(82)
Structured securities(5)	874		2		608		0		0		(38)		(1)		130		(488)		1,087		(5)
Assets supporting experience-rated contractholder liabilities:
Foreign government	17		0		0		0		0		0		0		0		(17)		0		0
Corporate securities(4)	549		(3)		1		0		0		(81)		(157)		0		(309)		0		(2)
Structured securities(5)	114		(1)		40		0		0		(9)		0		2		(146)		0		(1)
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	0		0		1		0		0		0		0		0		(1)		0		0
Other assets:
Fixed maturities, trading	269		12		3		(27)		0		(6)		157		0		(44)		364		11
Equity securities	715		100		8		(66)		0		0		0		0		0		757		73
Other invested assets	393		7		10		(33)		0		(1)		0		0		0		376		8
Short-term investments	445		1		66		0		0		(176)		1		0		(10)		327		0
Cash equivalents	1		0		0		0		0		0		(1)		0		0		0		0
Other assets	190		(23)		3		0		0		5		0		(64)		0		111		(9)
Separate account assets(6)	1,476		(75)		(70)		6		0		0		615		28		(689)		1,291		(2)
Liabilities:
Future policy benefits	(13,579)		385		0		0		(331)		0		0		0		4,295		(9,230)		229
Policyholders’ account balances(7)	(2,690)		(5)		0		0		(83)		0		0		0		1,458		(1,320)		568
Other liabilities	0		0		0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0		0		0


	Three Months Ended September 30, 2021
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(3)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)
	(in millions)
Fixed maturities, available-for-sale	$	(10)	$	0	$	0	$	(59)	$	4	$	(33)	$	0	$	0	$	(54)
Assets supporting experience-rated contractholder liabilities	0		(5)		0		0		1		0		(3)		0		0
Other assets:
Fixed maturities, trading	0		11		0		0		1		0		11		0		0
Equity securities	0		100		0		0		0		0		73		0		0
Other invested assets	(14)		21		0		0		0		(13)		21		0		0
Short-term investments	1		0		0		0		0		0		0		0		0
Cash equivalents	0		0		0		0		0		0		0		0		0
Other assets	(23)		0		0		39		(39)		(9)		0		0		0
Separate account assets(6)	0		0		(75)		0		0		0		0		(2)		0
Liabilities:
Future policy benefits	385		0		0		0		0		229		0		0		0
Policyholders’ account balances	(5)		0		0		0		0		568		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(3)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	150	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	(15)	$	135	$	0
U.S. states	4		0		0		0		0		0		4		0		0		8		0
Foreign government	11		0		0		0		0		0		(1)		0		0		10		0
Corporate securities(4)	5,335		(229)		1,183		(33)		38		(868)		0		386		(446)		5,366		(284)
Structured securities(5)	543		31		1,384		(1)		0		(218)		13		441		(1,106)		1,087		5
Assets supporting experience-rated contractholder liabilities:
Foreign government	19		0		0		0		0		(2)		0		0		(17)		0		0
Corporate securities(4)	482		5		17		0		0		(109)		(157)		71		(309)		0		(2)
Structured securities(5)	114		(5)		213		0		0		(31)		0		2		(293)		0		(5)
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	20		0		1		0		0		(20)		0		0		(1)		0		0
Other assets:
Fixed maturities, trading	243		23		26		(35)		0		(6)		159		0		(46)		364		22
Equity securities	660		157		99		(128)		0		(9)		(23)		36		(35)		757		124
Other invested assets	366		24		34		(47)		0		(1)		0		0		0		376		25
Short-term investments	177		1		519		0		0		(339)		(26)		5		(10)		327		(1)
Cash equivalents	1		(1)		4		0		0		0		(4)		0		0		0		(1)
Other assets	268		(120)		27		0		0		0		0		(64)		0		111		(116)
Separate account assets(6)	1,821		133		79		(21)		0		(12)		0		58		(767)		1,291		124
Liabilities:
Future policy benefits	(18,879)		6,335		0		0		(993)		0		12		0		4,295		(9,230)		5,694
Policyholders’ account balances(7)	(1,914)		(553)		0		0		(311)		0		0		0		1,458		(1,320)		106
Other liabilities	0		0		0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0		0		0


	Nine Months Ended September 30, 2021
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(3)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)
	(in millions)
Fixed maturities, available-for-sale	$	19	$	0	$	0	$	(223)	$	6	$	(34)	$	0	$	0	$	(245)
Assets supporting experience-rated contractholder liabilities	0		(5)		0		0		5		0		(7)		0		0
Other assets:
Fixed maturities, trading	0		22		0		0		1		0		22		0		0
Equity securities	0		157		0		0		0		0		124		0		0
Other invested assets	1		23		0		0		0		1		24		0		0
Short-term investments	1		0		0		0		0		(1)		0		0		0
Cash equivalents	(1)		0		0		0		0		(1)		0		0		0
Other assets	(120)		0		0		39		(39)		(116)		0		0		0
Separate account assets(6)	0		0		133		0		0		0		0		124		0
Liabilities:
Future policy benefits	6,335		0		0		0		0		5,694		0		0		0
Policyholders’ account balances	(553)		0		0		0		0		106		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(3)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	122	$	0	$	10	$	0	$	0	$	0	$	0	$	0	$	0	$	132	$	0
U.S. states	4		0		0		0		0		0		0		0		0		4		0
Foreign government	21		1		0		0		0		0		0		0		(12)		10		1
Corporate securities(4)	4,904		215		165		(8)		0		(160)		(23)		113		(103)		5,103		193
Structured securities(5)	801		5		96		0		0		(147)		1		68		(258)		566		4
Assets supporting experience-rated contractholder liabilities:
Foreign government	24		0		0		0		0		(2)		0		0		0		22		0
Corporate securities(4)	624		5		1		0		0		(6)		(22)		0		(24)		578		3
Structured securities(5)	99		1		19		0		0		(9)		0		1		(1)		110		1
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	7		0		107		0		0		(4)		0		0		0		110		0
Other assets:
Fixed maturities, trading	236		0		(1)		(1)		0		0		1		4		1		240		1
Equity securities	594		67		15		(3)		0		(4)		5		0		(1)		673		66
Other invested assets	658		3		101		0		1		2		9		8		0		782		4
Short-term investments	44		(1)		145		0		0		(5)		0		0		0		183		0
Cash equivalents	1		0		0		0		0		0		0		0		0		1		0
Other assets	377		(64)		19		0		0		0		0		0		0		332		(62)
Separate account assets(6)	1,684		84		65		(5)		0		(14)		0		10		(23)		1,801		87
Liabilities:
Future policy benefits	(26,439)		3,339		0		0		(331)		0		91		0		0		(23,340)		3,069
Policyholders’ account balances(7)	(1,441)		(34)		0		0		(74)		0		0		0		0		(1,549)		(6)
Other liabilities	0		0		0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	(741)		(34)		0		0		0		0		0		0		0		(775)		(34)


	Three Months Ended September 30, 2020
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(3)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)
	(in millions)
Fixed maturities, available-for-sale	$	3	$	0	$	0	$	217	$	1	$	(12)	$	0	$	0	$	210
Assets supporting experience-rated contractholder liabilities	0		4		0		0		2		0		4		0		0
Other assets:
Fixed maturities, trading	0		0		0		0		0		0		1		0		0
Equity securities	0		67		0		0		0		0		66		0		0
Other invested assets	0		3		0		0		0		0		4		0		0
Short-term investments	(1)		0		0		0		0		0		0		0		0
Cash equivalents	0		0		0		0		0		0		0		0		0
Other assets	(64)		0		0		0		0		(62)		0		0		0
Separate account assets(6)	0		0		84		0		0		0		0		87		0
Liabilities:
Future policy benefits	3,339		0		0		0		0		3,069		0		0		0
Policyholders’ account balances	(34)		0		0		0		0		(6)		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		(34)		0		0		0		0		(34)		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(3)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	105	$	0	$	27	$	0	$	0	$	0	$	0	$	0	$	0	$	132	$	0
U.S. states	4		0		0		0		0		0		0		0		0		4		0
Foreign government	22		0		0		0		0		0		0		1		(13)		10		0
Corporate securities(4)	3,236		33		584		(126)		0		(490)		(22)		2,136		(248)		5,103		19
Structured securities(5)	948		2		484		(17)		0		(444)		156		160		(723)		566		0
Assets supporting experience-rated contractholder liabilities:
Foreign government	24		0		0		0		0		(2)		0		0		0		22		0
Corporate securities(4)	637		(22)		5		(9)		0		(71)		(22)		92		(32)		578		(25)
Structured securities(5)	69		(1)		174		0		0		(19)		0		1		(114)		110		3
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	0		0		114		0		0		(4)		0		0		0		110		0
Other assets:
Fixed maturities, trading	287		(16)		21		(33)		0		0		9		19		(47)		240		(16)
Equity securities	633		9		43		(13)		0		(4)		6		0		(1)		673		6
Other invested assets	567		7		182		0		5		(2)		15		8		0		782		9
Short-term investments	155		1		189		0		0		(115)		(47)		0		0		183		0
Cash equivalents	131		0		0		0		0		0		(130)		0		0		1		0
Other assets	113		164		55		0		0		0		0		0		0		332		165
Separate account assets(6)	1,717		58		169		(26)		0		(47)		0		43		(113)		1,801		70
Liabilities:
Future policy benefits	(12,831)		(9,630)		0		0		(972)		0		93		0		0		(23,340)		(9,940)
Policyholders’ account balances(7)	(1,316)		38		0		0		(271)		0		0		0		0		(1,549)		80
Other liabilities	(105)		105		0		0		0		0		0		0		0		0		105
Notes issued by consolidated VIEs	(800)		25		0		0		0		0		0		0		0		(775)		25


	Nine Months Ended September 30, 2020
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(3)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)
	(in millions)
Fixed maturities, available-for-sale	$	(112)	$	0	$	0	$	141	$	6	$	(118)	$	0	$	0	$	137
Assets supporting experience-rated contractholder liabilities	0		(25)		0		0		2		0		(22)		0		0
Other assets:
Fixed maturities, trading	0		(17)		0		0		1		0		(16)		0		0
Equity securities	0		9		0		0		0		0		6		0		0
Other invested assets	0		7		0		0		0		1		8		0		0
Short-term investments	1		0		0		0		0		0		0		0		0
Cash equivalents	0		0		0		0		0		0		0		0		0
Other assets	164		0		0		0		0		165		0		0		0
Separate account assets(6)	0		0		58		0		0		0		0		70		0
Liabilities:
Future policy benefits	(9,630)		0		0		0		0		(9,940)		0		0		0
Policyholders’ account balances	38		0		0		0		0		80		0		0		0
Other liabilities	0		105		0		0		0		0		105		0		0
Notes issued by consolidated VIEs	0		25		0		0		0		0		25		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(1)“Other,” for the periods ended September 30, 2021 and September 30, 2020, primarily represents the deconsolidation of VIEs, reclassifications of certain assets between reporting categories and foreign currency translation.

(2)Transfers out of level 3 for both three months and nine months ended September 30, 2021 included $274 million of corporate securities and $58 million of structured securities reclassified to “Assets held-for-sale”, and $4,295 million of Future Policy Benefits and $1,458 million of Policyholders’ account balances reclassified to "Liabilities held-for-sale". See Note 1 for additional information on the pending dispositions.

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

(4)Includes U.S. corporate public, U.S. corporate private, foreign corporate public and foreign corporate private securities.

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

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

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

Derivative Fair Value Information

The following tables present the balances of derivative assets and liabilities measured at fair value on a recurring basis, as of the date indicated, by primary underlying risk. These tables include NPR and exclude embedded derivatives and associated reinsurance recoverables. The derivative assets and liabilities shown below are included in “Other invested assets” or “Other liabilities” in the tables contained within the sections “—Assets and Liabilities by Hierarchy Level” and “—Changes in Level 3 Assets and Liabilities,” above.


	As of September 30, 2021
	Level 1		Level 2		Level 3		Netting(1)		Total
	(in millions)
Derivative Assets:(2)
Interest Rate	$	6	$	11,831	$	1	$		$	11,838
Currency	0		990		0				990
Credit	0		168		0				168
Currency/Interest Rate	0		1,758		0				1,758
Equity	142		550		0				692
Other	0		0		0				0
Netting(1)							(13,233)		(13,233)
Total derivative assets	$	148	$	15,297	$	1	$	(13,233)	$	2,213
Derivative Liabilities:(2)
Interest Rate	$	14	$	15,205	$	0	$		$	15,219
Currency	0		1,162		0				1,162
Credit	0		0		0				0
Currency/Interest Rate	0		525		0				525
Equity	46		699		0				745
Other	0		0		0				0
Netting(1)							(16,466)		(16,466)
Total derivative liabilities	$	60	$	17,591	$	0	$	(16,466)	$	1,185

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of December 31, 2020
	Level 1		Level 2		Level 3		Netting(1)		Total
	(in millions)
Derivative Assets:
Interest Rate	$	99	$	19,091	$	0	$		$	19,190
Currency	0		832		0				832
Credit	0		63		0				63
Currency/Interest Rate	0		1,415		0				1,415
Equity	128		1,645		0				1,773
Other	0		0		0				0
Netting(1)							(21,367)		(21,367)
Total derivative assets	$	227	$	23,046	$	0	$	(21,367)	$	1,906
Derivative Liabilities:
Interest Rate	$	5	$	13,503	$	0	$		$	13,508
Currency	0		763		0				763
Credit	0		28		0				28
Currency/Interest Rate	0		1,638		0				1,638
Equity	25		2,305		0				2,330
Other	0		0		0				0
Netting(1)							(17,475)		(17,475)
Total derivative liabilities	$	30	$	18,237	$	0	$	(17,475)	$	792

(1)“Netting” amounts represent cash collateral and the impact of offsetting asset and liability positions held with the same counterparty, subject to master netting agreement.

(2)Excludes “Assets held-for-sale” with fair value of $1,282 million and “Liabilities held-for-sale” with fair value of $1,309 million as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

Changes in Level 3 derivative assets and liabilities—The following tables provide a summary of the changes in fair value of Level 3 derivative assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income, attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods.


	Three Months Ended September 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		0		0		1		0


	Nine Months Ended September 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	0		1		0		0		0		0		0		0		0		1		1

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		0		0		1		0


	Nine Months Ended September 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		0		0		1		0

(1)Total realized and unrealized gains (losses) as well as unrealized gains (losses) for assets still held at the end of the period are recorded in “Realized investment gains (losses), net.”

(2)Transfers into or out of Level 3 are generally reported at the value as of the beginning of the quarter in which the transfers occur for any such positions still held at the end of the quarter.

Nonrecurring Fair Value Measurements—The following tables represent information for assets measured at fair value on a nonrecurring basis. The fair value measurement is nonrecurring as these assets are measured at fair value only when there is a triggering event (e.g., an evidence of impairment). Assets included in the table are those that were impaired during the respective reporting periods and that are still held as of the reporting date. The estimated fair values for these amounts were determined using significant unobservable inputs (Level 3).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Realized investment gains (losses) net:
Commercial mortgage loans(1)	$	0	$	3	$	0	$	0
Mortgage servicing rights(2)	$	0	$	5	$	(6)	$	(24)
Investment real estate	$	0	$	0	$	(9)	$	0


	September 30, 2021		December 31, 2020
	(in millions)
Carrying value after measurement as of period end:
Commercial mortgage loans(1)	$	0	$	0
Mortgage servicing rights(2)	$	281	$	307
Investment real estate	$	17	$	31

(1)Commercial mortgage loans are valued based on discounted cash flows utilizing market rates or the fair value of the underlying real estate collateral.

(2)Mortgage servicing rights are valued using a discounted cash flow model. The model incorporates assumptions for servicing revenues, which are adjusted for expected prepayments, delinquency rates, escrow deposit income and estimated loan servicing expenses. The discount rates incorporated into the model are determined based on the estimated returns a market participant would require for this business including a liquidity and risk premium. This estimate includes available relevant data from any active market sales of mortgage servicing rights.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Fair Value Option

The fair value option allows the Company to elect fair value as an alternative measurement for selected financial assets and financial liabilities not otherwise reported at fair value. Such elections have been made by the Company to help mitigate volatility in earnings that result from different measurement attributes. Electing the fair value option also allows the Company to achieve consistent accounting for certain assets and liabilities. Changes in fair value are reflected in “Realized investment gains (losses), net” for commercial mortgage and other loans and “Other income (loss)” for other assets and notes issued by consolidated VIEs. Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and quality ratings for the period reported. Interest income on commercial mortgage and other loans is included in “Net investment income.” Interest income on these loans is recorded based on the effective interest rate as determined at the closing of the loan.

The following tables present information regarding assets and liabilities where the fair value option has been elected.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Liabilities:
Notes issued by consolidated VIEs:
Changes in fair value	$	0	$	34	$	0	$	(25)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Commercial mortgage and other loans:
Interest income	$	4	$	4	$	9	$	10
Notes issued by consolidated VIEs:
Interest expense	$	0	$	10	$	0	$	32


	September 30, 2021		December 31, 2020
	(in millions)
Commercial mortgage and other loans(1):
Fair value as of period end	$	1,106	$	1,092
Aggregate contractual principal as of period end	$	1,087	$	1,073


Other assets:
Fair value as of period end	$	59	$	10
Notes issued by consolidated VIEs:
Fair value as of period end	$	0	$	0
Aggregate contractual principal as of period end	$	0	$	0

(1)As of September 30, 2021, for loans for which the fair value option has been elected, there were no loans in non-accrual status and none of the loans were more than 90 days past due and still accruing.

Fair Value of Financial Instruments

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2021(1)
	Fair Value								Carrying Amount(2)
	Level 1		Level 2		Level 3		Total		Total
	(in millions)
Assets:
Fixed maturities, held-to-maturity(3)	$	0	$	1,874	$	82	$	1,956	$	1,644
Assets supporting experience-rated contractholder liabilities	7		0		0		7		7
Commercial mortgage and other loans	0		67		59,947		60,014		56,680
Policy loans	0		0		10,471		10,471		10,471
Other invested assets	0		81		0		81		81
Short-term investments	1,210		22		0		1,232		1,232
Cash and cash equivalents	8,344		71		0		8,415		8,415
Accrued investment income	0		2,808		0		2,808		2,808
Other assets	49		3,056		27		3,132		3,131
Total assets	$	9,610	$	7,979	$	70,527	$	88,116	$	84,469
Liabilities:
Policyholders’ account balances—investment contracts	$	0	$	33,929	$	39,872	$	73,801	$	72,542
Securities sold under agreements to repurchase	0		9,899		0		9,899		9,899
Cash collateral for loaned securities	0		4,382		0		4,382		4,382
Short-term debt	0		774		137		911		909
Long-term debt(4)	611		20,649		978		22,238		18,687
Notes issued by consolidated VIEs	0		0		282		282		282
Other liabilities	0		8,996		54		9,050		9,050
Separate account liabilities—investment contracts	0		28,837		23,803		52,640		52,640
Total liabilities	$	611	$	107,466	$	65,126	$	173,203	$	168,391

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2020
	Fair Value								Carrying Amount(2)
	Level 1		Level 2		Level 3		Total		Total
	(in millions)
Assets:
Fixed maturities, held-to-maturity(3)	$	0	$	2,209	$	89	$	2,298	$	1,930
Assets supporting experience-rated contractholder liabilities	39		0		0		39		39
Commercial mortgage and other loans	0		107		67,477		67,584		64,333
Policy loans	0		0		11,271		11,271		11,271
Other invested assets	0		153		0		153		153
Short-term investments	1,464		26		0		1,490		1,490
Cash and cash equivalents	7,951		268		0		8,219		8,219
Accrued investment income	0		3,193		0		3,193		3,193
Other assets	154		2,917		449		3,520		3,517
Total assets	$	9,608	$	8,873	$	79,286	$	97,767	$	94,145
Liabilities:
Policyholders’ account balances—investment contracts	$	0	$	36,820	$	73,653	$	110,473	$	107,526
Securities sold under agreements to repurchase	0		10,894		0		10,894		10,894
Cash collateral for loaned securities	0		3,499		0		3,499		3,499
Short-term debt	0		794		146		940		925
Long-term debt(4)	644		21,685		1,139		23,468		19,718
Notes issued by consolidated VIEs	0		0		305		305		305
Other liabilities	0		7,626		48		7,674		7,674
Separate account liabilities—investment contracts	0		86,046		23,631		109,677		109,677
Total liabilities	$	644	$	167,364	$	98,922	$	266,930	$	260,218

(1)Excludes amounts for financial instruments reclassified to “Assets held-for-sale” of $7,564 million or “Liabilities held-for-sale” of $99,768 million. See Note 1 for additional information on the pending dispositions.

(2)Carrying values presented herein differ from those in the Company’s Unaudited Interim Consolidated Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or are out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments.

(3)Excludes notes with fair value of $5,727 million (carrying amount of $5,000 million) and $5,821 million (carrying amount of $4,998 million) as of September 30, 2021 and December 31, 2020, respectively, which have been offset with the associated payables under a netting agreement.

(4)Includes notes with fair value of $11,421 million (carrying amount of $10,616 million) and $11,921 million (carrying amount of $10,964 million) as of September 30, 2021 and December 31, 2020, respectively, which have been offset with the associated receivables under a netting agreement.

7. CLOSED BLOCK

On December 18, 2001, the date of demutualization, The Prudential Insurance Company of America (“PICA”) established a closed block for certain in-force participating insurance policies and annuity products, along with corresponding assets used for the payment of benefits and policyholders’ dividends on these products, (collectively the “Closed Block”), and ceased offering these participating products. The recorded assets and liabilities were allocated to the Closed Block at their historical carrying amounts. The Closed Block forms the principal component of the Closed Block division. For additional information on the Closed Block, see Note 15 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.

As of September 30, 2021 and December 31, 2020, the Company recognized a policyholder dividend obligation of $3,908 million and $2,920 million, respectively, to Closed Block policyholders for the excess of actual cumulative earnings over expected cumulative earnings. Additionally, accumulated net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block have been reflected as a policyholder dividend obligation of $3,820 million and $5,867 million at September 30, 2021 and December 31, 2020, respectively, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Closed Block liabilities and assets designated to the Closed Block, as well as maximum future earnings to be recognized from these liabilities and assets, are as follows:


	September 30, 2021		December 31, 2020
	(in millions)
Closed Block liabilities
Future policy benefits	$	45,797	$	46,762
Policyholders’ dividends payable	641		635
Policyholders’ dividend obligation	7,728		8,787
Policyholders’ account balances	4,769		4,874
Other Closed Block liabilities	3,408		3,141
Total Closed Block liabilities	62,343		64,199
Closed Block assets
Fixed maturities, available-for-sale, at fair value	38,147		41,959
Fixed maturities, trading, at fair value	1,189		277
Equity securities, at fair value	2,308		2,345
Commercial mortgage and other loans	8,227		8,421
Policy loans	3,872		4,064
Other invested assets	4,120		3,610
Short-term investments	339		124
Total investments	58,202		60,800
Cash and cash equivalents	790		269
Accrued investment income	426		431
Other Closed Block assets	364		92
Total Closed Block assets	59,782		61,592
Excess of reported Closed Block liabilities over Closed Block assets	2,561		2,607
Portion of above representing accumulated other comprehensive income (loss):
Net unrealized investment gains (losses)	3,716		5,810
Allocated to policyholder dividend obligation	(3,820)		(5,867)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities	$	2,457	$	2,550

Information regarding the policyholder dividend obligation is as follows:


	Nine Months Ended September 30, 2021
	(in millions)
Balance, December 31, 2020	$	8,787

Impact from earnings allocable to policyholder dividend obligation	988
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation	(2,047)
Balance, September 30, 2021	$	7,728

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Closed Block revenues and benefits and expenses are as follows for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Revenues
Premiums	$	419	$	459	$	1,313	$	1,457
Net investment income	654		586		1,876		1,649
Realized investment gains (losses), net	168		18		505		266
Other income (loss)	113		242		644		(43)
Total Closed Block revenues	1,354		1,305		4,338		3,329
Benefits and Expenses
Policyholders’ benefits	599		641		1,885		2,013
Interest credited to policyholders’ account balances	31		32		93		96
Dividends to policyholders	583		532		1,978		955
General and administrative expenses	78		81		236		248
Total Closed Block benefits and expenses	1,291		1,286		4,192		3,312
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes	63		19		146		17
Income tax expense (benefit)	38		4		92		(30)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes	$	25	$	15	$	54	$	47

8. INCOME TAXES

The Company uses a full year projected effective tax rate approach to calculate year-to-date taxes. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected “Total income tax expense” divided by projected “Income before income taxes and equity in earnings of operating joint ventures.” Taxes attributable to operating joint ventures are recorded within “Equity in earnings of operating joint ventures, net of taxes.” The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year.

The Company’s income tax provision, on a consolidated basis, amounted to an income tax expense of $1,504 million, or 18.8% of income (loss) before income taxes and equity in earnings of operating joint ventures, in the first nine months of 2021, compared to an income tax expense of $7 million, or (0.6)%, in the first nine months of 2020. The Company’s current and prior effective tax rates differ from the U.S. statutory rate of 21% primarily due to non-taxable investment income, tax credits, foreign earnings taxed at higher rates than the U.S. statutory rate, and the items discussed below.

On March 27, 2020, the CARES Act was enacted into law. One provision of the CARES Act amended the Tax Cuts and Jobs Act (“TCJA”) and allowed companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. The Company incorporated into the full year projected 2020 effective tax rate an income tax benefit of $325 million that resulted from carrying the estimated 2020 NOL back to tax years that have a 35% tax rate. The projected tax benefit related to the NOL carryback was partially offset by an incremental Global Intangible Low-Taxed Income (“GILTI”) tax expense of $13 million driven by projected overall domestic losses (“ODLs”) which resulted in a reduced GILTI foreign tax credit. The first nine months of 2020 also include a $47 million reduction in income tax expense recorded as a discrete item from the carryback of 2018 NOL and related ODL.

On July 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations which allows an annual election to exclude from the U.S. tax return certain GILTI amounts when the taxes paid by a foreign affiliate exceed 18.9% (90% of U.S. statutory rate of 21%) of the GILTI amount for that foreign affiliate (the “high-tax exception”). These regulations are effective for the 2021 taxable year with an election to apply to any taxable year beginning after 2017. In many of the countries in which we operate, including Japan, there are differences between local tax rules used to determine the tax base and the U.S. tax principles used to determine GILTI. Also, our Japan affiliates have a different tax year than the U.S. calendar tax year used to determine GILTI. Therefore, while many of the countries, including Japan, have a statutory tax rate above the 18.9% threshold, separate affiliates may not meet the 18.9% threshold each year and, as such, may not qualify for this annual exclusion. At this time, the Company anticipates making the high-tax exception election for the 2021 tax year and reflected the

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

impact of the election in its full year projected effective tax rate used to calculate year-to-date taxes for the first nine months of 2021.

The Treasury Department and the IRS also issued Proposed Regulations on July 20, 2020 which would require that, if a high-tax exception election is made with respect to GILTI in any year, an election having the same effect must also be made with regard to income taxed under Subpart F of the Tax Code. Such an election under Subpart F of the Tax Code would apply to the Full Inclusion election made by the Company for its insurance operations in Brazil, thereby increasing the tax rate applied to our Brazil insurance operations. The Proposed Regulations will be effective for taxable years beginning after they are issued in final form.

9. SHORT-TERM AND LONG-TERM DEBT

Short-term Debt

The table below presents the Company’s short-term debt as of the dates indicated:


	September 30, 2021			December 31, 2020
	($ in millions)
Commercial paper:
Prudential Financial	$	25		$	25
Prudential Funding, LLC	347			355
Subtotal commercial paper	372			380

Current portion of long-term debt:
Senior Notes	400			399
Mortgage Debt	130			128
Surplus notes subject to set-off arrangements(1)	500			500
Subtotal current portion of long-term debt	1,030			1,027
Other(2)	7			18
Subtotal	1,409			1,425
Less: assets under set-off arrangements(1)	500			500
Total short-term debt(3)	$	909		$	925
Supplemental short-term debt information:
Portion of commercial paper borrowings due overnight	$	105		$	75
Daily average commercial paper outstanding for the quarter ended	$	1,258		$	1,602
Weighted average maturity of outstanding commercial paper, in days	12			18
Weighted average interest rate on outstanding commercial paper	0.06		%	0.11		%

(1)The surplus notes have corresponding assets where rights to set-off exist, thereby reducing the amount of surplus notes.

(2)Includes $7 million and $18 million drawn on a revolving line of credit held by a subsidiary at September 30, 2021 and December 31, 2020, respectively.

(3)Includes Prudential Financial debt of $425 million and $424 million at September 30, 2021 and December 31, 2020, respectively.

Prudential Financial and certain subsidiaries have access to external sources of liquidity, including membership in the Federal Home Loan Banks, commercial paper programs and contingent financing facilities in the form of a put option agreement and facility agreement. The Company also maintains syndicated, unsecured committed credit facilities as an alternative source of liquidity. At September 30, 2021, no amounts were drawn on these credit facilities. For additional information on these sources of liquidity, see “Credit Facility Extension” below and Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Long-term Debt

The table below presents the Company’s long-term debt as of the dates indicated:

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2021		December 31, 2020
	(in millions)
Fixed-rate obligations:
Surplus notes	$	344	$	343
Surplus notes subject to set-off arrangements(1)	7,786		8,134
Senior notes	10,280		11,179
Mortgage debt	24		24
Floating-rate obligations:
Line of credit	300		300
Surplus notes subject to set-off arrangements(1)	2,330		2,330

Mortgage debt(2)	122		257
Junior subordinated notes(3)	7,617		7,615
Subtotal	28,803		30,182
Less: assets under set-off arrangements(1)	10,116		10,464
Total long-term debt(4)	$	18,687	$	19,718

(1)The surplus notes have corresponding assets where rights to set-off exist, thereby reducing the amount of surplus notes included in long-term debt.

(2)Includes $30 million and $29 million of debt denominated in foreign currency at September 30, 2021 and December 31, 2020, respectively.

(3)Includes Prudential Financial debt of $7,561 million and $7,554 million at September 30, 2021 and December 31, 2020, respectively. Also includes subsidiary debt of $56 million and $60 million denominated in foreign currency at September 30, 2021 and December 31, 2020, respectively.

(4)Includes Prudential Financial debt of $17,668 million and $18,561 million at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021 and December 31, 2020, the Company was in compliance with all debt covenants related to the borrowings in the table above.

Senior Debt Redemption

On August 30, 2021, the Company redeemed, at a make-whole redemption price, $700 million principal amount of its 3.500% medium-term notes due 2024 (representing the entire principal amount) and $210 million of the outstanding $600 million principal amount of its 3.878% medium-term notes due 2028. In addition to the total principal redemption of $910 million, the Company made a make-whole payment of $91 million, which is reflected in “General and administrative expenses”.

Credit Facility Extension

On July 28, 2021, the Company amended and restated its $4.0 billion five-year credit facility that has both Prudential Financial and Prudential Funding as borrowers and a syndicate of financial institutions as lenders, extending the term of the facility to July 2026. Borrowings under the credit facility may be used for general corporate purposes, and the Company expects that it may borrow under the facility from time to time to fund its working capital needs and those of its subsidiaries. In addition, amounts under the credit facility may be drawn in the form of standby letters of credit that can be used to meet the operating needs of the Company and its subsidiaries. The credit facility contains customary representations and warranties, covenants and events of default, and borrowings are not contingent on the borrowers’ credit ratings nor subject to material adverse change clauses. Borrowings under the facility are conditioned on the continued satisfaction of customary conditions, including the Company’s maintenance of consolidated net worth of at least $23.5 billion, which is calculated as U.S. GAAP equity, excluding AOCI, equity of noncontrolling interests and equity attributable to the Closed Block. The amended and restated facility also includes certain sustainability-linked pricing adjustments, by which the applicable interest rate margins and commitment fee may be decreased or increased if the Company achieves, or fails to achieve, certain specified targets relating to its reduction of domestic greenhouse gas emissions and its increase in diversity among its senior leaders.

10. EMPLOYEE BENEFIT PLANS

Pension and Other Postretirement Plans

The Company has funded and non-funded non-contributory defined benefit pension plans (“Pension Benefits”), which cover substantially all of its employees. For some employees, benefits are based on final average earnings and length of service, while benefits for other employees are based on an account balance that takes into consideration age, length of service and earnings during their career.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The Company provides certain health care and life insurance benefits for its retired employees, their beneficiaries and covered dependents (“Other Postretirement Benefits”). The health care plan is contributory; the life insurance plan is non-contributory. Substantially all of the Company’s U.S. employees may become eligible to receive other postretirement benefits if they retire after age 55 with at least 10 years of service or under certain circumstances after age 50 with at least 20 years of continuous service.

Net periodic (benefit) cost included in “General and administrative expenses” includes the following components:


	Three Months Ended September 30,
	Pension Benefits				Other Postretirement Benefits
	2021		2020		2021		2020
	(in millions)
Components of net periodic (benefit) cost:
Service cost	$	82	$	80	$	7	$	6
Interest cost	91		108		12		15
Expected return on plan assets	(206)		(201)		(26)		(25)
Amortization of prior service cost	(1)		(1)		2		2
Amortization of actuarial (gain) loss, net	61		65		4		4
Settlements	1		(1)		0		0
Special termination benefits(1)	0		5		0		0
Net periodic (benefit) cost	$	28	$	55	$	(1)	$	2

	Nine Months Ended September 30,
	Pension Benefits				Other Postretirement Benefits
	2021		2020		2021		2020
	(in millions)
Components of net periodic (benefit) cost:
Service cost	$	247	$	241	$	20	$	18
Interest cost	273		323		36		47
Expected return on plan assets	(618)		(604)		(76)		(75)
Amortization of prior service cost	(3)		(3)		5		5
Amortization of actuarial (gain) loss, net	184		196		12		12
Settlements	3		3		0		0
Special termination benefits(1)	1		7		0		0
Net periodic (benefit) cost	$	87	$	163	$	(3)	$	7

(1)For 2021 and 2020, certain employees were provided special termination benefits under non-qualified plans in the form of unreduced early retirement benefits as a result of their involuntary termination or participation in the Voluntary Separation Program that was offered to eligible U.S.-based employees in 2019.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

11. EQUITY

The changes in the number of shares of Common Stock issued, held in treasury and outstanding, are as follows for the periods indicated:


	Common Stock
	Issued	Held In Treasury	Outstanding
	(in millions)
Balance, December 31, 2020	666.3	269.9	396.4
Common Stock issued	0.0	0.0	0.0
Common Stock acquired	0.0	21.1	(21.1)
Stock-based compensation programs(1)	0.0	(3.6)	3.6
Balance, September 30, 2021	666.3	287.4	378.9

(1)Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.

In February 2021, Prudential Financial’s Board of Directors (the “Board”) authorized the Company to repurchase at management’s discretion up to $1.5 billion of its outstanding Common Stock during the period from January 1, 2021 through December 31, 2021. In May 2021, the Board authorized a $500 million increase to this authorization, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.0 billion. In July 2021, the Board further increased this authorization by an additional $500 million, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.5 billion. As of September 30, 2021, 21.1 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $2,125 million.

The timing and amount of share repurchases are determined by management based upon market conditions and other considerations, and repurchases may be executed in the open market, through derivative, accelerated repurchase and other negotiated transactions and through prearranged trading plans complying with Rule 10b5-1(c) under the Securities Exchange Act of 1934 (the “Exchange Act”). Numerous factors could affect the timing and amount of any future repurchases under the share repurchase authorization, including, but not limited to: compliance with laws, increased capital needs of the Company due to changes in regulatory capital requirements, opportunities for growth and acquisitions, and the effect of adverse market conditions.

Dividends declared per share of Common Stock are as follows for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Dividends declared per share of Common Stock	$	1.15	$	1.10	$	3.45	$	3.30

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Accumulated Other Comprehensive Income (Loss)

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


	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)		Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2020	$	52	$	34,065	$	(3,379)	$	30,738
Change in OCI before reclassifications	(816)		(8,331)		41		(9,106)
Amounts reclassified from AOCI	(64)		(2,184)		198		(2,050)
Income tax benefit (expense)	(63)		2,374		(57)		2,254
Balance, September 30, 2021	$	(891)	$	25,924	$	(3,197)	$	21,836


	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)		Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2019	$	(536)	$	28,112	$	(3,537)	$	24,039
Change in OCI before reclassifications	69		7,939		8		8,016
Amounts reclassified from AOCI	46		(1,045)		210		(789)
Income tax benefit (expense)	73		(1,289)		(49)		(1,265)
Balance, September 30, 2020	$	(348)	$	33,717	$	(3,368)	$	30,001

(1)Includes cash flow hedges of $867 million and $(168) million as of September 30, 2021 and December 31, 2020, respectively, and $1,407 million and $832 million as of September 30, 2020 and December 31, 2019, respectively, and fair value hedges of $(29) million and $10 million as of September 30, 2021 and December 31, 2020, respectively, and $(1) million and $0 million as of September 30, 2020 and December 31, 2019, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


	Three Months Ended September 30,				Nine Months Ended September 30,				Affected line item in Consolidated Statements of Operations
	2021		2020		2021		2020
	(in millions)
Amounts reclassified from AOCI(1)(2):
Foreign currency translation adjustment:
Foreign currency translation adjustments	$	1	$	(2)	$	1	$	(7)	Realized investment gains (losses), net
Foreign currency translation adjustments	0		(39)		63		(39)		Other income (loss)
Total foreign currency translation adjustment	1		(41)		64		(46)
Net unrealized investment gains (losses):
Cash flow hedges—Interest rate	(7)		19		7		27		(3)
Cash flow hedges—Currency	(1)		0		(4)		4		(3)
Cash flow hedges—Currency/Interest rate	230		(77)		435		343		(3)
Fair value hedges—Currency	(1)		0		(4)		0		(3)
Net unrealized investment gains (losses) on available-for-sale securities	221		401		1,750		671		Realized investment gains (losses), net
Total net unrealized investment gains (losses)	442		343		2,184		1,045		(4)
Amortization of defined benefit pension items:
Prior service cost	(1)		(1)		(2)		(2)		(5)
Actuarial gain (loss)	(65)		(69)		(196)		(208)		(5)
Total amortization of defined benefit pension items	(66)		(70)		(198)		(210)
Total reclassifications for the period	$	377	$	232	$	2,050	$	789

(1)All amounts are shown before tax.

(2)Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.

(3)See Note 5 for additional information on cash flow and fair value hedges.

(4)See table below for additional information on unrealized investment gains (losses), including the impact on deferred policy acquisition and other costs, future policy benefits and policyholders’ dividends.

(5)See Note 10 for information on employee benefit plans.

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains (losses) on available-for-sale fixed maturity securities and certain other invested assets and other assets are included in the Company’s Unaudited Interim Consolidated Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from “Other comprehensive income (loss)” those items that are included as part of “Net income (loss)” for a period that had been part of “Other comprehensive income (loss)” in earlier periods. The amounts for the periods indicated below, split between amounts related to net unrealized investment gains (losses) on available-for-sale fixed maturity securities on which an allowance for credit losses has been recognized, and all other net unrealized investment gains (losses), are as follows:

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Net Unrealized Investment Gains (Losses) on Available-for-Sale Fixed Maturity Securities on Which an Allowance for Credit Losses has been Recognized		Net Unrealized Gains (Losses) on All Other Investments(1)		DAC, DSI, VOBA and Reinsurance Recoverables		Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables		Policyholders’ Dividends		Income Tax Benefit (Expense)		Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2020	$	(25)	$	58,442	$	(1,229)	$	(6,588)	$	(5,892)	$	(10,643)	$	34,065
Net investment gains (losses) on investments arising during the period	36		(14,373)								3,157		(11,180)
Reclassification adjustment for (gains) losses included in net income	11		(2,195)								481		(1,703)
Reclassification due to allowance for credit losses recorded during the period	0		0								0		0
Impact of net unrealized investment (gains) losses					573		3,381		2,052		(1,264)		4,742
Balance, September 30, 2021	$	22	$	41,874	$	(656)	$	(3,207)	$	(3,840)	$	(8,269)	$	25,924

(1)Includes cash flow and fair value hedges. See Note 5 for information on cash flow and fair value hedges.

12. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the basic and diluted per share computations of Common Stock based on the consolidated earnings of Prudential Financial for the periods indicated is as follows:


	Three Months Ended September 30,
	2021					2020
	Income		Weighted Average Shares	Per Share Amount		Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)
Basic earnings per share
Net income (loss)	$	1,565				$	1,507
Less: Income (loss) attributable to noncontrolling interests	35					20
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	24					18
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	1,506	383.8	$	3.92	$	1,469	395.3	$	3.72
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	24				$	18
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	23					18
Stock options			0.8					0.3
Deferred and long-term compensation programs			2.2					1.5
Diluted earnings per share
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	1,507	386.8	$	3.90	$	1,469	397.1	$	3.70

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30,
	2021					2020
	Income		Weighted Average Shares	Per Share Amount		Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)
Basic earnings per share
Net income (loss)	$	6,552				$	(1,168)
Less: Income (loss) attributable to noncontrolling interests	36					25
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	99					16
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	6,417	390.4	$	16.44	$	(1,209)	395.6	$	(3.06)
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	99				$	16
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	98					16
Stock options			0.7					0.0
Deferred and long-term compensation programs			2.1					0.0
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	6,418	393.2	$	16.32	$	(1,209)	395.6	$	(3.06)

(1)For the nine months ended September 30, 2020, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share because dilutive shares and dilutive earnings per share are not applicable when a net loss is reported. As a result of the net loss attributable to Prudential Financial available to holders of Common Stock for the nine months ended September 30, 2020, all potential stock options and compensation programs were considered antidilutive.

Unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and included in the computation of earnings per share pursuant to the two-class method. Under this method, earnings attributable to Prudential Financial are allocated between Common Stock and the participating awards, as if the awards were a second class of stock. During periods of net income available to holders of Common Stock, the calculation of earnings per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. In the event of a net loss available to holders of Common Stock, undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these securities as they do not share in the losses of the Company. Undistributed earnings allocated to participating unvested share-based payment awards for the three months ended September 30, 2021 and 2020, as applicable, were based on 5.7 million and 4.9 million of such awards, respectively, and for the nine months ended September 30, 2021 and 2020, as applicable, were based on 5.9 million and 5.0 million of such awards, respectively, weighted for the period they were outstanding.

Stock options and shares related to deferred and long-term compensation programs that are considered antidilutive are excluded from the computation of diluted earnings per share. Stock options are considered antidilutive based on application of the treasury stock method or in the event of a net loss available to holders of Common Stock. Shares related to deferred and long-term compensation programs are considered antidilutive in the event of a net loss available to holders of Common Stock. For the periods indicated, the number of stock options and shares related to deferred and long-term compensation programs that were considered antidilutive and were excluded from the computation of diluted earnings per share, weighted for the portion of the period they were outstanding, are as follows:

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30,
	2021			2020
	Shares	Exercise Price Per Share		Shares	Exercise Price Per Share
	(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method	0.9	$	106.99	3.2	$	84.17
Antidilutive stock options due to net loss available to holders of Common Stock	0.0			0.0
Antidilutive shares based on application of the treasury stock method	0.0			0.2
Antidilutive shares due to net loss available to holders of Common Stock	0.0			0.0
Total antidilutive stock options and shares	0.9			3.4


	Nine Months Ended September 30,
	2021			2020
	Shares	Exercise Price Per Share		Shares	Exercise Price Per Share
	(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method	1.3	$	101.78	3.4	$	80.64
Antidilutive stock options due to net loss available to holders of Common Stock	0.0			0.4
Antidilutive shares based on application of the treasury stock method	0.0			0.2
Antidilutive shares due to net loss available to holders of Common Stock	0.0			1.6
Total antidilutive stock options and shares	1.3			5.6

13. SEGMENT INFORMATION

Segments

Adjusted Operating Income

The Company analyzes the operating performance of each segment using “adjusted operating income.” Adjusted operating income does not equate to “Income (loss) before income taxes and equity in earnings of operating joint ventures” or “Net income (loss)” as determined in accordance with U.S. GAAP but is the measure of segment profit or loss used by the Company’s chief operating decision maker to evaluate segment performance and allocate resources, and consistent with authoritative guidance, is the measure of segment performance presented below. Adjusted operating income is calculated by adjusting each segment’s “Income (loss) before income taxes and equity in earnings of operating joint ventures” for the following items:

Realized investment gains (losses), net, and related adjustments;
Charges related to realized investment gains (losses), net;
Market experience updates;
Divested and Run-off Businesses;
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests; and
Other adjustments.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

These items are important to an understanding of overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and the Company’s definition of adjusted operating income may differ from that used by other companies. The Company, however, believes that the presentation of adjusted operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of its businesses. For additional information on these reconciling items, see Note 22 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The Company has historically reflected the results of its variable annuities hedging programs in adjusted operating income over time. Beginning with the second quarter of 2020, these impacts are excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

Reconciliation of adjusted operating income to net income (loss)

The table below reconciles “Adjusted operating income before income taxes” to “Income (loss) before income taxes and equity in earnings of operating joint ventures”:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020(1)		2021(1)		2020(1)
	(in millions)
Adjusted operating income before income taxes by segment:
PGIM	$	327	$	370	$	1,293	$	858
U.S. Businesses:
Retirement	571		347		1,635		860
Group Insurance	(135)		22		(250)		71
Individual Annuities(2)	499		408		1,415		1,030
Individual Life	210		101		312		17
Assurance IQ	(55)		(30)		(132)		(69)
Total U.S. Businesses	1,090		848		2,980		1,909
International Businesses	887		775		2,561		2,162
Corporate and Other	(460)		(493)		(1,118)		(1,446)
Total segment adjusted operating income before income taxes	1,844		1,500		5,716		3,483
Reconciling items:
Realized investment gains (losses), net, and related adjustments	116		236		1,765		(2,758)
Charges related to realized investment gains (losses), net	(18)		(69)		(254)		(353)
Market experience updates	(199)		(134)		330		(1,016)
Divested and Run-off Businesses:
Closed Block division	27		8		92		(15)
Other Divested and Run-off Businesses	48		(83)		432		(567)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(3)		1		(53)		(62)
Other adjustments(3)	(9)		(12)		(35)		65
Income (loss) before income taxes and equity in earnings of operating joint ventures per Unaudited Interim Consolidated Financial Statements	$	1,806	$	1,447	$	7,993	$	(1,223)

(1)Effective second quarter of 2020, the results of POK and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2020, the results of POT and the impact of its sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Effective third quarter of 2021, the results of the Full Service Retirement business are excluded from the Retirement segment and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 for additional information about these dispositions.

(2)Individual Annuities segment results reflect DAC as if the Individual Annuities business is a stand-alone operation. The elimination of intersegment costs capitalized in accordance with this policy is included in consolidating adjustments within Corporate and Other operations.

(3)Includes certain components of consideration for business acquisitions, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of associated contingent consideration. See Note 14 for additional information.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reconciliation of select financial information

The tables below present certain financial information for the Company’s segments and its Corporate and Other operations, including assets by segment and revenues by segment on an adjusted operating income basis, and the reconciliation of the segment totals to amounts reported in the Consolidated Financial Statements.



	September 30, 2021		December 31, 2020
	(in millions)
Assets by segment:
PGIM	$	51,860	$	48,680
U.S. Businesses:
Retirement(1)	116,568		115,237
Group Insurance	43,792		45,601
Individual Annuities(2)	196,571		200,718
Individual Life	115,419		110,953
Assurance IQ	2,747		2,703
Total U.S. Businesses	475,097		475,212
International Businesses	223,812		231,128
Corporate and Other(1)(2)	121,591		123,613
Closed Block division	60,222		62,089
Total assets per Unaudited Interim Consolidated Financial Statements	$	932,582	$	940,722

(2)Certain assets are classified as “held-for-sale” as of September 30, 2021. See Note 1 for additional information about the pending dispositions.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020(1)		2021(1)		2020(1)
	(in millions)
Revenues on an adjusted operating income basis:
PGIM	$	1,072	$	1,066	$	3,395	$	2,801
U.S. Businesses:
Retirement	8,386		2,193		12,658		6,647
Group Insurance	1,553		1,457		4,627		4,352
Individual Annuities	1,260		1,148		3,687		3,249
Individual Life	1,839		1,609		5,090		4,702
Assurance IQ	110		75		331		194
Total U.S. Businesses	13,148		6,482		26,393		19,144
International Businesses	5,618		5,481		16,642		16,201
Corporate and Other	(175)		(162)		(393)		(459)
Total revenues on an adjusted operating income basis	19,663		12,867		46,037		37,687
Reconciling items:
Realized investment gains (losses), net, and related adjustments	178		312		2,070		(2,855)
Charges related to realized investment gains (losses), net	(59)		(40)		(178)		(121)
Market experience updates	(56)		(58)		158		(406)
Divested and Run-off Businesses:
Closed Block division	1,321		1,301		4,299		3,318
Other Divested and Run-off Businesses	617		1,060		2,196		3,362
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(23)		(17)		(72)		(86)
Other adjustments(2)	0		0		0		105
Total revenues per Unaudited Interim Consolidated Financial Statements	$	21,641	$	15,425	$	54,510	$	41,004

(2)Includes certain components of consideration for business acquisitions, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of associated contingent consideration. See Note 14 for additional information.

Intersegment revenues

Management has determined the intersegment revenues with reference to market rates. Intersegment revenues are eliminated in consolidation in Corporate and Other operations. The PGIM segment revenues include intersegment revenues, primarily consisting of asset-based management and administration fees, as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
PGIM segment intersegment revenues	$	248	$	215	$	697	$	640

Segments may also enter into internal derivative contracts with other segments. For adjusted operating income, each segment accounts for the internal derivative results consistent with the manner in which that segment accounts for other similar external derivatives.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Asset management and service fees

The table below presents asset management and service fees, predominantly related to investment management activities, for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Asset-based management fees	$	1,047	$	930	$	3,058	$	2,644
Performance-based incentive fees	19		43		70		73
Other fees	163		147		475		427
Total asset management and service fees	$	1,229	$	1,120	$	3,603	$	3,144

14. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments and Guarantees

Commercial Mortgage Loan Commitments


	September 30, 2021		December 31, 2020
	(in millions)
Total outstanding mortgage loan commitments(1)	$	3,046	$	2,357
Portion of commitment where prearrangement to sell to investor exists	$	1,122	$	882

(1)Includes commitments of $374 million related to held-for-sale operations as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

In connection with the Company’s commercial mortgage operations, it originates commercial mortgage loans. Commitments for loans that will be held for sale are recognized as derivatives and recorded at fair value. In certain of these transactions, the Company pre-arranges that it will sell the loan to an investor, including to government sponsored entities as discussed below, after the Company funds the loan. The above amount includes unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was an allowance for credit losses of $1 million as of September 30, 2021 and $0 million as of December 31, 2020. The change in allowance is $0 million and a reduction of $1 million for the three months ended September 30, 2021 and 2020, respectively, and $0 million and a reduction of $1 million for the nine months ended September 30, 2021 and 2020, respectively.

Commitments to Purchase Investments (excluding Commercial Mortgage Loans)


	September 30, 2021		December 31, 2020
	(in millions)
Expected to be funded from the general account and other operations outside the separate accounts(1)	$	9,699	$	9,567
Expected to be funded from separate accounts(2)	$	341	$	336

(1)Includes commitments of $724 million related to held-for-sale operations as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

(2)Includes commitments of $28 million related to held-for-sale operations as of September 30, 2021. See Note 1 for additional information on the pending dispositions.

The Company has other commitments to purchase or fund investments, some of which are contingent upon events or circumstances not under the Company’s control, including those at the discretion of the Company’s counterparties. The Company anticipates a portion of these commitments will ultimately be funded from its separate accounts. The above amount includes unfunded commitments that are not unconditionally cancellable. There were no related charges for credit losses for either the three or nine months ended September 30, 2021 or 2020.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Indemnification of Securities Lending and Securities Repurchase Transactions


	September 30, 2021		December 31, 2020
	(in millions)
Indemnification provided to certain clients for securities lending and securities repurchase transactions(1)	$	8,595	$	7,108
Fair value of related collateral associated with above indemnifications(1)	$	8,784	$	7,254
Accrued liability associated with guarantee	$	0	$	0

(1)Includes $63 million and $34 million related to securities repurchase transactions as of September 30, 2021 and December 31, 2020, respectively.

In the normal course of business, the Company may facilitate securities lending or securities repurchase transactions on behalf of certain client accounts (collectively, “the accounts”). In certain of these arrangements, the Company has provided an indemnification to the accounts to hold them harmless against losses caused by counterparty (i.e., borrower) defaults associated with such transactions facilitated by the Company. In securities lending transactions, collateral is provided by the counterparty to the accounts at the inception of the transaction in an amount at least equal to 102% of the fair value of the loaned securities and the collateral is maintained daily to equal at least 102% of the fair value of the loaned securities. In securities repurchase transactions, collateral is provided by the counterparty to the accounts at the inception of the transaction in an amount at least equal to 95% of the fair value of the securities subject to repurchase and the collateral is maintained daily to equal at least 95% of the fair value of the securities subject to repurchase. The Company is only at risk if the counterparty to the transaction defaults and the value of the collateral held is less than the value of the securities loaned to, or subject to repurchase from, such counterparty. The Company believes the possibility of any payments under these indemnities is remote.

Credit Derivatives Written

As discussed further in Note 5, the Company writes credit derivatives under which the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the defaulted security or similar security.

Guarantees of Asset Values


	September 30, 2021		December 31, 2020
	(in millions)
Guaranteed value of third-parties’ assets	$	83,200	$	86,264
Fair value of collateral supporting these assets	$	86,176	$	90,612
Asset (liability) associated with guarantee, carried at fair value	$	1	$	0

Certain contracts underwritten by the Retirement segment include guarantees related to financial assets owned by the guaranteed party. These contracts are accounted for as derivatives and carried at fair value. The collateral supporting these guarantees is not reflected on the Unaudited Interim Consolidated Statements of Financial Position.

Indemnification of Serviced Mortgage Loans


	September 30, 2021		December 31, 2020
	(in millions)
Maximum exposure under indemnification agreements for mortgage loans serviced by the Company	$	2,917	$	2,684
First-loss exposure portion of above	$	850	$	784
Accrued liability associated with guarantees(1)	$	41	$	41

(1)The accrued liability associated with guarantees includes an allowance for credit losses of $20 million as of both September 30, 2021 and December 31, 2020. The change in allowance is an increase of $1 million for both the three months ended September 30, 2021, and 2020, and a change of $0 million for both the nine months ended September 30, 2021 and 2020.

As part of the commercial mortgage activities of the Company’s PGIM segment, the Company provides commercial mortgage origination, underwriting and servicing for certain government sponsored entities, such as Fannie Mae and Freddie Mac. The Company has agreed to indemnify the government sponsored entities for a portion of the credit risk associated with

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

certain of the mortgages it services through a delegated authority arrangement. Under these arrangements, the Company originates multi-family mortgages for sale to the government sponsored entities based on underwriting standards they specify, and makes payments to them for a specified percentage share of losses they incur on certain loans serviced by the Company. The Company’s percentage share of losses incurred generally varies from 4% to 20% of the loan balance, and is typically based on a first-loss exposure for a stated percentage of the loan balance, plus a shared exposure with the government sponsored entity for any losses in excess of the stated first-loss percentage, subject to a contractually specified maximum percentage. The Company determines the liability related to this exposure using historical loss experience, and the size and remaining life of the asset. The Company serviced $22,867 million and $21,465 million of mortgages subject to these loss-sharing arrangements as of September 30, 2021 and December 31, 2020, respectively, all of which are collateralized by first priority liens on the underlying multi-family residential properties. As of September 30, 2021, these mortgages had a weighted-average debt service coverage ratio of 1.97 times and a weighted-average loan-to-value ratio of 63%. As of December 31, 2020, these mortgages had a weighted-average debt service coverage ratio of 1.99 times and a weighted-average loan-to-value ratio of 63%. The Company had $2 million of losses related to indemnifications that were settled for the nine months ended September 30, 2021 and no losses for the nine months ended September 30, 2020.

Other Guarantees


	September 30, 2021		December 31, 2020
	(in millions)
Other guarantees where amount can be determined	$	52	$	52
Accrued liability for other guarantees and indemnifications	$	34	$	0

The Company is also subject to other financial guarantees and indemnity arrangements. The Company has provided indemnities and guarantees related to acquisitions, dispositions, investments and other transactions that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable. As of September 30, 2021 and December 31, 2020, there are $0 million and $9 million, respectively, of yield maintenance guarantees related to certain investments the Company sold. The Company does not expect to make any payments on these guarantees and is not carrying any liabilities associated with these guarantees.

Since certain of these obligations are not subject to limitations, it is not possible to determine the maximum potential amount due under these guarantees. The accrued liability identified above relates to the sale of POT and represents a financial guarantee of certain insurance obligations of POT. See Note 1 for additional information regarding the sale.

Assurance IQ Contingent Consideration Liability

On October 10, 2019, the Company completed its acquisition of Assurance IQ, a leading consumer solutions platform that offers a range of solutions that help meet consumers’ financial needs. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Pursuant to the merger agreement, contingent consideration as well as additional compensation awards are payable in 2023 in a mix of approximately 25% cash and 75% Prudential Financial Common Stock, contingent upon Assurance IQ’s achievement of certain targets for gross revenues net of associated selling expenses (“Variable Profits”) over the period from January 1, 2020 through December 31, 2022 as follows:

If Variable Profits are less than $900 million, no additional amount is payable.
If Variable Profits are greater than $1,300 million, an additional amount of $1,150 million is payable.
If Variable Profits are greater than $900 million but less than or equal to $1,300 million, an additional amount is payable equal to the product of (i) the quotient of (A) an amount equal to (1) Variable Profits achieved minus (2) $900 million divided by (B) $400 million and (ii) $1,150 million.

Payment of the additional amount may be accelerated if the Company violates certain provisions of the merger agreement requiring it to take or refrain from taking certain actions, including with respect to the management and operation of Assurance IQ.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The contingent consideration liability referred to above is reported at fair value. Fair value is determined based on the present value of expected payments under the arrangement described above, using an internally developed option pricing model based on a number of assumptions, including certain unobservable assumptions for future Variable Profits and the future price of Prudential Financial Common Stock. The fair value of the liability is updated each reporting period, with changes in fair value reported within “Other income.” The fair value of the contingent consideration liability was zero as of September 30, 2021 and December 31, 2020. The stock-based component of contingent consideration impacts the share count for purposes of calculating the Company’s diluted earnings per share when Assurance IQ’s actual Variable Profits achieved as of the end of the reporting period is in excess of $900 million, as if the contingent consideration performance period ended on the applicable reporting date. The number of shares issued as part of the contingent consideration payable in 2023 will be based on a $83.71 price per share.

Contingent Liabilities

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

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

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

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions include proceedings relating to aspects of the Company’s businesses and operations that are specific to it and proceedings that are typical of the businesses in which it operates, including in both cases businesses that have been either divested or placed in wind-down status. Some of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of litigation or a regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed, including matters discussed below. The Company estimates that as of September 30, 2021, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $250 million. Any estimate is not an indication of expected loss, if any, or the Company’s maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 23 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

Individual Annuities, Individual Life and Group Insurance

Behfarin v. Pruco Life

This matter is now closed.

Moreland, Socorro v. PICA, et al.

In June 2020, a putative class action complaint entitled Socorro Moreland v. The Prudential Insurance Company of America; Pruco Life Insurance Company, was filed in the United States District Court for the Northern District of California, alleging that the Company failed to comply with California laws requiring that life insurance policies issued and delivered in California: (i) provide for a 60-day grace period pre-lapse during which a policy must stay in force; (ii) provide a 30-day written notice of pending lapse; and (iii) notify policyowners of their right to designate additional recipients for lapse notices. The complaint asserts claims for violation of California law, breach of contract, unfair competition, and bad faith violation of the implied covenant of good faith and fair dealing, and seeks unspecified damages, declaratory and injunctive relief. In August 2020, defendants filed an answer to the complaint and a motion to stay the action pending the California Supreme Court’s decision, in McHugh v. Protective Life Insurance, on the question of whether the California lapse statutes apply to policies that were in force when the statutes went into effect on January 1, 2013, or solely to policies issued after that date. The Moreland court granted defendants’ motion to stay in October 2020. Subsequently, in August 2021, the California Supreme Court in McHugh determined that the California lapse statutes apply to policies that were in force as of January 1, 2013. In October 2021, the Moreland court lifted the stay order.

Escheatment Litigation

Total Asset Recovery Services, LLC v. MetLife, Inc., et al., Prudential Financial, Inc., The Prudential Insurance Company of America, and Prudential Insurance Agency, LLC

In March 2021, the plaintiff filed a third amended complaint asserting claims against all defendants for violation of the New York False Claims Act, and seeking injunctive relief, compensatory and treble damages, attorneys’ fees and costs.

Securities Litigation

Donel Davidson v. Charles F. Lowrey, et al.

In March 2021, the court issued an order consolidating this action with Robert Lalor, Derivatively on behalf of Prudential Financial, Inc. v. Charles F. Lowrey, et al. under the caption In re Prudential Financial, Inc. Derivative Litigation. In May 2021, the Company filed a motion to dismiss the complaint.

Robert Lalor v. Charles F. Lowrey, et al.

In March 2021, the court issued an order consolidating this action with Donel Davidson, Derivatively on Behalf of Prudential Financial, Inc. v. Charles F. Lowrey, et al. under the caption In re Prudential Financial, Inc. Derivative Litigation. Case updates will be consolidated with the Donel Davidson action.

Assurance IQ, LLC

The Company has received a civil investigative demand and other inquiries related to the appropriateness of Assurance IQ’s supplemental health product sales and marketing activity. The Company is cooperating with regulators and may become subject to additional regulatory inquiries and other investigations and actions related to this matter.

William James Griffin, et al. v. Benefytt Technologies, Inc., et al. and Assurance IQ, LLC

In February 2021, an amended putative class action complaint entitled William James Griffin, et al. v. Benefytt Technologies, Inc. (f/k/a Health Insurance Innovations, Inc.), Health Plan Intermediaries Holdings, Inc. and Assurance IQ, LLC, was filed in the United States District Court for the Southern District of Florida, alleging that the defendants violated the Racketeering Influenced and Corrupt Organizations Act, and engaged in a conspiracy to defraud customers through the sale of limited indemnity and short term health insurance products to individuals seeking comprehensive medical insurance. The

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

complaint seeks unspecified treble damages, declaratory and injunctive relief. In June 2021, the Company filed a motion to dismiss the amended complaint.

Other Matters

Cho v. PICA, et al.

In September 2021, the court granted defendants’ motion to dismiss the amended complaint without prejudice. In October 2021, plaintiff filed a second amended complaint asserting claims against defendants under the Employee Retirement Income Security Act of 1974 for breach of fiduciary duty, prohibited transactions and failure to monitor fiduciaries. The second amended complaint seeks declaratory, injunctive and equitable relief, unspecified damages, attorneys’ fees and costs.

Doyle C. Stone v. PFI, et al.

In April 2021, defendants filed a motion to dismiss the complaint. In June 2021, plaintiff filed a notice of voluntary dismissal of the complaint, without prejudice. In August 2021, plaintiff filed a new putative class action complaint in the United States District Court for the District of New Jersey (the “Second Complaint”), asserting claims against Prudential Financial, Inc. and Pruco Life Insurance Company for violation of the New Jersey Consumer Fraud Act, breach of fiduciary duty, unjust enrichment and common law fraud. The putative class includes all Plan Participants from January 2015 until the present. In September 2021, defendants filed a motion to dismiss the Second Complaint.

Regulatory

Variable Products

The Company has received regulatory inquiries and requests for information from state and federal regulators, including a subpoena from the U.S. Securities and Exchange Commission, concerning the appropriateness of variable product sales and replacement activity. The Company is cooperating with regulators and may become subject to additional regulatory inquiries and other actions related to this matter.

Summary

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

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