Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS


			Page
Overview			80
COVID-19			80
Impact of a Low Interest Rate Environment			82
Results of Operations			85
Consolidated Results of Operations			85
Segment Results of Operations			86
Segment Measures			88
Impact of Foreign Currency Exchange Rates			89
Accounting Policies & Pronouncements			92
Results of Operations by Segment			93
PGIM			93
U.S. Businesses			98
Retirement			99
Group Insurance			100
Individual Annuities			102
Individual Life			108
Assurance IQ			110
International Businesses			110
Corporate and Other			116
Divested and Run-off Businesses			116
Closed Block Division			117
Income Taxes			119
Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments			119
Valuation of Assets and Liabilities			121
General Account Investments			123
Liquidity and Capital Resources			143
Ratings			154
Off-Balance Sheet Arrangements			155

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the consolidated financial condition of Prudential Financial, Inc. (“Prudential,” “Prudential Financial,” “PFI,” or “the Company”) as of September 30, 2021, compared with December 31, 2020, and its consolidated results of operations for the three and nine months ended September 30, 2021 and 2020. You should read the following analysis of our consolidated financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section, and the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as well as the statements under “Forward-Looking Statements,” and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

Prudential Financial, a financial services leader with approximately $1.727 trillion of assets under management as of September 30, 2021, has operations primarily in the United States of America (“U.S.”), Asia, Europe and Latin America. Through our subsidiaries and affiliates, we offer a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. We offer these products and services to individual and institutional customers through one of the largest distribution networks in the financial services industry.

Our principal operations consist of PGIM (our global investment management business), our U.S. Businesses (consisting of our Retirement, Group Insurance, Individual Annuities, Individual Life and Assurance IQ businesses), our International Businesses, the Closed Block division, and our 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. 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 generally accepted accounting principles in the United States of America (“U.S. GAAP”). Our 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.

We attribute financing costs to each segment based on the amount of financing used by each segment, excluding financing costs associated with corporate debt, which are reflected in our Corporate and Other operations. The net investment income of each segment includes earnings on the amount of capital that management believes is necessary to support the risks of that segment.

In October 2021, we announced the creation of Retirement Strategies, a new U.S. business that will serve the retirement needs of both individual and institutional customers. This business will bring the financial solutions and capabilities of our Individual Annuities business together with the institutional investment and pension solutions offered through our Retirement business. During the fourth quarter of 2021, the new leadership team is being assembled and will be making decisions around the business’s operating structure. When this new structure is finalized and operational, the presentation of our segment results may be modified to conform to this new structure.

Management expects that results will continue to benefit from our differentiated mix of market-leading businesses that complement each other to provide competitive advantages, earnings diversification and capital benefits from a balanced risk profile. While challenges exist in the form of a low interest rate environment (see “Impact of a Low Interest Rate Environment” below), fee compression in certain of our businesses and other market factors, we expect that our businesses will produce appropriate returns for the current market environment. We believe we are well-positioned to tap into market opportunities to meet the evolving needs of individual customers, workplace clients, and society at large. Our mix of high-quality protection, retirement and investment management businesses enables us to offer solutions that cover a broad range of financial needs and to engage with our clients through multiple channels, including the ability to sell solutions across a broad socio-economic spectrum through Assurance IQ’s digital platform. We aim to expand our addressable market, build deeper and longer-lasting relationships with customers and clients, and meaningfully improve their financial wellness.

In order to further increase our competitive advantage, we are working to enhance the experience of our customers and the capabilities of our businesses, which we expect will also help us realize improved margins. In 2019, we launched programs in pursuit of these objectives that will result in multi-year investments in technology, systems and employee reskilling, as well as severance and related charges, which we expect will result in significant expense efficiencies over the next several years. For the three and nine months ended September 30, 2021, the Company estimates that the impact to results from these programs was a benefit of $146 million and $388 million, respectively, and, as of September 30, 2021, we continue to remain on track to accumulate approximately $750 million of annual run-rate cost savings by the end of 2023.

COVID-19

Since the first quarter of 2020, the novel coronavirus (“COVID-19”) has created extreme stress and disruption in the global economy and financial markets and has elevated mortality and morbidity experience for the global population. The COVID-19 pandemic continues to impact our results of operations in the current period and is expected to continue to impact our results of operations in future periods. The COVID-19 pandemic has moved in localized waves, with its impact worsening and then improving in different locations at different times in a repetitive but unpredictable pattern. During the third quarter of 2021, the mortality impacts to our businesses from COVID-19 increased compared to the second quarter.

The Company has taken several measures to manage the impacts of this crisis. The actual and expected impacts of these events and other items are included in the following update:

Outlook.

U.S. Businesses:

The risk of hospitalization and death from COVID-19 and its variants to date has been greatly reduced as several vaccines are now widely available in the U.S. The vaccine rollout continues (with approximately 80% of the U.S. adult population receiving at least one dose) and other therapeutics are available now, or soon will be. Nevertheless, transmission of the virus persists and in certain geographies remains high. Although the pandemic worsened in the U.S. during the third quarter of 2021, with deaths peaking in mid-September, the Company has seen impacts begin to moderate and the trend of the pandemic’s impacts on our U.S. Businesses may continue to improve as population immunity from vaccination or prior infection increases and treatment options for COVID-19 patients expand.

Specific outlook considerations for certain of our U.S. businesses include the following:

Retirement. Given that many of the products in our institutional investment products business assume longevity risk, elevated levels of mortality resulting from COVID-19 may continue to contribute to a higher level of underwriting gains; however, high vaccination rates among pensioners in both the U.S. and the U.K. suggest that mortality rates will continue to normalize toward pre-pandemic mortality levels. The pandemic may also impact sales volumes.

Group Insurance. We expect COVID-19 to continue to contribute to elevated levels of mortality resulting in increased life insurance claims in the near-term. In addition, we expect elevated unemployment to drive increased disability claims in this business. The pandemic may also impact sales volumes and the utilization of workplace benefits.

Individual Life. We expect COVID-19 to continue to contribute to elevated levels of mortality, resulting in increased life insurance claims in the near-term. The pandemic may also impact sales volumes.

International Businesses:

Through the first nine months of 2021, we continued to see an elevated level of claims due to COVID-19, with the most material impacts in Brazil and Japan; however, expenses to support our captive agents have decreased significantly compared to 2020. Japan declared a series of COVID-19 driven states of emergency in 2021 across various prefectures, but lifted these restrictions in September. We continue to see signs of improvement based on the global increase in vaccination rates and decreased levels of mortality in all key markets; however, as the global pandemic continues to evolve, any further implementation or tightening of COVID-19 restrictions is possible and, depending on the specific circumstances and geographies impacted, could adversely impact our sales prospects for a period of time. We believe our needs-based selling and death protection focus are even more valuable to consumers based on the global experience of COVID-19 and will help support the continued long-term growth of our businesses.

*•*Results of Operations. See “—Results of Operations” and “—Results of Operations by Segment” for a discussion of results for the third quarter and the first nine months of 2021.

*•*Investment Portfolio. While the economy continues to re-open and recover from the impacts of COVID-19, there could still be periods of volatility. The market expectations for credit migration and related losses continue to decrease. The sectors most impacted by the pandemic, including energy, consumer cyclical and retail related investments, have started to recover but may lag the general economic improvement. In certain instances, the Company may agree to modify an investment to provide forbearance, which grants borrowers additional time to make payments. As of September 30, 2021, approximately 1.6% of total invested assets, including those held for sale, were modified to allow for limited forbearance. Under the terms of forbearance, the borrower is allowed to defer a portion of current year principal and/or interest payments for a short period (e.g., 6 months). These deferrals accrue additional interest and do not have a material impact on our investment value.

Sales and Flows. See “—Segment Results of Operations” for a discussion of sales and flows in each of our segments.

*•*Underwriting Results. Through the first nine months of 2021, we estimate that COVID-19 had a net negative impact on our underwriting results reflecting unfavorable mortality impacts in our Group Insurance, Individual Life and International businesses, partially offset by favorable mortality impacts in our Retirement business. For the fourth

quarter of 2021, the Company expects underwriting results to be adversely impacted by approximately $185 million in our U.S. Businesses, predominantly in our Group Insurance business, and approximately $20 million in our International Businesses; however, the ultimate impact on our underwriting results will depend on factors such as: an insured’s age; geographic concentration; insured versus uninsured populations among the fatalities; the transmissibility and virulence of the virus, including the potential for further mutation; and the ongoing acceptance and efficacy of the vaccines and other therapeutics.

Risk Management. Prudential has a robust risk management framework that seeks to ensure we can fulfill our customer, regulatory, and other stakeholder obligations under a range of stress scenarios by maintaining the appropriate balance between the Company’s resources and risks. We evaluate the Company’s exposure to stress under four lenses (economic, STAT, GAAP, and liquidity).

Our risk management framework incorporates severe to very severe stresses across equities, interest rates, credit migration and defaults, currencies and pandemics. This framework includes a specific “pandemic and sell-off” scenario with a mortality calamity (1.5 extra insured deaths per 1,000 lives in the first year) based on a modern-day interpretation of the 1918 Spanish Flu experience that is aligned with most regulatory frameworks. The stress scenario assumes an even distribution of increased mortality across the population, which is more adversely impactful to our business than our current understanding of COVID-19 mortality. As the COVID-19 pandemic continues to unfold, we continue to update our analysis and take management actions in response to this specific event.

As of September 30, 2021, the COVID-19 pandemic has not reached the most severe levels of financial impacts included in the Company’s stress testing. In addition, the net impact of COVID-19 has been moderated by the balance between our mortality exposure (such as in our Individual Life and Group Insurance businesses) and our offsetting longevity exposure (such as in our Retirement business).

Risk Factors. The COVID-19 pandemic has adversely impacted our results of operations, financial position, investment portfolio, new business opportunities and operations, and these impacts are expected to continue. For additional information on the risks to our business posed by the COVID-19 pandemic, see “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Business Continuity. Throughout the COVID-19 pandemic, we have been executing our business continuity protocols to ensure our employees are safe and able to serve our customers. This included effectively transitioning the vast majority of our employees to remote work arrangements.

We believe all of our businesses can sustain remote work and social distancing for an indefinite period while ensuring that critical business operations are sustained. In addition, we are managing COVID-19 related impacts on third-party provided services, and do not anticipate significant interruption in critical operations.

Impact of a Low Interest Rate Environment

As a global financial services company, market interest rates are a key driver of our results of operations and financial condition. Changes in interest rates can affect our results of operations and/or our financial condition in several ways, including favorable or adverse impacts to:

investment-related activity, including: investment income returns, net interest margins, net investment spread results, new money rates, mortgage loan prepayments and bond redemptions;
hedging costs and other risk mitigation activities;
insurance reserve levels, market experience true-ups and amortization of both deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”);
customer account values, including their impact on fee income;
fair value of, and possible impairments on, intangible assets such as goodwill;
product offerings, design features, crediting rates and sales mix; and
policyholder behavior, including surrender or withdrawal activity.

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

See below for discussions related to the current interest rate environments in our two largest markets, the U.S. and Japan; the composition of our insurance liabilities and policyholder account balances; and the hypothetical impacts to our investment related results if these interest rate environments are sustained.

U.S. Operations excluding the Closed Block Division

Interest rates in the U.S. have experienced a sustained period of historically low levels with certain benchmarks reaching significant lows. While market conditions and events make uncertain the timing, amount and impact of any monetary policy decisions by the Federal Reserve, changes in interest rates may impact our reinvestment yields, primarily for our investments in fixed maturity securities and commercial mortgage loans. As interest rates decline, our reinvestment yield may be below our overall portfolio yield, resulting in an unfavorable impact to earnings. Conversely, as interest rates rise, our reinvestment yield may exceed the overall portfolio yield resulting in a favorable impact to earnings.

For the general account supporting our U.S. Businesses and our Corporate and Other operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately 7.0% of the fixed maturity security and commercial mortgage loan portfolios through 2022. The portion of the general account attributable to these operations has approximately $240 billion of such assets (based on net carrying value and including assets classified as “held-for-sale”) as of September 30, 2021. The average portfolio yield for fixed maturity securities and commercial mortgage loans is approximately 3.8% as of September 30, 2021.

Included in the $240 billion of fixed maturity securities and commercial mortgage loans are approximately $177 billion that are subject to call or redemption features at the issuer’s option and have a weighted average interest rate of approximately 4%. Of this $177 billion, approximately 51% contain provisions for prepayment premiums. If we reinvest scheduled payments or prepayments (not subject to a prepayment fee) at rates below the current portfolio yield, including in some cases at rates below those guaranteed under our insurance contracts, future operating results will be impacted to the extent we do not, or are unable to, reduce crediting rates on in-force blocks of business, or effectively utilize other asset/liability management strategies described below, in order to maintain current net interest margins.

The following table sets forth the insurance liabilities and policyholder account balances of our U.S. operations excluding the Closed Block Division, by type, for the date indicated:


	As of September 30, 2021
	(in billions)
Long-duration insurance products with fixed and guaranteed terms	$	153
Contracts with adjustable crediting rates subject to guaranteed minimums	61
Participating contracts where investment income risk ultimately accrues to contractholders	14
Total	$	228

The $153 billion above relates to long-duration products such as group annuities, structured settlements and other insurance products that have fixed and guaranteed terms, for which underlying assets may have to be reinvested at interest rates that are lower than portfolio rates. We seek to mitigate the impact of a prolonged low interest rate environment on these contracts through asset/liability management, as discussed further below.

The $61 billion above relates to contracts with crediting rates that may be adjusted over the life of the contract, subject to guaranteed minimums. Although we may have the ability to lower crediting rates for those contracts above guaranteed minimums, our willingness to do so may be limited by competitive pressures. The following table sets forth the related account values by range of guaranteed minimum crediting rates and the related range of the difference, in basis points (“bps”), between rates being credited to contractholders as of September 30, 2021, and the respective guaranteed minimums.


	Account Values with Adjustable Crediting Rates Subject to Guaranteed Minimums:
	At guaranteed minimum			1-49 bps above guaranteed minimum			50-99 bps above guaranteed minimum			100-150 bps above guaranteed minimum			Greater than 150 bps above guaranteed minimum			Total
	($ in billions)
Range of Guaranteed Minimum Crediting Rates:
Less than 1.00%	$	1.1		$	1.1		$	0.1		$	0.0		$	0.0		$	2.3
1.00% - 1.99%	5.6			12.1			1.9			1.7			1.4			22.7
2.00% - 2.99%	1.3			1.1			0.5			2.4			1.6			6.9
3.00% - 4.00%	26.0			2.1			0.2			0.3			0.0			28.6
Greater than 4.00%	0.9			0.0			0.0			0.0			0.0			0.9
Total(1)	$	34.9		$	16.4		$	2.7		$	4.4		$	3.0		$	61.4
Percentage of total	57		%	27		%	4		%	7		%	5		%	100		%

(1)Includes approximately $0.5 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity.

The remaining $14 billion of insurance liabilities and policyholder account balances in these operations relates to participating contracts for which the investment income risk is expected to ultimately accrue to contractholders. The crediting rates for these contracts are periodically adjusted based on the return earned on the related assets.

Assuming a hypothetical scenario where the average 10-year U.S. Treasury rate is 1.50% (which is reasonably consistent with recent rates) for the period from October 1, 2021 through September 30, 2022 (and credit spreads remain unchanged from average levels experienced during the third quarter 2021), we estimate that the unfavorable impact to net investment income of reinvesting activities, including scheduled maturities and estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts), would be between $50 million and $80 million for the period from October 1, 2021 through September 30, 2022.

In order to mitigate the unfavorable impact that a low interest rate environment has on our net interest margins, we employ a proactive asset/liability management program, which includes strategic asset allocation and hedging strategies within a disciplined risk management framework. These strategies seek to match the characteristics of our products, and to closely approximate the interest rate sensitivity of the assets with the estimated interest rate sensitivity of the product liabilities. Our asset/liability management program also helps manage duration gaps, currency and other risks between assets and liabilities through the use of derivatives. We adjust this dynamic process as products change, as customer behavior changes and as changes in the market environment occur. As a result, our asset/liability management process has permitted us to manage the interest rate risk associated with our products through several market cycles. Our interest rate exposure is also mitigated by our business mix, which includes lines of business for which fee-based and insurance underwriting earnings play a more prominent role in product profitability. We also regularly examine our product offerings and their profitability. As a result, we may reprice certain products and discontinue sales of other products that do not meet our profit expectations.

Closed Block Division

Substantially all of the $58 billion of general account assets in the Closed Block division support obligations and liabilities relating to the Closed Block policies only. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information on the Closed Block.

International Insurance Operations

While our international insurance operations have experienced a low interest rate environment for many years, the current reinvestment yields for certain blocks of business in our international insurance operations are generally lower than the current portfolio yield supporting these blocks of business. In recent years, the Bank of Japan’s monetary policy has resulted in even lower and, at times, negative yields for certain tenors of government bonds. Our international insurance operations employ a proactive asset/liability management program in order to mitigate, to the extent possible, the unfavorable impact that the current interest rate environment has on our net interest margins. In conjunction with this program, we have not purchased negative yielding assets to support the portfolio and we continue to purchase long-term bonds with tenors of 30 years or greater. Additionally, our diverse product portfolio in terms of currency mix and premium payment structure allows us to further mitigate the negative impact from this low interest rate environment. We also regularly examine our product offerings and their profitability. As a result, we may reprice certain products, adjust commissions for certain products and discontinue sales of

other products that do not meet our profit expectations. The impact of these actions and the introduction of certain new products has resulted in an increase in sales of U.S. dollar-denominated products relative to products denominated in other currencies. For additional information on sales within our international insurance operations, see “—International Businesses—Sales Results,” below.

The following table sets forth the insurance liabilities and policyholder account balances of our Japanese operations, by type, for the date indicated:


	As of September 30, 2021
	(in billions)
Insurance products with fixed and guaranteed terms	$	140
Contracts with a market value adjustment if invested amount is not held to maturity	25
Contracts with adjustable crediting rates subject to guaranteed minimums	11
Total	$	176

The $140 billion is primarily comprised of long-duration insurance products that have fixed and guaranteed terms- for which underlying assets may have to be reinvested at interest rates that are lower than current portfolio yields. The remaining insurance liabilities and policyholder account balances include $25 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity and $11 billion related to contracts with crediting rates that may be adjusted over the life of the contract, subject to guaranteed minimums. Most of the current crediting rates on these contracts, however, are at or near contractual minimums. Although we have the ability in some cases to lower crediting rates for those contracts that are above guaranteed minimum crediting rates, the majority of this business has interest crediting rates that are determined by formula.

Assuming a hypothetical scenario where the average 30-year Japanese Government Bond yield is 0.65% and the 10-year U.S. Treasury rate is 1.50% (which is reasonably consistent with recent rates) for the period from October 1, 2021 through September 30, 2022 (and credit spreads remain unchanged from average levels experienced during the third quarter 2021), we estimate that the unfavorable impact to net investment income of reinvesting activities, including scheduled maturities and estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts), would be between $20 million and $40 million for the period from October 1, 2021 through September 30, 2022.

Results of Operations

Consolidated Results of Operations

The following table summarizes net income (loss) for the periods presented.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Revenues	$	21,641	$	15,425	$	54,510	$	41,004
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)
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 attributable to noncontrolling interests	35		20		36		25
Net income (loss) attributable to Prudential Financial, Inc.	$	1,530	$	1,487	$	6,516	$	(1,193)

Three Month Comparison. The $43 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the third quarter of 2021 compared to the third quarter of 2020 reflected the following notable items on a pre-tax basis:

$651 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses and market experience updates, as well as the impact of the hedging program associated with certain variable annuities (see “General Account Investments” for additional information);
$344 million favorable variance from higher adjusted operating income from our business segments (see “Segment Results of Operations” for additional information); and
$150 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period.

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” were the following items:

$526 million unfavorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
$309 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings; and
$198 million unfavorable variance from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses.

Nine Month Comparison. The $7,709 million increase in “Net income (loss) attributable to Prudential Financial, Inc.” for the first nine months of 2021 compared to the first nine months of 2020 reflected the following notable items on a pre-tax basis:

$2,583 million favorable variance reflecting the impact from changes in the value of our embedded derivatives and related hedge positions, net of DAC and other costs, associated with certain variable annuities;
$2,233 million favorable variance from higher adjusted operating income from our business segments;
$2,032 million favorable variance from realized investment gains (losses) and related charges for PFI excluding Divested and Run-off Businesses and market experience updates, as well as the impact of the hedging program associated with certain variable annuities;
$1,346 million favorable variance driven by market experience updates primarily within our Individual Annuities and Individual Life businesses (see Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information); and
$1,106 million favorable variance from a gain in the current period from our Divested and Run-off Businesses compared to a loss in the prior year period.

Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” was a $1,497 million unfavorable variance from a higher tax expense reflecting the increase in pre-tax earnings.

Segment Results of Operations

We analyze the performance of our segments and Corporate and Other operations using a measure of segment profitability called adjusted operating income. See “—Segment Measures” for a discussion of adjusted operating income and its use as a measure of segment operating performance.

Summary of Results of Operations by Segment

Shown below are the adjusted operating income contributions of each segment and Corporate and Other operations for the periods indicated and a reconciliation of this segment measure of performance to “Income (loss) before income taxes and equity in earnings of operating joint ventures” as presented in the Unaudited Interim Consolidated Statements of Operations.


	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	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(2)	116		236		1,765		(2,758)
Charges related to realized investment gains (losses), net(3)	(18)		(69)		(254)		(353)
Market experience updates	(199)		(134)		330		(1,016)
Divested and Run-off Businesses(4):
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(5)	(3)		1		(53)		(62)
Other adjustments(6)	(9)		(12)		(35)		65
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures	$	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 Divested and Run-off Businesses. 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 Divested and Run-off Businesses. Effective third quarter of 2021, the results of the Full Service Retirement business are excluded from the Retirement segment and are included in Divested and Run-off Businesses. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information about these dispositions.

(2)See “—General Account Investments” and Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.

(3)Includes charges that represent the impact of realized investment gains (losses), net, on the amortization of DAC and other costs, and on changes in reserves. Also includes charges resulting from payments related to market value adjustment features of certain of our annuity products and the impact of realized investment gains (losses), net, on the amortization of Unearned Revenue Reserves (“URR”).

(4)Represents income (loss) of Divested and Run-off Businesses that have been or will be sold or exited, including businesses that have been placed in wind down, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP. See “—Divested and Run-off Businesses” for additional information.

(5)Equity in earnings of operating joint ventures are included in adjusted operating income but excluded from “Income (loss) before income taxes and equity in earnings of operating joint ventures” as they are reflected on an after-tax U.S. GAAP basis as a separate line in the Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests are excluded from adjusted operating income but included in “Income (loss) before income taxes and equity in earnings of operating joint ventures” as they are reflected on a U.S. GAAP basis as a separate line in the Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests represent the portion of earnings from consolidated entities that relates to the equity interests of minority investors.

(6)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 to the Unaudited Interim Consolidated Financial Statements for additional information.

Segment results for the period presented above reflect the following:

PGIM. Results for the third quarter of 2021 decreased in comparison to the prior year period, primarily reflecting lower other related revenues and higher expenses, partially offset by an increase in asset management fees. Results for the first nine months of 2021 increased in comparison to the prior year period, primarily reflecting a gain from the sale of our 35% ownership stake in Pramerica SGR in the current year period, as well as an increase in asset management fees, partially offset by higher expenses and lower other related revenues.

Retirement. Results for the third quarter of 2021 increased in comparison to the prior year period, primarily reflecting higher net investment spread results. Results for the first nine months of 2021 increased in comparison to the prior year period, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results increased, primarily reflecting higher net investment spread results.

Group Insurance. Results for the third quarter of 2021 decreased in comparison to the prior year period, driven by lower underwriting results. Results for the first nine months of 2021 include an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results decreased in comparison to the prior year period, primarily reflecting lower underwriting results.

Individual Annuities. Results for the third quarter of 2021 increased in comparison to the prior year period, primarily driven by higher fee income, net of distribution expenses and other associated costs, and higher net investment spread results. Results for the first nine months of 2021 increased in comparison to the prior year period, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results increased, driven by higher fee income, net of distribution expenses and other associated costs, and higher net investment spread results.

Individual Life. Results for the third quarter of 2021 increased in comparison to the prior year period, primarily driven by higher net investment spread results. Results for the first nine months of 2021 increased in comparison to the prior year period, inclusive of a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results increased, primarily driven by higher net investment spread results, partially offset by lower underwriting results.

Assurance IQ. Results for both the third quarter and the first nine months of 2021 decreased in comparison to the prior year periods, reflecting an increase in operating expenses supporting business growth, partially offset by higher revenues.

International Businesses. Results for the third quarter of 2021 increased in comparison to the prior year period, inclusive of an unfavorable net impact from foreign currency exchange rates, primarily driven by higher net investment spread results, higher earnings from our joint venture investments and lower expenses. Results for the first nine months of 2021 increased in comparison to the prior year period, inclusive of an unfavorable net impact from foreign currency exchange rates and a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding these items, results increased, primarily driven by higher net investment spread results and more favorable underwriting results.

Corporate and Other. Results for the third quarter reflect decreased losses in comparison to the prior year period, primarily driven by favorable pension and employee benefit results and lower interest expense on debt. Results for the first nine months of 2021 reflected decreased losses in comparison to the prior year period, primarily driven by lower net charges from other corporate activities, favorable pension and employee benefit results and lower interest expense on debt.

Closed Block Division. Results for both the third quarter and the first nine months of 2021 increased in comparison to the prior year periods, primarily driven by higher net investment activity results, partially offset by an increase in the policyholder dividend obligation.

Segment Measures

Adjusted Operating Income. In managing our business, we analyze our segments’ operating performance 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 we use to evaluate segment performance and allocate resources, and consistent with authoritative guidance, is our measure of segment performance. The adjustments to derive adjusted operating income are important to an understanding of our overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and our definition of adjusted operating income may differ from that used by other companies; however, we believe that the presentation of adjusted operating income as we measure it for management purposes enhances the understanding of our results of operations by highlighting the results from ongoing operations and the underlying profitability of our businesses.

See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information on the presentation of segment results and our definition of adjusted operating income.

Annualized New Business Premiums. In managing our Individual Life, Group Insurance and International Businesses, we analyze annualized new business premiums, which do not correspond to revenues under U.S. GAAP. Annualized new business premiums measure the current sales performance of the business, while revenues primarily reflect the renewal persistency of policies written in prior years and net investment income, in addition to current sales. Annualized new business premiums include 10% of first year premiums or deposits from single pay products. No other adjustments are made for limited pay contracts.

The amount of annualized new business premiums for any given period can be significantly impacted by several factors, including but not limited to: addition of new products, discontinuation of existing products, changes in credited interest rates for certain products and other product modifications, changes in premium rates, changes in tax laws, changes in regulations or changes in the competitive environment. Sales volume may increase or decrease prior to certain of these changes becoming effective, and then fluctuate in the other direction following such changes.

Assets Under Management. In managing our PGIM business, we analyze assets under management (which do not correspond directly to U.S. GAAP assets) because the principal source of revenues is fees based on assets under management. Assets under management represent the fair market value or account value of assets which we manage directly for institutional clients, retail clients, and for our general account, as well as assets invested in our products that are managed by third-party managers.

Account Values. In managing our Individual Annuities and Retirement businesses, we analyze account values, which do not correspond to U.S. GAAP assets. Net sales (redemptions) in our Individual Annuities business and net additions (withdrawals) in our Retirement business do not correspond to revenues under U.S. GAAP, but are used as a relevant measure of business activity.

Impact of Foreign Currency Exchange Rates

Foreign currency exchange rate movements and related hedging strategies

As a U.S.-based company with significant business operations outside the U.S., particularly in Japan, we are subject to foreign currency exchange rate movements that could impact our U.S. dollar (“USD”)-equivalent earnings and shareholder return on equity. Our USD-equivalent earnings could be materially affected by currency fluctuations from period to period, even if earnings on a local currency basis are relatively constant. Our USD-equivalent equity is impacted as the value of our investment in international operations may also fluctuate based on changes in foreign currency exchange rates. We seek to mitigate these impacts through various hedging strategies, including the use of derivative contracts and by holding USD-denominated assets in certain of our foreign subsidiaries.

In order to reduce earnings volatility from foreign currency exchange rate movements, we enter into forward currency derivative contracts to effectively fix the currency exchange rates for a portion of our prospective non-USD-denominated earnings streams. This forward currency hedging program is primarily associated with our insurance operations in Japan.

In order to reduce equity volatility from foreign currency exchange rate movements, we primarily utilize a yen hedging strategy that calibrates the hedge level to preserve the relative contribution of our yen-based business to the Company’s overall return on equity on a leverage neutral basis. We implement this hedging strategy utilizing a variety of instruments, including USD-denominated assets, foreign currency derivative contracts, and dual currency and synthetic dual currency investments held locally in our Japanese insurance subsidiaries. The total hedge level may vary based on our periodic assessment of the relative contribution of our yen-based business to the Company’s overall return on equity.

The table below presents the aggregate amount of instruments that serve to hedge the impact of foreign currency exchange movements on our USD-equivalent shareholder return on equity from our Japanese insurance subsidiaries as of the dates indicated.


	September 30, 2021		December 31, 2020
	(in billions)
Foreign currency hedging instruments:
Hedging USD-equivalent earnings:
Forward currency contracts (notional amount outstanding)	$	0.2	$	0.4
Hedging USD-equivalent equity:
USD-denominated assets held in yen-based entities(1)	9.6		10.1
Dual currency and synthetic dual currency investments(2)	0.5		0.5
Total USD-equivalent equity foreign currency hedging instruments	10.1		10.6
Total foreign currency hedges	$	10.3	$	11.0

(1)Includes USD-denominated fixed maturities at amortized cost plus any related accrued investment income, as well as USD notional amount of foreign currency derivative contracts outstanding. Note this amount represents only those USD assets serving to hedge the impact of foreign currency volatility on equity. Separate from this program, our Japanese operations also have $72.5 billion and $65.8 billion as of September 30, 2021 and December 31, 2020, respectively, of USD-denominated assets supporting USD-denominated liabilities related to USD-denominated products.

(2)Dual currency and synthetic dual currency investments are held by our yen-based entities in the form of fixed maturities and loans with a yen-denominated principal component and USD-denominated interest income. The amounts shown represent the present value of future USD-denominated cash flows.

The USD-denominated investments that hedge the impact of foreign currency exchange rate movements on USD-equivalent earnings and shareholder return on equity from our Japanese insurance operations are reported within yen-based entities and, as a result, foreign currency exchange rate movements will impact their value reported within our yen-based Japanese insurance entities. We seek to mitigate the risk that future unfavorable foreign currency exchange rate movements will decrease the value of these USD-denominated investments reported within our yen-based Japanese insurance entities, and therefore negatively impact their equity and regulatory solvency margins, by having our Japanese insurance operations enter into currency hedging transactions with a subsidiary of Prudential Financial. These hedging strategies have the economic effect of moving the change in value of these USD-denominated investments due to foreign currency exchange rate movements from our Japanese yen-based entities to our USD-based entities.

These USD-denominated investments also pay a coupon which is generally higher than what a similar yen-denominated investment would pay. The incremental impact of this higher yield on our USD-denominated investments, as well as our dual currency and synthetic dual currency investments, will vary over time, and is dependent on the duration of the underlying investments as well as interest rate environments in both the U.S. and Japan at the time of the investments.

Impact of intercompany foreign currency exchange rate arrangements on segment results of operations

The financial results of our International Businesses and PGIM reflect the impact of intercompany arrangements with our Corporate and Other operations pursuant to which these segments’ non-USD-denominated earnings are translated at fixed currency exchange rates. Results of our Corporate and Other operations include differences between the translation adjustments recorded by the segments at the fixed currency exchange rate versus the actual average rate during the period. In addition, specific to our International Businesses where we hedge certain currencies, the results of our Corporate and Other operations also include the impact of any gains or losses recorded from the forward currency contracts that settled during the period, which include the impact of any over or under hedging of actual earnings that differ from projected earnings.

For our International Businesses, the fixed currency exchange rates are generally determined in connection with a foreign currency income hedging program designed to mitigate the impact of exchange rate changes on the segment’s expected USD-equivalent earnings. Pursuant to this program, our Corporate and Other operations execute forward currency contracts with third-parties to sell the net exposure of projected earnings for certain currencies in exchange for USD at specified exchange rates. The maturities of these contracts correspond with the future periods (typically on a three-year rolling basis) in which the identified non-USD-denominated earnings are expected to be generated. In establishing the level of non-USD-denominated earnings that will be hedged through this program, we exclude the anticipated level of USD-denominated earnings that will be generated by USD-denominated products and investments. For the nine months ended September 30, 2021, approximately 6% of the segment’s earnings were yen-based and, as of September 30, 2021, we have hedged 100%, 97% and 61% of expected yen-based earnings for 2021, 2022 and 2023, respectively. To the extent currently unhedged, our International Businesses’ future expected USD-equivalent of yen-based earnings will be impacted by yen exchange rate movements.

As a result of these arrangements, our International Businesses’ results for 2021 and 2020 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 103 and 104 yen per USD, respectively. We expect our 2022 results to reflect the impact of translating yen-denominated earnings at a fixed currency exchange rate of 104 yen per USD. Since determination of the fixed currency exchange rates for a given year is impacted by changes in foreign currency exchange rates over time, the segment’s future earnings will ultimately be impacted by these changes in exchange rates.

For PGIM and certain other currencies within our International Businesses, the fixed currency exchange rates for the current year are predetermined during the third quarter of the prior year using forward currency exchange rates.

The table below presents, for the periods indicated, the increase (decrease) to revenues and adjusted operating income for the International Businesses, PGIM and Corporate and Other operations, reflecting the impact of these intercompany arrangements.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Segment impacts of intercompany arrangements:
International Businesses	$	6	$	15	$	7	$	46
PGIM	0		(3)		(1)		(1)
Impact of intercompany arrangements(1)	6		12		6		45
Corporate and Other:
Impact of intercompany arrangements(1)	(6)		(12)		(6)		(45)
Settlement gains (losses) on forward currency contracts(2)	7		15		21		57
Net benefit (detriment) to Corporate and Other	1		3		15		12
Net impact on consolidated revenues and adjusted operating income	$	7	$	15	$	21	$	57

(1)Represents the difference between non-USD-denominated earnings translated on the basis of weighted average monthly currency exchange rates versus fixed currency exchange rates determined in connection with the foreign currency income hedging program.

(2)As of September 30, 2021 and 2020, the total notional amounts of these forward currency contracts within our Corporate and Other operations were $0.8 billion and $1.0 billion, respectively, of which $0.2 billion and $0.4 billion, respectively, were related to our Japanese insurance operations.

Impact of products denominated in non-local currencies on U.S. GAAP earnings

While our international insurance operations offer products denominated in local currency, several also offer products denominated in non-local currencies. This is most notable in our Japanese operations, which currently offer primarily USD-denominated products, but have also historically offered Australian dollar (“AUD”)-denominated products. The non-local currency-denominated insurance liabilities related to these products are supported by investments denominated in corresponding currencies, including a significant portion designated as available-for-sale. While the impact from foreign currency exchange rate movements on these non-local currency-denominated assets and liabilities is economically matched, differences in the accounting for changes in the value of these assets and liabilities due to changes in foreign currency exchange rate movements have historically resulted in volatility in U.S. GAAP earnings.

In 2015, we implemented a structure in Gibraltar Life’s operations that disaggregated the USD- and AUD-denominated businesses into separate divisions, each with its own functional currency that aligns with the underlying products and investments. The result of this alignment was to reduce differences in the accounting for changes in the value of these assets and liabilities that arise due to changes in foreign currency exchange rate movements. For the USD- and AUD-denominated assets that were transferred under this structure, the net cumulative unrealized investment gains associated with foreign exchange remeasurement that were recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) totaled $2.1 billion and $2.3 billion as of September 30, 2021 and December 31, 2020, respectively, and will be recognized in earnings within “Realized investment gains (losses), net” over time as these assets mature or are sold. Absent the sale of any of these assets prior to their stated maturity, approximately 3% of the $2.1 billion balance as of September 30, 2021 will be recognized throughout the remainder of 2021, approximately 13% will be recognized in 2022, and the remaining balance will be recognized from 2023 through 2051.

Highly inflationary economy in Argentina

Our insurance operations in Argentina, Prudential of Argentina (“POA”), have historically utilized the Argentine peso as the functional currency given it is the currency of the primary economic environment in which the entity operates. During 2018, Argentina experienced a cumulative inflation rate that exceeded 100% over a 3-year period. As a result, Argentina’s economy was deemed to be highly inflationary resulting in reporting changes effective July 1, 2018. Under U.S. GAAP, the financial statements of a foreign entity in a highly inflationary economy are to be remeasured as if its functional currency (formerly the Argentine peso) is the reporting currency of its parent reporting entity (the USD) on a prospective basis. While this changed how the results of POA are remeasured and/or translated into USD, the impact to our financial statements was not material nor is it expected to be material in future periods given the relative size of our POA operations. It should also be noted that due to the macroeconomic environment in Argentina, the majority of POA’s balance sheet consists of USD-denominated product liabilities supported by USD-denominated assets. As a result, this accounting change serves to reduce the remeasurement impact reflected in net income given that the functional currency and currency in which the assets and liabilities are denominated will be more closely aligned.

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

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

DAC, deferred sales inducements (“DSI”) and VOBA;
Policyholder liabilities;
Goodwill;
Valuation of investments including derivatives, measurement of allowance for credit losses, and recognition of other-than-temporary impairments (“OTTI”);
Pension and other postretirement benefits;
Taxes on income; and
Reserves for contingencies, including reserves for losses in connection with unresolved legal matters.

Market Performance - Equity and Interest Rate Assumptions

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

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

The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each product type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, DSI and VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and domestic and international variable life insurance products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. If the near-term projected future rate of return is lower than our near-term minimum future rate of return of 0%, we use our minimum future rate of return. As of September 30, 2021, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 0.4% near-term mean reversion equity expected rate of return, and our international variable life insurance business assumes a 4.8% long-term equity expected rate of return and a 0% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and VOBA and liabilities for future policy benefits for certain of our products, we update the long-term and near-term future rates used to project fixed income returns annually and quarterly, respectively. As a result of our 2021 annual reviews and update of assumptions and other refinements, we kept our long-term expectation of the 10-year U.S. Treasury rate and 10-year Japanese Government Bond yield unchanged and continue to grade to rates of 3.25% and 1.00%, respectively, over ten years. As part of our quarterly market experience updates, we update our near-term projections of interest rates to reflect changes in current rates.

For a discussion of the impact that could result from changes in certain key assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies and Pronouncements—Sensitivities for Insurance Assets and Liabilities” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Future Adoption of New Accounting Pronouncements

ASU 2018-12, Financial Services**—**Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the Financial Accounting Standards Board (“FASB”) on August 15, 2018. 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 significant impacts to the balance sheet upon adoption, the Company also expects an impact to the pattern of earnings emergence following the transition date. See Note 2 to the Unaudited Interim Consolidated Financial Statements for a more detailed discussion of ASU 2018-12, as well as other accounting pronouncements issued but not yet adopted and newly adopted accounting pronouncements.

Results of Operations by Segment

PGIM

Business Updates

*•*In March 2021, we sold our 35% ownership stake in Pramerica SGR, an asset management joint venture in Italy, to our partner UBI Banca, (acquired in 2020 by Intesa Sanpaolo Group), resulting in a pre-tax gain of $378 million. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

*•*In August 2021, we completed the acquisition of Montana Capital Partners, a European-based private equity secondaries asset manager with approximately $3 billion of assets under management.

In October 2021, we signed a definitive agreement to acquire Green Harvest Asset Management LLC, a separately managed account platform providing customized solutions for the high net worth market, subject to regulatory approvals and customary closing conditions.

Operating Results

The following table sets forth PGIM’s operating results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Operating results(1):
Revenues	$	1,072	$	1,066	$	3,395	$	2,801
Expenses	745		696		2,102		1,943
Adjusted operating income	327		370		1,293		858
Realized investment gains (losses), net, and related adjustments	2		(2)		(1)		1
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	38		15		35		(27)
Other adjustments(2)	(2)		0		(2)		0
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	365	$	383	$	1,325	$	832

(1)Certain of PGIM’s investment activities are based in currencies other than the U.S. dollar and are therefore subject to foreign currency exchange rate risk. The financial results of PGIM include the impact of an intercompany arrangement with our Corporate and Other operations designed to mitigate the impact of exchange rate changes on PGIM’s U.S. dollar-equivalent earnings. For more information related to this intercompany arrangement, see “—Results of Operations—Impact of Foreign Currency Exchange Rates,” above.

(2)Includes certain components of consideration for business acquisitions, which are recognized as compensation expense over the requisite service periods.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $43 million, reflecting lower other related revenues, net of related expenses, primarily driven by the absence of more favorable seed and co-investment results from the impact of tightening credit spreads on fixed income investments in the prior year period, and lower performance-based incentive fees reflecting the absence of significant fees earned in the prior year period. Also contributing to the decrease were higher expenses due to business growth, as well as lower service, distribution and other revenues driven by the absence of earnings from our Pramerica SGR joint venture that was sold in the first quarter of 2021. These decreases were partially offset by higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation, including strong investment performance, and third-party inflows.

Nine Month Comparison. Adjusted operating income increased $435 million, primarily reflecting an increase in service, distribution and other revenues driven by a gain from the sale of our Pramerica SGR joint venture in the current year period and higher asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation, including strong investment performance, and third-party inflows. The increases were partially offset by higher compensation expenses associated with business growth and certain long-term employee compensation plans, and lower other related revenues, net of related expenses, primarily driven by the absence of more favorable seed and co-investment results from the impact of tightening credit spreads on fixed income investments in the prior year period.

Revenues and Expenses

The following table sets forth PGIM’s revenues, presented on a basis consistent with the table above under “—Operating Results,” by type.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers	$	366	$	345	$	1,063	$	998
Retail customers(1)	332		262		941		718
General account	149		143		441		417
Total asset management fees	847		750		2,445		2,133
Other related revenues by source:
Incentive fees	26		43		77		78
Transaction fees	5		5		14		13
Seed and co-investments	8		50		46		87
Commercial mortgage(2)	53		67		123		126
Total other related revenues	92		165		260		304
Service, distribution and other revenues	133		151		690		364
Total revenues	$	1,072	$	1,066	$	3,395	$	2,801

(1)Consists of fees from: individual mutual funds and variable annuities and variable life insurance separate account assets; funds invested in proprietary mutual funds through our defined contribution plan products; and third-party sub-advisory relationships. Revenues from fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance are included in the general account.

(2)Includes mortgage origination revenues from our commercial mortgage origination and servicing business.

Three Month Comparison. Revenues increased $6 million. Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation, including strong investment performance, and third-party inflows. Other related revenues decreased primarily driven by the absence of more favorable seed and co-investment results from the impact of tightening credit spreads in the prior year period, and lower performance-based incentive fees reflecting the absence of significant fees earned in the prior year period. Service, distribution and other revenues decreased primarily reflecting the sale of our Pramerica SGR joint venture in the first quarter of 2021.

Expenses increased $49 million, primarily reflecting higher operational and compensation expenses associated with business growth, and higher variable expenses driven by an increase in asset management fees.

Nine Month Comparison. Revenues increased $594 million. Service, distribution and other revenues increased primarily reflecting a gain from the sale of our Pramerica SGR joint venture in the current year period. Asset management fees increased primarily reflecting higher average assets under management as a result of market appreciation, including strong investment performance, and third-party inflows.

Expenses increased $159 million, primarily reflecting higher variable expenses driven by an increase in asset management fees, and higher compensation expenses driven by business growth and certain long-term employee compensation plans tied to performance factors.

Assets Under Management

The following table sets forth assets under management by asset class as of the dates indicated.


	September 30, 2021		December 31, 2020		September 30, 2020(1)
	(in billions)
Assets Under Management(2) (at fair value):
Public equity	$	208.4	$	202.4	$	179.0
Public fixed income	985.6		1,004.5		981.0
Real estate	128.7		121.5		118.7
Private credit and other alternatives	109.1		106.5		103.3
Multi-asset	82.1		63.7		61.1
Total PGIM assets under management	$	1,513.9	$	1,498.6	$	1,443.1

Assets under management within other reporting segments(3)	212.7		222.3		205.0
Total PFI assets under management	$	1,726.6	$	1,720.9	$	1,648.1

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

(2)“Public equity” represents stock ownership interest in a corporation or partnership (excluding hedge funds) or real estate investment trust. “Public fixed income” represents debt instruments that pay interest and usually have a maturity (excluding mortgages). “Real estate” includes direct real estate equity and real estate mortgages. “Private credit and other alternatives” includes private credit, private equity, hedge funds and other alternative strategies. “Multi-asset” includes funds or products that invest in more than one asset class, balancing equity and fixed income funds and target date funds.

(3)Primarily includes certain product-related assets in our U.S. Businesses and Corporate & Other operations, and certain general account assets in our International Businesses. These assets are not directly managed by PGIM, but rather are invested in non-proprietary funds or are managed by either the divisions themselves or by our Chief Investment Officer Organization.

PGIM’s assets under management as of September 30, 2021 increased $71 billion in comparison to the prior year quarter, primarily reflecting market appreciation including strong investment performance, and increased $15 billion in comparison to the prior year end, primarily reflecting market appreciation.

The following table sets forth assets under management by source as of the dates indicated.


	September 30, 2021		December 31, 2020		September 30, 2020
	(in billions)
Assets Under Management(1) (at fair value):
Institutional customers	$	625.3	$	614.9	$	591.0
Retail customers	395.4		372.0		343.0
General account	493.2		511.7		509.1
Total PGIM assets under management	$	1,513.9	$	1,498.6	$	1,443.1

Assets under management within other reporting segments(2)	212.7		222.3		205.0
Total PFI assets under management	$	1,726.6	$	1,720.9	$	1,648.1

(1)“Institutional customers” consist of third-party institutional assets and group insurance contracts. “Retail customers” consist of individual mutual funds and variable annuities and variable life insurance separate account assets, funds invested in proprietary mutual funds through our defined contribution plan products, and third-party sub-advisory relationships. “General account” also includes fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance.

(2)Primarily includes certain product-related assets in our U.S. Businesses and Corporate & Other operations, and certain general account assets in our International Businesses. These assets are not directly managed by PGIM, but rather are invested in non-proprietary funds or are managed by either the divisions themselves or by our Chief Investment Officer Organization.

The following table sets forth the component changes in PGIM’s assets under management for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,				Twelve Months Ended September 30,
	2021		2020(1)		2021		2020(1)		2021
	(in billions)
Beginning assets under management	$	1,511.4	$	1,394.5	$	1,498.6	$	1,331.0	$	1,443.1
Institutional third-party flows	0.7		2.0		7.4		0.5		9.9
Retail third-party flows	(0.4)		5.3		3.7		13.4		7.5
Total third-party flows	0.3		7.3		11.1		13.9		17.4
Affiliated flows(2)	6.1		(1.5)		(3.5)		(4.9)		(7.1)
Market appreciation (depreciation)(3)	0.3		43.0		17.2		82.6		81.3
Foreign exchange rate impact	(1.4)		3.4		(9.1)		2.7		(5.0)
Net money market activity and other increases (decreases)	(2.8)		(3.6)		(0.4)		17.8		(15.8)
Ending assets under management	$	1,513.9	$	1,443.1	$	1,513.9	$	1,443.1	$	1,513.9

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

(2)Represents assets that PGIM manages for the benefit of other reporting segments within the Company. Additions and withdrawals of these assets are attributable to third-party product inflows and outflows in other reporting segments.

(3)Includes income reinvestment, where applicable.

Private Capital Deployment

Private capital deployment is indicative of the pace and magnitude of capital that is invested and will result in future revenues that may include management fees, transaction fees, incentive fees and servicing revenues, as well as future costs to manage these assets.

Private capital deployment represents the gross value of private capital invested in real estate debt and equity, and private credit and equity asset classes. Assets under management resulting from private capital deployment are included in “Real estate” and “Private credit and other alternatives” in the “—Assets Under Management— by asset class table” above. As of September 30, 2021, these assets increased approximately $7.1 billion compared to December 31, 2020, primarily reflecting private capital deployed, partially offset by capital returned to investors.

Private capital deployment includes PGIM’s real estate agency debt business, which consists of agency commercial loans that are originated and sold to third party investors. PGIM continues to service these commercial loans; however, they are not included in assets under management.

The following table sets forth PGIM’s private capital deployed by asset class for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in billions)
Private capital deployed:
Real estate debt and equity	$	8.6	$	6.2	$	20.8	$	14.1
Private credit and equity	3.2		3.0		9.8		7.8
Total private capital deployed	$	11.8	$	9.2	$	30.6	$	21.9

Seed and Co-Investments

As of September 30, 2021 and December 31, 2020, PGIM had approximately $1,181 million and $1,205 million of seed investments and $561 million and $685 million of co-investments at carrying value, respectively, primarily consisting of public fixed income, public equity and real estate investments.

U.S. Businesses

Operating Results

The following table sets forth the operating results for our U.S. Businesses for the periods indicated.


	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:
U.S. Businesses:
Retirement	$	571	$	347	$	1,635	$	860
Group Insurance	(135)		22		(250)		71
Individual Annuities	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
Reconciling Items:
Realized investment gains (losses), net, and related adjustments	20		584		1,769		(1,869)
Charges related to realized investment gains (losses), net	(6)		(62)		(233)		(328)
Market experience updates	(199)		(130)		331		(974)
Other adjustments(2)	(7)		(12)		(33)		65
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	1		1		3		2
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	899	$	1,229	$	4,817	$	(1,195)

(1)Effective third quarter of 2021, the results of the Full Service Retirement business 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 to the Unaudited Interim Consolidated Financial Statements for additional information about this disposition.

(2)Represents adjustments not included in the above reconciling items. Also includes certain components of the consideration for the Assurance IQ acquisition, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of the associated contingent consideration. See Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information.

Three Month Comparison. Adjusted operating income for our U.S. Businesses increased by $242 million primarily due to:

Higher net investment spread results driven by higher income on non-coupon investments; and
Higher fee income, net of distribution expenses and other associated costs, primarily in our Individual Annuities business.
Partially offsetting these increases were lower underwriting results primarily driven by higher COVID-19 related mortality claims in our Group Insurance business.

Nine Month Comparison. Adjusted operating income for our U.S. Businesses increased by $1,071 million primarily due to:

Higher net investment spread results driven by higher income on non-coupon investments;
Higher fee income, net of distribution expenses and other associated costs, primarily in our Individual Annuities business; and
A favorable comparative net impact from our annual reviews and update of assumptions and other refinements.
Partially offsetting these increases were lower underwriting results primarily driven by COVID-19 related mortality claims in our Group Insurance and Individual Life businesses.

Retirement

Business Update

In July 2021, the Company entered into a definitive agreement to sell its Full Service Retirement business to Great-West Life & Annuity Insurance Company (“Great-West”). The transaction involves the sale of legal entities, reinsurance, and the transfer of contracts and brokerage accounts, and is expected to close by the end of the first quarter of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

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 to conform to current period presentation. As such, the following results are now solely reflective of Retirement’s Institutional Investment Products business. See “Business—Retirement” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for more information about the Institutional Investment Products business.

Operating Results

The following table sets forth Retirement’s operating results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Operating results:
Revenues	$	8,386	$	2,193	$	12,658	$	6,647
Benefits and expenses	7,815		1,846		11,023		5,787
Adjusted operating income	571		347		1,635		860
Realized investment gains (losses), net, and related adjustments	107		111		17		81
Charges related to realized investment gains (losses), net	3		7		(5)		(5)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	1		1		3		2
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	682	$	466	$	1,650	$	938

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $224 million, primarily driven by higher net investment spread results, reflecting higher income on non-coupon investments.

Nine Month Comparison. Adjusted operating income increased $775 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2021 and 2020 included net charges of $14 million and $20 million, respectively, from these updates, primarily driven by an increase in expected benefit payments. Excluding this item, adjusted operating income increased $769 million, primarily driven by higher net investment spread results, reflecting higher income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $6,193 million. This increase primarily reflected higher pension risk transfer premiums due to new sales in the current quarter, with corresponding offsets in policyholders’ benefits, as discussed below, and higher net investment income and other income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses increased $5,969 million. Policyholders’ benefits, including the change in policy reserves, increased primarily related to the increase in pension risk transfer premiums discussed above.

Nine Month Comparison. Revenues increased $6,011 million. This increase primarily reflected higher pension risk transfer premiums due to new sales in the current quarter, with corresponding offsets in policyholders’ benefits, as discussed below, and higher net investment income and other income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses increased $5,236 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $5,242 million. Policyholders’ benefits, including the change in policy reserves, increased primarily related to the higher pension risk transfer premiums discussed above.

Account Values

Account values are a significant driver of our operating results, and are primarily driven by net additions (withdrawals) and the impact of market changes. The investment income and interest we credit to policyholders on our spread-based products varies with the level of general account values. The income we earn on most of our fee-based products varies with the level of fee-based account values as many policy fees are determined by these values.

The following table shows the changes in the account values of Retirement’s products for the periods indicated. Account values include both internally- and externally-managed client balances as the total balances drive revenue for the Retirement business. For more information on internally-managed balances, see “—PGIM.”


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

Beginning total account value	$	243,843	$	231,142	$	243,387	$	227,596	$	234,696
Additions(1)	8,045		2,780		18,466		14,218		26,717
Withdrawals and benefits	(4,546)		(4,189)		(15,932)		(13,226)		(20,994)
Change in market value, interest credited and interest income	618		1,944		1,311		7,379		2,786
Other(2)	(1,892)		3,019		(1,164)		(1,271)		2,863
Ending total account value	$	246,068	$	234,696	$	246,068	$	234,696	$	246,068

(1)Additions primarily include: group annuities and funded pension reinsurance calculated based on premiums received; international reinsurance contracts calculated as the present value of future projected benefits; investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust; and funding agreements issued.

(2)“Other” activity includes the effect of foreign exchange rate changes associated with our British pounds sterling denominated international reinsurance business and changes in asset balances for externally-managed accounts. For the three months ended September 30, 2021 and 2020, “Other” activity also includes $793 million in receipts offset by $735 million in payments and $869 million in receipts offset by $831 million in payments, respectively, and for the nine months ended September 30, 2021 and 2020, includes $2,096 million in receipts offset by $2,231 million in payments and $6,235 million in receipts offset by $6,107 million in payments, respectively, related to funding agreements backed by commercial paper which typically have maturities of less than 90 days.

The increase in account values for the three months and nine months ended September 30, 2021 reflected net additions primarily driven by pension risk transfer activity, partially offset by investment-only stable value account withdrawals, and a favorable change in the market value of account assets. These increases were partially offset by a decrease in other activity primarily driven by the negative impact of foreign exchange rate changes.

The increase in account values for the twelve months ended September 30, 2021 reflected net additions primarily driven by pension risk transfer activity, including international reinsurance and funded pension risk transfer sales, partially offset by investment-only stable value account withdrawals. Also contributing were an increase in the market value of account assets and an increase in other activity primarily driven by the positive impact of foreign exchange rate changes.

Group Insurance

Operating Results

The following table sets forth Group Insurance’s operating results and benefits and administrative operating expense ratios for the periods indicated.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	($ in millions)
Operating results:
Revenues	$	1,553		$	1,457		$	4,627		$	4,352
Benefits and expenses	1,688			1,435			4,877			4,281
Adjusted operating income	(135)			22			(250)			71
Realized investment gains (losses), net, and related adjustments	6			4			(19)			75


Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(129)		$	26		$	(269)		$	146
Benefits ratio(1)(4):
Group life(2)	105.2		%	93.9		%	100.2		%	91.8		%
Group disability(2)	85.9		%	73.5		%	82.4		%	74.5		%
Total Group Insurance(2)	100.7		%	89.4		%	96.2		%	88.0		%
Administrative operating expense ratio(3)(4):
Group life	11.7		%	12.2		%	11.2		%	12.1		%
Group disability	32.3		%	25.2		%	32.4		%	25.4		%
Total Group Insurance	16.8		%	15.1		%	16.2		%	15.0		%

(1)Ratio of policyholder benefits to earned premiums plus policy charges and fee income.

(2)Benefit ratios for the nine months ended September 30, 2021 and 2020 reflect the impact of our annual reviews and update of assumptions and other refinements. Excluding these impacts, the group life, group disability and total Group Insurance benefit ratios were 100.2%, 82.5% and 96.2% for the nine months ended September 30, 2021, respectively, and 91.9%, 75.0% and 88.2% for the nine months ended September 30, 2020, respectively.

(3)Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.

(4)The benefits and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $157 million, primarily reflecting lower underwriting results in our group life business driven by unfavorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts, lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts and higher expenses. These decreases were partially offset by higher net investment spread results driven by higher income on non-coupon investments.

Nine Month Comparison. Adjusted operating income decreased $321 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 and 2020 included net benefits from this update of $1 million and $11 million, respectively. Excluding this item, adjusted operating income decreased $311 million, primarily reflecting lower underwriting results in our group life business driven by less favorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts, and lower underwriting results in our group disability business driven by less favorable claims experience on long-term disability contracts. These decreases were partially offset by higher net investment spread results driven by higher income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $96 million. The increase primarily reflected higher premiums and policy charges and fee income in our group life business due to COVID-19 impacts on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below, as well as growth in our group disability business and higher net investment income from higher income on non-coupon investments.

Benefits and expenses increased $253 million. The increase primarily reflected higher policyholders’ benefits, including changes in reserves, in our group life business mostly due to COVID-19 impacts on both non-experience- and experience-rated contracts, and increases in our group disability business driven by an unfavorable impact from claims experience on long-term disability contracts.

Nine Month Comparison. Revenues increased $275 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $297 million. The increase primarily reflected higher premiums and policy charges and fee income in our group life business due to COVID-19 impacts on experience-rated contracts, with offsets in policyholders’ benefits and changes in reserves, as discussed below, as well as growth in our group disability business and higher net investment income from higher income on non-coupon investments.

Benefits and expenses increased $596 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $608 million. The increase primarily reflected higher policyholders’ benefits, including changes in reserves, in our group life business mostly due to COVID-19 impacts on both non-experience- and experience-rated contracts, and increases in our group disability business driven by a less favorable impact from claims experience on long-term disability contracts.

Sales Results

The following table sets forth Group Insurance’s annualized new business premiums, as defined under “—Segment Measures” above, for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Annualized new business premiums(1):
Group life	$	51	$	46	$	242	$	227
Group disability	17		17		172		143
Total	$	68	$	63	$	414	$	370

(1)Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts.

Total annualized new business premiums for the three months ended September 30, 2021 increased $5 million compared to the prior year period, driven by higher sales in our group life business. Total annualized new business premiums for the nine months ended September 30, 2021 increased $44 million compared to the prior year period, driven by higher sales in both our group life and group disability businesses.

Individual Annuities

Business Update

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 is expected to close 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”; however, its results will continue to be reported within Individual Annuities’ operating results until the sale is completed. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

Operating Results

The following table sets forth Individual Annuities’ operating results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Operating results:
Revenues	$	1,260	$	1,148	$	3,687	$	3,249
Benefits and expenses	761		740		2,272		2,219
Adjusted operating income	499		408		1,415		1,030
Realized investment gains (losses), net, and related adjustments	(4)		518		1,895		(2,525)
Charges related to realized investment gains (losses), net	(38)		(166)		(408)		(67)
Market experience updates	(83)		(58)		321		(686)
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	374	$	702	$	3,223	$	(2,248)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $91 million primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows, and favorable impacts from our living benefit guarantees. Also contributing to the increase were higher net investment spread results, driven by higher income on non-coupon investments, and lower operating expenses.

Nine Month Comparison. Adjusted operating income increased $385 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 included a $15 million net charge from these updates primarily reflecting the impact of unfavorable policyholder behavior updates. Results for 2020 included a $136 million net charge from these updates primarily driven by unfavorable impacts related to a decrease in long-term interest rate assumptions. Excluding this item, adjusted operating income increased $264 million. The increase was primarily driven by higher fee income, net of distribution expenses and other associated costs, resulting from higher average separate account values due to favorable equity markets, partially offset by net outflows, and favorable impacts from our living benefit guarantees. Also contributing to the increase were higher net investment spread results, driven by higher income on non-coupon investments, and lower operating expenses.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $112 million primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees. Also contributing to the increase was higher net investment income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses increased $21 million driven by higher distribution and asset management expenses reflecting higher average separate account values, as discussed above, partially offset by lower operating expenses.

Nine Month Comparison. Revenues increased $438 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $309 million. The increase was primarily driven by higher policy charges and fee income, as well as higher asset management and service fees, reflecting higher average separate account values and favorable impacts from our living benefit guarantees. Also contributing to the increase was higher net investment income, primarily reflecting higher income on non-coupon investments.

Benefits and expenses increased $53 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $44 million primarily driven by higher general and administrative expenses, net of capitalization, driven by higher distribution and asset management expenses reflecting higher average separate account values, as discussed above, partially offset by lower operating expenses. This increase was partially offset by lower interest expense.

Account Values

Account values are a significant driver of our operating results. Since most fees are determined by the level of separate account assets, fee income varies primarily based on the level of account values. Additionally, our fee income generally drives other items such as the pattern of amortization of DAC and other costs. Account values are driven by net flows from new business sales, surrenders, withdrawals and benefit payments, policy charges and the impact of positive or negative market value changes. The annuity industry’s competitive and regulatory landscapes, which have been dynamic over the last few years, may impact our net flows, including new business sales. The following table sets forth account value information for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,				Twelve Months Ended September 30,
	2021		2020		2021		2020		2021
	(in millions)
Total Individual Annuities(1):
Beginning total account value	$	182,411	$	159,276	$	176,280	$	169,681	$	164,198
Sales	1,500		1,562		5,048		4,835		7,028
Full surrenders and death benefits	(2,573)		(1,811)		(7,748)		(5,740)		(9,853)
Sales, net of full surrenders and death benefits	(1,073)		(249)		(2,700)		(905)		(2,825)
Partial withdrawals and other benefit payments	(1,334)		(1,205)		(4,091)		(3,750)		(5,532)
Net flows	(2,407)		(1,454)		(6,791)		(4,655)		(8,357)
Change in market value, interest credited and other activity	(422)		7,270		11,928		1,806		26,482
Policy charges	(904)		(894)		(2,739)		(2,634)		(3,645)
Ending total account value(2)	$	178,678	$	164,198	$	178,678	$	164,198	$	178,678

(1)Includes gross variable and fixed annuities sold as retail investment products. Investments sold through defined contribution plan products are included with such products within our Retirement business. Variable annuity account values were $172.8 billion and $158.6 billion as of September 30, 2021 and 2020, respectively. Fixed annuity account values were $5.9 billion and $5.6 billion as of September 30, 2021 and 2020, respectively.

(2)Includes approximately $30 billion of account values that are classified as “held-for-sale” as of September 30, 2021 in relation to the planned PALAC sale, as discussed above.

Sales for both the three months and the nine months ended September 30, 2021 reflected our product pivot strategy and consisted largely of indexed variable annuities, as sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020. Sales, net of full surrenders and death benefits, for both the three months and the nine months ended September 30, 2021 declined in comparison to the prior year periods driven by an increase in surrender activity from both market value appreciation and the general uncertainty about COVID-19 in the prior year periods.

The decrease in account values for the three months ended September 30, 2021 was driven by net outflows and policyholder charges on contractholder accounts. The increases in account values for the nine months and twelve months ended September 30, 2021 were driven by market value appreciation, partially offset by net outflows and policy charges on contractholder accounts.

Risks and Risk Mitigants

The following is a summary of certain risks associated with Individual Annuities’ products, certain strategies in mitigating those risks including any updates to those strategies since the previous year-end, and the related financial results.

Fixed Annuity Risks and Risk Mitigants. The primary risk exposure of our fixed annuity products relates to investment risks we bear for providing customers a minimum guaranteed interest rate or an index-linked interest rate required to be credited to the customer’s account value, which include interest rate fluctuations and/or sustained periods of low interest rates, and credit risk related to the underlying investments. We manage these risk exposures primarily through our investment strategies and product design features, which include credit rate resetting subject to the minimum guaranteed interest rate as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, a portion of our fixed products has a market value adjustment provision that affords protection of lapse in the case of rising interest rates. We also manage these risk exposures through external reinsurance for certain of our fixed annuity products.

Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of our indexed variable annuity products relates to the investment risks we bear in order to credit to the customer’s account balance the required crediting rate based on the performance of the elected indices at the end of each term. We manage this risk primarily through our investment strategies including derivatives and product design features, which include credit rate resetting subject to contractual minimums as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, our indexed variable annuity strategies have an interim value provision that provides protection from lapse in the case of rising interest rates.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected returns is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. We manage our exposure to certain risks driven by fluctuations in capital markets primarily through a combination of i) Product Design Features, ii) our Asset Liability Management Strategy, and iii) our Capital Hedge Program, as discussed below. We also manage these risk exposures through external reinsurance for certain of our variable annuity products. Sales of traditional variable annuities with guaranteed living benefit riders were discontinued as of December 31, 2020, and, in the third quarter of 2021, we announced that we had entered into an agreement to sell a portion of our in-force traditional variable annuity block, as described above.

i.Product Design Features:

A portion of the variable annuity contracts that we offered include an automatic rebalancing feature, also referred to as an asset transfer feature. This feature is implemented at the contract level, and transfers assets between certain variable investment sub-accounts selected by the annuity contractholder and, depending on the benefit feature, a fixed-rate account in the general account or a bond fund sub-account within the separate accounts. The objective of the automatic rebalancing feature is to reduce our exposure to equity market risk and market volatility. Other product design features we utilize include, among others, asset allocation restrictions, minimum issuance age requirements and certain limitations on the amount of purchase payments, as well as a required minimum allocation to our general account for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

ii.Asset Liability Management (“ALM”) Strategy (including fixed income instruments and derivatives):

We employ an ALM strategy that utilizes a combination of both traditional fixed income instruments and derivatives to meet expected liabilities associated with our variable annuity living benefit guarantees. The economic liability we manage with this ALM strategy consists of expected living benefit claims under less severe market conditions, which are managed using fixed income instruments, derivatives, or a combination thereof, and potential living benefit claims resulting from more severe market conditions, which are hedged using derivative instruments. For our Prudential Defined Income (“PDI”) variable annuity, we utilize fixed income instruments to meet expected liabilities. For the portion of our ALM strategy executed with derivatives, we enter into a range of exchange-traded and over-the-counter (“OTC”) equity, interest rate and credit derivatives, including, but not limited to: equity and treasury futures; total return, credit default and interest rate swaps; and options including equity options, swaptions, and floors and caps. The intent of this strategy is to more efficiently manage the capital and liquidity associated with these products while continuing to mitigate fluctuations in net income due to movements in capital markets. To achieve this, we periodically review and recalibrate the ALM strategy by optimizing the mix of derivatives and fixed income instruments to achieve expected outcomes.

The difference between the change in value of our hedging instruments and the change in value of the portion of the economic liability that is being hedged, has historically been reflected in adjusted operating income over time. Beginning with the second quarter of 2020, this impact is excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

The valuation of the economic liability we seek to defray excludes certain items that are included within the U.S. GAAP liability, such as non-performance risk (“NPR”) in order to maximize protection irrespective of the possibility of our own default, as well as risk margins (required by U.S. GAAP but different from our best estimate) and valuation methodology differences. The following table, which includes the portion of the traditional variable annuities block of business that is classified as “held-for-sale”, as discussed above, provides a reconciliation between the liability reported under U.S. GAAP and the economic liability we manage through our ALM strategy as of the periods indicated:


	September 30, 2021		December 31, 2020
	(in millions)
U.S. GAAP liability, including NPR, net of reinsurance recoverables	$	13,330	$	18,537
NPR adjustment, net of reinsurance recoverables	2,813		4,103
Subtotal	16,143		22,640
Adjustments including risk margins and valuation methodology differences	(3,447)		(5,080)
Economic liability managed through the ALM strategy	$	12,696	$	17,560

As of September 30, 2021, the fair value of our fixed income instruments and derivative assets exceed the economic liability within the entities in which the risks reside.

Under our ALM strategy, we expect differences in the U.S. GAAP net income impact between the changes in value of the fixed income instruments (either designated as available-for-sale or designated as trading) and derivatives as compared to the changes in the embedded derivative liability these assets support. These differences can be primarily attributed to three distinct areas:

Different valuation methodologies in measuring the liability we intend to cover with fixed income instruments and derivatives versus the liability reported under U.S. GAAP. The valuation methodology utilized in estimating the economic liability we intend to defray with fixed income instruments and derivatives is different from that required to be utilized to measure the liability under U.S. GAAP. Additionally, the valuation of the economic liability excludes certain items that are included within the U.S. GAAP liability, such as NPR in order to maximize protection irrespective of the possibility of our own default and risk margins (required by U.S. GAAP but different from our best estimate).
Different accounting treatment between liabilities and assets supporting those liabilities. Under U.S. GAAP, changes in the fair value of the embedded derivative liability, derivative instruments and fixed income instruments designated as trading are immediately reflected in net income, while changes in the fair value of fixed income instruments that are designated as available-for-sale are recorded as unrealized gains (losses) in other comprehensive income.
General hedge results. For the derivative portion of the ALM strategy, the net hedging impact (the extent to which the changes in value of the hedging instruments offset the change in value of the portion of the economic liability we are hedging) may be impacted by a number of factors, including: cash flow timing differences between our hedging instruments and the corresponding portion of the economic liability we are hedging, basis differences attributable to actual underlying contractholder funds to be hedged versus hedgeable indices, rebalancing costs related to dynamic rebalancing of hedging instruments as markets move, certain elements of the economic liability that may not be hedged (including certain actuarial assumptions), and implied and realized market volatility on the hedge positions relative to the portion of the economic liability we seek to hedge.

iii. Capital Hedge Program:

We employ a capital hedge program to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets. The capital hedge program is conducted using equity derivatives which include equity call and put options, total return swaps and futures contracts. The changes in value of these derivatives have historically been recognized in adjusted operating income over the expected duration of the capital hedge program. Beginning with the second quarter of 2020, changes in value of these derivatives are excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

Results excluded from adjusted operating income

The following table provides the net impact to the Unaudited Interim Consolidated Statements of Operations from the results excluded from adjusted operating income, which is primarily driven by the changes in the U.S. GAAP embedded derivative liability and hedge positions under the ALM strategy as described above, and the related amortization of DAC and other costs.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)(1)
Results excluded from adjusted operating income:
Change in value of U.S. GAAP liability, pre-NPR(2)	$	639	$	3,852	$	7,079	$	(11,219)
Change in the NPR adjustment	(292)		(597)		(1,292)		2,420
Change in fair value of hedge assets, excluding capital hedges(3)	(404)		(2,391)		(3,916)		6,214
Change in fair value of capital hedges(4)	(12)		(360)		(805)		(113)
Other	65		14		829		173
Realized investment gains (losses), net, and related adjustments	(4)		518		1,895		(2,525)
Market experience updates(5)	(83)		(58)		321		(686)
Charges related to realized investment gains (losses), net	(38)		(166)		(408)		(67)
Total results excluded from adjusted operating income(6)	$	(125)	$	294	$	1,808	$	(3,278)

(1)Positive amounts represent income; negative amounts represent a loss.

(2)Represents the change in the liability (excluding NPR) for our variable annuities living benefit guarantees which is measured utilizing a valuation methodology that is required under U.S. GAAP. This liability includes such items as risk margins which are required by U.S. GAAP but not included in our best estimate of the liability.

(3)Represents the change in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.

(4)Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets.

(5)Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability.

(6)Excludes amounts from the change in unrealized gains and losses on fixed income instruments recorded in OCI (versus net income) of $(25) million, and $(33) million for the three months ended September 30, 2021 and 2020, respectively, and $(1,763) million and $1,668 million for the nine months ended September 30, 2021 and 2020, respectively.

For the three months ended September 30, 2021, the loss of $125 million was driven by an unfavorable NPR adjustment driven by tightening credit spreads and unfavorable market experience updates from unfavorable market performance. This was partially offset by a favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to favorable hedge breakage and rising interest rates.

For the three months ended September 30, 2020, the gain of $294 million was driven by the favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) largely due to tightening credit spreads and favorable equity markets. These gains were partially offset by an unfavorable NPR adjustment driven by tightening credit spreads and losses associated with our capital hedge program driven by favorable equity markets, as well as charges related to the amortization of DAC and other costs.

For the nine months ended September 30, 2021, the gain of $1,808 million was driven by a favorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) as well as favorable market experience updates largely due to favorable equity markets and rising interest rates. These impacts were partially offset by an unfavorable NPR adjustment, losses associated with our capital hedge program and charges related to the amortization of DAC and other costs.

For the nine months ended September 30, 2020, the loss of $3,278 million was driven by an unfavorable impact related to the U.S. GAAP liability before NPR, net of the change in fair value of hedge assets (excluding capital hedges) driven by declining interest rates, widening of credit spreads and unfavorable equity market performance, as well as unfavorable market experience updates due to unfavorable equity markets and declining interest rates. These losses were partially offset by a favorable NPR adjustment, reflecting the impact of widening credit spreads.

Product Specific Risks and Risk Mitigants

As noted above, the risks associated with our products are mitigated through product design features, including automatic rebalancing, as well as through our ALM strategy and external reinsurance. The following table sets forth the risk management profile of our living benefit guarantees and guaranteed minimum death benefit (“GMDB”) features as of the periods indicated:


	September 30, 2021				December 31, 2020				September 30, 2020
	Account Value		% of Total		Account Value		% of Total		Account Value		% of Total
	($ in millions)
Living benefit/GMDB features(1):
Both ALM strategy and automatic rebalancing(2)(3)	$	110,999	64	%	$	112,177	66	%	$	104,815	66	%
ALM strategy only(3)	7,205		4	%	7,410		4	%	6,955		4	%
Automatic rebalancing only	582		1	%	634		1	%	634		1	%
External reinsurance(4)	3,229		2	%	3,173		2	%	2,944		2	%
PDI	17,239		10	%	18,540		11	%	17,888		11	%
Other products	2,431		1	%	2,492		1	%	2,306		1	%
Total living benefit/GMDB features	$	141,685			$	144,426			$	135,542
GMDB features and other(5)	31,130		18	%	26,120		15	%	23,104		15	%
Total variable annuity account value(6)	$	172,815			$	170,546			$	158,646

(1)All contracts with living benefit guarantees also contain GMDB features, which cover the same insured contract.

(2)Contracts with living benefits that are included in our ALM strategy and that have an automatic rebalancing feature.

(3)Excludes PDI which is presented separately within this table.

(4)Represents contracts subject to a reinsurance transaction with an external counterparty covering certain Highest Daily Lifetime Income (“HDI”) v.3.0 business for the period April 1, 2015 through December 31, 2016. These contracts with living benefits also have an automatic rebalancing feature.

(5)Includes contracts that have a GMDB feature and do not have an automatic rebalancing feature.

(6)Includes approximately $30 billion of account values that are classified as “held-for-sale” as of September 30, 2021 in relation to the planned PALAC sale, as discussed above.

Individual Life

Operating Results

The following table sets forth Individual Life’s operating results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Operating results:
Revenues	$	1,839	$	1,609	$	5,090	$	4,702
Benefits and expenses	1,629		1,508		4,778		4,685
Adjusted operating income	210		101		312		17
Realized investment gains (losses), net, and related adjustments	(89)		(49)		(124)		500
Charges related to realized investment gains (losses), net	29		97		180		(256)
Market experience updates	(116)		(72)		10		(288)

Income (loss) before income taxes and equity in earnings of operating joint ventures	$	34	$	77	$	378	$	(27)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $109 million, primarily reflecting higher net investment spread results, driven by higher income on non-coupon investments.

Nine Month Comparison. Adjusted operating income increased $295 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 included a $7 million net benefit from these updates, mainly driven by favorable impacts related to assumptions for investment returns, partially offset by updates to reinsurance premiums. Results for 2020 included a $92 million net charge from these updates, mainly driven by unfavorable impacts related to a decrease in long-term interest rate assumptions. Excluding this item, adjusted operating income increased $196 million, primarily reflecting higher net investment spread results driven by higher income on non-coupon investments. These increases were partially offset by lower underwriting results, driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $230 million, primarily driven by higher net investment income from higher income on non-coupon investments and higher average invested assets, partially offset by lower reinvestment yields. The increase also reflected higher policy charges and fee income driven by lower ceded reinsurance, which were mostly offset by reserve changes in policyholders’ benefits, as discussed below.

Benefits and expenses increased $121 million, reflecting higher policyholders’ benefits driven by reserve changes from lower ceded reinsurance, partially offset by a favorable comparative impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims in the prior year period. The increase also reflected higher expenses.

Nine Month Comparison. Revenues increased $388 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased $495 million. This increase was primarily driven by higher net investment income from higher income on non-coupon investments and higher average invested assets, partially offset by lower investment yields. The increase also reflected higher policy charges and fee income driven by lower ceded reinsurance, which were mostly offset by reserve changes in policyholders’ benefits, as discussed below.

Benefits and expenses increased $93 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $299 million. This increase reflected higher policyholders’ benefits, including changes in reserves, primarily driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims, as well as reserve changes from lower ceded reinsurance.

Sales Results

The following table sets forth Individual Life’s annualized new business premiums, as defined under “—Results of Operations—Segment Measures” above, by distribution channel and product, for the periods indicated.


	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
	Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total
	(in millions)
Term Life	$	4	$	22	$	26	$	6	$	28	$	34
Guaranteed Universal Life(1)	0		5		5		1		19		20
Other Universal Life(1)	2		12		14		3		17		20
Variable Life	29		115		144		22		76		98
Total	$	35	$	154	$	189	$	32	$	140	$	172

	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
	Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total
	(in millions)
Term Life	$	16	$	75	$	91	$	19	$	95	$	114
Guaranteed Universal Life(1)	0		35		35		4		79		83
Other Universal Life(1)	6		39		45		15		58		73
Variable Life	89		313		402		64		209		273
Total	$	111	$	462	$	573	$	102	$	441	$	543

(1)Single pay life premiums and excess (unscheduled) premiums are included in annualized new business premiums based on a 10% credit and represented approximately 1% and 5% of Guaranteed Universal Life and 2% and 2% of Other Universal Life annualized new business premiums for the three months ended September 30, 2021 and 2020, respectively, and approximately 1% and 9% of Guaranteed Universal Life and 4% and 7% of Other Universal Life annualized new business premiums for the nine months ended September 30, 2021 and 2020, respectively.

Total annualized new business premiums for the third quarter of 2021 increased $17 million compared to the prior year period, primarily driven by higher sales of variable universal life products, partially offset by lower sales of guaranteed universal life, other universal life and term life products due to pricing and product actions. Total annualized new business premiums for the first nine months of 2021 increased $30 million compared to the prior year period, primarily driven by higher sales of variable life products, partially offset by lower sales across all other products, as described above.

Assurance IQ

Operating Results

The following table sets forth Assurance IQ’s operating results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Operating results:
Revenues	$	110	$	75	$	331	$	194
Expenses	165		105		463		263
Adjusted operating income	(55)		(30)		(132)		(69)
Other adjustments(1)	(7)		(12)		(33)		65
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(62)	$	(42)	$	(165)	$	(4)

(1)Includes certain components of the consideration for the Assurance IQ acquisition, 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 to the Unaudited Interim Consolidated Financial Statements for additional information.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $25 million, reflecting higher operating and variable expenses supporting business growth, partially offset by increased revenues primarily related to growth in the Medicare and Personal Finance product lines.

Nine Month Comparison. Adjusted operating income decreased $63 million, reflecting higher operating and variable expenses supporting business growth, partially offset by increased revenues primarily related to growth in the Medicare, Personal Finance and Life product lines.

Revenues and Expenses

Three Month Comparison. Revenues increased $35 million, primarily due to commissions and case referral revenues from the Medicare product line, driven by business growth and from a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and other product lines. Expenses increased $60 million, driven by higher marketing and distribution costs primarily related to the Medicare and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

Nine Month Comparison. Revenues increased $137 million, primarily due to commissions and case referral revenues from the Medicare product line, driven by business growth and from a strategic shift by the business to emphasize Medicare products, as well as from higher case referral sales in the Personal Finance and Life product lines. Expenses increased $200 million, driven by higher marketing and distribution costs primarily related to the Medicare, Life and Personal Finance product lines, and higher general and administrative operating expenses supporting business growth.

International Businesses

Business Updates

In the second quarter of 2021, the Company completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. for cash consideration of approximately NT 5.5 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. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information. Effective in the third quarter of 2020, the results of this business and the impact of its sale were reflected in Divested and Run-off Businesses that are included in Corporate and Other, and all prior period amounts have been updated to conform to the current period presentation. See “—Divested and Run-off Businesses.”
In the first quarter of 2021, the Company acquired a 24% interest (through a private equity limited partnership managed by LeapFrog Investments) in ICEA LION, a Kenya-based insurer and asset manager, for approximately $100 million. This investment is consistent with the Company’s strategic focus internationally on higher-growth emerging markets, and furthers the partnership’s specific objective to identify and make strategic investments in high quality financial services companies in selected African geographies.

Operating Results

The results of our International Businesses’ operations are translated on the basis of weighted average monthly exchange rates, inclusive of the effects of the intercompany arrangement discussed in “—Results of Operations—Impact of Foreign Currency Exchange Rates” above. To provide a better understanding of operating performance within the International Businesses, where indicated below, we have analyzed our results of operations excluding the effect of the year over year change in foreign currency exchange rates. Our results of operations, excluding the effect of foreign currency fluctuations, were derived by translating foreign currencies to USD at uniform exchange rates for all periods presented, including for constant dollar information discussed below. For our Japan operations, we used an exchange rate of 103 yen per USD, which was determined in connection with the foreign currency income hedging program discussed in “—Results of Operations—Impact of Foreign Currency Exchange Rates” above. In addition, for constant dollar information discussed below, activity denominated in USD is generally reported based on the amounts as transacted in USD. Annualized new business premiums presented on a constant exchange rate basis in the “Sales Results” section below reflect translation based on these same uniform exchange rates.

The following table sets forth the International Businesses’ operating results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020(1)		2021		2020(1)
	(in millions)
Operating results:
Revenues:
Life Planner	$	2,695	$	2,548	$	8,108	$	7,591
Gibraltar Life and Other	2,923		2,933		8,534		8,610
Total revenues	5,618		5,481		16,642		16,201
Benefits and expenses:
Life Planner	2,220		2,134		6,762		6,513
Gibraltar Life and Other	2,511		2,572		7,319		7,526
Total benefits and expenses	4,731		4,706		14,081		14,039
Adjusted operating income:
Life Planner	475		414		1,346		1,078
Gibraltar Life and Other	412		361		1,215		1,084
Total adjusted operating income	887		775		2,561		2,162
Realized investment gains (losses), net, and related adjustments	107		168		(76)		843
Charges related to realized investment gains (losses), net	(5)		(11)		(25)		(33)
Market experience updates	0		3		0		(39)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(19)		8		(57)		(22)
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	970	$	943	$	2,403	$	2,911

(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. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information about these dispositions.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income from our Life Planner operations increased $61 million, including a net unfavorable impact of $1 million from currency fluctuations, inclusive of the currency hedging program discussed above. Excluding this item, adjusted operating income from our Life Planner operations increased $62 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, and more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil and Japan.

Adjusted operating income from our Gibraltar Life and Other operations increased $51 million, including a net unfavorable impact of $3 million from currency fluctuations, inclusive of the currency hedging program discussed above. Excluding this item, adjusted operating income from our Gibraltar Life and Other operations increased $54 million primarily reflecting higher earnings from our joint venture investments and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period. Also contributing to the increase were higher net investment spread results driven by higher income on non-coupon investments and higher prepayment fee income, partially offset by lower reinvestment yields. These increases were partially offset by less favorable underwriting results due to unfavorable mortality experience, including COVID-19 related claims, and policyholder experience.

Nine Month Comparison. Adjusted operating income from our Life Planner operations increased $268 million, including a net unfavorable impact of $5 million from currency fluctuations, inclusive of the currency hedging program discussed above. Both periods also include the impact of our annual reviews and update of assumptions and other refinements, which resulted in a $2 million net benefit in 2021 compared to a $42 million net charge in 2020. The net charge in 2020 was primarily driven by unfavorable impacts related to a decrease in long-term interest rate assumptions.

Excluding the impact of currency fluctuations, as well as the impact from our annual reviews and update of assumptions and other refinements as discussed above, adjusted operating income from our Life Planner operations increased $229 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were more favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations, partially offset by unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil and Japan.

Adjusted operating income from our Gibraltar Life and Other operations increased $131 million, including a net unfavorable impact of $12 million from currency fluctuations, inclusive of the currency hedging program discussed above. Both periods also include the impact of our annual reviews and update of assumptions and other refinements, which resulted in a $16 million net charge in 2021 compared to a $52 million net charge in 2020. The net charge in 2021 reflected unfavorable impacts primarily related to lapse assumption updates. The net charge in 2020 was primarily driven by updates of reserves reflecting the impact of a decrease in long-term interest rate assumptions, as well as other refinements.

Excluding the impact of currency fluctuations, as well as the impact from our annual reviews and update of assumptions and other refinements as discussed above, adjusted operating income from our Gibraltar Life and Other operations increased $107 million primarily reflecting higher net investment spread results driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were lower expenses, primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period, and higher earnings from our joint venture investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues from our Life Planner operations increased $147 million, including a net unfavorable impact of $32 million from currency fluctuations. Excluding this item, revenues increased $179 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $86 million, including a net favorable impact of $32 million from currency fluctuations. Excluding this item, benefits and expenses increased $118 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force as well as unfavorable impacts from mortality experience due to COVID-19 related claims, primarily in Brazil and Japan. Also contributing to the increase were higher expenses supporting business growth, partially offset by the absence of certain costs associated with COVID-19 incurred in the prior year period.

Revenues from our Gibraltar Life and Other operations decreased $10 million, including a net unfavorable impact of $28 million from currency fluctuations. Excluding this item, revenues increased $18 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments and higher prepayment fee income, partially offset by lower reinvestment yields, and higher other income driven by a more favorable impact from our joint venture investments. These increases were partially offset by lower premiums and policy charges and fee income.

Benefits and expenses of our Gibraltar Life and Other operations decreased $61 million, including a net favorable impact of $25 million from currency fluctuations. Excluding this item, benefits and expenses decreased $36 million, primarily driven by lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Nine Month Comparison. Revenues from our Life Planner operations increased $517 million, including a net unfavorable impact of $57 million from currency fluctuations and a net charge of $34 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased $608 million, primarily reflecting higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields. Also contributing to the increase were higher premiums and policy charges and fee income attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased $249 million, including a net favorable impact of $52 million from currency fluctuations and a net benefit of $78 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $379 million, primarily reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force.

Revenues from our Gibraltar Life and Other operations decreased $76 million, including a net favorable impact of $18 million from currency fluctuations and a net benefit of $9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues decreased $103 million, primarily reflecting lower premiums and policy charges and fee income. The decrease was partially offset by higher net investment income driven by higher income on non-coupon investments, partially offset by lower reinvestment yields.

Benefits and expenses of our Gibraltar Life and Other operations decreased $207 million, including a net unfavorable impact of $30 million from currency fluctuations and a net benefit of $27 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses decreased $210 million, primarily driven by lower policyholders’ benefits, including changes in reserves, and lower expenses primarily due to the absence of certain costs associated with COVID-19 incurred in the prior year period.

Sales Results

The following table sets forth annualized new business premiums, as defined under “—Results of Operations—Segment Measures” above, on an actual and constant exchange rate basis for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020(1)		2021		2020(1)
	(in millions)
Annualized new business premiums:
On an actual exchange rate basis:
Life Planner	$	234	$	381	$	713	$	839
Gibraltar Life and Other	269		407		788		911
Total	$	503	$	788	$	1,501	$	1,750
On a constant exchange rate basis:
Life Planner	$	248	$	393	$	751	$	863
Gibraltar Life and Other	271		408		793		915
Total	$	519	$	801	$	1,544	$	1,778

The amount of annualized new business premiums and the sales mix in terms of types and currency denomination of products for any given period can be significantly impacted by several factors, including but not limited to: the addition of new products, discontinuation of existing products, changes in credited interest rates for certain products and other product modifications, changes in premium rates, changes in interest rates or fluctuations in currency markets, changes in tax laws, changes in life insurance regulations or changes in the competitive environment. Sales volume may increase or decrease prior to certain of these changes becoming effective, and then fluctuate in the other direction following such changes.

Our diverse product portfolio in Japan, in terms of currency mix and premium payment structure, allows us to adapt to changing market and competitive dynamics, including the extremely low interest rate environment. We regularly examine our product offerings and their related profitability and, as a result, we have repriced or discontinued sales of certain products that do not meet our profit expectations. The impact of these actions, coupled with the introduction of certain new products, has resulted in an increase in sales of products denominated in USD relative to products denominated in other currencies.

The table below presents annualized new business premiums on a constant exchange rate basis, by product and distribution channel, for the periods indicated.


	Three Months Ended September 30, 2021										Three Months Ended September 30, 2020(1)
	Life		Accident & Health		Retirement(2)		Annuity		Total		Life		Accident & Health		Retirement(2)		Annuity		Total
	(in millions)
Life Planner	$	135	$	17	$	95	$	1	$	248	$	197	$	18	$	178	$	0	$	393
Gibraltar Life and Other:
Life Consultants	$	65	$	6	$	14	$	68	$	153	$	122	$	9	$	26	$	11	$	168
Banks(3)	54		0		3		14		71		152		0		6		9		167
Independent Agency	20		1		22		4		47		44		1		26		2		73
Subtotal	139		7		39		86		271		318		10		58		22		408
Total	$	274	$	24	$	134	$	87	$	519	$	515	$	28	$	236	$	22	$	801

(2)Includes retirement income, endowment and savings variable universal life.

(3)Single pay life annualized new business premiums, which include 10% of first year premiums, and 3-year limited pay annualized new business premiums, which include 100% of new business premiums, represented 0% and 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended September 30, 2021, and 1% and 73%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended September 30, 2020.

Three Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations decreased $145 million, reflecting the absence of higher sales of USD-denominated products ahead of pricing increases in the prior year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased $137 million. Bank channel, Independent Agency and Life Consultants sales decreased $96 million, $26 million and $15 million, respectively, all reflecting the absence of higher sales of USD-denominated products ahead of pricing increases in the prior year period. The decrease in Life Consultants sales was partially offset by higher sales of USD-denominated fixed annuity products driven by higher crediting rates reflecting rising interest rates in the current year period.

The table below presents annualized new business premiums on a constant exchange rate basis, by product and distribution channel, for the periods indicated.


	Nine Months Ended September 30, 2021										Nine Months Ended September 30, 2020(1)
	Life		Accident & Health		Retirement(2)		Annuity		Total		Life		Accident & Health		Retirement(2)		Annuity		Total
	(in millions)
Life Planner	$	408	$	55	$	286	$	2	$	751	$	442	$	52	$	369	$	0	$	863
Gibraltar Life and Other:
Life Consultants	$	199	$	20	$	31	$	146	$	396	$	263	$	25	$	50	$	50	$	388
Banks(3)	202		0		8		40		250		329		0		19		13		361
Independent Agency	55		22		63		7		147		84		4		74		4		166
Subtotal	456		42		102		193		793		676		29		143		67		915
Total	$	864	$	97	$	388	$	195	$	1,544	$	1,118	$	81	$	512	$	67	$	1,778

(2)Includes retirement income, endowment and savings variable universal life.

(3)Single pay life annualized new business premiums, which include 10% of first year premiums, and 3-year limited pay annualized new business premiums, which include 100% of new business premiums, represented 4% and 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the nine months ended September 30, 2021, and 3% and 71%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the nine months ended September 30, 2020.

Nine Month Comparison. Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations decreased $112 million, reflecting the absence of higher sales of USD-denominated products ahead of pricing increases in the third quarter of 2020, as well as lower sales in the current year period as a result of those pricing increases, partially offset by higher sales resulting from an easing of COVID-19 restrictions in the current year period.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased $122 million. Bank channel sales decreased $111 million, reflecting the absence of higher sales of USD-denominated products ahead of pricing increases in the third quarter of 2020, as well as lower sales in the current year period as a result of those pricing increases. Independent Agency sales decreased $19 million primarily driven by the absence of higher sales of USD-denominated products ahead of pricing increases in the third quarter of 2020, as well as lower sales in the current year period as a result of those pricing increases, partially offset by higher sales of accident & health products to a single large client in the current year period. Life Consultants sales increased $8 million, primarily resulting from an easing of COVID-19 restrictions compared to the prior year period, and higher sales of USD-denominated fixed annuity products driven by higher crediting rates reflecting rising interest rates, partially offset by the absence of higher sales of USD-denominated products ahead of pricing increases in the third quarter of 2020, as well as lower sales in the current year period as a result of those pricing increases.

Corporate and Other

Corporate and Other includes corporate operations, after allocations to our business segments, and Divested and Run-off Businesses other than those that qualify for “discontinued operations” accounting treatment under U.S. GAAP.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020(1)		2021(1)		2020(1)
	(in millions)
Operating results:
Interest expense on debt	$	(209)	$	(233)	$	(628)	$	(678)
Investment income	40		25		112		100
Pension and employee benefits	75		40		217		148
Other corporate activities(2)	(366)		(325)		(819)		(1,016)
Adjusted operating income	(460)		(493)		(1,118)		(1,446)
Realized investment gains (losses), net, and related adjustments	(13)		(514)		73		(1,733)
Charges related to realized investment gains (losses), net	(7)		4		4		8
Market experience updates	0		(7)		(1)		(3)
Divested and Run-off Businesses	48		(83)		432		(567)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(23)		(23)		(34)		(15)
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(455)	$	(1,116)	$	(644)	$	(3,756)

(2)Includes consolidating adjustments.

Three Month Comparison. The loss from Corporate and Other operations, on an adjusted operating income basis, decreased $33 million. Pension and employee benefits results were favorable by $35 million driven by lower interest costs on our qualified pension plan obligations. Interest expense on debt decreased $24 million, primarily reflecting lower average debt balances and a decline in interest rates. Investment income increased $15 million reflecting higher asset balances. These items were partially offset by a $41 million increase in net charges from other corporate activities reflecting a $94 million cost related to the early extinguishment of debt in the current year period, which was partially offset by a decrease in other expenses.

Nine Month Comparison. The loss from Corporate and Other operations, on an adjusted operating income basis, decreased $328 million. Net charges from other corporate activities decreased $197 million primarily reflecting the absence of a significant charge to legal reserves incurred in the prior year period as well as lower expenses, partially offset by increased costs related to the early extinguishment of debt in the current year period. Also contributing to the decrease were favorable results of $69 million from pension and employee benefits, primarily driven by lower interest costs on our qualified pension plan obligations, as well as $50 million of lower interest expense on debt, primarily reflecting lower average debt balances and a decline in interest rates.

Divested and Run-off Businesses

Divested and Run-off Businesses Included in Corporate and Other

Income from our Divested and Run-off Businesses includes results from several 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 results of these Divested and Run-off Businesses are reflected in our Corporate and Other operations, but are excluded from adjusted operating income. A summary of the results of the Divested and Run-off Businesses reflected in our Corporate and Other operations is as follows for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Long-Term Care	$	56	$	78	$	302	$	266
Other(1)	(8)		(161)		130		(833)
Total Divested and Run-off Businesses income (loss) excluded from adjusted operating income	$	48	$	(83)	$	432	$	(567)

(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 herein. Effective third quarter of 2020, the results of POT and the impact of its sale are excluded from the International Businesses and are included herein. Effective third quarter of 2021, the results of the Full Service Retirement business are excluded from the Retirement segment and are included herein. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information about these divestitures.

Long-Term Care

Three Month Comparison. Results decreased $22 million compared to the prior year period primarily driven by a less favorable impact from changes in the market value of equity securities, partially offset by a favorable comparative impact from changes in the market value of derivatives used for duration management and higher investment income, including higher income on non-coupon investments.

Nine Month Comparison. Results increased $36 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for 2021 included a $62 million net benefit from these updates, while results for 2020 included a $33 million net charge from these updates. Excluding this item, results decreased $59 million primarily driven by an unfavorable impact from changes in the market value of derivatives used for duration management, partially offset by a favorable impact from changes in the market value of equity securities, higher underwriting results driven by favorable comparative policy and claim experience, and higher investment results, including higher income on non-coupon investments.

Other Divested and Run-off Businesses

Results for the third quarter of 2021 increased $153 million compared to the prior year period primarily driven by the absence of losses incurred in the third quarter of 2020 related to the sale of POT. Results for the nine months ended September 30, 2021 increased $963 million compared to the prior year period primarily driven by the absence of losses incurred in 2020 related to the sales of POK and POT. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information about these divestitures.

Closed Block Division

The Closed Block division includes certain in-force traditional domestic participating life insurance and annuity products and assets that are used for the payment of benefits and policyholder dividends on these policies (collectively the “Closed Block”), as well as certain related assets and liabilities. We no longer offer these traditional domestic participating policies. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information.

Each year, the Board of Directors of The Prudential Insurance Company of America (“PICA”) determines the dividends payable on participating policies for the following year based on the experience of the Closed Block, including investment income, net realized and unrealized investment gains (losses), mortality experience and other factors. Although the Closed Block experience for dividend action decisions is based upon statutory results, at the time the Closed Block was established, we developed, as required by U.S. GAAP, an actuarial calculation of the timing of the maximum future earnings from the policies included in the Closed Block. If actual cumulative earnings in any given period are greater than the cumulative earnings we expected, we record this excess as a policyholder dividend obligation. We will subsequently pay this excess to Closed Block policyholders as an additional dividend unless it is otherwise offset by future Closed Block performance that is less favorable than we originally expected. The policyholder dividends we charge to expense within the Closed Block division will include any change in our policyholder dividend obligation that we recognize for the excess of actual cumulative earnings in any given period over the cumulative earnings we expected in addition to the actual policyholder dividends declared by the Board of Directors of PICA.

As of September 30, 2021, the excess of actual cumulative earnings over the expected cumulative earnings was $3,908 million, which was recorded as a policyholder dividend obligation. Actual cumulative earnings, as required by U.S. GAAP, reflect the recognition of realized investment gains and losses in the current period, as well as changes in assets and related liabilities that support the Closed Block policies. Additionally, the accumulation of net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block has been reflected as a policyholder dividend obligation of $3,820 million at September 30, 2021, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.

Operating Results

The following table sets forth the Closed Block division’s results for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
U.S. GAAP results:
Revenues	$	1,321	$	1,301	$	4,299	$	3,318
Benefits and expenses	1,294		1,293		4,207		3,333
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	27	$	8	$	92	$	(15)

Income (loss) Before Income Taxes and Equity in Earnings of Operating Joint Ventures

Three Month Comparison. Income (loss) before income taxes and equity in earnings of operating joint ventures increased $19 million. Net investment activity results increased primarily reflecting higher realized investment gains driven by favorable changes in the fair value of derivatives used in risk management activities, and an increase in net investment income driven by higher income on non-coupon investments, partially offset by a decrease in other income due to less favorable changes in the value of equity securities. Net insurance activity results reflected a favorable comparative change driven by a decrease in the 2021 dividend scale and run-off of the business in force. As a result of the above and other variances, a $259 million increase in the policyholder dividend obligation was recorded in the third quarter of 2021, compared to a $161 million increase in the third quarter of 2020. If actual cumulative earnings fall below expected cumulative earnings in future periods, earnings volatility in the Closed Block division, which is primarily due to changes in investment results, may not be offset by changes in the cumulative earnings policyholder dividend obligation. For a discussion of the Closed Block division’s realized investment gains (losses), net, see “—General Account Investments.”

Nine Month Comparison. Income (loss) before income taxes and equity in earnings of operating joint ventures increased $107 million. Net investment activity results increased primarily reflecting higher other income driven by favorable changes in the value of equity securities, and an increase in realized investment gains driven by favorable changes in the fair value of derivatives used in risk management activities. Net insurance activity results reflected an unfavorable comparative change driven by unfavorable mortality, partially offset by a decrease in the 2021 dividend scale. As a result of the above and other variances, a $988 million increase in the policyholder dividend obligation was recorded in the first nine months of 2021, compared to a $192 million reduction in the first nine months of 2020. If actual cumulative earnings fall below expected cumulative earnings in future periods, earnings volatility in the Closed Block division, which is primarily due to changes in investment results, may not be offset by changes in the cumulative earnings policyholder dividend obligation. For a discussion of the Closed Block division’s realized investment gains (losses), net, see “—General Account Investments.”

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $20 million primarily driven by an increase in net realized investment gains and net investment income, partially offset by a decrease in other income and lower premiums due to runoff of policies in force, as discussed above.

Benefits and expenses increased $1 million primarily driven by an increase in dividends to policyholders, reflecting an increase in the policyholder dividend obligation expense due to changes in cumulative earnings, as discussed above.

Nine Month Comparison. Revenues increased $981 million primarily driven by an increase in other income, net realized investment gains, and net investment income, partially offset by lower premiums due to runoff of policies in force, as discussed above.

Benefits and expenses increased $874 million primarily driven by an increase in dividends to policyholders, reflecting an increase in the policyholder dividend obligation expense due to changes in cumulative earnings, as discussed above.

Income Taxes

For information regarding income taxes, see Note 8 to the Unaudited Interim Consolidated Financial Statements.

Experience-Rated Contractholder Liabilities,

Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments

Certain products included in the International Businesses and the divested Full Service Retirement business are experience-rated in that investment results associated with these products are expected to ultimately accrue to contractholders. The majority of investments supporting these experience-rated products are carried at fair value.

International Businesses. In our International Businesses, the experience-rated products are fully participating. As a result, the entire return on the underlying investments is passed back to policyholders through a corresponding adjustment to the related liability. These investments are reflected on the Unaudited Interim Consolidated Statements of Financial Position as “Assets supporting experience-rated contractholder liabilities, at fair value.” Realized and unrealized gains (losses) for these investments are reported in “Other income (loss).”

Full Service Retirement Business. 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 from the Retirement segment to the Divested and Run-off Businesses within Corporate & Other operations. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

Our divested Full Service Retirement business has two types of experience-rated products that are supported by assets supporting experience-rated contractholder liabilities and other related investments. Fully participating products are those for which the entire return on underlying investments is passed back to the policyholders. Partially participating products are those for which only a portion of the return on underlying investments is passed back to the policyholders over time through changes to the contractual crediting rates. The crediting rates are typically reset semiannually, often subject to a minimum crediting rate, and returns are required to be passed back within ten years.

As of the third quarter of 2021, the assets and liabilities associated with these products are included in the Unaudited Interim Consolidated Statements of Financial Position as “Assets held-for-sale” and “Liabilities held-for-sale,” respectively. For additional information on the accounting treatment of these assets and liabilities in prior periods, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments” in our Annual Report on Form 10-K for the year ended December 31, 2020.

The following table sets forth the impact on results for the periods indicated of these items that are excluded from adjusted operating income:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
International Businesses:
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net	$	62	$	76	$	308	$	(97)
Change in experience-rated contractholder liabilities due to asset value changes	(62)		(76)		(308)		97
Gains (losses), net, on experienced rated contracts	$	0	$	0	$	0	$	0
Divested and Run-off Businesses:
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net	$	(91)	$	77	$	(418)	$	556
Change in experience-rated contractholder liabilities due to asset value changes	88		(93)		394		(553)
Gains (losses), net, on experienced rated contracts(1)(2)	$	(3)	$	(16)	$	(24)	$	3
Total:
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net	$	(29)	$	153	$	(110)	$	459
Change in experience-rated contractholder liabilities due to asset value changes	26		(169)		86		(456)
Gains (losses), net, on experienced rated contracts(1)(2)	$	(3)	$	(16)	$	(24)	$	3

(1)Decreases to contractholder liabilities due to asset value changes are limited by certain floors and therefore do not reflect cumulative declines in recorded asset values of $2 million and $3 million as of September 30, 2021 and 2020, respectively. We have recovered and expect to recover in future periods these declines in recorded asset values through subsequent increases in recorded asset values or reductions in crediting rates on contractholder liabilities.

(2)Included in the amounts above related to the change in the liability to contractholders as a result of commercial mortgage and other loans are increases of $14 million and $5 million for the three months ended September 30, 2021 and 2020, respectively, and an increase of $42 million and a decrease of $1 million for the nine months ended September 30, 2021 and 2020, respectively. As prescribed by U.S. GAAP, changes in the fair value of commercial mortgage and other loans held for investment in our general account, other than when associated with impairments, are not recognized in income in the current period, while the impact of these changes in fair value are reflected as a change in the liability to fully participating contractholders in the current period.

For our divested Retirement Full Service business, the net impact of changes in experience-rated contractholder liabilities and investment gains (losses) on assets supporting experience-rated contractholder liabilities and other related investments reflects timing differences between the recognition of the mark-to-market adjustments and the recognition of the recovery of these adjustments in future periods through subsequent increases in asset values or reductions in crediting rates on contractholder liabilities for partially participating products. These impacts also reflect the difference between the fair value of the underlying commercial mortgages and other loans and the amortized cost, less any valuation allowance, of these loans.

Valuation of Assets and Liabilities

Fair Value of Assets and Liabilities

The authoritative guidance related to fair value measurement establishes a framework that includes a three-level hierarchy used to classify the inputs used in measuring fair value. The level in the hierarchy within which the fair value falls is determined based on the lowest level input that is significant to the measurement. The fair values of assets and liabilities classified as Level 3 include at least one significant unobservable input in the measurement. See Note 6 to the Unaudited Interim Consolidated Financial Statements for an additional description of the valuation hierarchy levels as well as for the balances of assets and liabilities measured at fair value on a recurring basis by hierarchy level presented on a consolidated basis.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of the periods indicated, and the portion of such assets and liabilities that are classified in Level 3 of the valuation hierarchy. The table also provides details about these assets and liabilities excluding those held in the Closed Block division. We believe the amounts excluding the Closed Block division are most relevant to an understanding of our operations that are pertinent to investors in Prudential Financial because substantially all Closed Block division assets support obligations and liabilities relating to the Closed Block policies only. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information on the Closed Block.


	As of September 30, 2021(1)								As of December 31, 2020
	PFI excluding Closed Block Division				Closed Block Division				PFI excluding Closed Block Division				Closed Block Division
	Total at Fair Value		Total Level 3(2)		Total at Fair Value		Total Level 3(2)		Total at Fair Value		Total Level 3(2)		Total at Fair Value		Total Level 3(2)
	(in millions)
Fixed maturities, available-for- sale	$	334,864	$	5,332	$	38,388	$	1,274	$	370,681	$	5,005	$	42,224	$	1,038
Assets supporting experience-rated contractholder liabilities:
Fixed maturities	1,096		0		0		0		21,414		615		0		0
Equity securities	2,263		0		0		0		2,043		0		0		0
All other(3)	58		0		0		0		619		20		0		0
Subtotal	3,417		0		0		0		24,076		635		0		0
Fixed maturities, trading	8,359		350		1,189		14		3,636		230		278		13
Equity securities	5,259		634		2,308		123		5,653		576		2,345		84
Commercial mortgage and other loans	1,106		0		0		0		1,092		0		0		0
Other invested assets(4)	2,583		376		0		0		2,268		366		3		0
Short-term investments	3,281		272		220		55		6,222		146		88		31
Cash equivalents	6,458		0		732		0		5,241		1		241		0
Other assets	111		111		0		0		268		268		0		0
Separate account assets	216,725		1,291		0		0		304,270		1,821		0		0
Total assets	$	582,163	$	8,366	$	42,837	$	1,466	$	723,407	$	9,048	$	45,179	$	1,166
Future policy benefits	$	9,230	$	9,230	$	0	$	0	$	18,879	$	18,879	$	0	$	0
Policyholders’ account balances	1,320		1,320		0		0		1,914		1,914		0		0
Other liabilities(4)	740		0		7		0		385		0		0		0

Total liabilities	$	11,290	$	10,550	$	7	$	0	$	21,178	$	20,793	$	0	$	0

(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)Level 3 assets expressed as a percentage of total assets measured at fair value on a recurring basis for PFI excluding the Closed Block division and for the Closed Block division totaled 1.4% and 3.4%, respectively, as of September 30, 2021, and 1.3% and 2.6%, respectively, as of December 31, 2020.

(3)“All other” represents cash equivalents and short-term investments.

(4)“Other invested assets” and “Other liabilities” primarily include derivatives. The amounts include the impact of netting subject to master netting agreements.

The determination of fair value, which for certain assets and liabilities is dependent on the application of estimates and assumptions, can have a significant impact on our results of operations and may require the application of a greater degree of judgment depending on market conditions, as the ability to value assets and liabilities can be significantly impacted by a decrease in market activity or a lack of transactions executed in an orderly manner. The continued impact of the COVID-19 pandemic on the global economy may have adverse effects on the valuation of assets and liabilities. Due to the highly uncertain nature of these conditions, it is not possible to estimate the overall impacts at this time.

Fixed maturity securities included in Level 3 in our fair value hierarchy are generally priced based on internally-developed valuations or indicative broker quotes. For certain private fixed maturity and equity securities, the internal valuation models use significant unobservable inputs and, accordingly, such securities are included in Level 3 in our fair value hierarchy. Level 3 fixed maturity securities for PFI excluding the Closed Block division included approximately $1.7 billion of public fixed maturities as of September 30, 2021, with values primarily based on indicative broker quotes, and approximately $4.7 billion of private fixed maturities, with values primarily based on internally-developed models. Significant unobservable inputs used in their valuation included: issue specific spread adjustments, material non-public financial information, management judgment, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes from market makers. Separate account assets included in Level 3 in our fair value hierarchy primarily include corporate securities and commercial mortgage loans.

Embedded derivatives reported in “Future policy benefits” and “Policyholders’ account balances” that are included in Level 3 of our fair value hierarchy represent general account liabilities pertaining to living benefit features of the Company’s variable annuity contracts and the index-linked interest credited features on certain life and annuity products. These are carried at fair value with changes in fair value included in “Realized investment gains (losses), net.” These embedded derivatives are valued using internally-developed models that require significant estimates and assumptions developed by management. Changes in these estimates and assumptions can have a significant impact on the results of our operations.

For additional information about the valuation techniques and the key estimates and assumptions used in our determination of fair value, 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.

General Account Investments

Portfolio Composition

Our investment portfolio consists of public and private fixed maturity securities, commercial mortgage and other loans, policy loans and non-coupon investments, which include equity securities and other invested assets such as limited partnerships and limited liability companies (“LPs/LLCs”), real estate held through direct ownership, derivative instruments and seed money investments in separate accounts. The composition of our general account reflects, within the discipline provided by our risk management approach, our need for competitive results and the selection of diverse investment alternatives available primarily through our PGIM segment. The size of our portfolio enables us to invest in asset classes that may be unavailable to the typical investor.

The following tables set forth the composition of our general account investment portfolio apportioned between PFI excluding the Closed Block division and the Closed Block division, as of the dates indicated:


	September 30, 2021
	PFI Excluding Closed Block Division(1)				Closed Block Division		Total
	($ in millions)
Fixed maturities:
Public, available-for-sale, at fair value	$	279,788	66.0	%	$	27,777	$	307,565
Public, held-to-maturity, at amortized cost, net of allowance	1,464		0.4		0		1,464
Private, available-for-sale, at fair value	54,589		12.9		10,611		65,200
Private, held-to-maturity, at amortized cost, net of allowance	180		0.1		0		180
Fixed maturities, trading, at fair value	8,146		1.9		1,189		9,335
Assets supporting experience-rated contractholder liabilities, at fair value	3,424		0.8		0		3,424
Equity securities, at fair value	4,721		1.1		2,308		7,029
Commercial mortgage and other loans, at book value, net of allowance	48,432		11.4		8,227		56,659
Policy loans, at outstanding balance	6,599		1.6		3,872		10,471
Other invested assets, net of allowance(2)	11,911		2.8		4,120		16,031
Short-term investments, net of allowance	4,358		1.0		339		4,697
Total general account investments	423,612		100.0	%	58,443		482,055
Invested assets of other entities and operations(3)	6,735				0		6,735
Total investments	$	430,347			$	58,443	$	488,790


	December 31, 2020
	PFI Excluding Closed Block Division				Closed Block Division		Total
	($ in millions)
Fixed maturities:
Public, available-for-sale, at fair value	$	309,813	63.7	%	$	29,475	$	339,288
Public, held-to-maturity, at amortized cost, net of allowance	1,719		0.4		0		1,719
Private, available-for-sale, at fair value	60,224		12.4		12,749		72,973
Private, held-to-maturity, at amortized cost, net of allowance	211		0.1		0		211
Fixed maturities, trading, at fair value	3,425		0.7		277		3,702
Assets supporting experience-rated contractholder liabilities, at fair value	24,115		5.0		0		24,115
Equity securities, at fair value	5,108		1.1		2,345		7,453
Commercial mortgage and other loans, at book value, net of allowance	55,892		11.5		8,421		64,313
Policy loans, at outstanding balance	7,207		1.5		4,064		11,271
Other invested assets, net of allowance(2)	10,716		2.1		3,610		14,326
Short-term investments, net of allowance	7,640		1.5		124		7,764
Total general account investments	486,070		100.0	%	61,065		547,135
Invested assets of other entities and operations(3)	6,485				0		6,485
Total investments	$	492,555			$	61,065	$	553,620

(1) Excludes “Assets held-for-sale” of $42,443 million as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Statements for additional information on the pending dispositions.

(2)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments. For additional information regarding these investments, see “—Other Invested Assets” below.

(3)Includes invested assets of our investment management and derivative operations. Excludes assets of our investment management operations that are managed for third-parties and those assets classified as “Separate account assets” on our balance sheet. For additional information regarding these investments, see “—Invested Assets of Other Entities and Operations” below.

The decrease in general account investments attributable to PFI excluding the Closed Block division in the first nine months of 2021 was primarily due to an increase in U.S. interest rates and the translation impact of the U.S. dollar strengthening against the yen, partially offset by the reinvestment of net investment income and net business inflows. Also included in the decrease are balances that were reclassified to “Assets held-for-sale”. For information regarding the methodology used in determining the fair value of our fixed maturities, see Note 6 to the Unaudited Interim Consolidated Financial Statements.

As of September 30, 2021 and December 31, 2020, 48% and 43%, respectively, of our general account investments attributable to PFI excluding the Closed Block division related to our Japanese insurance operations. The following table sets forth the composition of the investments of our Japanese insurance operations’ general account, as of the dates indicated:


	September 30, 2021		December 31, 2020
	(in millions)
Fixed maturities:
Public, available-for-sale, at fair value	$	147,669	$	154,261
Public, held-to-maturity, at amortized cost, net of allowance	1,464		1,719
Private, available-for-sale, at fair value	21,291		21,748
Private, held-to-maturity, at amortized cost, net of allowance	180		211
Fixed maturities, trading, at fair value	824		550
Assets supporting experience-rated contractholder liabilities, at fair value	3,359		3,149
Equity securities, at fair value	2,243		2,134
Commercial mortgage and other loans, at book value, net of allowance	19,894		19,915
Policy loans, at outstanding balance	2,774		3,078
Other invested assets(1)	3,817		3,045
Short-term investments, net of allowance	547		438
Total Japanese general account investments	$	204,062	$	210,248

(1)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments and other miscellaneous investments.

The decrease in general account investments related to our Japanese insurance operations in the first nine months of 2021 was primarily due to an increase in U.S. interest rates and the translation impact of the U.S. dollar strengthening against the yen, partially offset by portfolio growth as a result of net business inflows and the reinvestment of net investment income.

As of September 30, 2021, our Japanese insurance operations had $91.0 billion, at carrying value, of investments denominated in U.S. dollars, including $1.8 billion that were hedged to yen through third-party derivative contracts and $78.1 billion that support liabilities denominated in U.S. dollars, with the remainder constituting part of the hedging of foreign currency exchange rate exposure to U.S. dollar-equivalent equity. As of December 31, 2020, our Japanese insurance operations had $89.2 billion, at carrying value, of investments denominated in U.S. dollars, including $1.8 billion that were hedged to yen through third-party derivative contracts and $74.8 billion that support liabilities denominated in U.S. dollars, with the remainder constituting part of the hedging of foreign currency exchange rate exposure of U.S. dollar-equivalent equity. The $1.8 billion increase in the carrying value of U.S. dollar-denominated investments from December 31, 2020 was primarily attributable to reinvestment of net investment income and portfolio growth as a result of net business inflows, partially offset by an increase in U.S. interest rates.

Our Japanese insurance operations had $8.5 billion and $10.2 billion, at carrying value, of investments denominated in Australian dollars that support liabilities denominated in Australian dollars as of September 30, 2021 and December 31, 2020, respectively. The $1.7 billion decrease in the carrying value of Australian dollar-denominated investments from December 31, 2020 was primarily attributable to run-off of the portfolio and an increase in Australian government bond rates. For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations and a discussion of our yen hedging strategy, see “—Results of Operations by Segment—Impact of Foreign Currency Exchange Rates” above.

Investment Results

The following tables set forth the investment results of our general account apportioned between PFI excluding the Closed Block division, and the Closed Block division, for the periods indicated. The yields are based on net investment income as reported under U.S. GAAP and as such do not include certain interest-related items, such as settlements of duration management swaps which are included in “Realized investment gains (losses), net.”

2021 to 2020 Three Month Comparison


	Three Months Ended September 30, 2021
	PFI Excluding Closed Block Division and Japanese Operations(6)				Japanese Insurance Operations				PFI Excluding Closed Block Division(6)				Closed Block Division		Total(5)
	Yield(1)		Amount		Yield(1)		Amount		Yield(1)		Amount		Amount		Amount
	($ in millions)
Fixed maturities(2)	4.51	%	$	1,753	2.73	%	$	994	3.65	%	$	2,747	$	362	$	3,109
Assets supporting experience-rated contractholder liabilities	2.82		139		0.89		7		2.54		146		0		146
Equity securities	1.06		7		1.02		6		1.04		13		10		23
Commercial mortgage and other loans	3.85		344		3.79		189		3.83		533		84		617
Policy loans	5.00		48		3.79		27		4.48		75		57		132
Short-term investments and cash equivalents	0.57		16		0.52		1		0.57		17		1		18
Gross investment income	4.04		2,307		2.81		1,224		3.51		3,531		514		4,045
Investment expenses	(0.10)		(40)		(0.14)		(62)		(0.12)		(102)		(32)		(134)
Investment income after investment expenses	3.94	%	2,267		2.67	%	1,162		3.39	%	3,429		482		3,911
Other invested assets(3)			491				133				624		168		792
Investment results of other entities and operations(4)			14				0				14		0		14
Total investment income			$	2,772			$	1,295			$	4,067	$	650	$	4,717


	Three Months Ended September 30, 2020
	PFI Excluding Closed Block Division and Japanese Operations				Japanese Insurance Operations				PFI Excluding Closed Block Division				Closed Block Division		Total(5)
	Yield(1)		Amount		Yield(1)		Amount		Yield(1)		Amount		Amount		Amount
	($ in millions)
Fixed maturities(2)	4.55	%	$	1,859	2.80	%	$	986	3.74	%	$	2,845	$	398	$	3,243
Assets supporting experience-rated contractholder liabilities	3.09		161		2.21		15		2.99		176		0		176
Equity securities	3.32		19		1.17		6		2.34		25		11		36
Commercial mortgage and other loans	3.81		335		3.75		181		3.79		516		87		603
Policy loans	5.35		60		3.02		24		4.37		84		61		145
Short-term investments and cash equivalents	0.48		27		0.43		2		0.48		29		1		30
Gross investment income	3.96		2,461		2.86		1,214		3.52		3,675		558		4,233
Investment expenses	(0.13)		(65)		(0.14)		(60)		(0.13)		(125)		(31)		(156)
Investment income after investment expenses	3.83	%	2,396		2.72	%	1,154		3.39	%	3,550		527		4,077
Other invested assets(3)			138				85				223		55		278
Investment results of other entities and operations(4)			91				0				91		0		91
Total investment income			$	2,625			$	1,239			$	3,864	$	582	$	4,446

(1)For interim periods, yields are annualized. The denominator in the yield percentage is based on quarterly average carrying values for all asset types except for fixed maturities which are based on amortized cost, net of allowance. Amounts for fixed maturities, short-term investments and cash equivalents are also netted for securities lending activity (i.e., income netted for rebate expenses and asset values netted for securities lending liabilities). A yield is not presented for other invested assets as it is not considered a meaningful measure of investment performance. Yields exclude investment income and assets related to other invested assets.

(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading, which are included in other invested assets.

(3)Other invested assets consist of investments in LPs/LLCs, investment real estate held through direct ownership, derivative instruments, fixed maturities classified as trading and other miscellaneous investments.

(4)Includes net investment income of our investment management operations.

(5)The total yield was 3.46% and 3.48% for the three months ended September 30, 2021 and 2020, respectively.

(6)The denominator in the yield percentage includes “Assets held-for-sale”. See Note 1 of the Unaudited Interim Consolidated Statement for additional information on the pending dispositions.

The increase in investment income after investment expenses yield attributable to our general account investments, excluding both the Closed Block division and the Japanese insurance operations’ portfolio, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, was primarily the result of the absence of lower yielding fixed income securities previously held within businesses divested over the last twelve months.

The decrease in investment income after investment expenses yield attributable to the Japanese insurance operations’ portfolio, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, was primarily the result of lower fixed income reinvestment rates.

Both the U.S. dollar-denominated and Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts provide a yield that is substantially higher than the yield on comparable yen-denominated fixed maturities. The average amortized cost of U.S. dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $60.3 billion and $55.3 billion for the three months ended September 30, 2021 and 2020, respectively. The majority of U.S. dollar-denominated fixed maturities support liabilities that are denominated in U.S. dollars. The average amortized cost of Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $7.7 billion and $8.1 billion for the three months ended September 30, 2021 and 2020, respectively. The majority of Australian dollar-denominated fixed maturities support liabilities that are denominated in Australian dollars. For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations, see “—Results of Operations by Segment—Impact of Foreign Currency Exchange Rates” above.

2021 to 2020 Nine Month Comparison


	Nine Months Ended September 30, 2021
	PFI Excluding Closed Block Division and Japanese Operations(6)				Japanese Insurance Operations				PFI Excluding Closed Block Division(6)				Closed Block Division		Total(5)
	Yield(1)		Amount		Yield(1)		Amount		Yield(1)		Amount		Amount		Amount
	($ in millions)
Fixed maturities(2)	4.55	%	$	5,293	2.71	%	$	2,939	3.66	%	$	8,232	$	1,117	$	9,349
Assets supporting experience-rated contractholder liabilities	2.95		444		0.95		23		2.67		467		0		467
Equity securities	1.13		24		2.84		46		1.87		70		34		104
Commercial mortgage and other loans	3.93		1,043		3.81		564		3.89		1,607		265		1,872
Policy loans	5.12		151		4.06		87		4.67		238		165		403
Short-term investments and cash equivalents	0.50		42		0.46		3		0.50		45		2		47
Gross investment income	4.08		6,997		2.82		3,662		3.54		10,659		1,583		12,242
Investment expenses	(0.13)		(187)		(0.14)		(180)		(0.13)		(367)		(93)		(460)
Investment income after investment expenses	3.95	%	6,810		2.68	%	3,482		3.41	%	10,292		1,490		11,782
Other invested assets(3)			1,034				348				1,382		375		1,757
Investment results of other entities and operations(4)			112				0				112		0		112
Total investment income			$	7,956			$	3,830			$	11,786	$	1,865	$	13,651


	Nine Months Ended September 30, 2020
	PFI Excluding Closed Block Division and Japanese Operations				Japanese Insurance Operations				PFI Excluding Closed Block Division				Closed Block Division		Total(5)
	Yield(1)		Amount		Yield(1)		Amount		Yield(1)		Amount		Amount		Amount
	($ in millions)
Fixed maturities(2)	4.58	%	$	5,606	2.79	%	$	2,884	3.76	%	$	8,490	$	1,192	$	9,682
Assets supporting experience-rated contractholder liabilities	3.22		476		2.16		43		3.09		519		0		519
Equity securities	2.36		40		3.05		45		2.68		85		34		119
Commercial mortgage and other loans	3.95		1,035		3.87		550		3.92		1,585		269		1,854
Policy loans	5.36		186		3.42		78		4.59		264		185		449
Short-term investments and cash equivalents	0.92		158		0.95		12		0.93		170		6		176
Gross investment income	4.05		7,501		2.90		3,612		3.59		11,113		1,686		12,799
Investment expenses	(0.12)		(212)		(0.14)		(184)		(0.13)		(396)		(106)		(502)
Investment income after investment expenses	3.93	%	7,289		2.76	%	3,428		3.46	%	10,717		1,580		12,297
Other invested assets(3)			157				137				294		58		352
Investment results of other entities and operations(4)			185				0				185		0		185
Total investment income			$	7,631			$	3,565			$	11,196	$	1,638	$	12,834

(2)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading, which are included in other invested assets.

(4)Includes net investment income of our investment management operations.

(5)The total yield was 3.48% and 3.54% for the nine months ended September 30, 2021 and 2020, respectively.

(6)The denominator in the yield percentage includes “Assets held-for-sale”. See Note 1 of the Unaudited Interim Consolidated Statement for additional information on the pending dispositions.

The increase in investment income after investment expenses yield attributable to our general account investments, excluding both the Closed Block division and the Japanese insurance operations’ portfolio, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was primarily the result of the absence of lower yielding fixed income securities previously held within businesses divested over the last twelve months.

The decrease in investment income after investment expenses yield attributable to the Japanese insurance operations’ portfolio, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was primarily the result of lower fixed income reinvestment rates.

Both the U.S. dollar-denominated and Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts provide a yield that is substantially higher than the yield on comparable yen-denominated fixed maturities. The average amortized cost of U.S. dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $59.9 billion and $53.3 billion for the nine months ended September 30, 2021 and 2020, respectively. The majority of U.S. dollar-denominated fixed maturities support liabilities that are denominated in U.S. dollars. The average amortized cost of Australian dollar-denominated fixed maturities that are not hedged to yen through third-party derivative contracts was approximately $8.0 billion and $8.0 billion for the nine months ended September 30, 2021 and 2020, respectively. The majority of Australian dollar-denominated fixed maturities support liabilities that are denominated in Australian dollars. For additional information regarding U.S. and Australian dollar investments held in our Japanese insurance operations, see “—Results of Operations by Segment—Impact of Foreign Currency Exchange Rates” above.

Realized Investment Gains and Losses

The following table sets forth “Realized investment gains (losses), net” of our general account apportioned between PFI excluding Closed Block division, and the Closed Block division, by investment type as well as “Related adjustments” and “Charges related to realized investment gains (losses), net” for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
PFI excluding Closed Block Division:
Realized investment gains (losses), net:
(Addition to) release of allowance for credit losses on fixed maturities	$	(11)	$	89	$	28	$	(129)
Write-downs on fixed maturities(1)	0		(106)		0		(206)
Net gains (losses) on sales and maturities	144		329		1,343		784
Fixed maturity securities(2)	133		312		1,371		449
(Addition to) release of allowance for credit losses on loans	38		2		92		(1)
Net gains (losses) on sales and maturities	0		0		1		9
Commercial mortgage and other loans	38		2		93		8
Derivatives	14		(416)		1,021		(3,017)
OTTI losses on other invested assets recognized in earnings	(31)		0		(46)		(9)
(Addition to) release of allowance for credit losses on other invested assets	0		0		0		0
Other net gains (losses)	43		1		136		22
Other	12		1		90		13
Subtotal	197		(101)		2,575		(2,547)
Investment results of other entities and operations(3)	67		4		66		117
Total — PFI excluding Closed Block Division	264		(97)		2,641		(2,430)
Related adjustments(4)	(148)		333		(876)		(328)
Realized investment gains (losses), net, and related adjustments	116		236		1,765		(2,758)
Charges related to realized investment gains (losses), net(4)	(18)		(69)		(254)		(353)
Realized investment gains (losses), net, and charges related to realized investment gains (losses), net and adjustments	$	98	$	167	$	1,511	$	(3,111)
Closed Block Division:
Realized investment gains (losses), net:
(Addition to) release of allowance for credit losses on fixed maturities	$	(1)	$	(3)	$	16	$	(23)
Write-downs on fixed maturities(1)	0		(27)		0		(83)
Net gains (losses) on sales and maturities	87		121		359		329
Fixed maturity securities(2)	86		91		375		223
(Addition to) release of allowance for credit losses on loans	5		8		12		5
Net gains (losses) on sales and maturities	0		(6)		0		(3)
Commercial mortgage and other loans	5		2		12		2
Derivatives	77		(71)		116		49


Other net gains (losses)	0		(4)		2		(8)
Other	0		(4)		2		(8)
Subtotal — Closed Block Division	168		18		505		266
Consolidated PFI realized investment gains (losses), net	$	432	$	(79)	$	3,146	$	(2,164)

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

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

(3)Includes “realized investment gains (losses), net” of our investment management operations.

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

Three Month Comparison. Net gains on sales and maturities of fixed maturity securities were $144 million for the third quarter of 2021 primarily driven by the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment. Net gains on sales and maturities of fixed maturity securities were $329 million for the third quarter of 2020 primarily driven by the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment and other sales of fixed maturity securities within our domestic segments driven by interest rate declines during the investment holding period.

For the third quarter of 2021, the $11 million net addition to allowance for credit losses for fixed maturities was due to adverse projected cash flows on investments in the transportation and capital goods sectors within corporate securities, partially offset by a net release on restructured securities within the energy sector. In the third quarter of 2020, the $89 million net release of allowance for credit losses for fixed maturities was primarily related to a release on restructured securities in the energy sector within corporate securities and foreign government securities.

Net realized gains on derivative instruments of $14 million for the third quarter of 2021 primarily included:

$206 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the British pound sterling and Euro; and
$27 million of gains for fees earned on fee-based synthetic guaranteed investment contracts.

Partially offsetting these gains were:

$140 million of losses on interest rate derivatives due to an increase in the swap and U.S. Treasury rates;
$61 million of losses on capital hedges due to increases in equity indices; and
$24 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts.

Net realized losses on derivative instruments of $416 million for the third quarter of 2020 primarily included:

$839 million of losses on capital hedges due to increases in equity indices;
$289 million of losses on foreign currency hedges due to U.S. dollar depreciation versus the British pound sterling, euro and Australian dollar; and
$207 million of losses on interest rate derivatives due to increases in the swap and U.S. Treasury rates.

Partially offsetting these losses were:

$883 million of gains on product-related embedded derivatives and related hedge positions associated with certain

variable annuity contracts.

For a discussion of living benefit guarantees and related hedge positions in our Individual Annuities segment, see “—Results of Operations by Segment—U.S. Businesses—Individual Annuities” above.

Included in the table above are “Related adjustments,” which include the portions of “Realized investment gains (losses), net” that are either (1) included in adjusted operating income or (2) included in other reconciling line items to adjusted operating income, such as “Market experience updates” and “Divested and Run-off Businesses.” “Related adjustments” also includes the portions of “Other income (loss)” and “Net investment income” that are excluded from adjusted operating income. These adjustments are made to arrive at “Realized investment gains (losses), net, and related adjustments” which is excluded from adjusted operating income. See Note 13 for additional details on adjusted operating income and its reconciliation to “Income (loss) before income taxes and equity in earnings of operating joint ventures.” Results for the third quarter of 2021 and 2020 reflect net related adjustments of $(148) million and $333 million, respectively. Both periods include changes in the fair value of equity securities and fixed income securities that are designated as trading, as well as settlements and changes in the value of derivatives.

Also included in the table above are “Charges related to realized investment gains (losses), net,” which are excluded from adjusted operating income and which may be reflected as either a net charge or net benefit. Results for the third quarter of 2021 and 2020 reflect net charges of $18 million and $69 million, respectively, and were primarily driven by the impact of derivative activity on the amortization of DAC and other costs, and certain policyholder reserves.

Nine Month Comparison. Net gains on sales and maturities of fixed maturity securities were $1,343 million for the first nine months of 2021 primarily driven by sales of U.S. treasuries acquired in a higher interest-rate environment within our domestic segments and the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment. Net gains on sales and maturities of fixed maturity securities were $784 million for the first nine months of 2020 primarily driven by the impact of foreign currency exchange rate movements on U.S. and Australian dollar-denominated securities that matured or were sold within our International Businesses segment and other sales of fixed maturity securities within our domestic segments from interest rate declines during the investment holding period.

The net release of the allowance for credit losses related to fixed maturity securities was $28 million in the first nine months of 2021 due to the overall improved credit environment in the energy and consumers 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. The net addition to the allowance for credit losses related to fixed maturity securities was $129 million in the first nine months of 2020 and was concentrated in the energy, communications and consumer cyclical sectors within corporate securities due to liquidity concerns, downgrades in credit, bankruptcy or other adverse financial conditions of the respective issuers. Partially offsetting the addition was a release related to restructured securities in the energy sector within corporate securities and foreign government securities.

Net realized gains on derivative instruments of $1,021 million for the first nine months of 2021 primarily included:

$2,224 million of gains on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and
$303 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the British pound sterling and Euro.

Partially offsetting these gains were:

$856 million of losses on capital hedges due to increases in equity indices; and
$765 million of losses on interest rate derivatives due to increases in the swap and U.S. Treasury rates.

Net realized losses on derivative instruments of $3,017 million for the first nine months of 2020 primarily included:

$4,708 million of losses on product-related embedded derivatives and related hedge positions associated with certain variable annuity contracts; and
$1,071 million of losses on capital hedges due to increases in equity indices.

Partially offsetting these losses were:

$2,000 million of gains on interest rate derivatives due to decreases in swap and U.S. Treasury rates;
$608 million of gains on foreign currency hedges due to U.S. dollar appreciation versus the British pound sterling and due to USD interest rates declining more than foreign interest rates; and
$102 million of gains for fees earned on fee-based synthetic GICs.

Results for the first nine months of 2021 and 2020 reflect net related adjustments of $(876) million and $(328) million, respectively. Both periods include changes in the fair value of equity securities and fixed income securities that are designated as trading, as well as settlements and changes in the value of derivatives.

Results for the first nine months of 2021 and 2020 reflect net charges of $254 million and $353 million, respectively, and were primarily driven by the impact of derivative activity on the amortization of DAC and other costs, and certain policyholder reserves.

Credit Losses

The level of credit losses generally reflects current and expected economic conditions and is expected to increase when economic conditions worsen and to decrease when economic conditions improve. Historically, the causes of credit losses have been specific to each individual issuer and have not directly resulted in credit losses to other securities within the same industry or geographic region. We may also realize additional credit and interest rate-related losses through sales of investments pursuant to our credit risk and portfolio management objectives.

We maintain separate monitoring processes for public and private fixed maturities and create watch lists to highlight securities that require special scrutiny and management. For private placements, our credit and portfolio management processes help ensure prudent controls over valuation and management. We have separate pricing and authorization processes to establish “checks and balances” for new investments. We apply consistent standards of credit analysis and due diligence for all transactions, whether they originate through our own in-house staff or through agents. Our regional offices closely monitor the portfolios in their regions. We set all valuation standards centrally, and we assess the fair value of all investments quarterly. Our public and private fixed maturity investment managers formally review all public and private fixed maturity holdings on a quarterly basis and more frequently when necessary to identify potential credit deterioration whether due to ratings downgrades, unexpected price variances and/or company or industry-specific concerns.

For LPs/LLCs accounted for using the equity method and for wholly-owned investment real estate, the carrying value of these investments is written down or impaired to fair value when a decline in value is considered to be other-than-temporary. For additional information regarding our OTTI policies, 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.

COVID-19

We believe our investment portfolio has been diligently constructed with a strong focus on ALM discipline, risk management, and capital preservation. Throughout the COVID-19 pandemic we have benefited from our experience in managing highly specialized asset classes throughout credit cycles. While the economy continues to re-open and recover, there could be periods of volatility. The market expectations for credit migration and related losses continue to decrease significantly. The sectors most impacted from COVID-19 have started to recover but may lag the general economic improvement. We continue to monitor our portfolio for potential credit issues and opportunities as part of our overall portfolio and risk management process.

General Account Investments of PFI excluding Closed Block Division

In the following sections, we provide details about our investment portfolio, excluding investments held in the Closed Block division. We believe the details of the composition of our investment portfolio excluding the Closed Block division are most relevant to an understanding of our operations that are pertinent to investors in Prudential Financial, Inc. because substantially all Closed Block division assets support obligations and liabilities relating to the Closed Block policies only. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information on the Closed Block.

Fixed Maturity Securities

In the following sections, we provide details about our fixed maturity securities portfolio, which excludes fixed maturity securities classified as assets supporting experience-rated contractholder liabilities and classified as trading.

Fixed Maturity Securities by Industry

The following table sets forth the composition of the portion of our fixed maturity, available-for-sale portfolio by industry category attributable to PFI excluding the Closed Block division and the associated gross unrealized gains and losses, as well as the allowance for credit losses (“ACL”), as of the dates indicated:


	September 30, 2021										December 31, 2020
Industry(1)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		ACL		Fair Value
	(in millions)
Corporate securities:
Finance	$	36,775	$	3,591	$	164	$	0	$	40,202	$	37,577	$	5,240	$	70	$	0	$	42,747
Consumer non-cyclical	29,134		3,680		172		1		32,641		28,891		5,085		52		0		33,924
Utility	23,420		3,241		115		19		26,527		24,235		4,504		60		11		28,668
Capital goods	13,646		1,409		70		5		14,980		13,711		1,947		49		2		15,607
Consumer cyclical	10,459		1,069		45		0		11,483		11,196		1,536		52		13		12,667
Foreign agencies	5,162		676		23		0		5,815		5,323		903		11		0		6,215
Energy	11,650		1,377		62		2		12,963		12,257		1,583		118		58		13,664
Communications	6,573		1,059		52		31		7,549		6,013		1,343		35		22		7,299
Basic industry	5,913		670		33		0		6,550		5,895		914		17		0		6,792
Transportation	9,387		1,043		68		19		10,343		10,067		1,568		40		0		11,595
Technology	4,502		289		37		3		4,751		3,717		381		14		0		4,084
Industrial other	4,369		513		45		0		4,837		4,485		778		21		0		5,242
Total corporate securities	160,990		18,617		886		80		178,641		163,367		25,782		539		106		188,504
Foreign government(2)	85,012		12,497		460		0		97,049		93,521		16,229		236		0		109,514
Residential mortgage-backed(3)	2,616		137		11		0		2,742		2,572		198		0		0		2,770
Asset-backed	8,429		113		6		0		8,536		11,584		137		67		0		11,654
Commercial mortgage-backed	8,332		508		8		0		8,832		10,296		883		8		0		11,171
U.S. Government	22,303		4,736		85		0		26,954		25,959		8,348		15		0		34,292
State & Municipal	9,978		1,660		15		0		11,623		10,142		1,991		1		0		12,132
Total fixed maturities, available-for-sale(4)	$	297,660	$	38,268	$	1,471	$	80	$	334,377	$	317,441	$	53,568	$	866	$	106	$	370,037

(1)Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.

(2)As of September 30, 2021 and December 31, 2020, based on amortized cost, 89% and 86%, respectively, represent Japanese government bonds held by our Japanese insurance operations with no other individual country representing more than 4% of the balance at both periods.

(3)As of both September 30, 2021 and December 31, 2020, based on amortized cost, 97% were rated A or higher.

(4)Excluded from the table above are securities held outside the general account in other entities and operations. For additional information regarding investments held outside the general account, see “—Invested Assets of Other Entities and Operations” below. Also excludes “Assets held-for-sale” of $15,643 million (amortized cost of $14,985 million) as of September 30, 2021. Unrealized gains of $783 million, unrealized losses of $123 million and the allowance for credit losses of $2 million related to these held for sale assets are also excluded from the presentation. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

The decrease in net unrealized gains from December 31, 2020 to September 30, 2021 was primarily due to an increase in U.S. interest rates.

The following table sets forth the composition of the portion of our fixed maturity, held-to-maturity portfolio by industry category attributable to PFI excluding the Closed Block division and the associated gross unrealized gains and losses, as well as the allowance for credit losses, as of the dates indicated:


	September 30, 2021										December 31, 2020
Industry(1)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		ACL		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		ACL
	(in millions)
Corporate securities:
Finance	$	500	$	54	$	0	$	554	$	6	$	651	$	67	$	0	$	718	$	9







Basic industry	81		1		0		82		0		87		2		0		89		0



Total corporate securities	581		55		0		636		6		738		69		0		807		9
Foreign government(2)	859		235		0		1,094		0		935		270		0		1,205		0
Residential mortgage-backed(3)	210		16		0		226		0		266		20		0		286		0




Total fixed maturities, held-to-maturity	$	1,650	$	306	$	0	$	1,956	$	6	$	1,939	$	359	$	0	$	2,298	$	9

(1)Investment data has been classified based on standard industry categorizations for domestic public holdings and similar classifications by industry for all other holdings.

(2)As of September 30, 2021 and December 31, 2020, based on amortized cost, 97% and 98%, respectively, represent Japanese government bonds held by our Japanese insurance operations.

(3)As of both September 30, 2021 and December 31, 2020, based on amortized cost, all were rated A or higher.

Fixed Maturity Securities Credit Quality

The Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”) evaluates the investments of insurers for statutory reporting purposes and assigns fixed maturity securities to one of six categories called “NAIC Designations.” In general, NAIC Designations of “1” highest quality, or “2” high quality, include fixed maturities considered investment grade, which include securities rated Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”) or BBB- or higher by Standard & Poor’s Rating Services (“S&P”). NAIC Designations of “3” through “6” generally include fixed maturities referred to as below investment grade, which include securities rated Ba1 or lower by Moody’s and BB+ or lower by S&P. The NAIC Designations for commercial mortgage-backed securities and non-agency residential mortgage-backed securities, including our asset-backed securities collateralized by sub-prime mortgages, are based on security level expected losses as modeled by an independent third-party (engaged by the NAIC) and the statutory carrying value of the security, including any purchase discounts or impairment charges previously recognized.

As a result of time lags between the funding of investments, the finalization of legal documents, and the completion of the SVO filing process, the fixed maturity portfolio includes certain securities that have not yet been designated by the SVO as of each balance sheet date. Pending receipt of SVO designations, the categorization of these securities by NAIC Designation is based on the expected ratings indicated by internal analysis.

Investments of our international insurance companies are not subject to NAIC guidelines. Investments of our Japanese insurance operations are regulated locally by the Financial Services Agency (“FSA”), an agency of the Japanese government. The FSA has its own investment quality criteria and risk control standards. Our Japanese insurance companies comply with the FSA’s credit quality review and risk monitoring guidelines. The credit quality ratings of the investments of our Japanese insurance companies are based on ratings assigned by nationally recognized credit rating agencies, including Moody’s and S&P, or rating equivalents based on ratings assigned by Japanese credit ratings agencies.

The following table sets forth our fixed maturity, available-for-sale portfolio by NAIC Designation or equivalent rating attributable to PFI excluding the Closed Block division, as of the dates indicated:


	September 30, 2021										December 31, 2020
NAIC Designation(1) (2)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses(3)		ACL		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses(3)		ACL		Fair Value
	(in millions)
1	$	210,587	$	29,521	$	784	$	0	$	239,324	$	229,951	$	41,311	$	381	$	0	$	270,881
2	68,365		7,625		366		0		75,624		68,458		10,683		180		0		78,961
Subtotal High or Highest Quality Securities(4)	278,952		37,146		1,150		0		314,948		298,409		51,994		561		0		349,842
3	11,745		799		153		0		12,391		11,913		1,192		95		0		13,010
4	5,133		193		112		0		5,214		5,119		211		119		23		5,188
5	1,417		81		45		31		1,422		1,629		123		67		16		1,669
6	413		49		11		49		402		371		48		24		67		328
Subtotal Other Securities(5) (6)	18,708		1,122		321		80		19,429		19,032		1,574		305		106		20,195
Total fixed maturities, available-for-sale(7)	$	297,660	$	38,268	$	1,471	$	80	$	334,377	$	317,441	$	53,568	$	866	$	106	$	370,037

(1)Reflects equivalent ratings for investments of the international insurance operations.

(2)Includes, as of September 30, 2021 and December 31, 2020, 597 securities with amortized cost of $4,035 million (fair value, $4,068 million) and 102 securities with amortized cost of $356 million (fair value, $382 million), respectively, that have been categorized based on expected NAIC Designations pending receipt of SVO ratings.

(3)As of September 30, 2021, includes gross unrealized losses of $195 million on public fixed maturities and $126 million on private fixed maturities considered to be other than high or highest quality and, as of December 31, 2020, includes gross unrealized losses of $184 million on public fixed maturities and $121 million on private fixed maturities considered to be other than high or highest quality.

(4)On an amortized cost basis, as of September 30, 2021, includes $236,714 million of public fixed maturities and $42,238 million of private fixed maturities and, as of December 31, 2020, includes $253,387 million of public fixed maturities and $45,022 million of private fixed maturities.

(5)On an amortized cost basis, as of September 30, 2021, includes $9,753 million of public fixed maturities and $8,955 million of private fixed maturities and, as of December 31, 2020, includes $9,592 million of public fixed maturities and $9,440 million of private fixed maturities.

(6)On an amortized cost basis, as of September 30, 2021, securities considered below investment grade based on low issue composite ratings total $15,454 million, or 5% of the total fixed maturities, and include securities considered high or highest quality by the NAIC based on the rules described above.

(7)Excludes “Assets held-for-sale” of $15,643 million at fair value as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

The following table sets forth our fixed maturity, held-to-maturity portfolio by NAIC Designation or equivalent rating attributable to PFI excluding the Closed Block division, as of the dates indicated:


	September 30, 2021										December 31, 2020
NAIC Designation(1)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses(2)		Fair Value		ACL		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses(2)		Fair Value		ACL
	(in millions)
1	$	1,556	$	298	$	0	$	1,854	$	4	$	1,839	$	349	$	0	$	2,188	$	7
2	94		8		0		102		2		100		10		0		110		2
Subtotal High or Highest Quality Securities(3)	1,650		306		0		1,956		6		1,939		359		0		2,298		9
3	0		0		0		0		0		0		0		0		0		0
4	0		0		0		0		0		0		0		0		0		0
5	0		0		0		0		0		0		0		0		0		0
6	0		0		0		0		0		0		0		0		0		0
Subtotal Other Securities	0		0		0		0		0		0		0		0		0		0
Total fixed maturities, held-to-maturity	$	1,650	$	306	$	0	$	1,956	$	6	$	1,939	$	359	$	0	$	2,298	$	9

(1)Reflects equivalent ratings for investments of the international insurance operations.

(2)As of both September 30, 2021 and December 31, 2020, there were no gross unrealized losses on public fixed maturities and private fixed maturities considered to be other than high or highest quality.

(3)On an amortized cost basis, as of September 30, 2021, includes $1,470 million of public fixed maturities and $180 million of private fixed maturities and, as of December 31, 2020, includes $1,728 million of public fixed maturities and $211 million of private fixed maturities.

Asset-Backed and Commercial Mortgage-Backed Securities

The following table sets forth the amortized cost and fair value of asset-backed and commercial mortgage-backed securities within our fixed maturity available-for-sale portfolio attributable to PFI excluding the Closed Block division by credit quality, as of the dates indicated:


	September 30, 2021								December 31, 2020
	Asset-Backed Securities(2)				Commercial Mortgage-Backed Securities(3)				Asset-Backed Securities(2)				Commercial Mortgage-Backed Securities(3)
Low Issue Composite Rating(1)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
AAA	$	7,487	$	7,530	$	8,321	$	8,821	$	11,327	$	11,323	$	10,284	$	11,159
AA	836		838		0		0		139		144		1		2
A	11		11		2		2		16		17		2		2
BBB	16		18		9		9		12		13		9		8
BB and below	79		139		0		0		90		157		0		0
Total(4)	$	8,429	$	8,536	$	8,332	$	8,832	$	11,584	$	11,654	$	10,296	$	11,171

(1)The table above provides ratings as assigned by nationally recognized rating agencies as of September 30, 2021, including S&P, Moody’s, Fitch Ratings, Inc. (“Fitch”) and Morningstar, Inc. (“Morningstar”). Low issue composite rating uses ratings from the major credit rating agencies or if these are not available an equivalent internal rating. For securities where the ratings assigned are not equivalent, the second lowest rating is utilized.

(2)Includes collateralized loan obligations (“CLOs”), credit-tranched securities collateralized by home equity and other asset types.

(3)As of September 30, 2021 and December 31, 2020, based on amortized cost, 99% and 98%, respectively, were securities with vintages of 2013 or later.

(4)Excludes fixed maturity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Fixed maturities, trading,” as well as securities held outside the general account in other entities and operations. Also excludes “Assets held-for-sale” of $1,609 million and $1,154 million at fair value of asset-backed securities and commercial mortgage-backed securities, respectively, as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

Included in “Asset-backed securities” above are investments in CLOs. The following table sets forth information pertaining to these investments in CLOs within our fixed maturity available-for-sale portfolio attributable to PFI excluding the Closed Block division, as of the dates indicated:


	September 30, 2021				December 31, 2020
	Collateralized Loan Obligations
Low Issue Composite Rating(1)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
AAA	$	6,574	$	6,593	$	9,554	$	9,506
AA	734		732		2		2
A	9		9		1		1
BBB	8		8		1		1
BB and below	9		9		1		1
Total(2)(3)	$	7,334	$	7,351	$	9,559	$	9,511

(1)The table above provides ratings as assigned by nationally recognized rating agencies as of September 30, 2021, including S&P, Moody’s, Fitch and Morningstar. Low issue composite rating uses ratings from the major credit rating agencies or if these are not available an equivalent internal rating. For securities where the ratings assigned are not equivalent, the second lowest rating is utilized.

(2)There was no allowance for credit losses as of both September 30, 2021 and December 31, 2020.

(3)Excludes fixed maturity securities classified as “Assets supporting experience-rated contractholder liabilities” and “Fixed maturities, trading,” as well as securities held outside the general account in other entities and operations. Also excludes “Assets held-for-sale” of $1,491 million at fair value as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

Assets Supporting Experience-Rated Contractholder Liabilities

For information regarding the composition of “Assets supporting experience-rated contractholder liabilities,” see Note 3 to the Unaudited Interim Consolidated Financial Statements.

Commercial Mortgage and Other Loans

Investment Mix

The following table sets forth the composition of our commercial mortgage and other loans portfolio attributable to PFI excluding the Closed Block division, as of the dates indicated:


	September 30, 2021		December 31, 2020
	(in millions)
Commercial mortgage and agricultural property loans	$	47,816	$	55,223
Uncollateralized loans	574		655
Residential property loans	74		101
Other collateralized loans	68		120
Total recorded investment gross of allowance(1)	48,532		56,099
Allowance for credit losses	(100)		(207)
Total net commercial mortgage and other loans(2)	$	48,432	$	55,892

(1)As a percentage of recorded investment gross of allowance, more than 99% of these assets were current as of both September 30, 2021 and December 31, 2020, respectively.

(2)Excluded from the table above are commercial mortgage and other loans held outside the general account in other entities and operations. For additional information regarding commercial mortgage and other loans held outside the general account, see “—Invested Assets of Other Entities and Operations” below. Also excluded are “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 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

We originate commercial mortgage and agricultural property loans using a dedicated sales and underwriting staff through our various regional offices in the U.S. and international offices primarily in London and Tokyo. All loans are underwritten consistently to our standards using a proprietary quality rating system that has been developed from our industry experience in real estate and mortgage lending.

Uncollateralized loans primarily represent corporate loans held by the Company’s international insurance operations.

Residential property loans primarily include Japanese recourse loans. Upon default of these recourse loans, we can make a claim against the personal assets of the property owner, in addition to the mortgaged property. These loans are also backed by third-party guarantors.

Other collateralized loans include consumer loans.

Composition of Commercial Mortgage and Agricultural Property Loans

Our commercial mortgage and agricultural property loan portfolio strategy emphasizes diversification by property type and geographic location. The following tables set forth the breakdown of the gross carrying values of commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division by geographic region and property type, as of the dates indicated:


	September 30, 2021				December 31, 2020
	Gross Carrying Value		% of Total		Gross Carrying Value		% of Total
	($ in millions)
Commercial mortgage and agricultural property loans by region:
U.S. Regions(1):
Pacific	$	17,558	36.7	%	$	19,186	34.7	%
South Atlantic	7,673		16.1		8,710		15.8
Middle Atlantic	5,748		12.0		6,500		11.8
East North Central	2,596		5.4		3,018		5.5
West South Central	4,328		9.1		5,426		9.8
Mountain	2,006		4.2		2,239		4.1
New England	1,159		2.4		1,664		3.0
West North Central	446		0.9		531		0.9
East South Central	760		1.6		836		1.5
Subtotal-U.S.	42,274		88.4		48,110		87.1
Europe	3,374		7.1		4,605		8.3
Asia	951		2.0		979		1.8
Other	1,217		2.5		1,529		2.8
Total commercial mortgage and agricultural property loans(2)	$	47,816	100.0	%	$	55,223	100.0	%

(1)Regions as defined by the United States Census Bureau.

(2)Excludes “Assets held-for-sale” of $7,551 million as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.


	September 30, 2021				December 31, 2020
	Gross Carrying Value		% of Total		Gross Carrying Value		% of Total
	($ in millions)
Commercial mortgage and agricultural property loans by property type:
Industrial	$	11,809	24.7	%	$	13,819	25.0	%
Retail	5,137		10.7		5,718		10.4
Office	8,638		18.1		10,719		19.4
Apartments/Multi-Family	13,769		28.8		15,316		27.7
Agricultural properties	3,342		7.0		3,273		5.9
Hospitality	1,601		3.3		2,056		3.7
Other	3,520		7.4		4,322		7.9
Total commercial mortgage and agricultural property loans(1)	$	47,816	100.0	%	$	55,223	100.0	%

(1)Excludes “Assets held-for-sale” of $7,551 million as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

Loan-to-value and debt service coverage ratios are measures commonly used to assess the quality of commercial mortgage and agricultural property loans. The loan-to-value ratio compares the amount of the loan to the fair value of the underlying property collateralizing the loan and is commonly expressed as a percentage. A loan-to-value ratio less than 100% indicates an excess of collateral value over the loan amount. Loan-to-value ratios greater than 100% indicate that the loan amount exceeds the collateral value. The debt service coverage ratio compares a property’s net operating income to its debt service payments. Debt service coverage ratios less than 1.0 times indicate that property operations do not generate enough income to cover the loan’s current debt payments. A debt service coverage ratio greater than 1.0 times indicates an excess of net operating income over the debt service payments.

As of September 30, 2021, our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division had a weighted-average debt service coverage ratio of 2.49 times and a weighted-average loan-to-value ratio of 68%. As of September 30, 2021, 95% of commercial mortgage and agricultural property loans were fixed rate loans. For those commercial mortgage and agricultural property loans that were originated in 2021, the weighted-average debt service coverage ratio was 3.18 times, and the weighted-average loan-to-value ratio was 62%.

The values utilized in calculating these loan-to-value ratios are developed as part of our periodic review of the commercial mortgage and agricultural property loan portfolio, which includes an internal evaluation of the underlying collateral value. Our periodic review also includes a credit quality re-rating process, whereby we update the internal quality rating originally assigned at underwriting based on the proprietary quality rating system mentioned above. As discussed below, the internal credit quality rating is a key input in determining our allowance for credit losses.

For loans with collateral under construction, renovation or lease-up, a stabilized value and projected net operating income are used in the calculation of the loan-to-value and debt service coverage ratios. Our commercial mortgage and agricultural property loan portfolio included $2.3 billion and $2.4 billion of such loans as of September 30, 2021 and December 31, 2020, respectively. All else being equal, these loans are inherently riskier than those collateralized by properties that have already stabilized. As of September 30, 2021 and December 31, 2020, there were less than $1 million and $1 million, respectively, of allowance related to these loans. In addition, these unstabilized loans are included in the calculation of our portfolio reserve, as discussed below.

The following table sets forth the gross carrying value of our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division by loan-to-value and debt service coverage ratios, as of the date indicated:


	September 30, 2021
	Debt Service Coverage Ratio
	> 1.2x		1.0x to < 1.2x		< 1.0x		Total Commercial Mortgage and Agricultural Property Loans
Loan-to-Value Ratio	(in millions)
0%-59.99%	$	22,556	$	659	$	380	$	23,595
60%-69.99%	14,024		1,299		748		16,071
70%-79.99%	6,291		709		552		7,552
80% or greater	159		341		98		598
Total commercial mortgage and agricultural property loans(1)	$	43,030	$	3,008	$	1,778	$	47,816

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

The following table sets forth the breakdown of our commercial mortgage and agricultural property loans attributable to PFI excluding the Closed Block division by year of origination, as of the date indicated:


	September 30, 2021
	Gross Carrying Value		% of Total
Year of Origination	($ in millions)
2021	$	3,784	7.9	%
2020	4,121		8.6
2019	8,147		17.0
2018	7,457		15.6
2017	5,357		11.2
2016	4,918		10.3
2015	4,587		9.6
2014 & Prior	9,445		19.8
Total commercial mortgage and agricultural property loans(1)	$	47,816	100.0	%

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

Commercial Mortgage and Other Loans Quality

The commercial mortgage and other loans portfolio is monitored on an ongoing basis. If certain criteria are met, loans are assigned to either of the following “watch list” categories:

(1) “Closely Monitored,” which includes a variety of considerations, such as when loan metrics fall below acceptable levels, the borrower is not cooperative or has requested a material modification, or the portfolio manager has directed a change in category; or

(2) “Not in Good Standing,” which includes loans in default or with a high probability of loss of principal, such as when the loan is in the process of foreclosure or the borrower is in bankruptcy.

Our workout and special servicing professionals manage the loans on the watch list.

The current expected credit loss (“CECL”) allowance represents the Company’s best estimate of expected credit losses over the remaining life of the assets. The determination of the allowance considers historical credit loss experience, current conditions, and reasonable and supportable forecasts. The allowance is calculated separately for commercial mortgage loans, agricultural mortgage loans, uncollateralized loans, other collateralized loans and residential property loans.

For commercial mortgage and agricultural mortgage loans, the allowance is calculated using an internally developed CECL model.

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

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

The CECL allowance for other collateralized and uncollateralized loans carried at amortized cost is determined based on probability of default and loss given default assumptions by sector, credit quality and average lives of the loans.

The following table sets forth the change in allowance for credit losses for our commercial mortgage and other loans portfolio, as of the dates indicated:


	September 30, 2021		December 31, 2020
	(in millions)
Allowance, beginning of year	$	207	$	102
Cumulative effect of adoption of ASU 2016-13	0		101
Addition to (release of) allowance for credit losses	(92)		1



Reclassified as “Assets held-for-sale”(1)	(12)		0
Other	(3)		3
Allowance, end of period	$	100	$	207

(1)See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

The allowance for credit losses as of September 30, 2021 decreased compared to December 31, 2020, primarily reflecting the improving credit environment.

Equity Securities

The equity securities attributable to PFI excluding the Closed Block division consist principally of investments in Common and Preferred Stock of publicly-traded companies, as well as mutual fund shares. The following table sets forth the composition of our equity securities portfolio and the associated gross unrealized gains and losses, as of the dates indicated:


	September 30, 2021								December 31, 2020
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Mutual funds(1)	$	905	$	566	$	0	$	1,471	$	956	$	404	$	5	$	1,355
Other Common Stocks(1)	2,028		1,104		26		3,106		2,726		1,019		62		3,683
Non-redeemable Preferred Stocks	85		64		5		144		54		22		6		70
Total equity securities, at fair value(2)	$	3,018	$	1,734	$	31	$	4,721	$	3,736	$	1,445	$	73	$	5,108

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

(2)Amounts presented exclude investments in private equity and hedge funds and other investments which are reported in “Other invested assets”. Excludes “Assets held-for-sale” of $236 million at fair value as of September 30, 2021. See Note 1 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

The net change in unrealized gains (losses) from equity securities attributable to PFI excluding Closed Block division, including “Assets held-for-sale”, still held at period end, recorded within “Other income (loss),” was $85 million and $213

million during the three months ended September 30, 2021 and 2020, respectively, and $328 million and $(173) million during the nine months ended September 30, 2021 and 2020, respectively.

Other Invested Assets

The following table sets forth the composition of “Other invested assets” attributable to PFI excluding the Closed Block division, as of the dates indicated:


	September 30, 2021		December 31, 2020
	(in millions)
LPs/LLCs:
Equity method:
Private equity(1)	$	4,755	$	3,411
Hedge funds	2,040		1,770
Real estate-related(1)	1,341		1,214
Subtotal equity method	8,136		6,395
Fair value:
Private equity	1,139		1,063
Hedge funds	1,031		1,111
Real estate-related	33		41
Subtotal fair value	2,203		2,215
Total LPs/LLCs	10,339		8,610
Real estate held through direct ownership(2)	939		1,176
Derivative instruments	222		199
Other(3)	411		731
Total other invested assets(4)	$	11,911	$	10,716

(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.

(3)Primarily includes leveraged leases and member and activity stock held in the Federal Home Loan Banks of New York and Boston. For additional information regarding our holdings in the Federal Home Loan Banks of New York and Boston, 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 of the Unaudited Interim Consolidated Financial Statements for additional information on the pending dispositions.

Invested Assets of Other Entities and Operations

“Invested Assets of Other Entities and Operations” presented below includes investments held outside the general account and primarily represents investments associated with our investment management operations and derivative operations. Our derivative operations act on behalf of affiliates primarily to manage interest rate, foreign currency, credit and equity exposures. Assets within our investment management operations that are managed for third-parties and those assets classified as “Separate account assets” on our balance sheet are not included.


	September 30, 2021		December 31, 2020
	(in millions)
Fixed maturities:
Public, available-for-sale, at fair value(1)	$	487	$	644

Fixed maturities, trading, at fair value(1)	213		212
Equity securities, at fair value	698		682
Commercial mortgage and other loans, at book value(2)	1,127		1,112
Other invested assets	4,174		3,799
Short-term investments	36		36
Total investments	$	6,735	$	6,485

(1)As of September 30, 2021 and December 31, 2020, balances include investments in CLOs with fair value of $366 million and $496 million, respectively.

(2)Book value is generally based on unpaid principal balance, net of any allowance for credit losses, or at fair value, when the fair value option has been elected.

Fixed Maturities, Trading

“Fixed maturities, trading, at fair value” are primarily related to assets associated with consolidated VIEs for which the Company is the investment manager. The assets of the consolidated VIEs are generally offset by liabilities for which the fair value option has been elected. For further information on these consolidated VIEs, see Note 4 to the Unaudited Interim Consolidated Financial Statements.

Commercial Mortgage and Other Loans

Our investment management operations include our commercial mortgage operations, which provide mortgage origination, investment management and servicing for our general account, institutional clients, the Federal Housing Administration and government-sponsored entities such as Fannie Mae and Freddie Mac.

The mortgage loans of our commercial mortgage operations are included in “Commercial mortgage and other loans.” Derivatives and other hedging instruments related to our commercial mortgage operations are primarily included in “Other invested assets.”

Other Invested Assets

“Other invested assets” primarily include assets of our derivative operations used to manage interest rate, foreign currency, credit, and equity exposures.

Furthermore, other invested assets include strategic investments made as part of our investment management operations. We make these strategic investments in real estate, as well as fixed income, public equity and real estate securities, including controlling interests. Certain of these investments are made primarily for purposes of co-investment in our managed funds and structured products. Other strategic investments are made with the intention to sell or syndicate to investors, including our general account, or for placement in funds and structured products that we offer and manage (seed investments). As part of our investment management operations, we also make loans to our managed funds that are secured by equity commitments from investors or assets of the funds. “Other invested assets” also include certain assets in consolidated investment funds where the Company is deemed to exercise control over the funds.

Liquidity and Capital Resources

Overview

Liquidity refers to the ability to generate sufficient cash resources to meet the payment obligations of the Company. Capital refers to the long-term financial resources available to support the operations of our businesses, fund business growth, and provide a cushion to withstand adverse circumstances. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our businesses, general economic conditions and our access to the capital markets and the alternate sources of liquidity and capital described herein.

Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of Prudential Financial and its subsidiaries on a daily basis and projects borrowing and capital needs over a multi-year time horizon. We use a Risk Appetite Framework (“RAF”) to ensure that all risks taken across the Company align with our capacity and willingness to take those risks. The RAF provides a dynamic assessment of capital and liquidity stress impacts, including scenarios similar to, and more severe than, those occurring due to COVID-19, and is intended to ensure that sufficient resources are available to absorb those impacts. We believe that our capital and liquidity resources are sufficient to satisfy the capital and liquidity requirements of Prudential Financial and its subsidiaries.

Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include requirements (many of which are the subject of ongoing rule-making) relating to capital and liquidity management. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation” and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

From the beginning of 2021 through the date of this report, we took the following significant actions that have impacted, or are expected to impact, our liquidity and capital positions:

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 increased this current share repurchase authorization by $500 million, 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 the calendar year 2021 to $2.5 billion.
During 2021, we entered into agreements for a number of business dispositions, including for the sale of our Full Service Retirement business and a portion of our in-force traditional variable annuity block of business. For more information about these transactions, see Note 1 to our Unaudited Interim Consolidated Financial Statements contained herein.
In July 2021, the Company amended and restated its $4.0 billion five-year credit facility, extending the term of the facility to July 2026. The extension also includes certain sustainability-linked pricing adjustments, by which the applicable interest rate margins and commitment fee may be adjusted based on the Company’s ability to meet certain targets.
In August 2021, we redeemed our $700 million 3.500% medium-term notes due 2021 and $210 million of our $600 million 3.878% medium-term notes due 2028.

Capital

The primary components of the Company’s capitalization consist of equity and outstanding capital debt, including junior subordinated debt. As shown in the table below, as of September 30, 2021, the Company had $52.6 billion in capital, all of which was available to support the aggregate capital requirements of its businesses and its Corporate and Other operations. Based on our assessment of these businesses and operations, we believe this level of capital is consistent with our ratings targets.


	September 30, 2021		December 31, 2020
	(in millions)
Equity(1)	$	40,051	$	36,687
Junior subordinated debt (including hybrid securities)	7,617		7,615
Other capital debt	4,975		5,856
Total capital	$	52,643	$	50,158

(1)Amounts attributable to Prudential Financial, excluding AOCI.

We manage PICA, The Prudential Life Insurance Company, Ltd. (“Prudential of Japan”), Gibraltar Life, and other significant insurance subsidiaries to regulatory capital levels consistent with our “AA” ratings targets. We utilize the risk-based capital (“RBC”) ratio as a primary measure of the capital adequacy of our domestic insurance subsidiaries and the solvency margin ratio as a primary measure of the capital adequacy of our Japanese insurance subsidiaries.

The table below presents the RBC ratios of our most significant domestic insurance subsidiaries as of December 31, 2020, the most recent statutory fiscal year-end and RBC reporting date for these subsidiaries.


	Ratio(1)
PICA(2)	394	%
Prudential Annuities Life Assurance Corporation (“PALAC”)	465	%
Composite Major U.S. Insurance Subsidiaries(3)	411	%

(1)The RBC ratio calculations are intended to assist insurance regulators in measuring an insurer’s solvency and ability to pay future claims. The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities, but is available to the public.

(2)Includes Prudential Retirement Insurance and Annuity Company (“PRIAC”), Pruco Life Insurance Company (“Pruco Life”), Pruco Life Insurance Company of New Jersey (“PLNJ”), which is a subsidiary of Pruco Life, and Prudential Legacy Insurance Company of New Jersey (“PLIC”).

(3)Includes PICA and its subsidiaries, as noted above, and PALAC. Composite RBC is not reported to regulators and is based on the summation of total adjusted capital and risk charges for the included companies as determined under statutory accounting and RBC guidance to calculate a composite numerator and denominator, respectively, for purposes of calculating the composite ratio.

Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which we operate generally establish some form of minimum solvency margin requirements for insurance companies based on local statutory accounting practices. These solvency margins are a primary measure of the capital adequacy of our international insurance operations. Maintenance of our solvency margins at certain levels is also important to our competitive positioning, as in certain jurisdictions, such as Japan, these solvency margins are required to be disclosed to the public and therefore impact the public perception of an insurer’s financial strength.

The table below presents the solvency margin ratios of our most significant international insurance subsidiaries as of June 30, 2021, the most recent date for which this information is available.


	Ratio
Prudential of Japan consolidated(1)	828	%
Gibraltar Life consolidated(2)	938	%

(1)Includes Prudential Trust Co., Ltd., a subsidiary of Prudential of Japan.

(2)Includes Prudential Gibraltar Financial Life Insurance Co., Ltd. (“PGFL”), a subsidiary of Gibraltar Life.

All of our domestic and significant international insurance subsidiaries have capital levels that substantially exceed the minimum level required by applicable insurance regulations; however, market conditions could negatively impact the statutory capital of our insurance companies and constrain our overall capital flexibility. Our regulatory capital levels also may be affected in the future by changes to the applicable regulations, proposals for which are currently under consideration by both domestic and international insurance regulators. For additional information on the calculation of RBC and solvency margin ratios, as well as regulatory minimums, see Note 19 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Captive Reinsurance Companies

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

Shareholder Distributions

Share Repurchase Program and Shareholder Dividends

In February 2021, Prudential Financial’s Board of Directors 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. This authorization was increased by $500 million in each of May 2021 and July 2021, bringing the aggregate share repurchase authorization for calendar year 2021 to $2.5 billion.

In general, the timing and amount of share repurchases are determined by management based on market conditions and other considerations, including any increased capital needs of our businesses due to, among other things, credit migration and losses in our investment portfolio, changes in regulatory capital requirements and opportunities for growth and acquisitions. Repurchases may be executed in the open market, through derivative, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934.

The following table sets forth information about declarations of Common Stock dividends, as well as repurchases of shares of Prudential Financial’s Common Stock, for the nine months ended September 30, 2021.


	Dividend Amount				Shares Repurchased
Three months ended:	Per Share		Aggregate		Shares	Total Cost
	(in millions, except per share data)
March 31, 2021	$	1.15	$	467	4.3	$	375
June 30, 2021	$	1.15	$	460	8.4	$	875
September 30, 2021	$	1.15	$	451	8.4	$	875

Liquidity

Liquidity management and stress testing are performed on a legal entity basis as the ability to transfer funds between subsidiaries is limited due in part to regulatory restrictions. Liquidity needs are determined through daily and quarterly cash flow forecasting at the holding company and within our operating subsidiaries. We seek to maintain a minimum balance of highly liquid assets to ensure that adequate liquidity is available at Prudential Financial to cover fixed expenses in the event that we experience reduced cash flows from our operating subsidiaries at a time when access to capital markets is also not available.

We seek to mitigate the risk of having limited or no access to financing due to stressed market conditions by generally pre-funding debt in advance of maturity. We mitigate the refinancing risk associated with our debt that is used to fund operating needs by matching the term of debt with the assets financed. To ensure adequate liquidity in stress scenarios, stress testing is performed for our major operating subsidiaries. We seek to further mitigate liquidity risk by maintaining our access to alternative sources of liquidity, as discussed below.

Liquidity of Prudential Financial

The principal sources of funds available to Prudential Financial, the parent holding company, are dividends, returns of capital and loans from subsidiaries, and proceeds from debt issuances and certain stock-based compensation activity. These sources of funds may be supplemented by Prudential Financial’s access to the capital markets as well as the “—Alternative Sources of Liquidity” described below.

The primary uses of funds at Prudential Financial include servicing debt, making capital contributions and loans to subsidiaries, making acquisitions, paying declared shareholder dividends and repurchasing outstanding shares of Common Stock executed under authority from the Board.

As of September 30, 2021, Prudential Financial had highly liquid assets with a carrying value totaling $4,519 million, a decrease of $1,960 million from December 31, 2020. Highly liquid assets predominantly include cash, short-term investments, U.S. Treasury securities, obligations of other U.S. government authorities and agencies, and/or foreign government bonds. We maintain an intercompany liquidity account that is designed to optimize the use of cash by facilitating the lending and borrowing of funds between Prudential Financial and its subsidiaries on a daily basis. Excluding the net borrowings from this intercompany liquidity account, Prudential Financial had highly liquid assets of $3,764 million as of September 30, 2021, a decrease of $1,796 million from December 31, 2020.

The following table sets forth Prudential Financial’s principal sources and uses of highly liquid assets, excluding net borrowings from our intercompany liquidity account, for the periods indicated.


	Nine Months Ended September 30,
	2021		2020(1)
	(in millions)
Highly Liquid Assets, beginning of period	$	5,560	$	4,061

Dividends and/or returns of capital from subsidiaries(2)	2,030		2,821
Affiliated (borrowings)/loans - (capital activities)(3)	406		(668)
Capital contributions to subsidiaries(4)	(84)		(85)
Total Business Capital Activity	2,352		2,068

Share repurchases(5)	(2,097)		(500)
Common stock dividends(6)	(1,374)		(1,325)
Business dispositions	648		1,627
Total Share Repurchases, Dividends and Business Disposition Activity	(2,823)		(198)

Proceeds from the issuance of debt	0		2,768
Repayments of debt	(908)		(1,937)




Total Debt Activity	(908)		831
Proceeds from stock-based compensation and exercise of stock options	272		212
Net income tax receipts & payments	212		136
Interest income on intercompany agreements	31		18
Interest paid on external debt	(702)		(727)
Affiliated (borrowings)/loans - (operating activities)(7)	(39)		44



Swap terminations	(69)		(153)
Other, net	(122)		(203)
Total Other Activity	(417)		(673)

Net increase/(decrease) in highly liquid assets	(1,796)		2,028

Highly Liquid Assets, end of period	$	3,764	$	6,089

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

(2)2021 includes $420 million from Prudential Annuities Holding Company, $393 million from PGIM subsidiaries, and $1,159 million from international insurance and investment subsidiaries (including $994 million in the form of in-kind dividends), and $58 million from other subsidiaries. 2020 includes $670 million from Prudential Annuities Holding Company, $1,905 million from international insurance subsidiaries (including $470 million in the form of in-kind dividends), $238 million from PGIM subsidiaries, and $8 million from other subsidiaries.

(3)2021 reflects net receipts of $406 million from the issuance of notes to international insurance subsidiaries, which includes $994 million received by PFI in the form of the extinguishment of debt (offset by the in-kind dividends referred to in footnote 2 above).

(4)2021 includes capital contributions of $75 million to international insurance subsidiaries and $9 million to PGIM subsidiaries. 2020 includes capital contributions of $85 million to international insurance subsidiaries.

(5)Excludes cash payments made on trades that settled in the subsequent period.

(6)Includes cash payments made on dividends declared in prior periods.

(7)Represent loans to and from subsidiaries to support business operating needs.

Dividends and Returns of Capital from Subsidiaries

Domestic insurance subsidiaries. During the first nine months of 2021, Prudential Financial received dividends of $420 million from Prudential Annuities Holding Company, of which $380 million was from PALAC.

International insurance subsidiaries. During the first nine months of 2021, Prudential Financial received dividends of $1,159 million from its international insurance subsidiaries, which includes $994 million of in-kind dividends in the form of the extinguishment of debt held by international insurance subsidiaries. In addition to paying Common Stock dividends, our international insurance operations may return capital to Prudential Financial by other means, such as the repayment of preferred stock obligations held by Prudential Financial or other affiliates, affiliated lending, affiliated derivatives and reinsurance with U.S.- and Bermuda-based affiliates.

Other subsidiaries. During the first nine months of 2021, Prudential Financial received dividends and returns of capital of $393 million from PGIM subsidiaries and dividends of $58 million from other subsidiaries.

Restriction on dividends and returns of capital from subsidiaries. Our insurance companies are subject to limitations on the payment of dividends and other transfers of funds to Prudential Financial and other affiliates under applicable insurance law and regulation. Further, market conditions could negatively impact capital positions of our insurance companies, which could further restrict their ability to pay dividends. More generally, the payment of dividends by any of our subsidiaries is subject to declaration by their Board of Directors and can be affected by market conditions and other factors.

With respect to our domestic insurance subsidiaries, PICA is permitted to pay ordinary dividends based on calculations specified under New Jersey insurance law, subject to prior notification to the New Jersey Department of Banking and Insurance (“NJDOBI”). Any distributions above this amount in any twelve-month period are considered to be “extraordinary” dividends, and the approval of the NJDOBI is required prior to payment. The laws regulating dividends of the states where our other domestic insurance companies are domiciled are similar, but not identical, to New Jersey’s. Dividends from PRIAC are currently prohibited prior to the closing of its sale to Great-West under the terms of the sale agreement.

Capital redeployment from our international insurance subsidiaries is subject to local regulatory requirements in the international jurisdictions in which they operate. Our most significant international insurance subsidiaries, Prudential of Japan and Gibraltar Life, are permitted to pay common stock dividends based on calculations specified by Japanese insurance law, subject to prior notification to the FSA. Dividends in excess of these amounts and other forms of capital distribution require the prior approval of the FSA. The regulatory fiscal year end for both Prudential of Japan and Gibraltar Life is March 31, after which time the common stock dividend amount permitted to be paid without prior approval from the FSA can be determined.

The ability of our PGIM subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely unrestricted from a regulatory standpoint.

See Note 19 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, for information on specific dividend restrictions.

Liquidity of Insurance Subsidiaries

We manage the liquidity of our insurance operations to ensure stable, reliable and cost-effective sources of cash flows to meet all of our obligations. Liquidity within each of our insurance subsidiaries is provided by a variety of sources, including portfolios of liquid assets. The investment portfolios of our subsidiaries are integral to the overall liquidity of our insurance operations. We segment our investment portfolios and employ an asset/liability management approach specific to the requirements of each of our product lines. This enhances the discipline applied in managing the liquidity, as well as the interest rate and credit risk profiles, of each portfolio in a manner consistent with the unique characteristics of the product liabilities.

Liquidity is measured against internally-developed benchmarks that take into account the characteristics of both the asset portfolio and the liabilities that they support. We consider attributes of the various categories of liquid assets (for example, type of asset and credit quality) in calculating internal liquidity measures to evaluate our insurance operations’ liquidity under various stress scenarios, including company-specific and market-wide events. We continue to believe that cash generated by ongoing operations and the profile of our assets provide sufficient liquidity under reasonably foreseeable stress scenarios for each of our insurance subsidiaries.

The principal sources of liquidity for our insurance subsidiaries are premiums, investment and fee income, investment maturities, sales of investments, and sales associated with our insurance and annuity operations, as well as internal and external borrowings. The principal uses of liquidity include benefits, claims and dividends paid to policyholders, and payments to policyholders and contractholders in connection with surrenders, withdrawals and net policy loan activity. Other uses of liquidity may include commissions, general and administrative expenses, purchases of investments, the payment of dividends to the parent holding company, hedging and reinsurance activity and payments in connection with financing activities.

The following table sets forth the fair value of certain of our domestic insurance operations’ portfolio of liquid assets, as of the dates indicated.


	September 30, 2021
	Prudential Insurance(1)		PLIC		PRIAC(2)		PALAC(2)		Pruco Life		Total		December 31, 2020
	(in billions)
Cash and short-term investments	$	7.9	$	1.1	$	1.1	$	1.5	$	1.1	$	12.7	$	9.4
Fixed maturity investments(3):
High or highest quality	135.3		34.5		21.8		10.0		13.7		215.3		222.4
Other than high or highest quality	9.7		3.8		0.8		1.0		0.8		16.1		15.4
Subtotal	145.0		38.3		22.6		11.0		14.5		231.4		237.8
Public equity securities, at fair value	0.6		2.3		0.3		0.2		0.1		3.5		3.2
Total	$	153.5	$	41.7	$	24.0	$	12.7	$	15.7	$	247.6	$	250.4

(1)Represents legal entity view and as such includes both domestic and international activity.

(2)As of September 30, 2021, the Company has entered into definitive sale agreements to sell its equity interests in both PRIAC and PALAC. See Note 1 to the Unaudited Consolidated Financial Statements for more information about these pending dispositions.

(3)Excludes fixed maturities designated as held-to-maturity. Credit quality is based on NAIC or equivalent rating.

The following table sets forth the fair value of our international insurance operations’ portfolio of liquid assets, as of the dates indicated.


	September 30, 2021
	Prudential of Japan		Gibraltar Life(1)		All Other(2)		Total		December 31, 2020
	(in billions)
Cash and short-term investments	$	1.0	$	2.7	$	1.5	$	5.2	$	6.0
Fixed maturity investments(3):
High or highest quality(4)	42.1		88.6		9.6		140.3		147.7
Other than high or highest quality	0.9		2.1		2.0		5.0		4.8
Subtotal	43.0		90.7		11.6		145.3		152.5
Public equity securities	2.4		2.1		0.1		4.6		3.6
Total	$	46.4	$	95.5	$	13.2	$	155.1	$	162.1

(1)Includes PGFL.

(2)Represents our international insurance operations, excluding Japan.

(3)Excludes fixed maturities designated as held-to-maturity. Credit quality is based on NAIC or equivalent rating.

(4)As of September 30, 2021, $105.5 billion, or 75%, were invested in government or government agency bonds.

Liquidity associated with other activities

Hedging activities associated with Individual Annuities

For the portion of our Individual Annuities’ ALM strategy executed through hedging, as well as the capital hedge program, we enter into a range of exchange-traded, cleared and other OTC equity and interest rate derivatives in order to hedge certain capital market risks related to more severe market conditions. For a full discussion of our Individual Annuities’ risk management strategy, see “—Results of Operations by Segment—U.S. Businesses—Individual Annuities.” This portion of our Individual Annuities’ ALM strategy and capital hedge program requires access to liquidity to meet payment obligations relating to these derivatives, such as payments for periodic settlements, purchases, maturities and terminations. These liquidity needs can vary materially due to, among other items, changes in interest rates, equity markets, mortality and policyholder behavior.

The hedging portion of our Individual Annuities’ ALM strategy and capital hedge program may also result in derivative related collateral postings to (when we are in a net post position) or from (when we are in a net receive position) counterparties. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. Depending on market conditions, the collateral posting requirements can result in material liquidity needs when we are in a net post position. As of September 30, 2021, the derivatives comprising the hedging portion of our Individual Annuities’ ALM strategy and capital hedge program were in a net post position of $4.8 billion compared to a net receive position of $3.4 billion as of December 31, 2020. The change in collateral position was primarily driven by the impact of increasing interest rates and equity markets.

Foreign exchange hedging activities

We employ various hedging strategies to manage potential exposure to foreign currency exchange rate movements, particularly those associated with the yen. Our overall yen hedging strategy calibrates the hedge level to preserve the relative contribution of our yen-based business to the Company’s overall return on equity on a leverage neutral basis. The hedging strategy includes two primary components:

Income Hedges—We hedge a portion of our prospective yen-based earnings streams by entering into external forward currency derivative contracts that effectively fix the currency exchange rates for that portion of earnings, thereby reducing volatility from foreign currency exchange rate movements. As of September 30, 2021, we have hedged 100%, 97% and 61%, of expected yen-based earnings for 2021, 2022 and 2023, respectively.

Equity Hedges—We hold both internal and external hedges primarily to hedge our USD-equivalent equity. These hedges also mitigate volatility in the solvency margins of yen-based subsidiaries resulting from changes in the market value of their USD-denominated investments hedging our USD-equivalent equity attributable to changes in the yen-USD exchange rate.

For additional information on our hedging strategy, see “—Results of Operations—Impact of Foreign Currency Exchange Rates.”

Cash settlements from these hedging activities result in cash flows between subsidiaries of Prudential Financial and either international-based subsidiaries or external parties. The cash flows are dependent on changes in foreign currency exchange rates and the notional amount of the exposures hedged. For example, a significant yen depreciation over an extended period of time could result in net cash inflows, while a significant yen appreciation could result in net cash outflows. The following tables set forth information about net cash settlements and the net asset or liability resulting from these hedging activities related to the yen and other currencies for the periods indicated.


	Nine Months Ended September 30,
Cash Settlements: Received (Paid)	2021		2020
	(in millions)
Income Hedges (External)(1)	$	21	$	65
Equity Hedges:
Internal(2)	328		163
External(3)	(40)		113
Total Equity Hedges	288		276
Total Cash Settlements	$	309	$	341

Assets (Liabilities):	September 30, 2021		December 31, 2020
	(in millions)
Income Hedges (External)(4)	$	52	$	3
Equity Hedges:
Internal(2)	816		291
External	(94)		(56)
Total Equity Hedges(5)	722		235
Total Assets (Liabilities)	$	774	$	238

__________

(1)Includes non-yen related cash settlements of $11 million, primarily denominated in Brazilian real, Australian dollar and Chilean peso and $53 million, primarily denominated in Brazilian real, Australian dollar and Chilean peso for the nine months ended September 30, 2021 and 2020, respectively.

(2)Represents internal transactions between international-based and U.S.-based entities. Amounts noted are from the U.S.-based entities’ perspectives.

(3)Includes non-yen related cash settlements of $23 million, denominated in Korean won for the nine months ended September 30, 2020.

(4)Includes non-yen related assets of $35 million, primarily denominated in Brazilian real, Chilean peso and Australian dollar and assets of $2 million, primarily denominated in Brazilian real, Chilean peso and Australian dollar, as of September 30, 2021 and December 31, 2020, respectively.

(5)As of September 30, 2021, approximately $57 million, $194 million, $327 million and $144 million of the net market values are scheduled to settle in 2021, 2022, 2023 and thereafter, respectively. The net market value of the assets (liabilities) will vary with changing market conditions to the extent there are no corresponding offsetting positions.

PGIM operations

The principal sources of liquidity for our fee-based PGIM businesses include asset management fees, commercial mortgage origination and servicing fees, and internal and external funding facilities. The principal uses of liquidity include general and administrative expenses, facilitating our commercial mortgage loan business, and distributions of dividends and returns of capital to Prudential Financial. The primary liquidity risks for our fee-based PGIM businesses relate to their profitability, which is impacted by market conditions, our investment management performance and client redemptions. We believe the cash flows from our fee-based PGIM businesses are adequate to satisfy the current liquidity requirements of these operations, as well as requirements that could arise under reasonably foreseeable stress scenarios, which are monitored through the use of internal measures.

The principal sources of liquidity for our seed and co-investments held in our PGIM businesses are cash flows from investments, borrowing lines from internal sources, including Prudential Financial and Prudential Funding, LLC (“Prudential Funding”), a wholly-owned subsidiary of PICA, and external sources, including PGIM’s limited-recourse credit facility. The principal uses of liquidity for our seed and co-investments include making investments to support business growth and paying interest expense from the internal and external borrowings used to fund those investments. The primary liquidity risks include the inability to sell assets in a timely manner, declines in the value of assets and credit defaults. There have been no material changes to the liquidity position of our PGIM operations since December 31, 2020.

Alternative Sources of Liquidity

In addition to asset-based financing as discussed below, Prudential Financial and certain subsidiaries have access to other sources of liquidity, including syndicated, unsecured committed credit facilities, 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. For more information on these sources of liquidity, see Note 9 to the Unaudited Interim Consolidated Financial Statements contained herein and Note 17 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020. In July 2021, we amended and restated our $4 billion five-year credit facility that has Prudential Financial and Prudential Funding as borrowers, extending the term of the facility to July 2026. For more information, see Note 15 to the Unaudited Interim Consolidated Financial Statements contained herein.

Asset-based Financing

We conduct asset-based or secured financing within our insurance and other subsidiaries, including transactions such as securities lending, repurchase agreements and mortgage dollar rolls, to earn spread income, to borrow funds, or to facilitate trading activity. These programs are primarily driven by portfolio holdings of securities that are lendable based on counterparty demand for these securities in the marketplace. The collateral received in connection with these programs is primarily used to purchase securities in the short-term spread portfolios of our insurance entities. Investments held in the short-term spread portfolios include cash and cash equivalents, short-term investments (primarily corporate bonds), mortgage loans and fixed maturities (primarily collateralized loan obligations and other structured securities), with a weighted average life at time of purchase by the short-term portfolios of four years or less. Floating rate assets comprise the majority of our short-term spread portfolio. These short-term portfolios are subject to specific investment policy statements, which among other things, do not allow for significant asset/liability interest rate duration mismatch.

The following table sets forth our liabilities under asset-based or secured financing programs as of the dates indicated.


	September 30, 2021						December 31, 2020
	PFI Excluding Closed Block Division		Closed Block Division		Consolidated		PFI Excluding Closed Block Division		Closed Block Division		Consolidated
	($ in millions)
Securities sold under agreements to repurchase	$	7,122	$	2,777	$	9,899	$	8,092	$	2,802	$	10,894
Cash collateral for loaned securities(1)	4,296		86		4,382		3,379		120		3,499
Securities sold but not yet purchased	2		0		2		2		0		2
Total(2)(3)	$	11,420	$	2,863	$	14,283	$	11,473	$	2,922	$	14,395
Portion of above securities that may be returned to the Company overnight requiring immediate return of the cash collateral	$	10,603	$	2,863	$	13,466	$	10,463	$	2,922	$	13,385
Weighted average maturity, in days(4)	29		N/A				28		N/A

(1)Excludes “Liabilities held-for-sale” of $3 million as of September 30, 2021.

(2)The daily weighted average outstanding balance for the three and nine months ended September 30, 2021 was $11,529 million and $11,479 million, respectively, for PFI excluding the Closed Block division, and $3,107 million and $3,035 million, respectively, for the Closed Block division.

(3)Includes utilization of external funding facilities for PGIM’s commercial mortgage origination business.

(4)Excludes securities that may be returned to the Company overnight. “N/A” reflects that all outstanding balances may be returned to the Company overnight.

As of September 30, 2021, our domestic insurance entities had assets eligible for the asset-based or secured financing programs of $128.7 billion, of which $14.0 billion were on loan. Taking into account market conditions and outstanding loan balances as of September 30, 2021, we believe approximately $14.9 billion of the remaining eligible assets are readily lendable, including approximately $10.2 billion relating to PFI excluding the Closed Block division, of which $2.6 billion relates to certain separate accounts and may only be used for financing activities related to those accounts, and the remaining $4.7 billion relating to the Closed Block division.

Financing Activities

As of September 30, 2021, total short-term and long-term debt of the Company on a consolidated basis was $19.6 billion, a decrease of $1.0 billion from December 31, 2020. The following table sets forth total consolidated borrowings of the Company as of the dates indicated. We may, from time to time, seek to redeem or repurchase our outstanding debt securities through open market purchases, individually negotiated transactions or otherwise. Any such actions will depend on prevailing market conditions, our liquidity position, and other factors.


	September 30, 2021						December 31, 2020
Borrowings:	Prudential Financial		Subsidiaries		Consolidated		Prudential Financial		Subsidiaries		Consolidated
	(in millions)
General obligation short-term debt:
Commercial paper	$	25	$	347	$	372	$	25	$	355	$	380
Current portion of long-term debt	400		0		400		399		0		399
Subtotal	425		347		772		424		355		779
General obligation long-term debt:
Senior debt	10,107		173		10,280		11,007		173		11,179
Junior subordinated debt	7,561		56		7,617		7,554		60		7,615
Surplus notes(1)	0		344		344		0		343		343
Subtotal	17,668		573		18,241		18,561		576		19,137
Total general obligations	18,093		920		19,013		18,985		931		19,916
Limited and non-recourse borrowings(2):
Short-term debt	0		7		7		0		18		18
Current portion of long-term debt	0		130		130		0		128		128
Long-term debt	0		446		446		0		581		581
Total limited and non-recourse borrowings	0		583		583		0		727		727
Total borrowings	$	18,093	$	1,503	$	19,596	$	18,985	$	1,658	$	20,643

(1)Amounts are net of assets under set-off arrangements of $10,616 million and $10,964 million as of September 30, 2021 and December 31, 2020, respectively.

(2)Limited and non-recourse borrowing primarily represents mortgage debt of our subsidiaries that has recourse only to real estate investment property of $276 million and $409 million as of September 30, 2021 and December 31, 2020, respectively, and a $300 million draw on a credit facility that has recourse only to collateral pledged by the Company as of both September 30, 2021 and December 31, 2020.

As of September 30, 2021, and December 31, 2020, we were in compliance with all debt covenants related to the borrowings in the table above. For additional information on our short- and long-term debt obligations, see Note 9 to the Unaudited Interim Consolidated Financial Statements contained herein and Note 17 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.

Prudential Financial’s consolidated borrowings decreased $1,047 million from December 31, 2020, primarily driven by $910 million in debt redemptions in Prudential Financial borrowings and a $155 million decrease in subsidiary borrowings. 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 in 2024 and $210 million of the previously outstanding $600 million principal amount of its 3.878% medium-term notes due in 2028.

Term and Universal Life Reserve Financing

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

We have entered into agreements with external counterparties providing for the issuance of surplus notes by our captive reinsurers in return for the receipt of credit-linked notes (“Credit-Linked Note Structures”). As of September 30, 2021, we had Credit-Linked Note Structures with an aggregate issuance capacity of $14,700 million, of which $12,746 million was outstanding, as compared to an aggregate issuance capacity of $14,825 million, of which $12,919 million was outstanding, as of December 31, 2020. Under the agreements, the captive receives in exchange for the surplus notes one or more credit-linked notes issued by a special-purpose affiliate of the Company with an aggregate principal amount equal to the surplus notes outstanding. The captive holds the credit-linked notes as assets supporting Regulation XXX or Guideline AXXX non-economic reserves, as applicable. For more information on our Credit-Linked Note Structures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Activities” in our Annual Report on Form 10-K for the year ended December 31, 2020.

The following table summarizes our Credit-Linked Note Structures, which are reported on a net basis, as of September 30, 2021.


	Surplus Notes		Outstanding as of September 30, 2021
Credit-Linked Note Structures:	Original Issue Dates	Maturity Dates			Facility Size
	($ in millions)
XXX	2011-2021	2021-2036	$	1,600	(1)	$	1,750
AXXX	2013	2033	3,500			3,500
XXX	2014-2018	2021-2034	2,230		(2)	2,250
XXX	2014-2017	2024-2037	2,330			2,400
AXXX	2017	2037	1,466			2,000
XXX	2018	2038	920			1,600
AXXX	2020	2032	700			1,200
Total Credit-Linked Note Structures			$	12,746		$	14,700

(1)Prudential Financial has agreed to reimburse amounts paid under the credit-linked notes issued in this structure up to $500 million.

(2)The $2,230 million of surplus notes represents an intercompany transaction that eliminates upon consolidation. Prudential Financial has agreed to reimburse amounts paid under credit-linked notes issued in this structure up to $1,000 million.

As of September 30, 2021, we also had outstanding an aggregate of $2,775 million of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which $1,175 million relates to Regulation XXX reserves and $1,600 million relates to Guideline AXXX reserves. In addition, as of September 30, 2021, for purposes of financing Guideline AXXX reserves, one of our captives had $3,982 million of surplus notes outstanding that were issued to affiliates.

The Company has introduced updated versions of its individual life products in conjunction with the requirement to adopt principle-based reserving by January 1, 2020. These updated products are currently priced to support the principle-based statutory reserve level without the need for reserve financing.

Ratings

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Ratings” in our Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of our financial strength and credit ratings and their impact on our business.

On July 21, 2021, Prudential announced an agreement to sell Retirement’s Full Service business to Great-West Life & Annuity Insurance Company, which would include the sale of all equity interests in PRIAC. As a result of this announcement, Fitch and AM Best changed the ratings outlook of PRIAC to Credit Watch Positive from Stable, and S&P changed the ratings outlook of PRIAC to Credit Watch Negative from Stable.

On September 15, 2021, Prudential announced an agreement to sell a portion of the Company’s in-force variable annuities business through the sale of all equity interests in PALAC to Fortitude Group Holdings, LLC. As a result of this announcement, S&P and AM Best changed the ratings outlook of PALAC to Credit Watch Negative from Stable and Fitch downgraded PALAC’s financial strength rating to A with an outlook of Rating Watch Negative from AA- with an outlook of Stable.

With the exception of PRIAC and PALAC, there have been no significant changes or actions in ratings or ratings outlooks for the Company that have occurred since the filing of our Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

Guarantees, Other Contingencies and Other Contingent Commitments

In the course of our business, we provide certain guarantees and indemnities to third-parties pursuant to which we may be contingently required to make payments in the future. We also have other commitments, some of which are contingent upon events or circumstances not under our control, including those at the discretion of our counterparties. See “—Commitments and Guarantees” within Note 14 to the Unaudited Interim Consolidated Financial Statements for additional information. For further discussion of certain of these commitments, also see “—Liquidity—Liquidity associated with other activities—PGIM operations.”

Other Off-Balance Sheet Arrangements

In May 2020, we entered into a ten-year facility agreement with a Delaware trust that gives Prudential Financial the right, at any time over a ten-year period, to issue up to $1.5 billion of senior notes to the trust in return for principal and interest strips of U.S. Treasury securities that are held by the trust.

In November 2013, we entered into a put option agreement with a Delaware trust that gives Prudential Financial the right, at any time over a ten-year period, to issue up to $1.5 billion of senior notes to the trust in return for principal and interest strips of U.S. Treasury securities that are held by the trust.

In 2014, Prudential Financial entered into financing transactions, pursuant to which it issued $500 million of limited-recourse notes and, in return, obtained $500 million of asset-backed notes from a Delaware master trust and ultimately contributed the asset-backed notes to its subsidiary, PRIAC. As of September 30, 2021, no principal payments have been received or are currently due on the asset-backed notes and, as a result, there was no payment obligation under the limited-recourse notes. Accordingly, none of the notes are reflected in the Company’s Unaudited Interim Consolidated Financial Statements as of that date. As a result of the Company’s agreement to sell its Full Service Retirement business to Great-West, which includes the sale of all of the outstanding equity interests of PRIAC, we expect the $500 million of limited-recourse notes will be canceled as of the closing of the sale.

Other than as described above, we do not have retained or contingent interests in assets transferred to unconsolidated entities, or variable interests in unconsolidated entities or other similar transactions, arrangements or relationships that serve as credit, liquidity or market risk support, that we believe are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or our access to or requirements for capital resources. In addition, other than the agreements referred to above, we do not have relationships with any unconsolidated entities that are contractually limited to narrow activities that facilitate our transfer of or access to associated assets.

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