Item 1. Financial Statements

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Item 1. Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

June 30, 2022 and December 31, 2021 (in millions, except share amounts)


	June 30, 2022		December 31, 2021
ASSETS
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2022-$109; 2021-$114) (amortized cost: 2022-$319,003; 2021-$333,459)(1)	$	306,655	$	372,410
Fixed maturities, held-to-maturity, at amortized cost, net of allowance for credit losses (allowance for credit losses: 2022-$3; 2021-$5) (fair value: 2022-$1,475; 2021-$1,803)(1)	1,280		1,514
Fixed maturities, trading, at fair value (amortized cost: 2022-$7,354; 2021-$8,741)(1)	6,272		8,823
Assets supporting experience-rated contractholder liabilities, at fair value	2,785		3,358
Equity securities, at fair value (cost: 2022-$4,502; 2021-$5,815)(1)	6,402		8,574
Commercial mortgage and other loans (net of $196 and $119 allowance for credit losses; includes $303 and $1,263 of loans measured at fair value under the fair value option at June 30, 2022 and December 31, 2021, respectively)(1)	56,840		58,666
Policy loans	10,024		10,386

Other invested assets (net of $1 and $2 allowance for credit losses; includes $6,743 and $8,046 of assets measured at fair value at June 30, 2022 and December 31, 2021, respectively)(1)	21,310		21,833
Short-term investments (net of allowance for credit losses: 2022-$0; 2021-$0)	6,828		6,635
Total investments	418,396		492,199
Cash and cash equivalents(1)	14,359		12,888
Accrued investment income(1)	2,798		2,855
Deferred policy acquisition costs	18,632		18,192
Value of business acquired	571		771
Income tax assets	696		0
Assets held-for-sale(2)	0		153,793
Other assets (net of allowance for credit losses: 2022-$21; 2021-$19)(1)	34,534		10,739
Separate account assets	205,613		246,145
TOTAL ASSETS	$	695,599	$	937,582
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	275,096	$	290,784
Policyholders’ account balances	130,352		122,633
Policyholders’ dividends	2,256		8,731
Securities sold under agreements to repurchase	8,006		10,185
Cash collateral for loaned securities	5,741		4,251
Income tax liabilities	0		9,513
Short-term debt	558		722
Long-term debt	19,612		18,622
Liabilities held-for-sale(2)	0		151,359
Other liabilities (including allowance for credit losses: 2022-$18; 2021-$21 )(1)	19,215		11,755
Notes issued by consolidated variable interest entities(1)	232		274
Separate account liabilities	205,613		246,145
Total liabilities	666,681		874,974
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)
EQUITY
Preferred Stock ($0.01 par value; 10,000,000 shares authorized; none issued)	0		0
Common Stock ($0.01 par value; 1,500,000,000 shares authorized; 666,305,189 shares issued as of both June 30, 2022 and December 31, 2021)	6		6
Additional paid-in capital	25,661		25,732
Common Stock held in treasury, at cost (293,684,307 and 290,018,851 shares at June 30, 2022 and December 31, 2021, respectively)	(22,391)		(21,838)
Accumulated other comprehensive income (loss)	(10,178)		21,324
Retained earnings	35,137		36,652
Total Prudential Financial, Inc. equity	28,235		61,876
Noncontrolling interests	683		732
Total equity	28,918		62,608
TOTAL LIABILITIES AND EQUITY	$	695,599	$	937,582

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

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

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three and Six Months Ended June 30, 2022 and 2021 (in millions, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
REVENUES
Premiums	$	7,112	$	6,779	$	15,064	$	14,322
Policy charges and fee income	1,551		1,400		3,010		2,890
Net investment income	3,938		4,552		8,296		8,934
Asset management and service fees	987		1,198		2,120		2,374
Other income (loss)	580		1,353		(791)		1,635
Realized investment gains (losses), net	(1,147)		635		(1,463)		2,714
Total revenues	13,021		15,917		26,236		32,869
BENEFITS AND EXPENSES
Policyholders’ benefits	9,612		7,615		18,480		15,725
Interest credited to policyholders’ account balances	665		1,074		834		1,842
Dividends to policyholders	(207)		833		28		1,437
Amortization of deferred policy acquisition costs	581		392		1,428		1,133

General and administrative expenses	2,881		3,230		6,092		6,545
Total benefits and expenses	13,532		13,144		26,862		26,682
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(511)		2,773		(626)		6,187
Total income tax expense (benefit)	11		609		(58)		1,245
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(522)		2,164		(568)		4,942
Equity in earnings of operating joint ventures, net of taxes	(50)		19		(48)		45


NET INCOME (LOSS)	(572)		2,183		(616)		4,987
Less: Income (loss) attributable to noncontrolling interests	(7)		25		(20)		1
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	(565)	$	2,158	$	(596)	$	4,986
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(1.53)	$	5.44	$	(1.62)	$	12.47
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(1.53)	$	5.40	$	(1.62)	$	12.39

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, 2022 and 2021 (in millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
NET INCOME (LOSS)	$	(572)	$	2,183	$	(616)	$	4,987
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	(984)		(48)		(1,336)		(729)
Net unrealized investment gains (losses)	(17,740)		5,353		(39,510)		(8,775)
Defined benefit pension and postretirement unrecognized periodic benefit (cost)	388		74		453		170
Total	(18,336)		5,379		(40,393)		(9,334)
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(3,953)		1,319		(8,890)		(1,857)
Other comprehensive income (loss), net of taxes	(14,383)		4,060		(31,503)		(7,477)
Comprehensive income (loss)	(14,955)		6,243		(32,119)		(2,490)
Less: Comprehensive income (loss) attributable to noncontrolling interests	(7)		27		(21)		(15)
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	(14,948)	$	6,216	$	(32,098)	$	(2,475)

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity

Six Months Ended June 30, 2022, and 2021 (in millions)


	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held In Treasury		Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2021	$	6	$	25,732	$	36,652	$	(21,838)	$	21,324	$	61,876	$	732	$	62,608

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

Contributions from noncontrolling interests													3		3
Distributions to noncontrolling interests													(21)		(21)

Stock-based compensation programs			(73)				162				89				89
Dividends declared on Common Stock					(462)						(462)				(462)
Comprehensive income:
Net income (loss)					(31)						(31)		(13)		(44)
Other comprehensive income (loss), net of tax									(17,119)		(17,119)		(1)		(17,120)
Total comprehensive income (loss)											(17,150)		(14)		(17,164)
Balance, March 31, 2022	6		25,659		36,159		(22,051)		4,205		43,978		700		44,678

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

Contributions from noncontrolling interests													26		26
Distributions to noncontrolling interests													(36)		(36)

Stock-based compensation programs			2				35				37				37
Dividends declared on Common Stock					(457)						(457)				(457)
Comprehensive income:
Net income (loss)					(565)						(565)		(7)		(572)
Other comprehensive income (loss), net of tax									(14,383)		(14,383)		0		(14,383)
Total comprehensive income (loss)											(14,948)		(7)		(14,955)
Balance, June 30, 2022	$	6	$	25,661	$	35,137	$	(22,391)	$	(10,178)	$	28,235	$	683	$	28,918






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

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

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

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

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

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Six Months Ended June 30, 2022 and 2021 (in millions)


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(616)	$	4,987
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses, net	1,463		(2,714)
Policy charges and fee income	(1,334)		(1,142)
Interest credited to policyholders’ account balances	834		1,842
Depreciation and amortization	188		45
(Gains) losses on assets supporting experience-rated contractholder liabilities, net	1,080		89
Change in:
Deferred policy acquisition costs	324		(167)
Future policy benefits and other insurance liabilities	4,094		2,663
Income taxes	(1,371)		221
Derivatives, net	(2,301)		(3,466)
Other, net(1)	(859)		(1,296)
Cash flows from (used in) operating activities	1,502		1,062
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	28,636		34,913
Fixed maturities, held-to-maturity	17		144
Fixed maturities, trading	1,206		2,141
Assets supporting experience-rated contractholder liabilities	10,235		9,048
Equity securities	2,535		2,266
Commercial mortgage and other loans	3,004		3,739
Policy loans	869		1,091
Other invested assets	1,155		1,319
Short-term investments	20,616		15,998
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(33,244)		(29,501)

Fixed maturities, trading	(225)		(5,345)
Assets supporting experience-rated contractholder liabilities	(10,592)		(9,727)
Equity securities	(1,361)		(1,923)
Commercial mortgage and other loans	(2,778)		(3,554)
Policy loans	(593)		(676)
Other invested assets	(1,320)		(1,426)
Short-term investments	(20,079)		(14,552)

Dispositions, net of cash disposed(2)	422		132
Derivatives, net	(1,802)		(776)
Other, net	59		(149)
Cash flows from (used in) investing activities	(3,240)		3,162
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	13,969		15,182
Policyholders’ account withdrawals	(12,764)		(15,575)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	(483)		(405)
Cash dividends paid on Common Stock	(921)		(926)
Net change in financing arrangements (maturities 90 days or less)	(258)		73
Common Stock acquired	(738)		(1,238)
Common Stock reissued for exercise of stock options	99		113
Proceeds from the issuance of debt (maturities longer than 90 days)	1,024		71
Repayments of debt (maturities longer than 90 days)	(124)		(173)



Other, net(3)	1,660		211
Cash flows from (used in) financing activities	1,464		(2,667)
Effect of foreign exchange rate changes on cash balances	(317)		(217)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS INCLUDING BALANCES CLASSIFIED AS HELD-FOR-SALE	(591)		1,340
NET CHANGE IN CASH BALANCES CLASSIFIED AS HELD-FOR-SALE(2)	(2,071)		0
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS	1,480		1,340
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR	12,934		13,855
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	14,414	$	15,195

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Six Months Ended June 30, 2022 and 2021 (in millions)


	Six Months Ended June 30,
	2022		2021
HELD-FOR-SALE CLASSIFICATION(2)
Change in assets classified as held-for-sale	$	(153,793)	$	0
Change in liabilities classified as held-for-sale	(151,359)		0
Change in net assets classified as held-for-sale	$	(2,434)	$	0

NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs	$	229	$	131

Significant Pension Risk Transfer transactions:
Assets received, excluding cash and cash equivalents	$	502	$	0
Liabilities assumed	505		0
Net cash received	$	3	$	0





RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Cash and cash equivalents	$	14,359	$	15,145
Restricted cash and restricted cash equivalents (included in “Other assets”)	55		50
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	14,414	$	15,195

(1)The amount for the six months ended June 30, 2022 includes the recognized gains on the sales of Prudential Annuities Life Assurance Corporation (“PALAC”) and the Full Service Retirement business, which were completed on April 1, 2022. See Note 1 for additional information on these dispositions.

(2)See Note 1 for more information on the dispositions.

(3)The amount for the six months ended June 30, 2022 includes approximately $1.6 billion from a secured borrowing related to the PALAC disposition. See Note 1 for more information.

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

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

In October 2021, the Company announced the creation of Retirement Strategies, a new U.S. business that would serve the retirement needs of both its institutional and individual customers by bringing the institutional investment and pension solutions offered through the Retirement business together with the financial solutions and capabilities of the Individual Annuities business. As of the second quarter of 2022, this new structure has been fully operationalized; therefore, the results of the former Retirement segment (now known as the “Institutional Retirement Strategies” operating segment) and the former Individual Annuities segment (now known as the “Individual Retirement Strategies” operating segment) have been aggregated into the Retirement Strategies segment. Prior periods have been updated to conform to this new presentation.

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

Basis of Presentation

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

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

income taxes and valuation of deferred tax assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal and regulatory matters.

Out of Period Adjustments

In the second quarter of 2022, the Company recorded out of period adjustments within the Individual Life business, resulting in an aggregate net benefit of $125 million to “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures” for the second quarter of 2022. The adjustments included (i) a $230 million benefit from a reduction to cost of reinsurance liabilities related to universal and variable life products; (ii) an $80 million net benefit from a reduction in reserves, partially offset by an increase in cost of reinsurance liabilities, for certain universal and variable universal life products; and (iii) a $185 million charge from an increase in reserves for certain universal life insurance products.

The impact of these out of period adjustments, individually and in the aggregate, was not material to any previously reported quarterly or annual financial statements and is not expected to be material to the 2022 annual financial statements. See Note 13 for additional information on the impact of these adjustments to the Company’s operating segments.

Reclassifications

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

COVID-19

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

Business Dispositions

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

On April 1, 2022, the Company completed the sale of Prudential Annuities Life Assurance Corporation (“PALAC”), a wholly owned subsidiary, representing a portion of its in-force traditional variable annuity block of business, to Fortitude Group Holdings, LLC (“Fortitude”). The PALAC block primarily consisted of non-New York traditional variable annuities with guaranteed living benefits that were issued prior to 2011, which constituted approximately $30 billion of Prudential’s total in-force individual annuity account values at the closing of the transaction. The Company, through co-insurance and modified co-insurance agreements, has retained the results of certain variable annuities, indexed annuities, and fixed annuities with a guaranteed lifetime withdrawal income feature issued by PALAC.

The Company recognized a pre-tax gain on sale of $852 million in the second quarter of 2022 within “Other income”. The gain is included in adjusted operating income within the Retirement Strategies segment.

The economics of approximately $1.7 billion of commercial mortgage and other loans and fixed maturities, available-for-sale, held by PALAC, have been transferred to Fortitude via participation agreements. The Company has retained legal ownership and control over the participated assets, and they cannot be freely pledged or exchanged by Fortitude. This transfer did not meet the requirements of sale accounting and is therefore accounted for as a secured borrowing. As a result, these assets continue to be reported on the Company’s Unaudited Consolidated Statements of Financial Position along with the recognition of a corresponding secured borrowing liability in “Other liabilities”.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Full Service Retirement Business

On April 1, 2022, the Company completed the sale of its Full Service Retirement business to Great-West Life & Annuity Insurance Company (“Great-West”), primarily through a combination of (i) the sale of all of the outstanding equity interests of certain legal entities, including Prudential Retirement Insurance and Annuity Company (“PRIAC”); (ii) the ceding of certain insurance policies through reinsurance; and (iii) the sale, transfer and/or novation of certain in-scope contracts and brokerage accounts.

The Company recognized a net pre-tax gain of $690 million in the second quarter of 2022, composed of (i) an $890 million gain recorded in “Other income”; (ii) $150 million of realized losses recorded in “Realized investment gains (losses), net”, related to assets transferred as part of the reinsurance of certain retained policies to Great-West; and (iii) $50 million of indirect expenses and charges recorded in “General and administrative expenses” on the Unaudited Interim Consolidated Statements of Operations. The net gain is excluded from adjusted operating income and reported within Divested Businesses as part of Corporate and Other operations. In addition, the Company recognized a deferred gain of $495 million for the ceding of certain insurance policies through reinsurance to Great-West, which will be recognized in income over the term of the ceded policies. The transaction agreement includes a post-closing adjustment provision. Any such adjustment will be finalized by the fourth quarter of 2022 and could impact the amount of the pre-tax gain referred to above. The Company does not expect that any such adjustment will have a material impact on the Company’s results.

Excluding the gain on sale recognized in the second quarter of 2022, the Full Service Retirement business generated pre-tax income/(loss) of $0 million and ($206) million for the three and six months ended June 30, 2022, respectively, and $84 million and $99 million for the three and six months ended June 30, 2021, respectively. These amounts exclude the impact of overhead costs retained in the Company’s Corporate and Other operations and not transferred to Great-West.

The assets and liabilities of both the Full Service Retirement business and PALAC were classified as held-for-sale prior to completion of these dispositions. The table below reflects their carrying amounts as of December 31, 2021:

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2021
	Retirement Full Service		Individual Annuities PALAC		Total
	(in millions)
Assets held-for-sale:
Fixed maturities, available-for-sale, at fair value(1)	$	4,798	$	8,771	$	13,569
Fixed maturities, trading, at fair value	374		27		401
Assets supporting experience-rated contractholder liabilities, at fair value	18,818		0		18,818
Equity securities	0		322		322
Commercial mortgage and other loans(1)	5,068		1,497		6,565
Policy loans	0		12		12
Other invested assets	10		94		104
Short-term investments	3		875		878
Cash and cash equivalents	56		2,015		2,071
Accrued investment income	160		61		221
Deferred policy acquisition costs	100		1,097		1,197
Value of business acquired	185		30		215
Other assets(2)	674		10,644		11,318
Separate account assets	65,835		32,267		98,102
Total assets held-for-sale	$	96,081	$	57,712	$	153,793
Liabilities held-for-sale:
Future policy benefits	$	157	$	4,505	$	4,662
Policyholders’ account balances	28,164		11,750		39,914


Other liabilities	374		8,307		8,681
Separate account liabilities	65,835		32,267		98,102
Total liabilities held-for-sale	$	94,530	$	56,829	$	151,359

(1)Includes “Fixed maturities, available-for-sale, at fair value” with an allowance for credit losses of $1 million and “Commercial mortgage and other loans” net of allowance for credit losses of $15 million as of December 31, 2021, respectively.

(2)Includes $455 million of goodwill associated with the Retirement Full Service business as of December 31, 2021.

The Prudential Life Insurance Company of Taiwan Inc.

In June 2021, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, completed the sale of The Prudential Life Insurance Company of Taiwan Inc. (“POT”) to Taishin Financial Holding Co, Ltd. (the “Buyer”) for cash consideration of approximately NT5.5 billion, equal to approximately $200 million at then current exchange rates, and contingent consideration with a fair value of approximately $97 million as of June 30, 2022. The fair value of the contingent consideration is tied to the level of yields for the 10-year Taiwanese Government bond for two years after the signing of the transaction and can result in a maximum payout of $100 million if yields increase by 40 basis points. In connection with the transaction, the Company recognized a liability with a fair value of approximately $33 million as of June 30, 2022, representing its financial guarantee of certain insurance obligations of POT.

The after-tax loss on the sale of POT was approximately $400 million, of which approximately $350 million was recorded during 2020, and approximately $50 million was recorded during 2021.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Pramerica SGR (PGIM Italy Joint Venture)

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

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of June 30, 2022, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

ASU issued but not yet adopted as of June 30, 2022 — ASU 2018-12

ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018, and was amended by ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date, issued in October 2019, and ASU 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application, issued in November 2020. The Company will adopt ASU 2018-12 effective January 1, 2023 using the modified retrospective transition method where permitted, and apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements.

The Company has an established governance framework to manage the implementation of the standard. The Company’s implementation efforts continue to progress including, but not limited to, implementing refinements to key accounting policy decisions, modifications to actuarial valuation models, updates to data sourcing capabilities, automation of key financial reporting and analytical processes and updates to internal control over financial reporting.

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 its Consolidated Financial Statements and will significantly increase disclosures. As of the January 1, 2021 transition date, the Company estimates that the implementation of the standard will result in a decrease to “Retained earnings” of approximately $2 billion to $3 billion primarily from reclassifying the cumulative effect of changes in non-performance risk from “Retained earnings” to “Accumulated other comprehensive income” (“AOCI”) and other changes in reserves, and will result in a decrease to AOCI of approximately $40 billion to $45 billion primarily from remeasuring in-force contract liabilities using upper-medium grade fixed income instrument yields as of the transition date. As of December 31, 2021, these estimates decline to a decrease to “Retained earnings” of approximately $1 billion to $2 billion and a decrease to AOCI of approximately $28 billion to $33 billion primarily due to the increase in interest rates during 2021. In addition to the impacts to the balance sheet, the Company also expects an impact to the pattern of earnings emergence following the transition date. Outlined below are four key areas of change, although there are other less significant policy changes not noted below.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


ASU 2018-12 Amended Topic	Description	Method of adoption	Effect on the financial statements or other significant matters
Amortization of deferred acquisition costs (DAC) and other balances	Requires DAC and other balances, such as unearned revenue reserves and DSI, to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.	An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity may choose to apply the amendments to contracts in force as of the beginning of the prior year (if early adoption is elected) or as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or (2) if an entity chooses a full retrospective transition method for its liability for future policy benefits, as described above, it is required to also use a full retrospective transition method for DAC and other balances.	The Company will adopt this guidance effective January 1, 2023 using the modified retrospective transition method. Under the modified retrospective transition method, the Company does not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.
Market Risk Benefits (“MRB”)	Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record MRB assets and liabilities separately on the Consolidated Statements of Financial Position. Changes in fair value of market risk benefits are recorded in net income, except for the portion of the change in MRB liabilities attributable to changes in an entity’s NPR, which is recognized in OCI.	An entity shall adopt the guidance for market risk benefits using the retrospective transition method, which includes a cumulative effect adjustment on the balance sheet as of either the beginning of prior year (if early adoption is elected) or the beginning of the earliest period presented. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption.	The Company will adopt this guidance effective January 1, 2023 using the retrospective transition method. Upon adoption, the Company expects a decrease to “Retained earnings” and offsetting increase to AOCI from reclassifying the cumulative effect of changes in NPR from retained earnings to AOCI. There will also be an impact to “Retained earnings” for the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., guaranteed minimum death benefits on variable annuities).

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Other ASU issued but not yet adopted as of June 30, 2022


Standard						Description						Effective date and method of adoption						Effect on the financial statements or other significant matters
ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosure						This ASU eliminates the accounting guidance for Troubled Debt Restructurings (“TDR”) for creditors and adds enhanced disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Following adoption of the ASU, all loan refinancings and restructurings are subject to the modification guidance in ASC 310-20. This ASU also amends the guidance on the vintage disclosures to require disclosure of current-period gross write-offs by year of origination.						January 1, 2023 using the prospective method with an option to apply a modified retrospective transition method for the recognition and measurement of TDRs which will include a cumulative effect adjustment on the balance sheet in the period of adoption. Early adoption is permitted beginning January 1, 2022, including adoption in an interim period provided guidance is applied as of the beginning of the year.						The Company does not expect the adoption of the ASU to have a significant impact on the Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

3. INVESTMENTS

Fixed Maturity Securities

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


	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	25,640	$	1,957	$	2,303	$	0	$	25,294
Obligations of U.S. states and their political subdivisions	10,481		412		435		0		10,458
Foreign government bonds	72,016		6,360		3,298		6		75,072
U.S. public corporate securities	96,085		2,135		9,848		19		88,353
U.S. private corporate securities(1)	36,630		790		2,362		57		35,001
Foreign public corporate securities	22,621		583		1,604		0		21,600
Foreign private corporate securities	30,231		231		4,126		26		26,310
Asset-backed securities(2)	10,793		149		277		1		10,664
Commercial mortgage-backed securities	11,962		27		543		0		11,446
Residential mortgage-backed securities(3)	2,544		37		124		0		2,457
Total fixed maturities, available-for-sale(1)	$	319,003	$	12,681	$	24,920	$	109	$	306,655


	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	706	$	155	$	0	$	861	$	0	$	706
Foreign public corporate securities	419		28		0		447		3		416
Foreign private corporate securities	7		0		0		7		0		7


Residential mortgage-backed securities(3)	151		9		0		160		0		151
Total fixed maturities, held-to-maturity(4)	$	1,283	$	192	$	0	$	1,475	$	3	$	1,280

(1)Excludes notes with amortized cost of $6,291 million (fair value, $6,291 million), which have been offset with the associated debt under a netting agreement.

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

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

(4)Excludes notes with amortized cost of $4,500 million (fair value, $4,500 million), which have been offset with the associated debt under a netting agreement.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	26,231	$	5,958	$	31	$	0	$	32,158
Obligations of U.S. states and their political subdivisions	10,445		1,781		8		0		12,218
Foreign government bonds	83,363		11,842		529		7		94,669
U.S. public corporate securities	98,836		13,721		390		12		112,155
U.S. private corporate securities(2)	35,019		2,583		162		58		37,382
Foreign public corporate securities	24,877		2,571		118		21		27,309
Foreign private corporate securities	28,047		1,448		442		16		29,037
Asset-backed securities(3)	11,402		137		14		0		11,525
Commercial mortgage-backed securities	12,490		631		22		0		13,099
Residential mortgage-backed securities(4)	2,749		123		14		0		2,858
Total fixed maturities, available-for-sale(1)(2)	$	333,459	$	40,795	$	1,730	$	114	$	372,410


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	833	$	221	$	0	$	1,054	$	0	$	833
Foreign public corporate securities	486		49		0		535		5		481
Foreign private corporate securities	9		0		0		9		0		9


Residential mortgage-backed securities(4)	191		14		0		205		0		191
Total fixed maturities, held-to-maturity(5)	$	1,519	$	284	$	0	$	1,803	$	5	$	1,514

(1)Excludes “Assets held-for-sale” with amortized cost of $13,145 million, fair value of $13,569 million, unrealized gains of $572 million, unrealized losses of $147 million and allowance for credit losses of $1 million. See Note 1 for additional information.

(2)Excludes notes with amortized cost of $5,941 million (fair value, $5,995 million), which have been offset with the associated debt under a netting agreement.

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

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

(5)Excludes notes with amortized cost of $4,750 million (fair value, $5,394 million), which have been offset with the associated debt under a netting agreement.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	June 30, 2022
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	15,185	$	2,294	$	24	$	9	$	15,209	$	2,303
Obligations of U.S. states and their political subdivisions	5,535		414		67		21		5,602		435
Foreign government bonds	19,147		2,153		5,299		1,145		24,446		3,298
U.S. public corporate securities	65,990		9,011		2,392		805		68,382		9,816
U.S. private corporate securities	26,290		2,068		1,516		294		27,806		2,362
Foreign public corporate securities	12,636		1,355		993		249		13,629		1,604
Foreign private corporate securities	22,307		3,571		2,091		555		24,398		4,126
Asset-backed securities	8,096		239		1,259		38		9,355		277
Commercial mortgage-backed securities	10,627		498		268		45		10,895		543
Residential mortgage-backed securities	1,521		57		387		67		1,908		124
Total fixed maturities, available-for-sale	$	187,334	$	21,660	$	14,296	$	3,228	$	201,630	$	24,888


	December 31, 2021
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	1,521	$	15	$	269	$	16	$	1,790	$	31
Obligations of U.S. states and their political subdivisions	289		5		71		3		360		8
Foreign government bonds	4,534		244		6,945		282		11,479		526
U.S. public corporate securities	12,403		219		2,947		152		15,350		371
U.S. private corporate securities	4,362		84		848		78		5,210		162
Foreign public corporate securities	3,652		76		802		42		4,454		118
Foreign private corporate securities	6,350		270		1,604		169		7,954		439
Asset-backed securities	6,568		13		170		1		6,738		14
Commercial mortgage-backed securities	921		11		263		11		1,184		22
Residential mortgage-backed securities	751		13		18		1		769		14
Total fixed maturities, available-for-sale(1)	$	41,351	$	950	$	13,937	$	755	$	55,288	$	1,705

(1)Excludes “Assets held-for-sale” with fair value of $4,644 million and gross unrealized losses of $147 million. See Note 1 for additional information.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of June 30, 2022 and December 31, 2021, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of $22,624 million and $1,242 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $2,264 million and $463 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, 2022, the $3,228 million of gross unrealized losses of twelve months or more were concentrated in the consumer non-cyclical, finance and utility sectors within corporate securities and foreign government securities. As of December 31, 2021, the $755 million of gross unrealized losses of twelve months or more were concentrated in consumer non-cyclical, utility and finance sectors within corporate securities.

In accordance with its policy described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at June 30, 2022. This conclusion was based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening, foreign currency exchange rate movements and the financial condition or near-term prospects of the issuer. As of June 30, 2022, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost basis.

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


	June 30, 2022
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost, Net of Allowance		Fair Value
	(in millions)
Fixed maturities:
Due in one year or less	$	10,356	$	10,578	$	0	$	0
Due after one year through five years	48,221		48,117		417		447
Due after five years through ten years	62,288		60,950		24		26
Due after ten years(1)	172,839		162,443		688		842
Asset-backed securities	10,793		10,664		0		0
Commercial mortgage-backed securities	11,962		11,446		0		0
Residential mortgage-backed securities	2,544		2,457		151		160
Total	$	319,003	$	306,655	$	1,280	$	1,475

(1)Excludes available-for-sale notes with amortized cost of $6,291 million (fair value, $6,291 million) and held-to-maturity notes with amortized cost of $4,500 million (fair value, $4,500 million), which have been offset with the associated debt under a netting agreement.

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	9,995	$	5,078	$	19,078	$	19,768
Proceeds from maturities/prepayments	4,301		8,002		9,606		14,896
Gross investment gains from sales and maturities	374		361		615		1,963
Gross investment losses from sales and maturities	(1,017)		(99)		(1,587)		(489)

Write-downs recognized in earnings(2)	(86)		0		(92)		0
(Addition to) release of allowance for credit losses	82		51		5		53
Fixed maturities, held-to-maturity:
Proceeds from maturities/prepayments(3)	$	8	$	132	$	17	$	144
(Addition to) release of allowance for credit losses	1		0		2		2

(1)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $(48) million and $249 million for the six months ended June 30, 2022 and 2021, respectively.

(2)Amounts represent write-downs on credit adverse securities and securities actively marketed for sale.

(3)Excludes activity from non-cash related proceeds due to the timing of trade settlements of less than $1 million and $0 million for the six months ended June 30, 2022 and 2021, respectively.

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


	Three Months Ended June 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	12	$	180	$	0	$	0	$	0	$	192
Additions to allowance for credit losses not previously recorded	0		1		11		1		0		0		13

Reductions for securities sold during the period	0		0		(25)		0		0		0		(25)
Reductions for securities with intent to sell	0		(9)		(67)		0		0		0		(76)
Additions (reductions) on securities with previous allowance	0		2		4		0		0		0		6

Reclassified to / (from) “Assets held-for sale”(1)	0		0		(1)		0		0		0		(1)
Balance, end of period	$	0	$	6	$	102	$	1	$	0	$	0	$	109

(1)See Note 1 for additional information.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	122	$	0	$	9	$	0	$	131
Additions to allowance for credit losses not previously recorded	0		0		9		0		0		0		9

Reductions for securities sold during the period	0		0		(4)		0		(9)		0		(13)

Additions (reductions) on securities with previous allowance	0		0		(47)		0		0		0		(47)


Balance, end of period	$	0	$	0	$	80	$	0	$	0	$	0	$	80


	Six Months Ended June 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	7	$	107	$	0	$	0	$	0	$	114
Additions to allowance for credit losses not previously recorded	0		11		73		1		0		0		85

Reductions for securities sold during the period	0		(2)		(53)		0		0		0		(55)
Reductions for securities with intent to sell	0		(13)		(67)		0		0		0		(80)
Additions (reductions) on securities with previous allowance	0		3		42		0		0		0		45


Balance, end of period	$	0	$	6	$	102	$	1	$	0	$	0	$	109

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2021
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	0	$	123	$	0	$	10	$	0	$	133
Additions to allowance for credit losses not previously recorded	0		0		40		0		0		0		40

Reductions for securities sold during the period	0		0		(30)		0		(9)		0		(39)

Additions (reductions) on securities with previous allowance	0		0		(53)		0		(1)		0		(54)


Balance, end of period	$	0	$	0	$	80	$	0	$	0	$	0	$	80


	Three Months Ended June 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	4	$	0	$	0	$	0	$	4

Current period provision for expected losses	0		0		(1)		0		0		0		(1)



Change in foreign exchange	0		0		0		0		0		0		0
Balance, end of period	$	0	$	0	$	3	$	0	$	0	$	0	$	3


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

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




Balance, end of period	$	0	$	0	$	7	$	0	$	0	$	0	$	7

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	5	$	0	$	0	$	0	$	5

Current period provision for expected losses	0		0		(1)		0		0		0		(1)



Change in foreign exchange	0		0		(1)		0		0		0		(1)
Balance, end of period	$	0	$	0	$	3	$	0	$	0	$	0	$	3


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

Current-period allowance for expected credit losses	0		0		(2)		0		0		0		(2)




Balance, end of period	$	0	$	0	$	7	$	0	$	0	$	0	$	7

For additional information about the Company’s methodology for developing our allowance and expected losses, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

For the three months ended June 30, 2022, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to net reductions in the communications, foreign agencies and utility sectors within corporate securities, partially offset by a net addition within the capital goods sector. For the three months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment within the consumer cyclical, energy and communication sectors within corporate securities.

For the six months ended June 30, 2022, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to net reductions in the communications and transportation sectors within corporate securities, partially offset by net additions in the capital goods and utility sectors. For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to the improving credit environment within the energy and consumer cyclical sectors within corporate securities.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of June 30, 2022 or December 31, 2021.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Assets Supporting Experience-Rated Contractholder Liabilities

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


	June 30, 2022				December 31, 2021
							Assets Held-for-Sale(1)
	Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	0	$	0	$	30	$	30	$	786	$	786
Fixed maturities:
Corporate securities	90		90		101		103		12,112		12,463
Commercial mortgage-backed securities	0		0		0		0		1,799		1,830
Residential mortgage-backed securities(2)	0		0		0		0		658		683
Asset-backed securities(3)	0		0		0		0		2,079		2,093
Foreign government bonds	677		658		761		761		240		237
U.S. government authorities and agencies and obligations of U.S. states	167		187		182		193		344		400
Total fixed maturities(4)	934		935		1,044		1,057		17,232		17,706
Equity securities	1,573		1,850		1,787		2,271		328		326
Total assets supporting experience-rated contractholder liabilities(5)	$	2,507	$	2,785	$	2,861	$	3,358	$	18,346	$	18,818

(1)See Note 1 for additional information.

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

(3)Includes collateralized loan obligations, auto loans, education loans, home equity and other asset types. Collateralized loan obligations at fair value, was $1,607 million, including “Assets held-for-sale” as of December 31, 2021, all of which were rated AA or higher.

(4)As a percentage of amortized cost, 98% of the portfolio was considered high or highest quality based on NAIC or equivalent ratings, as of June 30, 2022. As a percentage of amortized cost, 97% of the portfolio including “Asset held-for-sale” was considered high or highest quality based on NAIC or equivalent ratings, as of December 31, 2021.

(5)As a percentage of amortized cost, all of the portfolio consisted of public securities, as of June 30, 2022. As a percentage of amortized cost, 95% of the portfolio including “Assets held-for-sale” consisted of public securities, as of December 31, 2021.

The net change in unrealized gains (losses) from assets supporting experience-rated contractholder liabilities still held at period end, recorded within “Other income (loss),” was $281 million and $165 million during the three months ended June 30, 2022 and 2021, respectively, and $(691) million and $(294) million during the six months ended June 30, 2022 and 2021, respectively.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was $(601) million and $86 million, during the three months ended June 30, 2022 and 2021, respectively, and $(858) million and $438 million during the six months ended June 30, 2022 and 2021, respectively.

Concentrations of Financial Instruments

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale	$	62,326	$	65,845	$	73,681	$	83,382
Fixed maturities, held-to-maturity	687		838		812		1,026
Fixed maturities, trading	20		19		23		23
Assets supporting experience-rated contractholder liabilities	590		574		983		977


Total	$	63,623	$	67,276	$	75,499	$	85,408

Commercial Mortgage and Other Loans

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


	June 30, 2022				December 31, 2021
	Amount (in millions)		% of Total		Amount (in millions)		% of Total
Commercial mortgage and agricultural property loans by property type:
Office	$	9,654	17.1	%	$	10,225	17.6	%
Retail	6,161		10.9		6,779		11.7
Apartments/Multi-Family	15,683		27.9		16,742		28.8
Industrial	13,039		23.1		13,009		22.4
Hospitality	1,912		3.4		1,876		3.2
Other	3,898		6.9		3,936		6.8
Total commercial mortgage loans	50,347		89.3		52,567		90.5
Agricultural property loans	6,048		10.7		5,520		9.5
Total commercial mortgage and agricultural property loans	56,395		100.0	%	58,087		100.0	%
Allowance for credit losses	(164)				(115)
Total net commercial mortgage and agricultural property loans	56,231				57,972
Other loans:
Uncollateralized loans	485				561
Residential property loans	49				67
Other collateralized loans	107				70
Total other loans	641				698
Allowance for credit losses	(32)				(4)
Total net other loans	609				694
Total net commercial mortgage and other loans(1)(2)	$	56,840			$	58,666

(1)Excludes “Assets held-for-sale” of $6,565 million net of allowance for credit losses of $15 million as of December 31, 2021. See Note 1 for additional information.

(2)Includes loans which are carried at fair value under the fair value option and are collateralized primarily by apartment complexes. As of June 30, 2022 and December 31, 2021, the net carrying value of these loans were $303 million and $1,263 million, respectively.

As of June 30, 2022, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States with the largest concentrations in California (30%), Texas (8%) and New York (6%) and included loans secured by properties in Europe (6%), Asia (1%) and Australia (1%).

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	Three Months Ended June 30, 2022
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	113	$	4	$	0	$	0	$	4	$	121

Addition to (release of) allowance for expected losses	44		4		0		0		28		76




Other	(1)		0		0		0		0		(1)
Allowance, end of period	$	156	$	8	$	0	$	0	$	32	$	196


	Three Months Ended June 30, 2021
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	209	$	8	$	0	$	2	$	5	$	224

Addition to (release of) allowance for expected losses	(49)		(2)		0		0		(1)		(52)





Allowance, end of period	$	160	$	6	$	0	$	2	$	4	$	172


	Six Months Ended June 30, 2022
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	111	$	4	$	0	$	0	$	4	$	119

Addition to (release of) allowance for expected losses	40		4		0		0		28		72

Reclassified (to) from “Assets held-for sale”(1)	6		0		0		0		0		6


Other	(1)		0		0		0		0		(1)
Allowance, end of period	$	156	$	8	$	0	$	0	$	32	$	196

(1)See Note 1 for additional information.


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

Addition to (release of) allowance for expected losses	(58)		(3)		0		0		(1)		(62)




Other	0		0		0		(1)		0		(1)
Allowance, end of period	$	160	$	6	$	0	$	2	$	4	$	172

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

For the three months ended June 30, 2022, the net addition to the allowance for credit losses on commercial mortgage and other loans was due to increases in loan-specific reserves as well as increases to reserves to reflect current market conditions. For the three months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment.

For the six months ended June 30, 2022, the net addition to the allowance for credit losses on commercial mortgage and other loans was due to increases in loan-specific reserves as well as increases to reserves to reflect current market conditions. For the six months ended June 30, 2021, the net decrease in the allowance for credit losses on commercial mortgage and other loans was primarily related to the improving credit environment.

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


	June 30, 2022
	Amortized Cost by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
	(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	441	$	1,180	$	634	$	2,285	$	3,085	$	15,741	$	0	$	23,366
60%-69.99%	893		3,431		1,782		3,753		3,621		4,596		0		18,076
70%-79.99%	881		1,857		1,216		1,153		583		2,467		0		8,157
80% or greater	4		25		39		7		0		673		0		748
Total	$	2,219	$	6,493	$	3,671	$	7,198	$	7,289	$	23,477	$	0	$	50,347
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	2,043	$	6,278	$	3,379	$	6,094	$	6,772	$	19,271	$	0	$	43,837
1.0 - 1.2x	176		215		112		686		420		1,893		0		3,502
Less than 1.0x	0		0		180		418		97		2,313		0		3,008
Total	$	2,219	$	6,493	$	3,671	$	7,198	$	7,289	$	23,477	$	0	$	50,347
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	659	$	2,003	$	864	$	486	$	321	$	1,454	$	79	$	5,866
60%-69.99%	19		85		8		33		37		0		0		182
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0		0
Total	$	678	$	2,088	$	872	$	519	$	358	$	1,454	$	79	$	6,048
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	670	$	2,044	$	847	$	508	$	351	$	1,330	$	79	$	5,829
1.0 - 1.2x	0		44		25		10		1		67		0		147
Less than 1.0x	8		0		0		1		6		57		0		72
Total	$	678	$	2,088	$	872	$	519	$	358	$	1,454	$	79	$	6,048

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2021
	Amortized Cost by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total(1)
	(in millions)
Commercial Mortgage Loans
Loan-to-Value Ratio:
0%-59.99%	$	1,287	$	467	$	2,459	$	3,211	$	3,072	$	14,011	$	0	$	24,507
60%-69.99%	3,101		1,941		4,124		3,631		1,356		4,161		0		18,314
70%-79.99%	2,497		1,207		1,327		1,059		631		2,108		0		8,829
80% or greater	184		39		7		62		50		575		0		917
Total	$	7,069	$	3,654	$	7,917	$	7,963	$	5,109	$	20,855	$	0	$	52,567
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	6,803	$	3,356	$	6,828	$	7,384	$	4,445	$	16,864	$	0	$	45,680
1.0 - 1.2x	266		154		662		478		234		2,069		0		3,863
Less than 1.0x	0		144		427		101		430		1,922		0		3,024
Total	$	7,069	$	3,654	$	7,917	$	7,963	$	5,109	$	20,855	$	0	$	52,567
Agricultural Property Loans
Loan-to-Value Ratio:
0%-59.99%	$	1,958	$	887	$	494	$	334	$	370	$	1,226	$	80	$	5,349
60%-69.99%	92		5		29		37		0		0		0		163
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		3		5		0		0		0		0		8
Total	$	2,050	$	895	$	528	$	371	$	370	$	1,226	$	80	$	5,520
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	2,007	$	870	$	517	$	364	$	312	$	1,121	$	80	$	5,271
1.0 - 1.2x	43		25		10		1		58		41		0		178
Less than 1.0x	0		0		1		6		0		64		0		71
Total	$	2,050	$	895	$	528	$	371	$	370	$	1,226	$	80	$	5,520

(1)Excludes “Assets held-for-sale” of $6,580 million. See Note 1 for additional information.

For additional information about the Company’s commercial mortgage and other loans credit quality monitoring process, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2022
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)
Commercial mortgage loans	$	50,347	$	0	$	0	$	0	$	0	$	50,347	$	2
Agricultural property loans	6,042		0		0		6		6		6,048		20
Residential property loans	48		1		0		0		1		49		0
Other collateralized loans	107		0		0		0		0		107		0
Uncollateralized loans	485		0		0		0		0		485		0
Total	$	57,029	$	1	$	0	$	6	$	7	$	57,036	$	22

(1)As of June 30, 2022, there were no loans in this category accruing interest.

(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.


	December 31, 2021
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)
Commercial mortgage loans	$	52,565	$	0	$	0	$	2	$	2	$	52,567	$	2
Agricultural property loans	5,520		0		0		0		0		5,520		19
Residential property loans	66		0		0		1		1		67		1
Other collateralized loans	70		0		0		0		0		70		0
Uncollateralized loans	561		0		0		0		0		561		0
Total(3)	$	58,782	$	0	$	0	$	3	$	3	$	58,785	$	22

(1)As of December 31, 2021, there were no loans in this category accruing interest.

(3)Excludes “Assets held-for-sale” of $6,580 million. See Note 1 for additional information.

Loans on non-accrual status recognized interest of less than $1 million for both the three months ended June 30, 2022 and 2021, and less than $1 million and $2 million for the six months ended June 30, 2022 and 2021, respectively. Loans on non-accrual status that did not have a related allowance for credit losses were $20 million and $15 million as of June 30, 2022 and December 31, 2021, respectively.

The Company did not have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of both June 30, 2022 and December 31, 2021.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Other Invested Assets

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


	June 30, 2022		December 31, 2021
	(in millions)
LPs/LLCs:
Equity method:
Private equity	$	7,187	$	6,509
Hedge funds	3,031		2,797
Real estate-related	2,626		2,370
Subtotal equity method	12,844		11,676
Fair value:
Private equity	1,677		1,852
Hedge funds	1,950		2,119
Real estate-related	300		319
Subtotal fair value	3,927		4,290
Total LPs/LLCs	16,771		15,966
Real estate held through direct ownership(1)	1,594		1,789
Derivative instruments	2,327		3,280
Other(2)	618		798
Total other invested assets(3)	$	21,310	$	21,833

(1)As of June 30, 2022 and December 31, 2021, real estate held through direct ownership had mortgage debt of $234 million and $274 million, respectively.

(2)Primarily includes strategic investments made by investment management operations, leveraged leases and member and activity stock held in the Federal Home Loan Bank of New York. For additional information regarding the Company’s holdings in the Federal Home Loan Bank of New York, see Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

(3)Excludes “Assets held-for-sale” of $104 million as of December 31, 2021. See Note 1 for additional information.

Accrued Investment Income

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


	June 30, 2022		December 31, 2021
	(in millions)
Fixed maturities	$	2,329	$	2,398



Equity securities	5		5
Commercial mortgage and other loans	185		175
Policy loans	246		253
Other invested assets	21		22
Short-term investments and cash equivalents	12		2
Total accrued investment income(1)	$	2,798	$	2,855

(1)Excludes “Assets held-for-sale” of $221 million as of December 31, 2021. See Note 1 for additional information.

Write-downs on accrued investment income were less than $1 million for both the three and six months ended June 30, 2022 and 2021, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Investment Income

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Fixed maturities, available-for-sale(1)	$	2,861	$	3,006	$	5,830	$	6,005
Fixed maturities, held-to-maturity(1)	54		55		108		113
Fixed maturities, trading	53		37		115		61
Assets supporting experience-rated contractholder liabilities	9		167		144		326
Equity securities	50		58		76		81
Commercial mortgage and other loans	525		644		1,113		1,261
Policy loans	126		126		251		271

Other invested assets	326		617		881		1,133
Short-term investments and cash equivalents	58		20		75		30
Gross investment income	4,062		4,730		8,593		9,281
Less: investment expenses	(124)		(178)		(297)		(347)
Net investment income	$	3,938	$	4,552	$	8,296	$	8,934

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

Realized Investment Gains (Losses), Net

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Fixed maturities(1)	$	(646)	$	313	$	(1,057)	$	1,529
Commercial mortgage and other loans	(81)		61		(66)		91
Investment real estate	84		12		90		64
LPs/LLCs	6		17		(6)		17
Derivatives	(516)		239		(426)		1,014
Other	6		(7)		2		(1)
Realized investment gains (losses), net	$	(1,147)	$	635	$	(1,463)	$	2,714

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Unrealized Gains (Losses) on Investments within AOCI

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


	June 30, 2022		December 31, 2021
	(in millions)


Fixed maturity securities, available-for-sale with an allowance(1)	$	(12)	$	23
Fixed maturity securities, available-for-sale without an allowance(1)	(12,227)		39,467
Derivatives designated as cash flow hedges(2)	2,446		1,019
Derivatives designated as fair value hedges(2)	27		(35)
Other investments(3)	(15)		(7)
Net unrealized gains (losses) on investments	$	(9,781)	$	40,467

(1)Includes net unrealized gains (losses) of $425 million on “Assets held-for-sale” as of December 31, 2021.

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

(3)As of June 30, 2022 there were no net unrealized losses on held-to-maturity securities that were previously transferred from available-for-sale. Includes net unrealized gains on certain joint ventures that are strategic in nature and are included in “Other assets.”

Repurchase Agreements and Securities Lending

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


	June 30, 2022								December 31, 2021
	Remaining Contractual Maturities of the Agreements								Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		30 to 90 Days		Total		Overnight & Continuous		Up to 30 Days		30 to 90 Days		Total
	(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,917	$	655	$	250	$	7,822	$	9,044	$	0	$	438	$	9,482



Commercial mortgage-backed securities	69		0		0		69		486		0		0		486
Residential mortgage-backed securities	115		0		0		115		217		0		0		217

Total securities sold under agreements to repurchase	$	7,101	$	655	$	250	$	8,006	$	9,747	$	0	$	438	$	10,185

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2022						December 31, 2021
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	1	$	0	$	1	$	1	$	0	$	1
Obligations of U.S. states and their political subdivisions	75		0		75		84		0		84
Foreign government bonds	328		0		328		205		0		205
U.S. public corporate securities	4,191		0		4,191		2,834		0		2,834
Foreign public corporate securities	890		0		890		643		0		643


Equity securities	256		0		256		484		0		484
Total cash collateral for loaned securities(1)	$	5,741	$	0	$	5,741	$	4,251	$	0	$	4,251

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

4. VARIABLE INTEREST ENTITIES

In the normal course of its activities, the Company enters into relationships with various special-purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). For additional information, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Consolidated Variable Interest Entities

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


	Consolidated VIEs for which the Company is the Investment Manager(1)				Other Consolidated VIEs(1)
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
	(in millions)
Fixed maturities, available-for-sale	$	177	$	200	$	218	$	262
Fixed maturities, held-to-maturity	7		9		670		790
Fixed maturities, trading	168		178		0		0
Equity securities	119		79		0		0
Commercial mortgage and other loans	838		915		0		0
Other invested assets	2,966		2,846		121		138
Cash and cash equivalents	106		128		0		0
Accrued investment income	1		1		3		3
Other assets	326		499		707		785
Total assets of consolidated VIEs	$	4,708	$	4,855	$	1,719	$	1,978
Other liabilities	$	368	$	505	$	0	$	2
Notes issued by consolidated VIEs(2)	232		274		0		0
Total liabilities of consolidated VIEs	$	600	$	779	$	0	$	2

(1)Total assets of consolidated VIEs reflect $2,907 million and $2,885 million as of June 30, 2022 and December 31, 2021, respectively, related to VIEs whose beneficial interests are wholly-owned by consolidated subsidiaries.

(2)Recourse is limited to the assets of the respective VIE and does not extend to the general credit of the Company. As of June 30, 2022, the maturity of this obligation was within 3 years.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Unconsolidated Variable Interest Entities

The Company has determined that it is not the primary beneficiary of certain VIEs for which it is the investment manager. The Company’s maximum exposure to loss resulting from its relationship with unconsolidated VIEs for which it is the investment manager is limited to its investment in the VIEs, which was $906 million and $997 million as of June 30, 2022 and December 31, 2021, respectively. These investments are reflected in “Fixed maturities, available-for-sale,” “Fixed maturities, trading,” “Equity securities” and “Other invested assets.” There are no liabilities associated with these unconsolidated VIEs on the Company’s Unaudited Interim Consolidated Statements of Financial Position.

In the normal course of its activities, the Company will invest in limited partnerships and limited liability companies (“LPs/LLCs”), which include hedge funds, private equity funds and real estate-related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company classifies these investments as “Other invested assets” and its maximum exposure to loss associated with these entities was $16,771 million as of June 30, 2022, and $15,966 million as of December 31, 2021, excluding “Assets held-for-sale.”

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

5. DERIVATIVES AND HEDGING

Types of Derivative and Hedging Instruments

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

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

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

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

For detailed information on these contracts and the related strategies, see Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Primary Risks Managed by Derivatives

The table below provides a summary of the gross notional amount and fair value of derivatives contracts by the primary underlying risks, excluding embedded derivatives and associated reinsurance recoverables. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account of the netting effects of master netting agreements and cash collateral. This netting impact results in total derivative assets of $2,318 million and $3,266 million as of June 30, 2022 and December 31, 2021, respectively, and total derivative liabilities of $1,857 million and $2,278 million as of June 30, 2022 and December 31, 2021, respectively, reflected in the Unaudited Interim Consolidated Statements of Financial Position.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


Primary Underlying Risk /Instrument Type	June 30, 2022									December 31, 2021
			Fair Value									Fair Value
Gross Notional			Assets			Liabilities			Gross Notional			Assets			Liabilities
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	3,746		$	187		$	(106)		$	3,591		$	805		$	(69)
Interest Rate Forwards	497			0			(58)			248			15			(2)
Foreign Currency
Foreign Currency Forwards	5,145			121			(191)			4,789			62			(107)
Currency/Interest Rate
Foreign Currency Swaps	23,870			3,206			(341)			21,272			1,151			(193)
Total Derivatives Designated as Hedge Accounting Instruments	$	33,258		$	3,514		$	(696)		$	29,900		$	2,033		$	(371)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	202,568		$	7,800		$	(16,220)		$	196,124		$	10,515		$	(14,430)
Interest Rate Futures	15,032			103			(67)			17,429			76			(9)
Interest Rate Options	13,648			554			(508)			15,353			710			(265)
Interest Rate Forwards	3,745			32			(40)			4,709			41			(11)
Foreign Currency
Foreign Currency Forwards	33,187			2,114			(2,438)			28,235			1,046			(1,209)
Foreign Currency Options	0			0			0			0			0			0
Currency/Interest Rate
Foreign Currency Swaps	12,817			1,414			(219)			12,683			751			(216)
Credit
Credit Default Swaps	5,462			6			(57)			3,489			128			(1)
Equity
Equity Futures	3,793			2			(27)			6,178			1			(10)
Equity Options	60,425			1,546			(1,960)			60,057			2,065			(2,640)
Total Return Swaps	10,825			846			(27)			13,850			49			(430)
Other
Other(1)	1,250			0			0			1,255			0			0
Synthetic GICs	84,082			1			(1)			81,984			1			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	446,834		$	14,418		$	(21,564)		$	441,346		$	15,383		$	(19,221)
Total Derivatives(2)(3)(4)	$	480,092		$	17,932		$	(22,260)		$	471,246		$	17,416		$	(19,592)

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

(2)Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of $8,781 million and $10,245 million as of June 30, 2022 and December 31, 2021, respectively, primarily included in “Future policy benefits” and "Policyholder account balances."

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

(4)Excludes “Assets held-for-sale” with fair value of $1,643 million as of December 31, 2021 and “Liabilities held-for-sale” with fair value of $1,503 million as of December 31, 2021 with an outstanding gross notional amount of $41,179 million as of December 31, 2021. See Note 1 for additional information.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of June 30, 2022, the following amounts were recorded on the Unaudited Interim Consolidated Statements of Financial Position related to the carrying amount of the hedged assets (liabilities) and cumulative basis adjustments included in the carrying amount for fair value hedges.


	June 30, 2022				December 31, 2021
Balance Sheet Line Item in which Hedged Item is Recorded	Carrying Amount of the Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)		Carrying Amount of the Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)

	(in millions)
Fixed maturities, available-for-sale, at fair value	$	526	$	63	$	641	$	63
Commercial mortgage and other loans	$	0	$	0	$	17	$	1
Policyholders’ account balances	$	(1,297)	$	115	$	(1,552)	$	(170)
Future policy benefits	$	(2,488)	$	259	$	(3,001)	$	(279)

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

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

Offsetting Assets and Liabilities

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


	June 30, 2022
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in millions)
Offsetting of Financial Assets:
Derivatives	$	17,806	$	(15,614)	$	2,192	$	(1,030)	$	1,162
Securities purchased under agreement to resell	118		0		118		(118)		0
Total assets	$	17,924	$	(15,614)	$	2,310	$	(1,148)	$	1,162
Offsetting of Financial Liabilities:
Derivatives	$	22,257	$	(20,403)	$	1,854	$	(1,854)	$	0
Securities sold under agreement to repurchase	8,006		0		8,006		(7,937)		69
Total liabilities	$	30,263	$	(20,403)	$	9,860	$	(9,791)	$	69

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2021
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in millions)
Offsetting of Financial Assets:(2)
Derivatives	$	17,272	$	(14,150)	$	3,122	$	(802)	$	2,320
Securities purchased under agreement to resell	704		0		704		(704)		0
Total assets	$	17,976	$	(14,150)	$	3,826	$	(1,506)	$	2,320
Offsetting of Financial Liabilities:(2)
Derivatives	$	19,587	$	(17,314)	$	2,273	$	(797)	$	1,476
Securities sold under agreement to repurchase	10,185		0		10,185		(9,699)		486
Total liabilities	$	29,772	$	(17,314)	$	12,458	$	(10,496)	$	1,962

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

(2)Excludes “Assets held-for-sale” with fair value of $1,643 million as of December 31, 2021 and “Liabilities held-for-sale” with fair value of $1,503 million as of December 31, 2021. See Note 1 for additional information.

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above, see “—Counterparty Credit Risk” below. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2021.

Cash Flow, Fair Value and Net Investment Hedges

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2022
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		Change in AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	13	$	(1)	$	0	$	0	$	(126)	$	(159)	$	0
Currency	(5)		0		0		0		0		(151)		0
Total gains (losses) on derivatives designated as hedge instruments	8		(1)		0		0		(126)		(310)		0
Gains (losses) on the hedged item:
Interest Rate	(13)		3		0		0		138		173		0
Currency	7		3		0		0		0		151		0
Total gains (losses) on hedged item	(6)		6		0		0		138		324		0
Amortization for gains (losses) excluded from assessment of the effectiveness

Currency	0		0		0		0		0		0		52
Total Amortization for gain (loss) excluded from assessment of the effectiveness	0		0		0		0		0		0		52
Total gains (losses) on fair value hedges net of hedged item	2		5		0		0		12		14		52
Cash flow hedges
Interest Rate	0		(1)		0		0		0		0		(76)
Currency	4		0		0		0		0		0		114
Currency/Interest Rate	44		68		391		0		0		0		1,277
Total gains (losses) on cash flow hedges	48		67		391		0		0		0		1,315
Net investment hedges
Currency	0		0		0		0		0		0		22
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		0		0		0		0		22
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(3,640)		0		0		0		0		0		0
Currency	(162)		0		0		0		0		0		0
Currency/Interest Rate	646		0		3		0		0		0		0
Credit	(126)		0		0		0		0		0		0
Equity	1,178		0		0		0		0		0		0
Other	1		0		0		0		0		0		0
Embedded Derivatives	1,542		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(561)		0		3		0		0		0		0
Total	$	(511)	$	72	$	394	$	0	$	12	$	14	$	1,389

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2022
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		Change in AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	27	$	(3)	$	0	$	0	$	(267)	$	(317)	$	0
Currency	(30)		(1)		0		0		0		(207)		0
Total gains (losses) on derivatives designated as hedge instruments	(3)		(4)		0		0		(267)		(524)		0
Gains (losses) on the hedged item:
Interest Rate	(27)		7		0		0		285		332		0
Currency	32		3		0		0		0		204		0
Total gains (losses) on hedged item	5		10		0		0		285		536		0
Amortization for gains (losses) excluded from assessment of the effectiveness

Currency	0		0		0		0		0		(2)		63
Total Amortization for gain (loss) excluded from assessment of the effectiveness	0		0		0		0		0		(2)		63
Total gains (losses) on fair value hedges net of hedged item	2		6		0		0		18		10		63
Cash flow hedges
Interest Rate	(5)		0		0		0		0		0		(134)
Currency	4		0		0		0		0		0		144
Currency/Interest Rate	49		137		471		0		0		0		1,417
Total gains (losses) on cash flow hedges	48		137		471		0		0		0		1,427
Net investment hedges
Currency	0		0		0		0		0		0		10
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		0		0		0		0		10
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(7,245)		0		0		0		0		0		0
Currency	(371)		0		(1)		0		0		0		0
Currency/Interest Rate	786		0		4		0		0		0		0
Credit	(163)		0		0		0		0		0		0
Equity	1,654		0		0		0		0		0		0
Other	2		0		0		0		0		0		0
Embedded Derivatives	4,866		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(471)		0		3		0		0		0		0
Total	$	(421)	$	143	$	474	$	0	$	18	$	10	$	1,500

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2021
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		Change in AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	(7)	$	(2)	$	0	$	0	$	100	$	92	$	0
Currency	0		0		0		0		0		1		0
Total gains (losses) on derivatives designated as hedge instruments	(7)		(2)		0		0		100		93		0
Gains (losses) on the hedged item:
Interest Rate	7		4		0		0		(96)		(92)		0
Currency	0		0		0		0		0		(1)		0
Total gains (losses) on hedged item	7		4		0		0		(96)		(93)		0

Amortization for gains (losses) excluded from assessment of the effectiveness
Currency	0		0		0		0		0		(1)		(29)
Total amortization for gain (loss) excluded from assessment of the effectiveness	0		0		0		0		0		(1)		(29)
Total gains (losses) on fair value hedges net of hedged item	0		2		0		0		4		(1)		(29)
Cash flow hedges
Interest Rate	8		0		0		0		0		0		16
Currency	(2)		0		0		0		0		0		15
Currency/Interest Rate	13		67		(24)		0		0		0		389
Total gains (losses) on cash flow hedges	19		67		(24)		0		0		0		420
Net investment hedges
Currency	0		0		11		0		0		0		(13)
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		11		0		0		0		(13)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	3,348		0		0		0		0		0		0
Currency	(58)		0		(1)		0		0		0		0
Currency/Interest Rate	133		0		(1)		0		0		0		0
Credit	24		0		0		0		0		0		0
Equity	(898)		0		0		0		0		0		0
Other	0		0		0		0		0		0		0
Embedded Derivatives	(2,332)		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	217		0		(2)		0		0		0		0
Total	$	236	$	69	$	(15)	$	0	$	4	$	(1)	$	378

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2021
	Realized Investment Gains (Losses)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		Change in AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	14	$	(5)	$	0	$	0	$	(91)	$	(79)	$	0
Currency	(2)		0		0		0		0		8		0
Total gains (losses) on derivatives designated as hedge instruments	12		(5)		0		0		(91)		(71)		0
Gains (losses) on the hedged item:
Interest Rate	(14)		8		0		0		111		88		0
Currency	2		0		0		0		0		(8)		0
Total gains (losses) on hedged item	(12)		8		0		0		111		80		0

Amortization for gains (losses) excluded from assessment of the effectiveness
Currency	0		0		0		0		0		(3)		(27)
Total amortization for gain (loss) excluded from assessment of the effectiveness	0		0		0		0		0		(3)		(27)
Total gains (losses) on fair value hedges net of hedged item	0		3		0		0		20		6		(27)
Cash flow hedges
Interest Rate	13		1		0		0		0		0		(31)
Currency	(3)		0		0		0		0		0		(2)
Currency/Interest Rate	38		138		29		0		0		0		462
Total gains (losses) on cash flow hedges	48		139		29		0		0		0		429
Net investment hedges
Currency	0		0		11		0		0		0		(13)
Currency/Interest Rate	0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		11		0		0		0		(13)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(2,576)		0		0		0		0		0		0
Currency	(336)		0		(4)		0		0		0		0
Currency/Interest Rate	415		0		(1)		0		0		0		0
Credit	27		0		0		0		0		0		0
Equity	(1,887)		0		0		0		0		0		0
Other	1		0		0		0		0		0		0
Embedded Derivatives	5,320		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	964		0		(5)		0		0		0		0
Total	$	1,012	$	142	$	35	$	0	$	20	$	6	$	389

(1)Excluding changes related to net investment hedges using non-derivative instruments of $102 million and $131 million for the three months ended and six months ended June 30, 2022, and $3 million and $14 million for the three months ended and six months ended June 30, 2021, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	(in millions)
Balance, December 31, 2021	$	1,019
Amount recorded in AOCI:
Interest Rate	(139)
Currency	148
Currency/Interest Rate	2,074
Total amount recorded in AOCI	2,083
Amount reclassified from AOCI to income:
Interest Rate	5
Currency	(4)
Currency/Interest Rate	(657)
Total amount reclassified from AOCI to income	(656)
Balance, June 30, 2022	$	2,446

The changes in fair value of cash flow hedges are deferred in AOCI and are included in “Net unrealized investment gains (losses)” in the Unaudited Interim Consolidated Statements of Comprehensive Income; these amounts are then reclassified to earnings when the hedged item affects earnings. Using June 30, 2022 values, it is estimated that a pre-tax gain of approximately $289 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending June 30, 2023.

The exposures the Company is hedging with these qualifying cash flow hedges include the variability of future cash flows from forecasted transactions denominated in foreign currencies, the purchases of invested assets, and the receipt or payment of variable interest on existing financial instruments. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 29 years.

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

For net investment hedges, in addition to derivatives, the Company uses foreign currency denominated debt to hedge the risk of change in the net investment in a foreign subsidiary due to changes in exchange rates. For effective net investment hedges, the amounts, before applicable taxes, recorded in the cumulative translation adjustment within AOCI were $123 million and $141 million for the three and six months ended June 30, 2022, respectively, and $(10) million and $1 million for the three and six months ended June 30, 2021, respectively.

Credit Derivatives

The following table provides a summary of the notional and fair value of written credit protection, presented as assets (liabilities). The Company’s maximum amount at risk under these credit derivatives, assuming the value of the underlying referenced securities become worthless, is equal to the notional amounts. These credit derivatives have maturities of less than 25 years for Index Reference.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2022
	NAIC Rating Designation of Underlying Credit Obligation(1)
	NAIC 1				NAIC 2				NAIC 3				NAIC 4				NAIC 5				NAIC 6				Total
	Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value
	(in millions)
Single name reference(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Index reference(2)	49		0		0		0		4,370		(37)		0		0		0		0		833		(20)		5,252		(57)
Total	$	49	$	0	$	0	$	0	$	4,370	$	(37)	$	0	$	0	$	0	$	0	$	833	$	(20)	$	5,252	$	(57)


	December 31, 2021
	NAIC Rating Designation of Underlying Credit Obligation(1)
	NAIC 1				NAIC 2				NAIC 3				NAIC 4				NAIC 5				NAIC 6				Total(3)
	Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value
	(in millions)
Single name reference(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Index reference(2)	49		0		0		0		2,397		41		0		0		0		0		928		87		3,374		128
Total	$	49	$	0	$	0	$	0	$	2,397	$	41	$	0	$	0	$	0	$	0	$	928	$	87	$	3,374	$	128

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

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

(3)Excludes “Assets held-for-sale” with fair value of $54 million as of December 31, 2021 and “Liabilities held-for-sale” with fair value of $0 million as of December 31, 2021, with an outstanding notional amount of $1,971 million as of December 31, 2021. See Note 1 for additional information.

In addition to writing credit protection, the Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. As of June 30, 2022 and December 31, 2021, the Company had $210 million and $115 million of outstanding notional amounts and reported at fair value as an asset of $6 million and a liability of $1 million, respectively.

Counterparty Credit Risk

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

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

As of June 30, 2022, there were no net liability derivative positions with counterparties with credit risk-related contingent features. All derivatives have been appropriately collateralized by the Company or the counterparty in accordance with the terms of the derivative agreements.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

6. FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

For a discussion of Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	As of June 30, 2022
	Level 1		Level 2		Level 3		Netting(2)		Total
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	25,294	$	0	$		$	25,294
Obligations of U.S. states and their political subdivisions	0		10,451		7				10,458
Foreign government bonds	0		75,063		9				75,072
U.S. corporate public securities	0		88,289		64				88,353
U.S. corporate private securities(3)	0		32,879		2,122				35,001
Foreign corporate public securities	0		21,531		69				21,600
Foreign corporate private securities	0		25,026		1,284				26,310
Asset-backed securities(4)	0		10,374		290				10,664
Commercial mortgage-backed securities	0		10,379		1,067				11,446
Residential mortgage-backed securities	0		2,332		125				2,457
Subtotal	0		301,618		5,037				306,655
Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	0		187		0				187
Obligations of U.S. states and their political subdivisions	0		0		0				0
Foreign government bonds	0		658		0				658
Corporate securities	0		90		0				90
Asset-backed securities(4)	0		0		0				0
Commercial mortgage-backed securities	0		0		0				0
Residential mortgage-backed securities	0		0		0				0
Equity securities	752		1,098		0				1,850
All other(5)	0		0		0				0
Subtotal	752		2,033		0				2,785
Fixed maturities, trading	0		5,925		347				6,272
Equity securities	4,180		1,225		766				6,171
Commercial mortgage and other loans	0		303		0				303
Other invested assets(6)	313		17,618		499		(15,614)		2,816
Short-term investments	8		5,915		204				6,127
Cash equivalents	450		6,249		0				6,699
Other assets	0		0		243				243
Separate account assets(7)(8)	9,932		167,276		1,040				178,248
Total assets	$	15,635	$	508,162	$	8,136	$	(15,614)	$	516,319
Future policy benefits(9)	$	0	$	0	$	5,946	$		$	5,946
Policyholders’ account balances	0		0		3,544				3,544
Other liabilities	206		21,665		1		(20,403)		1,469
Notes issued by consolidated VIEs	0		0		0				0
Total liabilities	$	206	$	21,665	$	9,491	$	(20,403)	$	10,959

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of December 31, 2021(1)
	Level 1		Level 2		Level 3		Netting(2)		Total
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	32,158	$	0	$		$	32,158
Obligations of U.S. states and their political subdivisions	0		12,210		8				12,218
Foreign government bonds	0		94,659		10				94,669
U.S. corporate public securities	0		112,073		82				112,155
U.S. corporate private securities(3)	0		35,344		2,038				37,382
Foreign corporate public securities	0		27,184		125				27,309
Foreign corporate private securities	0		25,966		3,071				29,037
Asset-backed securities(4)	0		11,200		325				11,525
Commercial mortgage-backed securities	0		11,763		1,336				13,099
Residential mortgage-backed securities	0		2,533		325				2,858
Subtotal	0		365,090		7,320				372,410
Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	0		193		0				193
Obligations of U.S. states and their political subdivisions	0		0		0				0
Foreign government bonds	0		761		0				761
Corporate securities	0		103		0				103
Asset-backed securities(4)	0		0		0				0
Commercial mortgage-backed securities	0		0		0				0
Residential mortgage-backed securities	0		0		0				0
Equity securities	862		1,409		0				2,271
All other(5)	2		18		0				20
Subtotal	864		2,484		0				3,348
Fixed maturities, trading	0		8,402		421				8,823
Equity securities	7,386		192		799				8,377
Commercial mortgage and other loans	0		1,263		0				1,263
Other invested assets(6)	409		17,004		493		(14,150)		3,756
Short-term investments	1,199		4,114		330				5,643
Cash equivalents	753		4,436		70				5,259
Other assets	0		0		164				164
Separate account assets(7)(8)	12,305		206,383		1,283				219,971
Total assets	$	22,916	$	609,368	$	10,880	$	(14,150)	$	629,014
Future policy benefits(9)	$	0	$	0	$	9,068	$		$	9,068
Policyholders’ account balances	0		0		1,436				1,436
Other liabilities	33		19,141		0		(17,314)		1,860
Notes issued by consolidated VIEs	0		0		0				0
Total liabilities	$	33	$	19,141	$	10,504	$	(17,314)	$	12,364

(1)Excludes amounts for financial instruments reclassified to “Assets held-for-sale” of $129,579 million, “Liabilities held-for-sale” of $6,214 million as of December 31, 2021. 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.

(2)“Netting” amounts represent cash collateral of $(4,789) million and $(3,164) million as of June 30, 2022 and December 31, 2021, respectively.

(3)Excludes notes with fair value of $6,291 million (carrying amount of $6,291 million) and $5,995 million (carrying amount of $5,941 million) as of June 30, 2022 and December 31, 2021, respectively, which have been offset with the associated payables under a netting agreement.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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

(6)Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value (“NAV”) per share (or its equivalent) as a practical expedient. As of June 30, 2022 and December 31, 2021, the fair values of such investments were $3,927 million and $4,290 million respectively.

(7)Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and other invested assets. As of June 30, 2022 and December 31, 2021, the fair value of such investments was $27,365 million and $26,174 million, respectively.

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

(9)As of June 30, 2022, the net embedded derivative liability position of $5,948 million includes $717 million of embedded derivatives in an asset position and $6,665 million of embedded derivatives in a liability position. As of December 31, 2021, the net embedded derivative liability position of $9,069 million includes $611 million of embedded derivatives in an asset position and $9,680 million of embedded derivatives in a liability position.

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


	As of June 30, 2022
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum	Maximum	Weighted Average	Impact of Increase in Input on Fair Value(1)
	(in millions)
Assets:
Corporate securities(2)(3)	$	3,047	Discounted cash flow	Discount rate	0.39%	20%	7.60%	Decrease
			Market comparables	EBITDA multiples(4)	1.8X	18.5X	8.5X	Increase
			Liquidation	Liquidation value	12.44%	12.58%	12.51%	Increase
Equity securities	$	349	Discounted cash flow(5)	Discount rate	0.5%	20%		Decrease
			Market comparables	EBITDA multiples(4)	1.0X	9.2X	2.2X	Increase
			Net Asset Value	Share price	$6	$1,708	$591	Increase
Separate account assets-commercial mortgage loans(6)	$	135	Discounted cash flow	Spread	1.25%	2.25%	1.46%	Decrease
Liabilities:
Future policy benefits(7)	$	5,946	Discounted cash flow	Lapse rate(9)	1%	20%		Decrease
				Spread over SOFR(10)	0.51%	2.14%		Decrease
				Utilization rate(11)	38%	95%		Increase
				Withdrawal rate	See table footnote (12) below.
				Mortality rate(13)	0%	15%		Decrease
				Equity volatility curve	18%	28%		Increase
Policyholders’ account balances(8)	$	3,544	Discounted cash flow	Lapse rate(9)	1%	6%		Decrease
				Spread over SOFR(10)	0.51%	2.14%		Decrease
				Mortality rate(13)	0%	23%		Decrease
				Equity volatility curve	20%	33%		Increase

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of December 31, 2021
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum	Maximum	Weighted Average	Impact of Increase in Input on Fair Value(1)
	(in millions)
Assets:
Corporate securities(2)(3)	$	4,800	Discounted cash flow	Discount rate	0.31%	20%	5.00%	Decrease
			Market comparables	EBITDA multiples(4)	4.1X	19.2X	8.9X	Increase
			Liquidation	Liquidation value	11.31%	62.58%	55.57%	Increase
Equity securities	$	277	Discounted cash flow(5)	Discount rate	0.5%	20%		Decrease
			Market comparables	EBITDA multiples(4)	1X	7.5X	4.0X	Increase
			Net Asset Value	Share price	$1	$1,498	$594	Increase
Separate account assets-commercial mortgage loans(6)	$	150	Discounted cash flow	Spread	1.05%	1.98%	1.18%	Decrease
Liabilities:
Future policy benefits(7)	$	9,068	Discounted cash flow	Lapse rate(9)	1%	20%		Decrease
				Spread over LIBOR(10)	0.03%	1.14%		Decrease
				Utilization rate(11)	39%	96%		Increase
				Withdrawal rate	See table footnote (12) below.
				Mortality rate(13)	0%	15%		Decrease
				Equity volatility curve	16%	25%		Increase
Policyholders’ account balances(8)	$	1,436	Discounted cash flow	Lapse rate(9)	1%	6%		Decrease
				Spread over LIBOR(10)	0.03%	1.14%		Decrease
				Mortality rate(13)	0%	23%		Decrease
				Equity volatility curve	12%	27%		Increase

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

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

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

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

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

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

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

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

(9)Lapse rates for contracts with living benefit guarantees are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates for contracts with index-linked crediting guarantees may be adjusted at the contract level based on the applicability of any surrender charges, product type, and market

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

related factors such as interest rates. Lapse rates are also generally assumed to be lower for the period where surrender charges apply. For any given contract, lapse rates vary throughout the period over which cash flows are projected for the purposes of valuing these embedded derivatives.

(10)The spread over the Secured Overnight Financing Rate (“SOFR”) swap curve and the London Inter-Bank Offered Rate (“LIBOR”) swap curve represents the premium added to the proxy for the risk-free rate (SOFR or LIBOR, as applicable) to reflect the Company’s estimates of rates that a market participant would use to value the living benefits in both the accumulation and payout phases and index-linked interest crediting guarantees as of June 30, 2022 and December 31, 2021, respectively. This spread includes an estimate of NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because funding agreements, living benefit guarantees, and index-linked interest crediting guarantees are insurance liabilities and are therefore senior to debt.

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

(12)The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of June 30, 2022 and December 31, 2021, the minimum withdrawal rate assumption is 77% and 76% respectively. As of June 30, 2022 and December 31, 2021, the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

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

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

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

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

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
U.S. states	8		(1)		0		0		0		0		0		0		0		7		(1)
Foreign government	10		(1)		0		0		0		0		0		0		0		9		0
Corporate securities(3)	5,005		(84)		556		(59)		9		(318)		(17)		8		(1,561)		3,539		(95)
Structured securities(4)	1,752		(133)		116		(5)		0		(201)		(6)		0		(41)		1,482		(133)
Assets supporting experience-rated contractholder liabilities:
Foreign government	0		0		0		0		0		0		0		0		0		0		0
Corporate securities(3)	0		0		0		0		0		0		0		0		0		0		0
Structured securities(4)	0		0		0		0		0		0		0		0		0		0		0
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	0		0		0		0		0		0		0		0		0		0		0
Other assets:
Fixed maturities, trading	378		(16)		23		(1)		0		(24)		2		0		(15)		347		(17)
Equity securities	772		6		20		(23)		0		(2)		(7)		0		0		766		1
Other invested assets	504		3		16		(21)		0		(2)		(1)		0		0		499		3
Short-term investments	213		0		3		0		0		(12)		0		0		0		204		0
Cash equivalents	2		1		0		0		0		0		(3)		0		0		0		0
Other assets	207		32		5		0		0		(1)		0		0		0		243		(34)
Separate account assets(5)	1,254		(146)		12		(5)		0		(4)		0		0		(71)		1,040		(129)
Liabilities:
Future policy benefits	(6,982)		1,532		0		0		(256)		0		(241)		0		1		(5,946)		1,479
Policyholders’ account balances(6)	(1,402)		113		0		0		(251)		0		(2,004)		0		0		(3,544)		532
Other liabilities	0		0		0		0		0		0		0		(1)		0		(1)		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0		0		0


	Three Months Ended June 30, 2022
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)(7)
	(in millions)
Fixed maturities, available-for-sale	$	8	$	0	$	0	$	(225)	$	(2)	$	(3)	$	0	$	0	$	(226)
Assets supporting experience-rated contractholder liabilities	0		0		0		0		0		0		0		0		0
Other assets:
Fixed maturities, trading	0		(18)		0		0		2		0		(17)		0		0
Equity securities	0		6		0		0		0		0		1		0		0
Other invested assets	(2)		5		0		0		0		(2)		5		0		0
Short-term investments	0		0		0		0		0		0		0		0		0
Cash equivalents	1		0		0		0		0		0		0		0		0
Other assets	(35)		0		0		67		0		(34)		0		0		0
Separate account assets(5)	0		0		(145)		0		(1)		0		0		(129)		0
Liabilities:
Future policy benefits	1,532		0		0		0		0		1,482		(3)		0		0
Policyholders’ account balances	113		0		0		0		0		532		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
U.S. states	8		(1)		0		0		0		0		0		0		0		7		(1)
Foreign government	10		(1)		0		0		0		0		0		0		0		9		(1)
Corporate securities(3)	5,316		(466)		800		(83)		9		(465)		(27)		16		(1,561)		3,539		(467)
Structured securities(4)	1,986		(278)		201		(22)		0		(221)		(9)		6		(181)		1,482		(279)
Assets supporting experience-rated contractholder liabilities:
Foreign government	0		0		0		0		0		0		0		0		0		0		0
Corporate securities(3)	0		0		0		0		0		0		0		0		0		0		0
Structured securities(4)	0		0		0		0		0		0		0		0		0		0		0
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	0		0		0		0		0		0		0		0		0		0		0
Other assets:
Fixed maturities, trading	421		(28)		33		(30)		0		(40)		6		0		(15)		347		(29)
Equity securities	799		28		31		(145)		0		(4)		(16)		73		0		766		5
Other invested assets	493		10		37		(38)		0		(2)		(1)		0		0		499		10
Short-term investments	330		0		4		0		0		(130)		0		0		0		204		0
Cash equivalents	70		(1)		7		0		0		(73)		(3)		0		0		0		(2)
Other assets	164		(12)		18		0		0		(3)		76		0		0		243		(75)
Separate account assets(5)	1,283		(192)		44		(16)		0		(7)		(1)		0		(71)		1,040		(189)
Liabilities:
Future policy benefits	(9,068)		3,882		0		0		(519)		0		(241)		0		0		(5,946)		3,723
Policyholders’ account balances(6)	(1,436)		280		0		0		(384)		0		(2,004)		0		0		(3,544)		767
Other liabilities	0		0		0		0		0		0		0		(1)		0		(1)		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0		0		0


	Six Months Ended June 30, 2022
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)(7)
	(in millions)
Fixed maturities, available-for-sale	$	(68)	$	0	$	0	$	(678)	$	0	$	(82)	$	0	$	0	$	(666)
Assets supporting experience-rated contractholder liabilities	0		0		0		0		0		0		0		0		0
Other assets:
Fixed maturities, trading	0		(30)		0		0		2		0		(29)		0		0
Equity securities	0		28		0		0		0		0		5		0		0
Other invested assets	(5)		15		0		0		0		(5)		15		0		0
Short-term investments	0		0		0		0		0		0		0		0		0
Cash equivalents	(1)		0		0		0		0		(2)		0		0		0
Other assets	(79)		0		0		67		0		(75)		0		0		0
Separate account assets(5)	0		0		(192)		0		0		0		0		(189)		0
Liabilities:
Future policy benefits	3,882		0		0		0		0		3,726		(3)		0		0
Policyholders’ account balances	280		0		0		0		0		767		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	150	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	150	$	0
U.S. states	4		0		0		0		0		0		5		0		0		9		0
Foreign government	11		0		0		0		0		(1)		0		0		0		10		0
Corporate securities(3)	5,277		183		444		(21)		20		(317)		(1)		70		(127)		5,528		159
Structured securities(4)	830		10		557		(1)		0		(106)		2		0		(418)		874		0
Assets supporting experience-rated contractholder liabilities:
Foreign government	19		0		0		0		0		(2)		0		0		0		17		0
Corporate securities(3)	538		15		2		0		0		(9)		0		3		0		549		13
Structured securities(4)	219		(1)		36		0		0		(11)		0		0		(129)		114		(1)
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	20		0		0		0		0		(20)		0		0		0		0		0
Other assets:
Fixed maturities, trading	242		11		22		(6)		0		0		2		0		(2)		269		11
Equity securities	728		19		33		(59)		0		(6)		(1)		36		(35)		715		16
Other invested assets	378		5		24		(14)		0		0		0		0		0		393		4
Short-term investments	396		1		197		0		0		(153)		(1)		5		0		445		0
Cash equivalents	4		(1)		1		0		0		0		(3)		0		0		1		(1)
Other assets	144		36		12		0		0		(2)		0		0		0		190		33
Separate account assets(5)	1,306		165		81		(14)		0		(6)		0		8		(64)		1,476		141
Liabilities:
Future policy benefits	(11,314)		(1,946)		0		0		(331)		0		12		0		0		(13,579)		(1,939)
Policyholders’ account balances(6)	(2,171)		(413)		0		0		(106)		0		0		0		0		(2,690)		(363)
Other liabilities	0		0		0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0		0		0


	Three Months Ended June 30, 2021
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)(7)
	(in millions)
Fixed maturities, available-for-sale	$	57	$	0	$	0	$	136	$	0	$	38	$	0	$	0	$	121
Assets supporting experience-rated contractholder liabilities	0		12		0		0		2		0		12		0		0
Other assets:
Fixed maturities, trading	0		11		0		0		0		0		11		0		0
Equity securities	0		19		0		0		0		0		16		0		0
Other invested assets	4		1		0		0		0		2		2		0		0
Short-term investments	1		0		0		0		0		0		0		0		0
Cash equivalents	(1)		0		0		0		0		(1)		0		0		0
Other assets	36		0		0		0		0		33		0		0		0
Separate account assets(5)	0		0		165		0		0		0		0		141		0
Liabilities:
Future policy benefits	(1,946)		0		0		0		0		(1,939)		0		0		0
Policyholders’ account balances	(413)		0		0		0		0		(363)		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30, 2021
	Fair Value, beginning of period		Total realized and unrealized gains (losses)		Purchases		Sales		Issuances		Settlements		Other(1)		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period		Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	150	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	150	$	0
U.S. states	4		0		0		0		0		0		5		0		0		9		0
Foreign government	11		0		0		0		0		(1)		0		0		0		10		0
Corporate securities(3)	5,335		(162)		687		(21)		20		(494)		1		289		(127)		5,528		(203)
Structured securities(4)	543		29		776		(1)		0		(180)		14		311		(618)		874		12
Assets supporting experience-rated contractholder liabilities:
Foreign government	19		0		0		0		0		(2)		0		0		0		17		0
Corporate securities(3)	482		8		16		0		0		(28)		0		71		0		549		(1)
Structured securities(4)	114		(4)		173		0		0		(22)		0		0		(147)		114		(4)
Equity securities	0		0		0		0		0		0		0		0		0		0		0
All other activity	20		0		0		0		0		(20)		0		0		0		0		0
Other assets:
Fixed maturities, trading	243		11		23		(8)		0		0		2		0		(2)		269		11
Equity securities	660		57		91		(62)		0		(9)		(23)		36		(35)		715		51
Other invested assets	366		17		24		(14)		0		0		0		0		0		393		17
Short-term investments	177		0		453		0		0		(163)		(27)		5		0		445		(1)
Cash equivalents	1		(1)		4		0		0		0		(3)		0		0		1		(1)
Other assets	268		(97)		24		0		0		(5)		0		0		0		190		(100)
Separate account assets(5)	1,821		208		149		(27)		0		(12)		(615)		30		(78)		1,476		215
Liabilities:
Future policy benefits	(18,879)		5,950		0		0		(662)		0		12		0		0		(13,579)		5,530
Policyholders’ account balances(6)	(1,914)		(548)		0		0		(228)		0		0		0		0		(2,690)		(462)
Other liabilities	0		0		0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0		0		0


	Six Months Ended June 30, 2021
	Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net		Other income (loss)		Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)(7)
	(in millions)
Fixed maturities, available-for-sale	$	29	$	0	$	0	$	(164)	$	2	$	(2)	$	0	$	0	$	(189)
Assets supporting experience-rated contractholder liabilities	0		0		0		0		4		0		(5)		0		0
Other assets:
Fixed maturities, trading	0		11		0		0		0		0		11		0		0
Equity securities	0		57		0		0		0		0		51		0		0
Other invested assets	15		2		0		0		0		15		2		0		0
Short-term investments	0		0		0		0		0		(1)		0		0		0
Cash equivalents	(1)		0		0		0		0		(1)		0		0		0
Other assets	(97)		0		0		0		0		(100)		0		0		0
Separate account assets(5)	0		0		208		0		0		0		0		215		0
Liabilities:
Future policy benefits	5,950		0		0		0		0		5,530		0		0		0
Policyholders’ account balances	(548)		0		0		0		0		(462)		0		0		0
Other liabilities	0		0		0		0		0		0		0		0		0
Notes issued by consolidated VIEs	0		0		0		0		0		0		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(1)“Other,” includes additional activity not allocated to the specific categories within the rollforward of Level 3 Assets and Liabilities, such as the increase in Policyholders’ account balances for the period ended June 30, 2022, which is driven by the Company’s reinsurance of certain annuity products issued by the sold PALAC entity. See Note 1 for additional information.

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

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

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

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

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

(7)Effective January 1, 2020, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period were added prospectively due to adoption of ASU 2018-13.

Derivative Fair Value Information

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


	As of June 30, 2022
	Level 1		Level 2		Level 3		Netting(1)		Total
	(in millions)
Derivative Assets:
Interest Rate	$	103	$	8,573	$	1	$		$	8,677
Currency	0		2,235		0				2,235
Credit	0		6		0				6
Currency/Interest Rate	0		4,620		0				4,620
Equity	3		2,391		0				2,394
Other	0		0		0				0
Netting(1)							(15,614)		(15,614)
Total derivative assets	$	106	$	17,825	$	1	$	(15,614)	$	2,318
Derivative Liabilities:
Interest Rate	$	67	$	16,932	$	1	$		$	17,000
Currency	0		2,629		0				2,629
Credit	0		57		0				57
Currency/Interest Rate	0		560		0				560
Equity	27		1,987		0				2,014
Other	0		0		0				0
Netting(1)							(20,403)		(20,403)
Total derivative liabilities	$	94	$	22,165	$	1	$	(20,403)	$	1,857

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of December 31, 2021
	Level 1		Level 2		Level 3		Netting(1)		Total
	(in millions)
Derivative Assets:(2)
Interest Rate	$	76	$	12,086	$	1	$		$	12,163
Currency	0		1,108		0				1,108
Credit	0		128		0				128
Currency/Interest Rate	0		1,902		0				1,902
Equity	242		1,872		1				2,115
Other	0		0		0				0
Netting(1)							(14,150)		(14,150)
Total derivative assets	$	318	$	17,096	$	2	$	(14,150)	$	3,266
Derivative Liabilities:(2)
Interest Rate	$	9	$	14,777	$	0	$		$	14,786
Currency	0		1,316		0				1,316
Credit	0		1		0				1
Currency/Interest Rate	0		409		0				409
Equity	11		3,069		0				3,080
Other	0		0		0				0
Netting(1)							(17,314)		(17,314)
Total derivative liabilities	$	20	$	19,572	$	0	$	(17,314)	$	2,278

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

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


	Three Months Ended June 30, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	2	$	0	$	0	$	(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		(1)		0		0		0


	Six Months Ended June 30, 2022
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	1	$	1	$	0	$	(2)	$	0	$	0	$	0	$	0	$	0	$	0	$	1
Net Derivative - Interest Rate	1		0		0		0		0		0		0		(1)		0		0		0

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


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


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

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

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

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


	Three Months Ended June 30,			Six Months Ended June 30,
		2022		2021		2022		2021
		(in millions)
Realized investment gains (losses) net:

Mortgage servicing rights(1)		$	(1)	$	(1)	$	2	$	(5)
Investment real estate		$	(5)	$	0	$	(6)	$	(9)
Investment in JV/LP		$	(75)	$	0	$	(75)	$	0


	June 30, 2022		December 31, 2021
	(in millions)
Carrying value after measurement as of period end:

Mortgage servicing rights(1)	$	78	$	75
Investment real estate	$	302	$	326
Investment in JV/LP	$	60	$	0
Goodwill(2)	$	0	$	1,080

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

(2)Based on the goodwill impairment test performed as of December 31, 2021, the Company recognized a goodwill impairment charge for Assurance IQ. See Note 10 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 for more information on the valuation of Assurance IQ and the resulting impairment charge.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Fair Value Option

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Commercial mortgage and other loans:
Interest income	$	2	$	2	$	6	$	5


	June 30, 2022		December 31, 2021
	(in millions)
Commercial mortgage and other loans(1):
Fair value as of period end	$	303	$	1,263
Aggregate contractual principal as of period end	$	298	$	1,253


Other assets:
Fair value as of period end	$	126	$	59

(1)As of June 30, 2022, for loans for which the fair value option has been elected, there were no loans in non-accrual status and none of the loans were more than 90 days past due and still accruing.

Fair Value of Financial Instruments

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2022
	Fair Value								Carrying Amount(2)
	Level 1		Level 2		Level 3		Total		Total
	(in millions)
Assets:
Fixed maturities, held-to-maturity(3)	$	0	$	1,468	$	7	$	1,475	$	1,280
Assets supporting experience-rated contractholder liabilities	0		0		0		0		0
Commercial mortgage and other loans	0		49		53,887		53,936		56,537
Policy loans	4		0		10,020		10,024		10,024
Other invested assets	0		0		0		0		0
Short-term investments	663		38		0		701		701
Cash and cash equivalents	7,538		122		0		7,660		7,660
Accrued investment income	0		2,798		0		2,798		2,798
Other assets	55		2,624		494		3,173		3,172
Total assets	$	8,260	$	7,099	$	64,408	$	79,767	$	82,172
Liabilities:
Policyholders’ account balances—investment contracts	$	0	$	31,238	$	35,940	$	67,178	$	69,978
Securities sold under agreements to repurchase	0		8,006		0		8,006		8,006
Cash collateral for loaned securities	0		5,741		0		5,741		5,741
Short-term debt	0		389		169		558		558
Long-term debt(4)	569		17,726		831		19,126		19,612
Notes issued by consolidated VIEs	0		0		232		232		232
Other liabilities	0		6,718		27		6,745		6,745
Separate account liabilities—investment contracts	0		28,704		26,920		55,624		55,624
Total liabilities	$	569	$	98,522	$	64,119	$	163,210	$	166,496

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2021(1)
	Fair Value								Carrying Amount(2)
	Level 1		Level 2		Level 3		Total		Total
	(in millions)
Assets:
Fixed maturities, held-to-maturity(3)	$	0	$	1,794	$	9	$	1,803	$	1,514
Assets supporting experience-rated contractholder liabilities	3		7		0		10		10
Commercial mortgage and other loans	0		64		59,937		60,001		57,403
Policy loans	0		0		10,386		10,386		10,386
Other invested assets	0		81		0		81		81
Short-term investments	972		20		0		992		992
Cash and cash equivalents	7,108		521		0		7,629		7,629
Accrued investment income	0		2,855		0		2,855		2,855
Other assets	47		2,677		39		2,763		2,762
Total assets	$	8,130	$	8,019	$	70,371	$	86,520	$	83,632
Liabilities:
Policyholders’ account balances—investment contracts	$	0	$	33,550	$	38,831	$	72,381	$	71,290
Securities sold under agreements to repurchase	0		10,185		0		10,185		10,185
Cash collateral for loaned securities	0		4,251		0		4,251		4,251
Short-term debt	0		518		204		722		722
Long-term debt(4)	613		20,414		899		21,926		18,622
Notes issued by consolidated VIEs	0		0		274		274		274
Other liabilities	0		7,053		53		7,106		7,106
Separate account liabilities—investment contracts	0		28,567		24,847		53,414		53,414
Total liabilities	$	613	$	104,538	$	65,108	$	170,259	$	165,864

(1)Excludes amounts for financial instruments reclassified to “Assets held-for-sale” of $6,936 million and “Liabilities held-for-sale” of $101,992 million as of December 31, 2021. See Note 1 for additional information.

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

(3)Excludes notes with fair value of $4,500 million (carrying amount of $4,500 million) and $5,394 million (carrying amount of $4,750 million) as of June 30, 2022 and December 31, 2021, respectively, which have been offset with the associated payables under a netting agreement.

(4)Includes notes with fair value of $10,791 million (carrying amount of $10,791 million) and $11,389 million (carrying amount of $10,691 million) as of June 30, 2022 and December 31, 2021, respectively, which have been offset with the associated receivables under a netting agreement.

7. CLOSED BLOCK

On December 18, 2001, the date of demutualization, The Prudential Insurance Company of America (“PICA”) established a closed block for certain in-force participating insurance policies and annuity products, along with corresponding assets used for the payment of benefits and policyholders’ dividends on these products, (collectively the “Closed Block”), and ceased offering these participating products. The recorded assets and liabilities were allocated to the Closed Block at their historical carrying amounts. The Closed Block forms the principal component of the Closed Block division. For additional information on the Closed Block, see Note 15 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2021.

As of June 30, 2022 and December 31, 2021, the Company recognized a policyholder dividend obligation of $3,734 million and $4,387 million, respectively, to Closed Block policyholders for the excess of actual cumulative earnings over expected cumulative earnings. Additionally, accumulated net unrealized investment gains (losses) that have arisen subsequent to the establishment of the Closed Block have been reflected as a policyholder dividend obligation of $(2,172) million and $3,640 million at June 30, 2022 and December 31, 2021, respectively, with a corresponding amount reported in AOCI.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	June 30, 2022		December 31, 2021
	(in millions)
Closed Block liabilities
Future policy benefits	$	44,934	$	45,596
Policyholders’ dividends payable	602		616
Policyholders’ dividend obligation	1,562		8,027
Policyholders’ account balances	4,664		4,737
Other Closed Block liabilities	2,958		3,107
Total Closed Block liabilities	54,720		62,083
Closed Block assets
Fixed maturities, available-for-sale, at fair value	32,096		38,160
Fixed maturities, trading, at fair value	1,009		1,137
Equity securities, at fair value	1,675		2,288
Commercial mortgage and other loans	7,956		8,241
Policy loans	3,702		3,815
Other invested assets	4,256		4,358
Short-term investments	174		557
Total investments	50,868		58,556
Cash and cash equivalents	766		451
Accrued investment income	395		392
Other Closed Block assets	170		137
Total Closed Block assets	52,199		59,536
Excess of reported Closed Block liabilities over Closed Block assets	2,521		2,547
Portion of above representing accumulated other comprehensive income (loss):
Net unrealized investment gains (losses)	(2,305)		3,535
Allocated to policyholder dividend obligation	2,172		(3,640)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities	$	2,388	$	2,442

Information regarding the policyholder dividend obligation is as follows:


	Six Months Ended June 30, 2022
	(in millions)
Balance, December 31, 2021	$	8,027

Impact from earnings allocable to policyholder dividend obligation	(653)
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation	(5,812)
Balance, June 30, 2022	$	1,562

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Revenues
Premiums	$	441	$	463	$	850	$	894
Net investment income	523		632		1,079		1,222
Realized investment gains (losses), net	(60)		265		40		337
Other income (loss)	(373)		255		(471)		531
Total Closed Block revenues	531		1,615		1,498		2,984
Benefits and Expenses
Policyholders’ benefits	638		652		1,265		1,286
Interest credited to policyholders’ account balances	30		31		60		62
Dividends to policyholders	(228)		814		(17)		1,395
General and administrative expenses	75		79		148		158
Total Closed Block benefits and expenses	515		1,576		1,456		2,901
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes	16		39		42		83
Income tax expense (benefit)	(10)		25		(9)		54
Closed Block revenues, net of Closed Block benefits and expenses and income taxes	$	26	$	14	$	51	$	29

8. INCOME TAXES

The Company uses a full year projected effective tax rate approach to calculate year-to-date taxes. In determining the full year projected tax rate, the Company considers the realizability of deferred tax assets, including those associated with unrealized investment losses, and has determined based upon the weight of available evidence that no valuation allowance is necessary related to unrealized investment losses. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected “Total income tax expense” divided by projected “Income before income taxes and equity in earnings of operating joint ventures.” Taxes attributable to operating joint ventures are recorded within “Equity in earnings of operating joint ventures, net of taxes.” The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year.

The Company’s income tax provision, on a consolidated basis, amounted to an income tax benefit of $(58) million, or 9.3% of income (loss) before income taxes and equity in earnings of operating joint ventures, in the first six months of 2022, compared to an income tax expense of $1,245 million, or 20.1%, in the first six months of 2021. The Company’s current and prior effective tax rates differ from the U.S. statutory rate of 21% primarily due to non-taxable investment income, tax credits, foreign earnings taxed at higher rates than the U.S. statutory rate, and the items discussed below.

Foreign Tax Credit Regulations. The Treasury Department and the IRS published Final Regulations in the Federal Register on January 4, 2022, which affect the creditability of certain foreign taxes for U.S. federal income tax purposes. The Final Regulations create uncertainty as to whether a U.S. foreign tax credit may be claimed for taxes paid to Brazil. The ability to claim a foreign tax credit for taxes paid to Brazil impacts the benefit of the election made pursuant to Internal Revenue Code Section 952 to subject earnings from the Company’s insurance operations in Brazil to tax in the U.S. in the tax year earned, net of related foreign tax credits. Based on the Company’s analysis and current interpretation of the Final Regulations, a $26 million tax benefit is reflected as part of the Company’s results for the first six months of 2022. The Final Regulations are complex and have broad application that may also impact the creditability of taxes paid to other foreign jurisdictions, and their full impact to the Company is still being evaluated.

GILTI High Tax Exclusion. On July 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations which allows an annual election to exclude from the U.S. tax return certain GILTI amounts when the taxes paid by a foreign affiliate exceed 18.9% (90% of U.S. statutory rate of 21%) of the GILTI amount for that foreign affiliate (the “high-tax exception”). These regulations are effective for the 2021 taxable year with an election to apply to any taxable year beginning after 2017. In many of the countries in which the Company operates, including Japan, there are differences between local tax rules used to determine the tax base and the U.S. tax principles used to determine GILTI. Also, the Company’s Japan

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

affiliates have a different tax year than the U.S. calendar tax year used to determine GILTI; therefore, while many of the countries, including Japan, have a statutory tax rate above the 18.9% threshold, separate affiliates may not meet the 18.9% threshold each year and, as such, may not qualify for this annual exclusion. The Company anticipates making the high-tax exception election for the 2021 and 2022 tax years and reflected the impact of the election in its full year projected effective tax rate used to calculate year-to-date taxes for the first six months of 2021 and 2022.

9. SHORT-TERM AND LONG-TERM DEBT

Short-term Debt

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


	June 30, 2022			December 31, 2021
	($ in millions)
Commercial paper:
Prudential Financial	$	25		$	25
Prudential Funding, LLC	362			395
Subtotal commercial paper	387			420

Current portion of long-term debt:

Mortgage debt	158			197
Surplus notes subject to set-off arrangements(1)	500			500
Subtotal current portion of long-term debt	658			697
Other(2)	13			105
Subtotal	1,058			1,222
Less: assets under set-off arrangements(1)	500			500
Total short-term debt(3)	$	558		$	722
Supplemental short-term debt information:
Portion of commercial paper borrowings due overnight	$	128		$	150
Daily average commercial paper outstanding for the quarter ended	$	1,067		$	1,414
Weighted average maturity of outstanding commercial paper, in days	9			16
Weighted average interest rate on outstanding commercial paper	1.43		%	0.08		%

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

(2)Includes $13 million and $7 million drawn on a revolving line of credit held by a subsidiary, and a $0 million and $98 million bridge loan at June 30, 2022 and December 31, 2021, respectively.

(3)Includes Prudential Financial debt of $25 million at both June 30, 2022 and December 31, 2021.

Prudential Financial and certain subsidiaries have access to external sources of liquidity, including membership in the Federal Home Loan Bank of New York, commercial paper programs and contingent financing facilities in the form of a put option agreement and facility agreement. The Company also maintains syndicated, unsecured committed credit facilities as an alternative source of liquidity. At June 30, 2022, no amounts were drawn on these syndicated, unsecured committed credit facilities. For additional information on these sources of liquidity, 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, 2021.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Long-term Debt

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


	June 30, 2022		December 31, 2021
	(in millions)
Fixed-rate obligations:
Surplus notes	$	344	$	344
Surplus notes subject to set-off arrangements(1)	7,961		7,861
Senior notes	10,287		10,282
Mortgage debt	25		24
Floating-rate obligations:
Line of credit	300		300
Surplus notes subject to set-off arrangements(1)	2,330		2,330

Mortgage debt(2)	52		54
Junior subordinated notes(3)	8,604		7,618
Subtotal	29,903		28,813
Less: assets under set-off arrangements(1)	10,291		10,191
Total long-term debt(4)	$	19,612	$	18,622

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

(2)Includes $28 million and $29 million of debt denominated in foreign currency at June 30, 2022 and December 31, 2021, respectively.

(3)Includes Prudential Financial debt of $8,558 million and $7,564 million at June 30, 2022 and December 31, 2021, respectively. Also includes subsidiary debt of $46 million and $54 million denominated in foreign currency at June 30, 2022 and December 31, 2021, respectively.

(4)Includes Prudential Financial debt of $18,672 million and $17,673 million at June 30, 2022 and December 31, 2021, respectively.

At June 30, 2022 and December 31, 2021, the Company was in compliance with all debt covenants related to the borrowings in the table above.

Junior Subordinated Notes

In February 2022, the Company issued $1 billion in aggregate principal amount of 5.125% junior subordinated notes due in March 2052.

Mortgage Debt

In January 2022, a new yen-denominated non-recourse mortgage loan program was established by the Company’s Gibraltar Life Insurance Company Ltd. subsidiary. The loan program has an authorized capacity of ¥20 billion that can be increased to ¥46.7 billion and a term of 10 years that can be extended. As of June 30, 2022, $29 million (¥4 billion) in mortgage debt was outstanding under the loan program.

10. EMPLOYEE BENEFIT PLANS

Pension and Other Postretirement Plans

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	Three Months Ended June 30,
	Pension Benefits				Other Postretirement Benefits
	2022		2021		2022		2021
	(in millions)
Components of net periodic (benefit) cost:
Service cost	$	66	$	82	$	3	$	7
Interest cost	112		92		15		12
Expected return on plan assets	(218)		(207)		(25)		(25)
Amortization of prior service cost	0		(1)		(2)		1
Amortization of actuarial (gain) loss, net	36		61		2		4
Settlements	0		1		0		0
Curtailments(1)	0		0		(8)		0
Special termination benefits(2)	3		0		4		0
Net periodic (benefit) cost	$	(1)	$	28	$	(11)	$	(1)

	Six Months Ended June 30,
	Pension Benefits				Other Postretirement Benefits
	2022		2021		2022		2021
	(in millions)
Components of net periodic (benefit) cost:
Service cost	$	146	$	165	$	7	$	13
Interest cost	209		182		27		24
Expected return on plan assets	(431)		(412)		(52)		(50)
Amortization of prior service cost	0		(2)		(4)		3
Amortization of actuarial (gain) loss, net	87		123		3		8
Settlements	1		2		0		0
Curtailments(1)	0		0		(8)		0
Special termination benefits(2)(3)	4		1		4		0
Net periodic (benefit) cost	$	16	$	59	$	(23)	$	(2)

(1)For 2022, curtailments are recognized as a result of the sale of the Full Service Retirement business for other postretirement benefit plans.

(2)For 2022, certain employees were provided special termination benefits under non-qualified plans in the form of unreduced early retirement benefits as a result of their involuntary termination while others were provided enhanced benefits due to the sale of the Full Service Retirement business.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

11. EQUITY

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


	Common Stock
	Issued	Held In Treasury	Outstanding
	(in millions)
Balance, December 31, 2021	666.3	290.0	376.3
Common Stock issued	0.0	0.0	0.0
Common Stock acquired	0.0	6.9	(6.9)
Stock-based compensation programs(1)	0.0	(3.2)	3.2
Balance, June 30, 2022	666.3	293.7	372.6

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

In November 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, 2022 through December 31, 2022. As of June 30, 2022, 6.9 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $750 million.

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Dividends declared per share of Common Stock	$	1.20	$	1.15	$	2.40	$	2.30

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Unaudited Interim Consolidated Statements of Comprehensive Income. The balance of and changes in each component of AOCI as of and for the six months ended June 30, 2022 and 2021, are as follows:


	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)		Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2021	$	(1,150)	$	24,987	$	(2,513)	$	21,324
Change in OCI before reclassifications	(1,344)		(39,913)		367		(40,890)
Amounts reclassified from AOCI	9		403		86		498
Income tax benefit (expense)	(92)		9,083		(101)		8,890
Balance, June 30, 2022	$	(2,577)	$	(5,440)	$	(2,161)	$	(10,178)

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment		Net Unrealized Investment Gains (Losses)(1)		Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)		Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2020	$	52	$	34,065	$	(3,379)	$	30,738
Change in OCI before reclassifications	(650)		(7,033)		38		(7,645)
Amounts reclassified from AOCI	(63)		(1,742)		132		(1,673)
Income tax benefit (expense)	(63)		1,961		(41)		1,857
Balance, June 30, 2021	$	(724)	$	27,251	$	(3,250)	$	23,277

(1)Includes cash flow hedges of $2,446 million and $1,019 million as of June 30, 2022 and December 31, 2021, respectively, and $261 million and $(168) million as of June 30, 2021 and December 31, 2020, respectively, and fair value hedges of $27 million and $(35) million as of June 30, 2022 and December 31, 2021, respectively, and $(17) million and $10 million as of June 30, 2021 and December 31, 2020, respectively.

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


	Three Months Ended June 30,				Six Months Ended June 30,				Affected line item in Consolidated Statements of Operations
	2022		2021		2022		2021
	(in millions)
Amounts reclassified from AOCI(1)(2):
Foreign currency translation adjustment:
Foreign currency translation adjustments	$	1	$	0	$	(9)	$	0	Realized investment gains (losses), net
Foreign currency translation adjustments	0		60		0		63		Other income (loss)
Total foreign currency translation adjustment	1		60		(9)		63
Net unrealized investment gains (losses):
Cash flow hedges—Interest rate	(1)		9		(5)		14		(3)
Cash flow hedges—Currency	3		(2)		4		(3)		(3)
Cash flow hedges—Currency/Interest rate	503		57		657		205		(3)
Fair value hedges—Currency	0		(1)		(2)		(3)		(3)
Net unrealized investment gains (losses) on available-for-sale securities	(646)		313		(1,057)		1,529		Realized investment gains (losses), net
Total net unrealized investment gains (losses)	(141)		376		(403)		1,742		(4)
Amortization of defined benefit items:
Prior service cost	2		0		4		(1)		(5)
Actuarial gain (loss)	(38)		(65)		(90)		(131)		(5)
Total amortization of defined benefit items	(36)		(65)		(86)		(132)
Total reclassifications for the period	$	(176)	$	371	$	(498)	$	1,673

(1)All amounts are shown before tax.

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

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

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

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Unrealized Investment Gains (Losses)

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


	Net Unrealized Investment Gains (Losses) on Available-for-Sale Fixed Maturity Securities on Which an Allowance for Credit Losses has been Recorded		Net Unrealized Gains (Losses) on All Other Investments(1)		DAC, DSI, VOBA and Reinsurance Recoverables		Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables		Policyholders’ Dividends		Income Tax Benefit (Expense)		Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2021	$	23	$	40,444	$	(543)	$	(3,271)	$	(3,657)	$	(8,009)	$	24,987
Net investment gains (losses) on investments arising during the period	(48)		(50,603)								11,498		(39,153)
Reclassification adjustment for (gains) losses included in net income	13		390								(91)		312
Reclassification due to allowance for credit losses recorded during the period	0		0								0		0
Impact of net unrealized investment (gains) losses					204		4,713		5,821		(2,324)		8,414
Balance, June 30, 2022	$	(12)	$	(9,769)	$	(339)	$	1,442	$	2,164	$	1,074	$	(5,440)

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

12. EARNINGS PER SHARE

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


	Three Months Ended June 30,
	2022					2021
	Income		Weighted Average Shares	Per Share Amount		Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)
Basic earnings per share
Net income (loss)	$	(572)				$	2,183
Less: Income (loss) attributable to noncontrolling interests	(7)					25
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	6					31
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	(571)	374.4	$	(1.53)	$	2,127	391.1	$	5.44
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	6				$	31
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	6					31
Stock options			0.0					0.9
Deferred and long-term compensation programs			0.0					2.1
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	(571)	374.4	$	(1.53)	$	2,127	394.1	$	5.40

(1)For the three months ended June 30, 2022, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share because dilutive shares and dilutive earnings per share are not applicable when a net loss is reported. As a result of the net loss attributable to Prudential Financial available to holders of Common Stock for the three months ended June 30, 2022, all potential stock options and compensation programs were considered antidilutive.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30,
	2022					2021
	Income		Weighted Average Shares	Per Share Amount		Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)
Basic earnings per share
Net income (loss)	$	(616)				$	4,987
Less: Income (loss) attributable to noncontrolling interests	(20)					1
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	13					75
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	(609)	375.3	$	(1.62)	$	4,911	393.7	$	12.47
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	13				$	75
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	13					75
Stock options			0.0					0.7
Deferred and long-term compensation programs			0.0					2.0
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	(609)	375.3	$	(1.62)	$	4,911	396.4	$	12.39

(1)For the six months ended June 30, 2022, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share because dilutive shares and dilutive earnings per share are not applicable when a net loss is reported. As a result of the net loss attributable to Prudential Financial available to holders of Common Stock for the three months ended June 30, 2022, all potential stock options and compensation programs were considered antidilutive.

Unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and included in the computation of earnings per share pursuant to the two-class method. Under this method, earnings attributable to Prudential Financial are allocated between Common Stock and the participating awards, as if the awards were a second class of stock. During periods of net income available to holders of Common Stock, the calculation of earnings per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. In the event of a net loss available to holders of Common Stock, undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these securities as they do not share in the losses of the Company. Undistributed earnings allocated to participating unvested share-based payment awards for the three months ended June 30, 2022 and 2021, as applicable, were based on 4.9 million and 5.9 million of such awards, respectively, and for the six months ended June 30, 2022 and 2021, as applicable, were based on 5.0 million and 5.9 million of such awards, respectively, weighted for the period they were outstanding.

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30,
	2022			2021
	Shares	Exercise Price Per Share		Shares	Exercise Price Per Share
	(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method	0.7	$	108.67	0.9	$	106.87
Antidilutive stock options due to net loss available to holders of Common Stock	0.4			0.0
Antidilutive shares based on application of the treasury stock method	0.2			0.0
Antidilutive shares due to net loss available to holders of Common Stock	2.3			0.0
Total antidilutive stock options and shares	3.6			0.9


	Six Months Ended June 30,
	2022			2021
	Shares	Exercise Price Per Share		Shares	Exercise Price Per Share
	(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method	0.3	$	108.67	1.5	$	100.25
Antidilutive stock options due to net loss available to holders of Common Stock	0.6			0.0
Antidilutive shares based on application of the treasury stock method	0.2			0.0
Antidilutive shares due to net loss available to holders of Common Stock	2.2			0.0
Total antidilutive stock options and shares	3.3			1.5

13. SEGMENT INFORMATION

Segments

In October 2021, we announced the creation of Retirement Strategies, a new U.S. business that would serve the retirement needs of both our institutional and individual customers by bringing the institutional investment and pension solutions offered through our Retirement business together with the financial solutions and capabilities of our Individual Annuities business. As of the second quarter of 2022, this new structure has been fully operationalized; therefore, the results of our former Retirement segment (now known as the “Institutional Retirement Strategies” operating segment) and our former Individual Annuities segment (now known as the “Individual Retirement Strategies” operating segment) have been aggregated into the Retirement Strategies segment. Prior periods have been updated to conform to this new presentation.

Adjusted Operating Income

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

adjusting each segment’s “Income (loss) before income taxes and equity in earnings of operating joint ventures” for the following items:

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

These items are important to an understanding of overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and the Company’s definition of adjusted operating income may differ from that used by other companies. The Company, however, believes that the presentation of adjusted operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of its businesses. For additional information on these reconciling items, see Note 22 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

As discussed in Note 1, during the second quarter of 2022, the Company recorded out of period adjustments within the Individual Life business resulting in an aggregate net benefit of $125 million to “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures” for the second quarter of 2022. These adjustments resulted in an aggregate $310 million benefit to the Company’s pre-tax adjusted operating income for the second quarter of 2022, reflected within the Individual Life segment.

Reconciliation of adjusted operating income to net income (loss)

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021(1)		2022		2021(1)
	(in millions)
Adjusted operating income before income taxes by segment:
PGIM	$	206	$	315	$	394	$	966
U.S. Businesses:
Institutional Retirement Strategies	398		450		966		1,064
Individual Retirement Strategies	1,305		472		1,777		916
Retirement Strategies(2)	1,703		922		2,743		1,980
Group Insurance	53		17		(58)		(115)
Individual Life	(1,325)		146		(1,274)		102
Assurance IQ	(61)		(38)		(98)		(77)
Total U.S. Businesses	370		1,047		1,313		1,890
International Businesses	555		803		1,356		1,674
Corporate and Other	(259)		(336)		(625)		(658)
Total segment adjusted operating income before income taxes	872		1,829		2,438		3,872
Reconciling items:
Realized investment gains (losses), net, and related adjustments	(2,134)		355		(3,155)		1,649
Charges related to realized investment gains (losses), net	(216)		3		(555)		(236)
Market experience updates	531		225		525		529
Divested and Run-off Businesses:
Closed Block division	13		31		36		65
Other Divested and Run-off Businesses	402		339		103		384
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	21		4		(1)		(50)
Other adjustments(3)	0		(13)		(17)		(26)
Income (loss) before income taxes and equity in earnings of operating joint ventures per Unaudited Interim Consolidated Financial Statements	$	(511)	$	2,773	$	(626)	$	6,187

(1)Effective third quarter of 2021, the results of the Full Service Retirement business were excluded from the Retirement Strategies segment and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 for additional information regarding this disposition.

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

(3)Includes 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 contingent consideration.

Reconciliation of select financial information

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	June 30, 2022		December 31, 2021
	(in millions)
Assets by segment:
PGIM	$	49,488	$	53,566
U.S. Businesses:
Institutional Retirement Strategies	100,135		114,016
Individual Retirement Strategies	132,797		201,273
Retirement Strategies(1)	232,932		315,289
Group Insurance	39,024		43,286
Individual Life	102,148		118,237
Assurance IQ	1,613		1,788
Total U.S. Businesses	375,717		478,600
International Businesses	189,633		222,736
Corporate and Other(1)	28,164		122,701
Closed Block division	52,597		59,979
Total assets per Unaudited Interim Consolidated Financial Statements	$	695,599	$	937,582

(1)Certain assets were classified as “held-for-sale” as of December 31, 2021. See Note 1 for additional information.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021(1)		2022		2021(1)
	(in millions)
Revenues on an adjusted operating income basis:
PGIM	$	829	$	1,009	$	1,755	$	2,323
U.S. Businesses:
Institutional Retirement Strategies	2,794		2,170		5,437		4,272
Individual Retirement Strategies	1,984		1,228		3,191		2,427
Retirement Strategies(1)	4,778		3,398		8,628		6,699
Group Insurance	1,496		1,518		3,040		3,074
Individual Life	2,008		1,616		3,765		3,251
Assurance IQ	79		113		186		221
Total U.S. Businesses	8,361		6,645		15,619		13,245
International Businesses	4,736		5,093		10,462		11,024
Corporate and Other	(152)		(129)		(405)		(218)
Total revenues on an adjusted operating income basis	13,774		12,618		27,431		26,374
Reconciling items:
Realized investment gains (losses), net, and related adjustments	(2,241)		420		(3,302)		1,892
Charges related to realized investment gains (losses), net	(57)		(43)		(135)		(119)
Market experience updates	272		113		348		214
Divested and Run-off Businesses:
Closed Block division	529		1,613		1,494		2,978
Other Divested and Run-off Businesses	701		1,217		367		1,579
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	43		(21)		33		(49)

Total revenues per Unaudited Interim Consolidated Financial Statements	$	13,021	$	15,917	$	26,236	$	32,869

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Intersegment revenues

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
PGIM segment intersegment revenues	$	201	$	226	$	433	$	449

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

Asset management and service fees

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Asset-based management fees	$	841	$	1,017	$	1,822	$	2,012
Performance-based incentive fees	6		23		10		50
Other fees	140		158		288		312
Total asset management and service fees	$	987	$	1,198	$	2,120	$	2,374

14. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments and Guarantees

Commercial Mortgage Loan Commitments


	June 30, 2022		December 31, 2021
	(in millions)
Total outstanding mortgage loan commitments(1)	$	2,493	$	2,300
Portion of commitment where prearrangement to sell to investor exists	$	1,071	$	1,102

(1)Includes commitments of $21 million related to held-for-sale operations as of December 31, 2021. See Note 1 for additional information.

In connection with the Company’s commercial mortgage operations, it originates commercial mortgage loans. Commitments for loans that will be held for sale are recognized as derivatives and recorded at fair value. In certain of these transactions, the Company prearranges that it will sell the loan to an investor, including to government sponsored entities as discussed below, after the Company funds the loan. The above amount includes unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was an allowance for credit losses of $1 million as of both June 30, 2022 and December 31, 2021. The change in allowance is $0 million for both the three months ended June 30, 2022 and 2021, respectively, and $0 million for both the six months ended June 30, 2022 and 2021, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Commitments to Purchase Investments (excluding Commercial Mortgage Loans)


	June 30, 2022		December 31, 2021
	(in millions)
Expected to be funded from the general account and other operations outside the separate accounts(1)	$	10,301	$	10,347
Expected to be funded from separate accounts	$	296	$	236

(1)Includes commitments of $118 million related to held-for-sale operations as of December 31, 2021. See Note 1 for additional information.

The Company has other commitments to purchase or fund investments, some of which are contingent upon events or circumstances not under the Company’s control, including those at the discretion of the Company’s counterparties. The Company anticipates a portion of these commitments will ultimately be funded from its separate accounts. The above amount includes unfunded commitments that are not unconditionally cancellable. There were no related charges for credit losses for either the three or six months ended June 30, 2022 or 2021.

Indemnification of Securities Lending and Securities Repurchase Transactions


	June 30, 2022		December 31, 2021
	(in millions)
Indemnification provided to certain clients for securities lending and securities repurchase transactions(1)	$	6,386	$	6,499
Fair value of related collateral associated with above indemnifications(2)	$	6,524	$	6,635
Accrued liability associated with guarantee	$	0	$	0

(1)Includes $74 million and $30 million related to securities repurchase transactions as of June 30, 2022 and December 31, 2021, respectively

(2)Includes $74 million and $29 million related to securities repurchase transactions as of June 30, 2022 and December 31, 2021, respectively.

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

Credit Derivatives Written

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

Guarantees of Asset Values


	June 30, 2022		December 31, 2021
	(in millions)
Guaranteed value of third-parties’ assets	$	84,082	$	81,984
Fair value of collateral supporting these assets	$	80,474	$	83,609
Asset (liability) associated with guarantee, carried at fair value	$	1	$	1

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

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Indemnification of Serviced Mortgage Loans


	June 30, 2022		December 31, 2021
	(in millions)
Maximum exposure under indemnification agreements for mortgage loans serviced by the Company	$	2,876	$	2,930
First-loss exposure portion of above	$	836	$	854
Accrued liability associated with guarantees(1)	$	33	$	41

(1)The accrued liability associated with guarantees includes an allowance for credit losses of $17 million and $20 million as of June 30, 2022 and December 31, 2021, respectively. The change in allowance is a reduction of $1 million and $0 million for the three months ended June 30, 2022, and 2021, respectively, and a reduction for both six months ended June 30, 2022 and 2021 of $4 million and $1 million, respectively.

As part of the commercial mortgage activities of the Company’s PGIM segment, the Company provides commercial mortgage origination, underwriting and servicing for certain government sponsored entities, such as Fannie Mae and Freddie Mac. The Company has agreed to indemnify the government sponsored entities for a portion of the credit risk associated with certain of the mortgages it services through a delegated authority arrangement. Under these arrangements, the Company originates multi-family mortgages for sale to the government sponsored entities based on underwriting standards they specify, and makes payments to them for a specified percentage share of losses they incur on certain loans serviced by the Company. The Company’s percentage share of losses incurred generally varies from 4% to 20% of the loan balance, and is typically based on a first-loss exposure for a stated percentage of the loan balance, plus a shared exposure with the government sponsored entity for any losses in excess of the stated first-loss percentage, subject to a contractually specified maximum percentage. The Company determines the liability related to this exposure using historical loss experience, and the size and remaining life of the asset. The Company serviced $22,647 million and $22,963 million of mortgages subject to these loss-sharing arrangements as of June 30, 2022 and December 31, 2021, respectively, all of which are collateralized by first priority liens on the underlying multi-family residential properties. As of June 30, 2022, these mortgages had a weighted-average debt service coverage ratio of 1.96 times and a weighted-average loan-to-value ratio of 62%. As of December 31, 2021, these mortgages had a weighted-average debt service coverage ratio of 1.93 times and a weighted-average loan-to-value ratio of 63%. The Company had no losses related to indemnifications that were settled for the six months ended June 30, 2022 and $1 million of losses for the six months ended June 30, 2021.

Other Guarantees


	June 30, 2022		December 31, 2021
	(in millions)
Other guarantees where amount can be determined	$	57	$	47
Accrued liability for other guarantees and indemnifications	$	33	$	34

The Company is also subject to other financial guarantees and indemnity arrangements. The Company has provided indemnities and guarantees related to acquisitions, dispositions, investments and other transactions that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable.

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

Assurance IQ Contingent Consideration Liability

In October 2019, the Company completed its acquisition of Assurance IQ. For additional information regarding the transaction, including the contingent consideration liability, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The contingent consideration liability is reported at fair value, which is determined based on the present value of expected payments under the arrangement, using an internally-developed option pricing model based on a number of assumptions, including certain unobservable assumptions discounted at an estimated market interest rate. The fair value of the liability is updated each reporting period, with changes in fair value reported within “Other income.” The fair value of the contingent consideration liability was zero as of June 30, 2022 and December 31, 2021.

Contingent Liabilities

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

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

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

Litigation and Regulatory Matters

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

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed, including matters discussed below. The Company estimates that as of June 30, 2022, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $250 million. Any estimate is not an indication of expected loss, if any, or the Company’s maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 23 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

Assurance IQ, LLC

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

In March 2022, the court issued an order granting Assurance IQ, LLC’s motion to dismiss the claims for declaratory and injunctive relief and denying the motion to dismiss as to the remaining claims. In May 2022, plaintiffs filed a second amended complaint narrowing the scope of the putative plaintiff class, and the Company filed its answer.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

LIBOR Litigation

Prudential Investment Portfolios 2, f/k/a Dryden Core Investment Fund, o/b/o Prudential Core Short-Term Bond Fund and Prudential Core Taxable Money Market Fund v. Bank of America Corporation, et al.

In March 2022, defendants petitioned the United States Supreme Court for a writ of certiorari to review the Second Circuit Court of Appeals judgment that personal jurisdiction extends to foreign defendants. In June 2022, the United States Supreme Court denied defendants’ petition.

Summary

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

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