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Reinsurance
 6 Months Ended
Jun. 30, 2020
Reinsurance Disclosures [Abstract]  
Reinsurance REINSURANCE

The Company participates in reinsurance with its affiliates Prudential Arizona Reinsurance Captive Company (“PARCC”), Prudential Arizona Reinsurance Term Company (“PAR Term”), Prudential Arizona Reinsurance Universal Company (“PAR U”), Prudential Term Reinsurance Company (“Term Re”) and Dryden Arizona Reinsurance Term Company (“DART”), its parent companies, Pruco Life and Prudential Insurance, as well as third parties. The reinsurance agreements provide risk diversification and additional capacity for future growth, limit the maximum net loss potential, manage statutory capital, and facilitate the Company's capital market hedging program. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The Company believes a material reinsurance liability resulting from such inability of reinsurers to meet their obligations is unlikely.

Reserves related to reinsured long-duration contracts are accounted for using assumptions consistent with those used to account for the underlying contracts. Amounts recoverable from reinsurers for long-duration reinsurance arrangements are estimated in a manner consistent with the claim liabilities and policy benefits associated with the reinsured policies. Reinsurance policy charges and fee income ceded for universal life and variable annuity products are accounted for as a reduction of policy charges and fee income. Reinsurance premiums ceded for term insurance products are accounted for as a reduction of premiums.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. The Company has entered into a reinsurance agreement to transfer the risk related to living benefit guarantees on variable annuities to Prudential Insurance. These reinsurance agreements are derivatives and have been accounted for in the same manner as embedded derivatives and the changes in the fair value of these derivatives are recognized through “Realized investment gains (losses), net”. See Note 4 for additional information related to the accounting for embedded derivatives.

Reinsurance amounts included in the Company’s Unaudited Interim Statements of Financial Position as of June 30, 2020 and December 31, 2019 were as follows:
 
June 30, 2020
 
December 31, 2019
 
(in thousands)
Reinsurance recoverables(1)
$
4,310,574

 
$
3,200,642

Policy loans
(21,366
)
 
(18,627
)
Deferred policy acquisition costs
(692,414
)
 
(736,575
)
Deferred sales inducements
(42,906
)
 
(47,423
)
Other assets
16,629

 
16,540

Other liabilities
110,493

 
93,557


(1)
Includes $1 million and $4 million of unaffiliated activity as of June 30, 2020 and December 31, 2019, respectively.

Reinsurance recoverables by counterparty are broken out below:
 
June 30, 2020
 
December 31, 2019
 
(in thousands)
Prudential Insurance
$
2,265,669

 
$
1,245,450

PAR U
1,073,143

 
1,027,304

PARCC
461,524

 
458,441

PAR Term
232,857

 
219,757

Term Re
212,540

 
190,633

DART
49,662

 
38,651

Pruco Life
14,196

 
16,428

Unaffiliated
983

 
3,978

Total reinsurance recoverables
$
4,310,574

 
$
3,200,642



Reinsurance amounts, included in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(in thousands)
Premiums:
 
 
 
 
 
 
 
Direct
$
62,975

 
$
61,930

 
$
127,608

 
$
124,944

Ceded
(57,846
)
 
(58,649
)
 
(117,285
)
 
(118,325
)
Net premiums
5,129

 
3,281

 
10,323

 
6,619

Policy charges and fee income:
 
 
 
 
 
 
 
Direct
94,937

 
118,884

 
204,009

 
212,504

Ceded(1)
(76,694
)
 
(96,279
)
 
(161,797
)
 
(170,050
)
Net policy charges and fee income
18,243

 
22,605

 
42,212

 
42,454

Net investment income:
 
 
 
 
 
 
 
Direct
20,874

 
19,634

 
38,066

 
38,543

Ceded
(191
)
 
(162
)
 
(418
)
 
(330
)
Net investment income
20,683

 
19,472

 
37,648

 
38,213

Asset administration fees:
 
 
 
 
 
 
 
Direct
9,290

 
9,394

 
19,015

 
18,273

Ceded
(7,744
)
 
(7,945
)
 
(15,904
)
 
(15,481
)
Net asset administration fees
1,546

 
1,449

 
3,111

 
2,792

Realized investment gains (losses), net:
 
 
 
 
 
 
 
Direct
146,576

 
(165,057
)
 
(922,872
)
 
(227,900
)
Ceded
(154,088
)
 
160,001

 
928,425

 
216,734

Realized investment gains (losses), net
(7,512
)
 
(5,056
)
 
5,553

 
(11,166
)
Policyholders’ benefits (including change in reserves):
 
 
 
 
 
 
 
Direct
126,289

 
131,279

 
257,575

 
203,307

Ceded(2)
(112,846
)
 
(120,928
)
 
(227,446
)
 
(182,979
)
Net policyholders’ benefits (including change in reserves)
13,443

 
10,351

 
30,129

 
20,328

Interest credited to policyholders’ account balances:
 
 
 
 
 
 
 
Direct
16,061

 
17,271

 
38,319

 
32,488

Ceded
(4,074
)
 
(7,266
)
 
(16,141
)
 
(13,430
)
Net interest credited to policyholders’ account balances
11,987

 
10,005

 
22,178

 
19,058

Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization
(24,163
)
 
(58,171
)
 
(99,696
)
 
(97,673
)

(1)
Includes $0.0 million and $(4.0) million of unaffiliated activity for the three months ended June 30, 2020 and 2019, respectively, and $0.0 million and $(4.0) million for the six months ended June 30, 2020 and 2019, respectively.
(2)
Includes $0.5 million and $1.0 million of unaffiliated activity for the three months ended June 30, 2020 and 2019, respectively, and $1.5 million and $2.0 million for the six months ended June 30, 2020 and 2019, respectively.

The gross and net amounts of life insurance face amount in force as of June 30, 2020 and 2019 were as follows:
 
2020
 
2019
 
(in thousands)
Direct gross life insurance face amount in force
$
151,576,594

 
$
145,001,035

Reinsurance ceded
(138,189,156
)
 
(132,123,416
)
Net life insurance face amount in force
$
13,387,438

 
$
12,877,619



Information regarding significant affiliated reinsurance agreements is described below.

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. Effective July 1, 2017, this agreement was terminated for certain new business, primarily Universal Life business, and such business was reinsured to Pruco Life under a yearly renewable term reinsurance agreement. As of January 1, 2020, the remaining portions of new business (specifically Term policies) ceased being reinsured by the Company to Prudential Insurance, and a separate yearly renewable term reinsurance agreement was established with Pruco Life for Term policies. Effective April 1, 2016, the Company entered into a reinsurance agreement with Prudential Insurance to reinsure its variable annuity base contracts, along with the living benefit guarantees.

PAR U

Effective July 1, 2012, the Company reinsures an amount equal to 95% of all risks associated with Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, excluding those policies that are subject to principle-based reserving.

PARCC

The Company reinsures 90% of the risks under its term life insurance policies with effective dates prior to January 1, 2010 through an automatic coinsurance agreement with PARCC.

PAR Term

The Company reinsures 95% of the risks under its term life insurance policies, with effective dates January 1, 2010 through December 31, 2013, through an automatic coinsurance agreement with PAR Term.

Term Re

The Company reinsures 95% of the risks under its term life insurance policies with effective dates on or after January 1, 2014 through December 31, 2017, through an automatic coinsurance agreement with Term Re.

Pruco Life

Effective July 1, 2017, the Company entered into a yearly renewable term reinsurance agreement with Pruco Life for new business, primarily covering Universal Life policies. Effective January 1, 2020, the Company entered in a similar yearly renewable term reinsurance agreement with Pruco Life for new business relating to Term policies. Under these agreements the majority of all mortality risk is ceded to Pruco Life. The Company also reinsures certain Corporate Owned Life Insurance (“COLI”) policies with Pruco Life. Through March 31, 2016, the Company reinsured Prudential Defined Income ("PDI") living benefit guarantees with Pruco Life. Effective April 1, 2016, the Company recaptured PDI living benefit guarantees from Pruco Life and reinsured them, together with the related variable annuity base contracts, with Prudential Insurance.

DART

Effective January 1, 2018, the Company entered into an automatic coinsurance agreement with DART to reinsure an amount equal to 95% of the risks associated with its term life insurance policies with effective dates on or after January 1, 2018 through December 31, 2019, excluding those policies that are subject to principle-based reserving.