Closed Block

3 Months Ended

Mar. 31, 2020

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, 2019.

As of March 31, 2020 and December 31, 2019, the Company recognized a policyholder dividend obligation of $2,320 million and $2,816 million, respectively, to Closed Block policyholders for the excess of actual cumulative earnings over expected cumulative earnings. Additionally, accumulated net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block have been reflected as a policyholder dividend obligation of $3,208 million and $3,332 million at March 31, 2020 and December 31, 2019, respectively, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.

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:



	March 31, 2020			December 31, 2019
	(in millions)
Closed Block liabilities
Future policy benefits	$	47,351		$	47,613
Policyholders’ dividends payable	747			717
Policyholders’ dividend obligation	5,528			6,149
Policyholders’ account balances	4,942			4,973
Other Closed Block liabilities	3,436			4,049
Total Closed Block liabilities	62,004			63,501
Closed Block assets
Fixed maturities, available-for-sale, at fair value	40,260			41,146
Fixed maturities, trading, at fair value	218			256
Equity securities, at fair value	1,691			2,245
Commercial mortgage and other loans	8,439			8,629
Policy loans	4,210			4,264
Other invested assets	3,335			3,333
Short-term investments	179			227
Total investments	58,332			60,100
Cash and cash equivalents	473			191
Accrued investment income	467			456
Other Closed Block assets	85			93
Total Closed Block assets	59,357			60,840
Excess of reported Closed Block liabilities over Closed Block assets	2,647			2,661
Portion of above representing accumulated other comprehensive income (loss):
Net unrealized investment gains (losses)	3,155			3,280
Allocated to policyholder dividend obligation	(3,208		)	(3,332		)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities	$	2,594		$	2,609

Information regarding the policyholder dividend obligation is as follows:



	Three Months Ended March 31, 2020
	(in millions)
Balance, December 31, 2019	$	6,149
Cumulative effect adjustment from the adoption of ASU 2016-13(1)	(13		)
Impact from earnings allocable to policyholder dividend obligation	(483		)
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation	(125		)
Balance, March 31, 2020	$	5,528

__________


(1)	See Note 2 for more information.

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



	Three Months Ended March 31,
	2020			2019
	(in millions)
Revenues
Premiums	$	480		$	527
Net investment income	548			565
Realized investment gains (losses), net	256			56
Other income (loss)	(603		)	228
Total Closed Block revenues	681			1,376
Benefits and Expenses
Policyholders’ benefits	647			709
Interest credited to policyholders’ account balances	32			32
Dividends to policyholders	(94		)	553
General and administrative expenses	85			89
Total Closed Block benefits and expenses	670			1,383
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes	11			(7		)
Income tax expense (benefit)	(6		)	(24		)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes	$	17		$	17