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Reinsurance
 9 Months Ended
Sep. 30, 2020
Reinsurance Disclosures [Abstract]  
Reinsurance REINSURANCE
The Company participates in reinsurance with its affiliates Prudential Life Insurance Company of Taiwan Inc. (“Prudential of Taiwan”), Prudential Arizona Reinsurance Captive Company (“PARCC”), Prudential Arizona Reinsurance Term Company (“PAR Term”), Prudential Arizona Reinsurance Universal Company (“PAR U”), Prudential Universal Reinsurance Company ("PURC"), Prudential Term Reinsurance Company (“Term Re”), PALAC, Gibraltar Universal Life Reinsurance Company ("GUL Re") and Dryden Arizona Reinsurance Term Company (“DART”), its parent company 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 reinsurance agreements to transfer the risk related to the living benefit guarantees on variable annuities to PALAC excluding the PLNJ business which was reinsured 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 Consolidated Statements of Financial Position as of September 30, 2020 and December 31, 2019 were as follows:
September 30, 2020December 31, 2019
 (in thousands)
Reinsurance recoverables(1)$51,051,073 $40,710,159 
Policy loans(153,586)(142,262)
Deferred policy acquisition costs(6,552,679)(6,989,618)
Deferred sales inducements(438,280)(515,968)
Other assets(2)239,345 258,427 
Policyholders’ account balances4,851,192 4,934,544 
Future policy benefits(3)4,818,739 4,209,817 
Other liabilities(4)1,040,850 884,641 

(1)Includes $362.7 million and $156.7 million of unaffiliated activity as of September 30, 2020 and December 31, 2019, respectively.
(2)Includes $0.2 million of unaffiliated activity at both September 30, 2020 and December 31, 2019.
(3)Includes $0.2 million of unaffiliated activity at both September 30, 2020 and December 31, 2019.
(4)Includes $35.9 million and $43.1 million of unaffiliated activity as of September 30, 2020 and December 31, 2019, respectively.

Reinsurance recoverables by counterparty are broken out below:
September 30, 2020December 31, 2019
 (in thousands)
PAR U$13,106,456 $12,380,683 
PALAC19,031,724 11,635,405 
PURC5,212,049 4,692,769 
PARCC2,519,113 2,627,595 
GUL Re2,498,242 2,292,638 
PAR Term1,884,370 1,825,594 
Prudential Insurance2,687,057 1,764,512 
Prudential of Taiwan1,590,112 1,499,685 
Term Re1,689,778 1,506,366 
DART468,851 327,235 
Unaffiliated363,321 157,677 
Total reinsurance recoverables$51,051,073 $40,710,159 

Reinsurance amounts, included in the Company’s Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, were as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (in thousands)
Premiums:
Direct$475,017 $468,900 $1,435,080 $1,408,157 
Assumed(1)45 51 140 157 
Ceded(2)(450,755)(466,593)(1,373,498)(1,379,545)
Net premiums 24,307 2,358 61,722 28,769 
Policy charges and fee income:
Direct882,373 896,151 2,600,632 2,856,071 
Assumed131,877 130,113 395,960 385,820 
Ceded(3)(863,170)(915,635)(2,544,508)(2,843,402)
Net policy charges and fee income 151,080 110,629 452,084 398,489 
Net investment income:
Direct95,266 96,424 261,304 297,931 
Assumed390 427 1,184 1,230 
Ceded(1,664)(1,595)(5,453)(5,093)
Net investment income93,992 95,256 257,035 294,068 
Asset administration fees:
Direct91,953 90,797 265,612 262,616 
Assumed0 0 0 0 
Ceded(86,989)(86,661)(251,958)(250,862)
Net asset administration fees4,964 4,136 13,654 11,754 
Other income:
Direct28,529 19,631 49,817 59,459 
Assumed(4)(112)438 (141)(1,033)
Ceded3 (7)128 (69)
Amortization of reinsurance income1,162 1,180 3,506 (1,160)
Net other income 29,582 21,242 53,310 57,197 
Realized investment gains (losses), net:
Direct2,646,206 (2,500,567)(7,254,543)(4,920,019)
Assumed0 0 0 0 
Ceded(5)(2,647,753)2,540,151 7,262,660 4,858,718 
Realized investment gains (losses), net (1,547)39,584 8,117 (61,301)
Policyholders’ benefits (including change in reserves):
Direct879,729 874,424 2,691,447 2,671,720 
Assumed(6)196,502 252,424 766,272 747,135 
Ceded(7)(1,020,403)(1,080,958)(3,229,715)(3,287,196)
Net policyholders’ benefits (including change in reserves)55,828 45,890 228,004 131,659 
Interest credited to policyholders’ account balances:
Direct148,411 163,479 420,163 376,590 
Assumed33,974 35,575 102,230 100,744 
Ceded(130,119)(119,647)(348,664)(303,020)
Net interest credited to policyholders’ account balances
52,266 79,407 173,729 174,314 
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization(448,254)(475,041)(1,330,501)(1,393,034)
(1)Includes $0.0 million and $0.1 million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively and $0.2 million for both the nine months ended September 30, 2020 and 2019, respectively.
(2)Includes $(2.4) million and $(0.1) million of unaffiliated activity for the three months ended September 30, 2020, and 2019, respectively and $(7.5) million and $(0.3) million for the nine months ended September 30, 2020 and 2019, respectively.
(3)Includes $(18) million and $(13) million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively and $(39) million and $(25) million for the nine months ended September 30, 2020 and 2019, respectively.
(4)Includes $0.1 million and $1 million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively and $0.1 million and $(1.0) million for the nine months ended September 30, 2020 and 2019, respectively.
(5)Includes $(68) million and $61 million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively and $160 million and $117 million for the nine months ended September 30, 2020 and 2019, respectively.
(6)Includes $0.1 million and $1 million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively and $0.7 million and $1 million for the nine months ended September 30, 2020 and 2019, respectively.
(7)Includes $(20) million and $(8) million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively and $(44) million and $(12) million for the nine months ended September 30, 2020 and 2019, respectively.

The gross and net amounts of life insurance face amount in force as of September 30, 2020 and 2019 were as follows:
20202019
 (in thousands)
Direct gross life insurance face amount in force$1,031,639,923 $979,079,094 
Assumed gross life insurance face amount in force39,135,248 40,137,874 
Reinsurance ceded(981,522,009)(954,117,728)
Net life insurance face amount in force$89,253,162 $65,099,240 

Information regarding significant affiliated reinsurance agreements is described below.

PAR U

Pruco Life reinsures an amount equal to 70% of all the risks associated with Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, with effective dates prior to January 1, 2011.

Effective July 1, 2012, PLNJ reinsures an amount equal to 95% of all the 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.

On January 2, 2013, Pruco Life began to assume Guaranteed Universal Life ("GUL") business from Prudential Insurance in connection with the acquisition of The Hartford Life Business. The GUL business assumed from Prudential Insurance was subsequently retroceded to PAR U.

PALAC

Effective April 1, 2016, the Company entered into a reinsurance agreement to reinsure its variable annuity base contracts, along with the living benefit guarantees to PALAC, excluding the PLNJ business, which was reinsured to Prudential Insurance. This reinsurance agreement covers new and in force business and excludes business reinsured externally.

PURC

Pruco Life reinsures an amount equal to 70% of all the risks associated with its Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, with effective dates from January 1, 2011 through December 31, 2013, with PURC and 95% of all the risks associated with Universal Protector policies having no-lapse guarantees, as well as certain of its universal policies, with effective dates from January 1, 2014 through December 31, 2016.

PARCC

Prior to July 1, 2019, the Company reinsured 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. Effective July 1, 2019, the Company amended the coinsurance agreement to increase the percentage from 90% to 100% of the policy risk amount reinsured, which resulted in an initial transfer of $476 million in premiums and $409 million in expenses ceded with the difference being deferred and subsequently amortized through income.
GUL Re

Effective January 1, 2017, Pruco Life entered into an automatic coinsurance agreement with GUL Re to reinsure an amount equal to 95% of all the risks associated with Universal Protector policies having no-lapse guarantees, as well as certain of its universal policies, with effective dates on or after January 1, 2017 through December 31, 2019, excluding those policies that are subject to principle-based reserving.

Effective July 1, 2017, Pruco Life amended this agreement to include 30% of Universal Protector policies having no-lapse guarantees as well as certain of its universal policies with effective dates prior to January 1, 2014.

PAR Term

Prior to July 1, 2019, 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. Effective July 1, 2019, the Company amended the coinsurance agreement to increase the percentage from 95% to 100% of the policy risk amount reinsured, which resulted in an initial transfer of $150 million in premiums and $115 million in expenses ceded with the difference being deferred and subsequently amortized through income.

Prudential of Taiwan

On January 31, 2001, Pruco Life transferred all of its assets and liabilities associated with its Taiwanese branch, including its Taiwanese insurance book of business, to Prudential of Taiwan, an affiliated company. The mechanism used to transfer this block of business in Taiwan is referred to as a “full acquisition and assumption” transaction. Under this mechanism, Pruco Life is jointly liable with Prudential of Taiwan for two years from the giving of notice to all obligees for all matured obligations and for two years after the maturity date of not-yet-matured obligations. Prudential of Taiwan is also contractually liable, under indemnification provisions of the transaction, for any liabilities that may be asserted against Pruco Life.

The transfer of the insurance related assets and liabilities was accounted for as a long-duration coinsurance transaction under U.S. GAAP. Under this accounting treatment, the insurance related liabilities remain on the books of Pruco Life and an offsetting reinsurance recoverable is established. These assets and liabilities are denominated in U.S. dollars.

On August 11, 2020, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, entered into a Share Purchase Agreement with Taishin Financial Holding Co., Ltd. (the “Buyer”) pursuant to which PIIH has agreed to sell to the Buyer all of the issued and outstanding capital stock of Prudential of Taiwan. The Share Purchase Agreement contains customary warranties and covenants of PIIH and the Buyer. The Company expects the transaction to close in 2021, subject to regulatory approval and the satisfaction of customary closing conditions. The Buyer will provide Pruco Life a backstop indemnification and Pruco Life will provide a guarantee to stand ready to perform in the event of default by both Prudential of Taiwan and the Buyer.

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.  
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 has been terminated for certain new business, primarily Universal Life insurance policies. As of January 1, 2020, the remaining portions of new business (specifically Term policies) ceased being reinsured by the Company to Prudential Insurance. Effective July 1, 2017, the Company reinsures a portion of the mortality risk directly to third-party reinsurers and retains all of the non-reinsured portion of the mortality risk. Effective July 1, 2019, this agreement has been recaptured for certain term life insurance policies which are now reinsured to PARCC and PAR Term as noted above.

On January 2, 2013, Pruco Life began to assume GUL business from Prudential Insurance in connection with the acquisition of the Hartford Financial Services Group, Inc. ("Hartford Financial"). The GUL business assumed from Prudential Insurance was subsequently retroceded to PAR U. In May 2018, Hartford Financial sold a group of operating subsidiaries, which includes two of Prudential Insurance's counterparties to these reinsurance arrangements. There is no impact to the terms, rights or obligations of Prudential Insurance, or operation of these reinsurance arrangements, as a result of this change in control of such counterparties. Similarly, there is no impact to the Company's reinsurance arrangements with respect to such GUL business as a result of this change in control.

The Company has reinsured a group annuity contract with Prudential Insurance, in consideration for a single premium payment by the Company, providing reinsurance equal to 100% of all payments due under the contract.

Effective April 1, 2016, PLNJ entered into a reinsurance agreement to reinsure its variable annuity base contracts, along with the living benefit guarantees to Prudential Insurance. This reinsurance agreement covers new and in force business.

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.

Information regarding significant third-party reinsurance arrangements is described below.

Union Hamilton

Between April 1, 2015 and December 31, 2016, the Company, excluding its subsidiary, reinsured approximately 50% of the new business related to “highest daily” living benefits rider guarantees on HDI v.3.0 product, available with Prudential Premier® Retirement Variable Annuity, to Union Hamilton. This reinsurance remains in force for the duration of the underlying annuity contracts. New sales of HDI v.3.0 subsequent to December 31, 2016 are not covered by this external reinsurance agreement. As of September 30, 2020, $2.9 billion of HDI v.3.0 account values are reinsured to Union Hamilton.