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Reinsurance
 6 Months Ended
Jun. 30, 2023
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 Universal Reinsurance Company ("PURC"), Prudential Term Reinsurance Company (“Term Re”), Gibraltar Universal Life Reinsurance Company ("GUL Re"), Dryden Arizona Reinsurance Term Company (“DART”), Lotus Reinsurance Company Ltd. ("Lotus Re"), and PALAC, a former subsidiary of Prudential Financial that was sold to Fortitude on April 1, 2022, which is discussed in Note 1. The Company also participates in reinsurance with 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.

Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on reinsurance are recorded within “Other assets” and the corresponding funds withheld liability for assets retained under these reinsurance agreements are recorded within “Other liabilities.” Balances associated with these agreements are included in the tables below.
Change in value of market risk benefits, net of related hedging gain (loss) 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 within the PLNJ business to Prudential Insurance. These reinsurance agreements are market risk benefits and have been accounted for in the same manner. See Note 4 for additional information related to the accounting for market risk benefits.

Reinsurance amounts included in the Company’s Unaudited Interim Consolidated Statements of Financial Position as of June 30, 2023 and December 31, 2022 were as follows:
June 30, 2023December 31, 2022
 (in thousands)
Reinsurance recoverables(1)$37,667,480 $37,096,562 
Policy loans(1,054,894)(1,011,112)
Deferred policy acquisition costs(1)(3,270,979)(3,343,270)
Deferred sales inducements(1)(36,745)(38,146)
Market risk benefit assets(1)1,174,612 543,177 
Other assets(1)1,648,435 1,146,794 
Policyholders’ account balances(1)6,245,990 7,157,639 
Future policy benefits(1)6,747,348 6,320,863 
Market risk benefit liabilities(1)230,773 120,916 
Other liabilities(1)3,793,074 2,891,433 
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

Unaffiliated reinsurance amounts included in the table above and in the Company's Unaudited Interim Consolidated Statements of Financial Position were as follows:
June 30, 2023December 31, 2022
(in thousands)
Deferred policy acquisition costs(1)$84,646 $111,379 
Market risk benefit assets(1)752,567 64,738 
Other assets1,540,310 1,034,000 
Policyholders’ account balances(1)1,986,974 2,771,961 
Future policy benefits315 0 
Market risk benefit liabilities(1)118,963 40,731 
Other liabilities1,656,479 820,185 
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

The deposit assets on reinsurance totaled $1,413 million and $828 million at June 30, 2023 and December 31, 2022, respectively. The funds withheld liabilities totaled $1,196 million and $705 million at June 30, 2023 and December 31, 2022, respectively.
Reinsurance recoverables by counterparty are broken out below:
June 30, 2023December 31, 2022(1)
 (in thousands)
PAR U$15,418,859 $15,051,337 
PURC7,228,567 6,928,950 
PARCC2,360,934 2,437,589 
GUL Re3,133,194 3,124,697 
PAR Term2,008,158 2,040,599 
Prudential Insurance1,121,635 986,013 
Term Re1,938,351 1,830,197 
Lotus Re2,007,253 1,952,215 
DART670,394 578,462 
Unaffiliated1,780,135 2,166,503 
Total reinsurance recoverables$37,667,480 $37,096,562 
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

Reinsurance amounts, included in the Company’s Unaudited Interim Consolidated 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,
2023202220232022
(in thousands)
Premiums:
Direct(1)$476,472 $470,923 $938,539 $944,344 
Assumed34 (9,474)(122)(8,077)
Ceded(1)(386,541)(407,125)(771,796)(812,438)
Net premiums(1)89,965 54,324 166,621 123,829 
Policy charges and fee income:
Direct(1)749,037 757,637 1,484,975 1,548,536 
Assumed(1)148,479 158,744 301,079 305,550 
Ceded(1)(533,980)(517,626)(1,036,027)(1,366,151)
Net policy charges and fee income(1)363,536 398,755 750,027 487,935 
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net investment income:
Direct402,761 195,480 753,084 390,991 
Assumed343 365 686 818 
Ceded(10,029)(3,717)(11,245)(20,381)
Net investment income393,075 192,128 742,525 371,428 
Asset administration fees:
Direct80,952 88,655 161,308 186,112 
Assumed0 0 0 0 
Ceded(24,164)(16,865)(40,318)(35,090)
Net asset administration fees56,788 71,790 120,990 151,022 
Other income (loss):
Direct79,657 (325,563)305,391 (674,251)
Assumed(56)(2,548)(349)(2,509)
Ceded(1)25,857 21,472 45,263 43,038 
Net Other income (loss)(1)105,458 (306,639)350,305 (633,722)
Realized investment gains (losses), net:
Direct(1)(88,715)614,376 (334,638)1,125,198 
Assumed(1)82,278 (281,646)220,944 (485,630)
Ceded(1)14,131 27,489 709 73,932 
Realized investment gains (losses), net(1)7,694 360,219 (112,985)713,500 
Change in value of market risk benefits, net of related hedging gain (loss):
Direct(1)174,084 (556,282)207,204 (727,637)
Assumed(1)2,774 0 (3,443)0 
Ceded(1)(215,745)(161,187)(222,446)(427,700)
Net change in value of market risk benefits, net of related hedging gain (loss)(1)(38,887)(717,469)(18,685)(1,155,337)
Policyholders’ benefits (including change in reserves):
Direct(1)848,495 726,165 1,727,280 1,580,324 
Assumed(1)332,048 326,171 649,335 579,208 
Ceded(1)(1,033,582)(957,887)(2,124,472)(1,879,674)
Net policyholders’ benefits (including change in reserves)(1)146,961 94,449 252,143 279,858 
Change in estimates of liability for future policy benefits:
Direct(1)31,146 1,828,707 (17,355)1,818,725 
Assumed(1)23,844 707,485 25,651 689,394 
Ceded(1)(56,123)(2,487,545)(13,831)(2,462,319)
Net change in estimates of liability for future policy benefits(1)(1,133)48,647 (5,535)45,800 
Interest credited to policyholders’ account balances:
Direct(1)215,973 188,115 438,548 333,985 
Assumed27,957 29,601 66,463 102,103 
Ceded(1)(100,114)(108,798)(200,973)(215,151)
Net interest credited to policyholders’ account balances(1)143,816 108,918 304,038 220,937 
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization(1)(105,195)(101,295)(223,025)(218,652)
(1)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.
Unaffiliated reinsurance assumed and ceded amounts included in the table above and in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows:
Three Months Ended June 30,Six Months Ended June 30,
20232022(1)20232022(1)
(in thousands)
Premiums:
Assumed(2)$34 $(13,448)$(132)$(13,408)
Ceded(2)(16,802)(11,048)(33,377)(22,570)
Policy charges and fee income:
Assumed383 11,421 923 11,421 
Ceded(38,338)(19,959)(62,276)(38,257)
Net investment income:
Ceded1,993 8,650 12,913 4,317 
Asset administration fees:
Ceded(7,740)0 (7,740)0 
Other income (loss):
Assumed55 (2,549)(238)(2,510)
Ceded8,031 0 9,653 0 
Realized investment gains (losses), net:
Assumed82,278 (281,645)220,944 (281,645)
Ceded(2)13,952 26,826 (629)72,776 
Change in value of market risk benefits, net of related hedging gain (loss):
Assumed(2)2,774 0 (3,443)0 
Ceded(2)(75,325)(35,629)(80,098)(86,502)
Policyholders’ benefits (including change in reserves):
Assumed189 1,245 280 1,354 
Ceded(2)(36,118)(24,551)(63,820)(43,042)
Change in estimates of liability for future policy benefits:
Ceded(416)(6,594)(416)(6,594)
Interest credited to policyholders’ account balances:
Assumed(2,370)(2,781)5,099 (2,781)
Ceded(85)0 (85)0 
(1)    Prior period has been reclassified to conform to the current period presentation
(2)    Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.
The gross and net amounts of life insurance face amount in force as of June 30, 2023 and 2022 were as follows:
20232022
 (in thousands)
Direct gross life insurance face amount in force$1,107,571,392 $1,086,899,612 
Assumed gross life insurance face amount in force36,059,164 37,151,725 
Reinsurance ceded(1,015,213,859)(1,012,351,998)
Net life insurance face amount in force$128,416,697 $111,699,339 

Significant Affiliated Reinsurance Agreements

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, with effective dates through December 31, 2019, 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 excluded business reinsured externally. As of December 31, 2020, the Company discontinued the sales of traditional variable annuities with guaranteed living benefit riders. This discontinuation had no impact on the reinsurance agreement between PALAC, Prudential Insurance, and the Company.

Effective July 1, 2021, the Company recaptured the risks related to its business, as discussed above, that had previously been reinsured to PALAC from April 1, 2016 through June 30, 2021. The recapture did not impact PLNJ, which continued to reinsure its business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in PALAC, were transferred to the Company. In addition, the living benefit hedging program related to the previously reinsured living benefit riders were being managed within the Company.

On April 1, 2022, PALAC was sold to Fortitude as discussed in Note 1 and is no longer considered an affiliate of the Company.

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. The amended agreement does not impact contracts issued by PLNJ, which remain at the original percentage.
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. The amended agreement does not impact contracts issued by PLNJ, which remain at the original percentage.

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 ("YRT") reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. This agreement was terminated for new business effective January 1, 2020, with certain new business (primarily Universal Life policies) terminated as early as 2017. The Company now 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, certain term life insurance policies were recaptured and subsequently reinsured to PARCC and PAR Term as noted above. As of January 1, 2022, most of the variable life insurance policies were recaptured resulting in a $305 million loss recorded through "Policy charges and fee income." Those policies were then reinsured to Lotus Re as mentioned below.

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 was 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 was no impact to the Company's reinsurance arrangements with respect to such GUL business as a result of this change in control. In January 2021, there was a definitive agreement announced to subsequently sell the two counterparties mentioned above, which were then acquired by Sixth Street in July 2021. There was no impact to the terms, rights or obligations of the Company, or operation of these reinsurance arrangements, as a result of this change in control of such counterparties.

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. Effective February 1, 2023, PLNJ began selling indexed variable annuities products, which is reinsured to Prudential Insurance through the existing reinsurance agreement. The reinsurance of the indexed variable annuities transfers all significant risks, including mortality risk, embedded in the reinsured contracts to Prudential Insurance. As a result of the agreement, reinsurance payables includes the ceded modified coinsurance arrangement, which reflects the value of the invested assets retained by the Company and the associated asset returns.
Lotus Re

Effective October 1, 2021, the Company entered into an automatic coinsurance agreement with Lotus Re to reinsure $32 million of liabilities associated with the risks associated with a portion of its Variable Life policies in the extended term policy status.

Effective January 1, 2022 the Company recaptured the risks that were previously ceded to Lotus Re from October 1, 2021 through December 31, 2021. Immediately thereafter, the Company entered into a reinsurance agreement with Lotus Re to cede 100% of the risks associated with a closed block of Variable Life business on a coinsurance and modified coinsurance basis including policies in the extended term policy status. The amount of the net liabilities associated with the transaction for coinsurance and modified coinsurance were $1,387 million and $14,037 million, respectively. As part of the consideration, the Company also ceded to Lotus Re $855 million of policy loan assets associated with the reinsured policies while receiving $820 million in cash from Lotus Re. As a result, the Company recorded a $1,352 million deferred gain, which will be recognized over the remaining life of the underlying policies. In tandem with the transaction, effective January 1, 2022, Lotus Re established an automatic YRT agreement with the Company to cede back a portion of the mortality risks associated with the reinsured policies for the purposes of the Company maintaining YRT reinsurance with external counterparties.

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.

Significant Third-Party Reinsurance Arrangements

The Ohio National Life Insurance Company

Effective April 1, 2023, the Company entered into an agreement with Ohio National, an affiliate of Constellation Insurance Holdings, Inc., to reinsure approximately $10 billion of account values of PDI traditional variable annuity contracts with guaranteed living benefits. This block represents approximately 10% of the Company’s remaining legacy in force traditional variable annuity block by account value. The Company ceded 100% of separate account liabilities under modified coinsurance and 100% of general account liabilities under coinsurance of its PDI traditional variable annuity contracts. The general account liabilities associated with PDI's guaranteed living and death benefits and the corresponding reinsurance of those liabilities are accounted for as market risk benefits. As a result of the transaction, the Company recognized a $277 million deferred reinsurance gain that will be amortized into income over the estimated remaining life of the reinsured policies.

FLIAC

Effective December 1, 2021, the Company entered into a reinsurance agreement with FLIAC under which the Company assumed all of its indexed variable annuities. The reinsurance of the indexed variable annuities transfers all significant risks, including mortality risk, embedded in the reinsured contracts to the Company. As a result of the agreement, Reinsurance recoverables includes the assumed modified coinsurance arrangement, which reflects the value of the invested assets retained by FLIAC and the associated asset returns. The Company also assumed all of FLIAC’s fixed indexed annuities and fixed annuities with a guaranteed lifetime withdrawal income feature which are accounted for under deposit accounting. The reinsurance agreement offers the policyholders the opportunity to novate their contracts from FLIAC to the Company and any such novated contracts shall cease to be reinsured under this agreement. As of June 30, 2023, the total account value of contracts novated from FLIAC to the Company were $5.2 billion for indexed variable annuities contracts and $2.0 billion for fixed annuities and fixed indexed annuities contracts, which is approximately 78% of the total reinsured block.

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 Reinsurance Ltd. ("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 June 30, 2023, $2.5 billion of HDI v.3.0 account values are reinsured to Union Hamilton.