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Business and Basis of Presentation

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BUSINESS AND BASIS OF PRESENTATION

Pruco Life Insurance Company (“Pruco Life”) is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential Insurance”), which in turn is a direct wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). Pruco Life is a stock life insurance company organized in 1971 under the laws of the State of Arizona. It is licensed to sell life insurance and annuities in the District of Columbia, Guam and in all states except New York, and sells such products primarily through affiliated and unaffiliated distributors.

Pruco Life has one wholly-owned insurance subsidiary, Pruco Life Insurance Company of New Jersey (“PLNJ”). PLNJ is a stock life insurance company organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in New Jersey and New York only. Pruco Life and its subsidiary are together referred to as the "Company", "we" or "our" and all financial information is shown on a consolidated basis.

Prudential Financial Sale of PALAC

Effective April 1, 2022, Prudential Financial completed the sale of Prudential Annuities Life Assurance Corporation (“PALAC”) to Fortitude Group Holdings, LLC (“Fortitude”). As such, PALAC is no longer an affiliate of Prudential Financial or the Company. Fortitude subsequently renamed the company Fortitude Life Insurance & Annuity Company (“FLIAC”).

Reinsurance Agreement with FLIAC

Effective December 1, 2021, the Company entered into a reinsurance agreement with FLIAC (previously named PALAC) under which the Company assumed all of its variable and fixed indexed annuities, and fixed annuities with a guaranteed lifetime withdrawal income feature from FLIAC. See Note 11 for additional information regarding this reinsurance arrangement.

Basis of Presentation

On January 1, 2023, the Company adopted ASU 2018-12, Financial Services— Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, which provided new authoritative guidance impacting the accounting and disclosure requirements for long-duration insurance and investment contracts issued by the Company. See “Adoption of ASU 2018-12” below for additional information regarding this adoption, including the impacts to the Company’s 2022 financial statements from implementing the new accounting standard as well as the transition impacts recorded as of January 1, 2021. See Note 2 for additional details regarding the key policy changes effected by this ASU and updated accounting policies resulting from the adoption of this ASU for all periods presented in the Unaudited Interim Consolidated Financial Statements.

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”). 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, 2022, and the Company's restated Consolidated Financial Statements for the year ended December 31, 2022 included as Exhibit 99.1 within the Company's Current Report on Form 8-K filed on July 14, 2023.

Adoption of ASU 2018-12

In August 2018, the FASB issued ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts which provides new authoritative guidance impacting the accounting and disclosure requirements for long-duration insurance and investment contracts issued by the Company. The Company adopted this guidance, effective January 1, 2023, using the modified retrospective transition method, where permitted, for changes to the liability for future policy benefits and deferred policy acquisition costs ("DAC") and related balances, and using the retrospective transition method, as required, for market risk benefits. The Company applied the guidance as of the transition date of January 1, 2021 and retrospectively adjusted prior period amounts shown in the 2023 financial statements to reflect the new guidance.

The following tables present amounts as previously reported in 2022, the effect upon those amounts from the adoption of the new guidance under ASU 2018-12, and the adjusted amounts that are reflected in the Unaudited Interim Consolidated Financial Statements included herein.

Unaudited Interim Consolidated Statements of Financial Position:


	December 31, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in thousands)
Deferred policy acquisition costs	$	6,616,097	$	314,328	$	6,930,425
Reinsurance recoverables	34,561,825		2,534,737		37,096,562
Deferred sales inducements	275,574		105,930		381,504
Income tax assets	1,873,740		(178,989)		1,694,751
Market risk benefit assets	0		1,393,237		1,393,237
Other assets	1,327,393		4,034		1,331,427
TOTAL ASSETS	$	189,299,841	$	4,173,277	$	193,473,118
Policyholders’ account balances	$	41,748,241	$	164,295	$	41,912,536
Future policy benefits	23,204,533		(2,375,500)		20,829,033
Market risk benefit liabilities	0		5,521,601		5,521,601

Other liabilities	3,407,156		190,217		3,597,373
Total liabilities	184,936,310		3,500,613		188,436,923


Retained earnings / (accumulated deficit)	(95,583)		(898,571)		(994,154)
Accumulated other comprehensive income (loss)	(1,581,300)		1,571,235		(10,065)
Total equity	4,363,531		672,664		5,036,195
TOTAL LIABILITIES AND EQUITY	$	189,299,841	$	4,173,277	$	193,473,118

Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss):


	Three Months Ended June 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in thousands)
REVENUES
Premiums	$	57,421	$	(3,097)	$	54,324
Policy charges and fee income	625,812		(227,057)		398,755
Other income (loss)	(312,016)		5,377		(306,639)




Realized investment gains (losses), net	714,709		(354,490)		360,219
Change in value of market risk benefits, net of related hedging gain (loss)	0		(717,469)		(717,469)
TOTAL REVENUES	1,349,844		(1,296,736)		53,108
BENEFITS AND EXPENSES
Policyholders’ benefits	158,106		(63,657)		94,449
Change in estimates of liability for future policy benefits	0		48,647		48,647
Interest credited to policyholders’ account balances	122,944		(14,026)		108,918
Amortization of deferred policy acquisition costs	276,173		(145,284)		130,889
General, administrative and other expenses	286,447		(680)		285,767
TOTAL BENEFITS AND EXPENSES	843,670		(175,000)		668,670
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	506,174		(1,121,736)		(615,562)
Income tax expense (benefit)	75,774		(219,480)		(143,706)
INCOME (LOSS) FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	430,400		(902,256)		(471,856)
NET INCOME (LOSS)	$	355,238	$	(902,256)	$	(547,018)
Other comprehensive income (loss), before tax:

Net unrealized investment gains (losses)	(897,661)		14,243		(883,418)
Interest rate remeasurement of future policy benefits	0		130,981		130,981
Gain (loss) from changes in non-performance risk on market risk benefits	0		887,534		887,534
Total	(903,861)		1,032,758		128,897
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(189,054)		216,859		27,805
Other comprehensive income (loss), net of taxes	(714,807)		815,899		101,092
Comprehensive income (loss)	$	(359,569)	$	(86,357)	$	(445,926)


	Six Months Ended June 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in thousands)
REVENUES
Premiums	$	131,666	$	(7,837)	$	123,829
Policy charges and fee income	817,374		(329,439)		487,935
Other income (loss)	(639,620)		5,898		(633,722)




Realized investment gains (losses), net	1,498,816		(785,316)		713,500
Change in value of market risk benefits, net of related hedging gain (loss)	0		(1,155,337)		(1,155,337)
TOTAL REVENUES	2,330,686		(2,272,031)		58,655
BENEFITS AND EXPENSES
Policyholders’ benefits	377,870		(98,012)		279,858
Change in estimates of liability for future policy benefits	0		45,800		45,800
Interest credited to policyholders’ account balances	286,470		(65,533)		220,937
Amortization of deferred policy acquisition costs	635,720		(379,756)		255,964
General, administrative and other expenses	554,144		(1,427)		552,717
TOTAL BENEFITS AND EXPENSES	1,854,204		(498,928)		1,355,276
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	476,482		(1,773,103)		(1,296,621)
Income tax expense (benefit)	71,073		(413,627)		(342,554)
INCOME (LOSS) FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURE	405,409		(1,359,476)		(954,067)
NET INCOME (LOSS)	$	330,251	$	(1,359,476)	$	(1,029,225)
Other comprehensive income (loss), before tax:

Net unrealized investment gains (losses)	(1,913,659)		95,718		(1,817,941)
Interest rate remeasurement of future policy benefits	0		249,694		249,694
Gain (loss) from changes in non-performance risk on market risk benefits	0		1,789,586		1,789,586
Total	(1,921,529)		2,134,998		213,469
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(402,512)		448,330		45,818
Other comprehensive income (loss), net of taxes	(1,519,017)		1,686,668		167,651
Comprehensive income (loss)	$	(1,188,766)	$	327,192	$	(861,574)

Unaudited Interim Consolidated Statements of Cash Flows:


	Six Months Ended June 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	330,251	$	(1,359,476)	$	(1,029,225)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income	(104,864)		155,405		50,541
Interest credited to policyholders’ account balances	286,470		(65,533)		220,937
Realized investment (gains) losses, net	(1,498,816)		785,316		(713,500)
Change in value of market risk benefits, net of related hedging (gains) losses	0		1,155,337		1,155,337
Change in:
Future policy benefits and other insurance liabilities	1,476,307		1,179,949		2,656,256
Reinsurance recoverables	(651,569)		(1,025,881)		(1,677,450)
Deferred policy acquisition costs	147,096		(379,988)		(232,892)
Income taxes	(90,806)		(413,617)		(504,423)

Other, net(1)	2,025,636		(31,512)		1,994,124
Cash flows from (used in) operating activities	$	783,018	$	0	$	783,018

(1) Prior period has been reclassified to conform to the current period presentation.

The following tables detail the January 1, 2021 transition adjustments by providing a rollforward of the ending reported balances as of December 31, 2020 to the opening balances as of January 1, 2021 for retained earnings, accumulated other comprehensive income (“AOCI”) and the impacted insurance-related balances.


	January 1, 2021
	Retained Earnings
	(in thousands)
Balance after-tax, prior to transition	$	1,772,398

Reclassification of market risk benefits non-performance risk to accumulated other comprehensive income(1)	(722,837)
Updates to certain universal life contract liabilities(2)	(116,120)
Other(3)	72,950
Total pre-tax adjustments	(766,007)
Tax impacts	160,861
Balance after-tax, after transition	$	1,167,252

(1) Reflects the cumulative impact of changes in the fair value of market risk benefits (“MRB”) non-performance risk (“NPR”) from the date of contract issuance to January 1, 2021. These amounts were previously recorded in retained earnings but are now reflected in AOCI under the new guidance.

(2) Reflects the impact on additional insurance reserves ("AIR") and other related balances primarily related to the no-lapse guarantee features on certain universal life contracts. For additional information, see Note 2.

(3) Primarily reflects the reassessment of deferred reinsurance gains ("DRG") and losses ("DRL").


	January 1, 2021
	Accumulated Other Comprehensive Income
	(in thousands)
Balance after-tax, prior to transition	$	546,128
Interest rate remeasurement of future policy benefits	(196,526)
Reclassification of market risk benefits non-performance risk to accumulated other comprehensive income(1)	722,837
Unwinding amounts related to unrealized investment gains and losses(2)	(102,042)
Change in operating joint ventures	(753)
Total pre-tax adjustments	423,516
Tax impacts	(89,096)
Balance after-tax, after transition	$	880,548

(1) Reflects the cumulative impact of changes in NPR on the fair value of market risk benefits from the date of contract issuance to January 1, 2021. These amounts were previously recorded in retained earnings but are now reflected in AOCI under the new guidance.

(2) Primarily reflects amounts related to DAC and other balances as unrealized investment gains or losses no longer impact the amortization pattern of such balances under the new guidance. Also includes the impacts from updates to reserves and other related balances for certain universal life contracts. For additional information, see Note 2.


	January 1, 2021
	Deferred Policy Acquisition Costs
	Term Life		Variable/Universal Life		Total
	(in thousands)
Balance prior to transition	$	462,098	$	1,971,838	$	2,433,936
Unwinding amounts related to unrealized investment gains and losses	0		74,702		74,702
Other(1)	1		(15,557)		(15,556)
Balance after transition	$	462,099	$	2,030,983	$	2,493,082

(1) Represents miscellaneous model refinements.


	January 1, 2021
	Deferred Reinsurance Losses(1)
	Variable Annuities		Term Life		Variable/Universal Life		Total
	(in thousands)
Balance prior to transition	$	118,579	$	87,932	$	27,167	$	233,678

Unwinding amounts related to unrealized investment gains and losses	14,804		0		0		14,804
Effect of change in reserve basis to market risk benefits	141,032		0		0		141,032
Effect of change in SOP 03-1 reserve basis	0		0		(27,167)		(27,167)
Balance after transition	$	274,415	$	87,932	$	0	$	362,347

(1) Deferred reinsurance losses are included in “Other assets”.


	January 1, 2021
	Deferred Reinsurance Gains(1)
	Variable/Universal Life
	(in thousands)
Balance prior to transition	$	134,213

Effect of change in SOP 03-1 reserve basis	40,046
Balance after transition	$	174,259

(1) Deferred reinsurance gains are included in “Other liabilities”.


	January 1, 2021
	Benefit Reserves(1)
	Term Life		Life Insurance - Taiwan		Other(2)		Total
	(in thousands)


Balance prior to transition	$	6,674,490	$	1,592,329	$	219,744	$	8,486,563


Changes in cash flow assumptions and other activity	(259)		43,233		(7,283)		35,691



Balance after transition, at original discount rate	6,674,231		1,635,562		212,461		8,522,254

Cumulative changes in discount rate assumptions	2,432,010		3,316,991		27,818		5,776,819
Balance after transition, at current discount rate	9,106,241		4,952,553		240,279		14,299,073


Less: Reinsurance recoverable	8,536,200		4,952,553		239,874		13,728,627
Balance after transition, net of reinsurance recoverable	$	570,041	$	0	$	405	$	570,446

(1) Benefit reserves, excluding amounts for reinsurance recoverable, are included in "Future policy benefits". For additional information on the liability for future policy benefits, see Note 8.

(2) Other includes fixed annuities and retirement products.


	January 1, 2021
	Deferred Profit Liability(1)
	Life Insurance - Taiwan		Other(2)		Total
	(in thousands)
Balance prior to transition	$	49,127	$	1,689	$	50,816

Changes in benefit reserves	(6,671)		8,521		1,850
Balance after transition	42,456		10,210		52,666
Less: Reinsurance recoverable	42,456		10,210		52,666
Balance after transition, net of reinsurance recoverable	$	0	$	0	$	0

(1) Deferred profit liability ("DPL"), excluding amounts for reinsurance recoverable, is included in "Future policy benefits". For additional information regarding the liability for future policy benefits, see Note 8.

(2) Other includes fixed annuities and retirement products.


	January 1, 2021
	Additional Insurance Reserves(1)
	Variable/Universal Life		Variable Annuities		Total
	(in thousands)



Balance prior to transition	$	9,363,585	$	588,311	$	9,951,896
Unwinding amounts related to unrealized investment gains and losses	(1,426,811)		(53,889)		(1,480,700)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses	7,936,774		534,422		8,471,196

Reclassification of future policy benefits additional insurance reserves to market risk benefits	0		(534,422)		(534,422)

Updates to certain universal life contract liabilities(2)	1,771,341		0		1,771,341


Balance after transition, excluding amounts related to unrealized investment gains and losses	9,708,115		0		9,708,115
Amounts related to unrealized investment gains and losses after transition	1,169,972		0		1,169,972
Balance after transition	10,878,087		0		10,878,087
Less: Reinsurance recoverable	10,685,150		0		10,685,150
Balance after transition, net of reinsurance recoverable	$	192,937	$	0	$	192,937

(1) AIR, excluding amounts for reinsurance recoverable, are included in "Future policy benefits". For additional information regarding the liability for future policy benefits, see Note 8.

(2) For additional information regarding updates to reserves and other related balances for certain universal life contracts, see Note 2.


	January 1, 2021
	Unearned Revenue Reserves(1)

	Variable/Universal Life
	(in thousands)
Balance prior to transition	$	1,377,669
Unwinding amounts related to unrealized investment gains and losses and other activity	367,599
Balance after transition	1,745,268
Less: Reinsurance recoverable	751,517
Balance after transition, net of reinsurance recoverable	$	993,751

(1) Unearned revenue reserves ("URR") are included in "Policyholders' account balances". For additional information regarding the liability for policyholders' account balances, see Note 9.


	January 1, 2021
	Market Risk Benefits(1)
	Variable Annuities
	(in thousands)
Liability for guaranteed benefits recorded at fair value, prior to transition	$	13,227,814
Additional insurance reserves to be reclassed to market risk benefits, prior to transition, excluding amounts related to unrealized investment gains and losses	534,422
Total liability prior to transition	13,762,236

Change in reserve basis to market risk benefits framework	(184,693)
Market risk benefits after transition, at current non-performance risk value	13,577,543
Less: Reinsured market risk benefits	13,589,575
Market risk benefits after transition, net of reinsurance	$	(12,032)

Market risk benefits after transition, at contract inception non-performance risk value	14,300,380
Cumulative change in non-performance risk	722,837
Market risk benefits after transition, at current non-performance risk value	$	13,577,543

(1) For additional information regarding market risk benefits, see Note 10.


	January 1, 2021
	Cost of Reinsurance(1)
	Variable/Universal Life
	(in thousands)
Balance prior to transition	$	602,294
Unwinding amounts related to unrealized investment gains and losses	(246,899)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses	355,395
Impact from updates to certain universal life contract liabilities(2)	81,920

Balance after transition, excluding amounts related to unrealized investment gains and losses	437,315
Amounts related to unrealized investment gains and losses after transition	191,098
Balance after transition	$	628,413

(1) Cost of reinsurance is included in "Other liabilities".

(2) For additional information regarding updates to reserves and other related balances for certain universal life contracts, see Note 2.

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 future policy benefits; policyholders' account balances and reinsurance related to the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products; market risk benefits; the valuation of investments including derivatives, the measurement of allowance for credit losses, and the recognition of other-than-temporary impairments; reinsurance recoverables; any provision for 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.

Reclassifications

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