Related Party Transactions

9 Months Ended

Sep. 30, 2023

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential Insurance and other affiliates. Although we seek to ensure that these transactions and relationships are fair and reasonable, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

Expense Charges and Allocations

The majority of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates. These expenses can be grouped into general and administrative expenses and agency distribution expenses.

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses include allocations of stock compensation expenses related to a stock-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was $0.2 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $0.7 million and $0.8 million for the nine months ended September 30, 2023 and 2022, respectively. The expense charged to the Company for the deferred compensation program was $1.0 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively, and $4.4 million and $3.9 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was $3 million and $4 million for the three months ended September 30, 2023 and 2022, respectively, and $10 million and $14 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was $4 million for both the three months ended September 30, 2023 and 2022, and $11 million for both the nine months ended September 30, 2023 and 2022.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company’s expense for its share of the voluntary savings plan was $2 million and $3 million for the three months ended September 30, 2023 and 2022, respectively, and $6 million and $7 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company is charged distribution expenses from Prudential’s proprietary nationwide sales organization, “Prudential Advisors” through a transfer pricing agreement, which is intended to reflect a market-based pricing arrangement. Prudential Advisors distributes Prudential life insurance, annuities, and investment products with proprietary and non-proprietary product options.

The Company pays commissions and certain other fees to Prudential Annuities Distributors, Inc. (“PAD”) in consideration for PAD’s marketing and underwriting of the Company’s annuity products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s annuity products. Commissions and fees paid by the Company to PAD were $153 million and $139 million for the three months ended September 30, 2023 and 2022, respectively, and $440 million and $471 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was $31 million and $24 million for the three months ended September 30, 2023 and 2022, respectively, and $104 million and $58 million for the nine months ended September 30, 2023 and 2022, respectively.

Corporate-Owned Life Insurance

The Company has sold five Corporate-Owned Life Insurance (“COLI”) policies to Prudential Insurance, and one to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was $3,857 million and $4,512 million at September 30, 2023 and December 31, 2022, respectively. Fees related to these COLI policies were $13 million for both the three months ended September 30, 2023 and 2022, and $38 million and $40 million for the nine months ended September 30, 2023 and 2022, respectively. The Company reinsures the risk associated with these COLI policies to an affiliate reinsurer as part of a broader program related to variable insurance policies.

In May 2023, the Company funded a policy loan from the Prudential Financial COLI policy noted above in an amount of $900 million to an affiliated irrevocable trust, commonly referred to as a “rabbi trust”, which Prudential Financial created to support certain non-qualified retirement plans. The outstanding balance of the policy loan with the rabbi trust was $898 million as of September 30, 2023. Interest income related to the policy loan was $10 million and $15 million for the three months and nine months ended September 30, 2023, respectively.

Affiliated Investment Management Expenses

In accordance with an agreement with PGIM, Inc. ("PGIM"), the Company pays investment management expenses to PGIM who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were $14 million and $11 million for the three months ended September 30, 2023 and 2022, respectively, and $39 million and $29 million for the nine months ended September 30, 2023 and 2022, respectively. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

Derivative Trades

In its ordinary course of business, the Company enters into OTC derivative contracts with an affiliate, PGF. For these OTC derivative contracts, PGF has a substantially equal and offsetting position with an external counterparty. See Note 4 for additional information.

The interest income to the Company from PGF related to affiliated cash collateral was $132 million for the three months ended September 30, 2023, and $363 million for the nine months ended September 30, 2023.

Joint Ventures

The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. "Other invested assets" includes $710 million and $606 million of investments in joint ventures as of September 30, 2023 and December 31, 2022, respectively. "Net investment income" related to these ventures includes gains(losses) of $6 million and $2 million for the three months ended September 30, 2023 and 2022, respectively, and $2 million and $21 million for the nine months ended September 30, 2023 and 2022, respectively.

Affiliated Asset Administration Fee Income

The Company has a revenue sharing agreement with AST Investment Services, Inc. ("ASTISI") and PGIM Investments LLC ("PGIM Investments") whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust. Income received from ASTISI and PGIM Investments related to this agreement was $69 million and $74 million for the three months ended September 30, 2023 and 2022, respectively, and $208 million and $237 million for the nine months ended September 30, 2023 and 2022, respectively. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company has a revenue sharing agreement with PGIM Investments, whereby the Company receives fee income based on policyholders' separate account balances invested in The Prudential Series Fund. Income received from PGIM Investments related to this agreement was $10 million and $9 million for the three months ended September 30, 2023 and 2022, respectively, and $28 million for both the nine months ended September 30, 2023 and 2022. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

Affiliated Notes Receivable

Affiliated notes receivable included in “Receivables from parent and affiliates” at September 30, 2023 and December 31, 2022 were as follows:

	Maturity Dates			Interest Rates				September 30, 2023		December 31, 2022
								(in thousands)
U.S. dollar fixed rate notes	2025	-	2027	0.00%	-	14.85	%	$	144,698	$	148,076
Total notes receivable - affiliated(1)								$	144,698	$	148,076

(1)All notes receivable may be called for prepayment prior to the respective maturity dates under specified circumstances.

The affiliated notes receivable shown above are classified as available-for-sale securities and other trading assets carried at fair value. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Insurance for loans due from affiliates.

Accrued interest receivable related to these loans was $0.3 million and $1.0 million at September 30, 2023 and December 31, 2022, respectively, and is included in “Other assets”. Revenues related to these loans were $0 million and $1 million for the three months ended September 30, 2023 and 2022, respectively, and $2 million and $3 million for the nine months ended September 30, 2023 and 2022, respectively, and are included in “Other income (loss)”.

Affiliated Commercial Mortgage Loan

The affiliated commercial mortgage loan included in "Commercial mortgage and other loans" at September 30, 2023 and December 31, 2022 were as follows:

	Maturity Date	Interest Rate		September 30, 2023		December 31, 2022
				(in thousands)
Affiliated Commercial Mortgage Loan	2025	9.83	%	$	71,335	$	72,225

The commercial mortgage loan shown above is carried at unpaid principal balance, net of unamortized deferred loan origination fees and expenses, and net of an allowance for losses. The Company reviews the performance and credit quality of the commercial mortgage loan on an on-going basis.

Accrued interest receivable related to the loan was $0.5 million for both the September 30, 2023 and December 31, 2022, and is included in "Accrued investment income". Revenues were $2 million and $1 million for the three months ended September 30, 2023 and 2022, respectively, and $5 million and $3 million for the nine months ended September 30, 2023 and 2022, respectively, and are included in "Net investment income".

Affiliated Asset Transfers

The Company participates in affiliated asset trades with parent and sister companies. Book and market value differences for trades with a parent and sister are recognized within "Additional paid-in capital" (“APIC”) and "Realized investment gains (losses), net", respectively. The table below shows affiliated asset trades for the nine months ended September 30, 2023 and for the year ended December 31, 2022.

Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)
				(in thousands)
PALAC	January 2022	Purchase	Fixed Maturities	$	4,432	$	4,432	$	0	$	0
PALAC	January 2022	Purchase	Derivatives	$	404	$	404	$	0	$	0
PALAC	February 2022	Purchase	Fixed Maturities	$	128,909	$	128,909	$	0	$	0
PAR U	April 2022	Purchase	Fixed Maturities	$	48,970	$	48,970	$	0	$	0
Prudential Insurance	May 2022	Purchase	Fixed Maturities	$	233,426	$	241,128	$	6,085	$	0
Prudential Insurance	June 2022	Purchase	Fixed Maturities	$	88,754	$	81,216	$	(5,955)	$	0
Prudential Insurance	June 2022	Transfer In	Fixed Maturities	$	52,089	$	45,031	$	(5,577)	$	0
Prudential Insurance	June 2022	Transfer Out	Fixed Maturities	$	48,786	$	58,984	$	(8,057)	$	0
PAR U	June 2022	Purchase	Commercial Mortgage and Other Loans	$	6,492	$	6,492	$	0	$	0
PAR U	June 2022	Sale	Commercial Mortgage and Other Loans	$	14,853	$	15,725	$	0	$	(872)
GUL Re	June 2022	Purchase	Commercial Mortgage and Other Loans	$	13,551	$	13,551	$	0	$	0
GUL Re	June 2022	Sale	Commercial Mortgage and Other Loans	$	8,692	$	9,033	$	0	$	(341)
PURC	June 2022	Purchase	Commercial Mortgage and Other Loans	$	4,403	$	4,403	$	0	$	0
Prudential Insurance	July 2022	Transfer In	Fixed Maturities	$	6,319	$	7,230	$	719	$	0
PAR U	July 2022	Purchase	Fixed Maturities	$	16,284	$	16,284	$	0	$	0
Prudential Insurance	August 2022	Purchase	Fixed Maturities	$	155,823	$	139,712	$	(12,728)	$	0
Vantage Casualty Insurance Co	September 2022	Purchase	Fixed Maturities	$	3,497	$	3,497	$	0	$	0
WH Warehouse Ltd	October 2022	Sale	Fixed Maturities	$	26,536	$	26,388	$	0	$	148
PAR U	November 2022	Purchase	Fixed Maturities	$	91,051	$	91,051	$	0	$	0
Prudential Insurance	December 2022	Purchase	Fixed Maturities	$	67,477	$	71,369	$	3,075	$	0
Prudential Insurance	January 2023	Purchase	Fixed Maturities	$	48,329	$	50,372	$	1,614	$	0
Prudential Insurance	March 2023	Purchase	Fixed Maturities	$	7,175	$	7,500	$	256	$	0
PURC	April 2023	Purchase	Fixed Maturities	$	102,804	$	102,804	$	0	$	0
Term Re	June 2023	Purchase	Fixed Maturities	$	115,573	$	115,573	$	0	$	0
Prudential Insurance	June 2023	Purchase	Fixed Maturities	$	4,298	$	4,443	$	114	$	0
Prudential Insurance	June 2023	Purchase	Fixed Maturities	$	4,394	$	4,494	$	80	$	0
Prudential Insurance	June 2023	Purchase	Fixed Maturities	$	19,453	$	19,203	$	(198)	$	0
Prudential Insurance	June 2023	Purchase	Fixed Maturities	$	14,452	$	15,086	$	502	$	0
Prudential Insurance	September 2023	Purchase	Fixed Maturities	$	15,880	$	15,801	$	(62)	$	0

Debt Agreements

The Company is authorized to borrow funds up to $7 billion from affiliates to meet its capital and other funding needs. The following table provides the breakout of the Company's short-term and long-term debt to affiliates as of September 30, 2023 and December 31, 2022:

Affiliate	Date Issued	Amount of Notes - September 30, 2023		Amount of Notes - December 31, 2022		Interest Rate			Date of Maturity
		(in thousands)
Prudential Insurance	8/13/2021	$	94,318	$	96,666		4.39	%		12/15/2023
Prudential Insurance	8/13/2021	28,295		29,000			4.39	%		12/15/2023
Prudential Insurance	8/13/2021	95,634		97,665			3.95	%		6/20/2024
Prudential Insurance	8/13/2021	38,253		39,066			3.95	%		6/20/2024
Prudential Insurance	8/13/2021	47,817		48,832			3.95	%		6/20/2024
Prudential Funding LLC	12/28/2022	0		138			4.73	%		1/31/2023
Prudential Funding LLC	12/29/2022	0		62			4.73	%		1/31/2023
Prudential Funding LLC	12/30/2022	0		384			4.73	%		1/31/2023
Total Loans Payable to Affiliates		$	304,317	$	311,813

The total interest expense to the Company related to affiliated loans and cash collateral with PGF was $5 million and $(32) million for the three months ended September 30, 2023 and 2022, respectively, and $10 million and $(37) million for the nine months ended September 30, 2023 and 2022, respectively.

Contributed Capital and Dividends

In February 2023, the Company received a capital contribution in the amount of $405 million from Prudential Insurance. In March, June and September 2022, the Company received capital contributions in the amount of $8 million, $3 million and $7 million, respectively, from Prudential Insurance.

In June and September 2023, there was $300 million and $650 million return of capital, respectively, to Prudential Insurance.

Through September 2023 and December 2022, the Company did not pay any dividends to Prudential Insurance.

Reinsurance with Affiliates

As discussed in Note 11, the Company participates in reinsurance transactions with certain affiliates.