Reinsurance

3 Months Ended

Mar. 31, 2020

REINSURANCE

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its living benefit guarantees and variable annuity base contracts. Effective April 1, 2016, the Company recaptured the risks related to its variable annuity living benefit guarantees that were previously reinsured to affiliates. In addition, the Company reinsured variable annuity base contracts, along with the living benefit guarantees, from Pruco Life, excluding the PLNJ business which was reinsured to Prudential Insurance. This reinsurance covers new and in force business and excludes business reinsured externally.

Effective December 31, 2015, the Company surrendered its New York license and reinsured the majority of its New York business, both the living benefit guarantees and base contracts, to Prudential Insurance. 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.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. 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 Statements of Financial Position as of March 31, 2020 and December 31, 2019 were as follows:



	March 31, 2020			December 31, 2019
	(in thousands)
Reinsurance recoverables(1)	$	944,229		$	621,510
Deferred policy acquisition costs	3,420,946			3,725,719
Deferred sales inducements	371,872			437,594
Value of business acquired	(2,106		)	(2,275		)
Other assets(2)	59,559			65,819
Policyholders’ account balances	3,328,104			3,253,474
Future policy benefits	18,800,396			8,328,777
Reinsurance payables(3)	285,038			235,318
Other liabilities(4)	383,016			337,909


(1)	Includes $0.1 million and $0.2 million of unaffiliated activity as of March 31, 2020 and December 31, 2019, respectively.


(2)	Includes $(7.9) million and $(3.9) million of unaffiliated activity as of March 31, 2020 and December 31, 2019, respectively.


(3)	Includes $0.1 million of unaffiliated activity at both March 31, 2020 and December 31, 2019.


(4)	Includes $115.4 million and $60.4 million of unaffiliated activity as of March 31, 2020 and December 31, 2019, respectively.

The reinsurance recoverables by counterparty are broken out below:



	March 31, 2020		December 31, 2019
	(in thousands)
Prudential Insurance	$	669,533	$	387,355
Pruco Life	274,625		233,933
Unaffiliated	71		222
Total reinsurance recoverables	$	944,229	$	621,510

Reinsurance amounts, included in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, were as follows:



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Premiums:
Direct	$	6,498		$	8,054
Assumed	10,427			9,095
Ceded	(346		)	116
Net premiums	16,579			17,265
Policy charges and fee income:
Direct	106,254			121,611
Assumed	398,661			395,088
Ceded(1)	(8,046		)	(8,765		)
Net policy charges and fee income	496,869			507,934
Asset administration fees and other income:
Direct	69,873			38,745
Assumed	77,239			72,695
Ceded	(1,979		)	(2,052		)
Net asset administration fees and other income	145,133			109,388
Realized investment gains (losses), net:
Direct	9,042,990			(834,208		)
Assumed	(10,060,454		)	(515,709		)
Ceded	259,773			7,698
Realized investment gains (losses), net	(757,691		)	(1,342,219		)
Policyholders' benefits (including change in reserves):
Direct	59,166			7,103
Assumed	188,524			2,357
Ceded(2)	(5,161		)	(1,510		)
Net policyholders' benefits (including change in reserves)	242,529			7,950
Interest credited to policyholders’ account balances:
Direct	45,839			6,010
Assumed	68,415			4,811
Ceded	(1,284		)	(394		)
Net interest credited to policyholders’ account balances	112,970			10,427
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	545,464			199,255


(1)	Includes $(0.3) million and $0.4 million of unaffiliated activity for the three months ended March 31, 2020 and 2019, respectively.

(2)

Includes $0.1 million and $0.0 million of unaffiliated activity for the three months ended March 31, 2020 and 2019, respectively.