CLOSED BLOCK

On December 18, 2001, the date of demutualization, Prudential Insurance established a closed block for certain in force participating insurance policies and annuity products, along with corresponding assets used for the payment of benefits and policyholders’ dividends on these products, (collectively the “Closed Block”), and ceased offering these participating products. The recorded assets and liabilities were allocated to the Closed Block at their historical carrying amounts. The Closed Block forms the principal component of the Closed Block division. For more information on the Closed Block, see Note 12 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2017.

As of June 30, 2018 and December 31, 2017, the Company recognized a policyholder dividend obligation of $2,685 million and $1,790 million, respectively, to Closed Block policyholders for the excess of actual cumulative earnings over expected cumulative earnings. Additionally, accumulated net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block have been reflected as a policyholder dividend obligation of $1,170 million and $3,656 million at June 30, 2018 and December 31, 2017, respectively, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.

Closed Block liabilities and assets designated to the Closed Block, as well as maximum future earnings to be recognized from these liabilities and assets, are as follows:



	June 30, 2018			December 31, 2017
	(in millions)
Closed Block liabilities
Future policy benefits	$	48,518		$	48,870
Policyholders’ dividends payable	835			829
Policyholders’ dividend obligation	3,855			5,446
Policyholders’ account balances	5,097			5,146
Other Closed Block liabilities	4,712			5,070
Total Closed Block liabilities	63,017			65,361
Closed Block assets
Fixed maturities, available-for-sale, at fair value	39,170			41,043
Fixed maturities, trading, at fair value(1)	190			339
Equity securities, at fair value(1)	2,149			2,340
Commercial mortgage and other loans	8,898			9,017
Policy loans	4,469			4,543
Other invested assets(1)	3,335			3,159
Short-term investments	364			632
Total investments	58,575			61,073
Cash and cash equivalents	803			789
Accrued investment income	469			474
Other Closed Block assets	424			249
Total Closed Block assets	60,271			62,585
Excess of reported Closed Block liabilities over Closed Block assets	2,746			2,776
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses)	1,132			3,627
Allocated to policyholder dividend obligation	(1,170		)	(3,656		)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities	$	2,708		$	2,747

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(1)	Prior period amounts have been reclassified to conform to current period presentation. See Note 2 for details.

Information regarding the policyholder dividend obligation is as follows:



	Six Months Ended June 30, 2018
	(in millions)
Balance, December 31, 2017	$	5,446
Cumulative-effect adjustment from the adoption of ASU 2016-01(1)	157
Impact from earnings allocable to policyholder dividend obligation	(75		)
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation	(1,673		)
Balance, June 30, 2018	$	3,855

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(1)	See Note 2 for details.

Closed Block revenues and benefits and expenses are as follows for the periods indicated:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in millions)
Revenues
Premiums	$	602		$	670		$	1,152		$	1,275
Net investment income	593			676			1,190			1,326
Realized investment gains (losses), net	110			81			108			354
Other income (loss)	85			26			107			60
Total Closed Block revenues	1,390			1,453			2,557			3,015
Benefits and Expenses
Policyholders’ benefits	778			855			1,506			1,644
Interest credited to policyholders’ account balances	33			32			66			65
Dividends to policyholders	508			473			816			1,066
General and administrative expenses	92			97			184			194
Total Closed Block benefits and expenses	1,411			1,457			2,572			2,969
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes	(21		)	(4		)	(15		)	46
Income tax expense (benefit)	(36		)	(17		)	(45		)	20
Closed Block revenues, net of Closed Block benefits and expenses and income taxes	$	15		$	13		$	30		$	26