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

Many 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 option program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock option program was less than $1 million for both the three months ended September 30, 2015 and 2014 and $1 million for both the nine months ended September 30, 2015 and 2014. The expense charged to the Company for the deferred compensation program was $1 million and $2 million for the three months ended September 30, 2015 and 2014, respectively, and $5 million and $6 million for the nine months ended September 30, 2015 and 2014, respectively.

The Company is charged for its share of employee benefits expenses. These expenses include costs for funded and non-funded contributory and non-contributory defined benefit pension plans. Some of these benefits are based on final group earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during career. The Company’s share of net expense for the pension plans was $5 million for both the three months ended September 30, 2015 and 2014; and $16 million and $14 million for the nine months ended September 30, 2015 and 2014, respectively.

Prudential Insurance sponsors voluntary savings plans for its employee’s 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 for both the three months ended September 30, 2015 and 2014 and $6 million and $7 million for the nine months ended September 30, 2015 and 2014, respectively.

The Company is charged distribution expenses from Prudential Insurance’s agency network for both its domestic life and annuity products through a transfer pricing agreement, which is intended to reflect a market based pricing arrangement.

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 products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s products. Commissions and fees paid by the Company to PAD were $177 million and $222 million for the three months ended September 30, 2015 and 2014, respectively, and $592 million and $646 million for the nine months ended September 30, 2015 and 2014, 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 $2,837 million at September 30, 2015 and $2,812 million at December 31, 2014. Fees related to these COLI policies were $13 million and $10 million for the three months ended September 30, 2015 and 2014, respectively, and $34 million and $31 million for the nine months ended September 30, 2015 and 2014, respectively. The Company retains the majority of the mortality risk associated with these COLI policies. In October 2013, the Company increased the maximum amount of mortality risk on any life to $3.5 million for certain COLI policies.

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.

Reinsurance with Affiliates

The Company participates in reinsurance with its affiliates Prudential Life Insurance Company of Taiwan Inc. (“Prudential of Taiwan”), Prudential Arizona Reinsurance Captive Company (“PARCC”), UPARC, Pruco Re, Prudential Arizona Reinsurance Term Company (“PAR Term”), Prudential Arizona Reinsurance Universal Company (“PAR U”), Prudential Universal Reinsurance Company ("PURC"), and Prudential Term Reinsurance Company (“Term Re”), and its parent company, Prudential Insurance, in order to provide risk diversification and additional capacity for future growth, limit the maximum net loss potential, manage the statutory capital for its individual life business, facilitate its capital market hedging program and align accounting methodology for the assets and liabilities of living benefit riders contained in annuities contracts. 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.

On January 2, 2013, the Company began to assume 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. Collectively, reinsurance of this GUL business does not have a material impact on the equity of the Company.

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 premiums ceded for interest-sensitive life 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.

Realized investment gains and losses include the impact of reinsurance agreements that are accounted for as embedded derivatives. Changes in the fair value of the embedded derivatives are recognized through “Realized investment gains (losses), net”. The Company has entered into reinsurance agreements to transfer the risk related to certain living benefit options on variable annuities to Pruco Re. The Company has also entered into an agreement with UPARC to reinsure a portion of the no-lapse guarantee provision on certain universal life products. These reinsurance agreements are derivatives and have been accounted for in the same manner as an embedded derivative. See Note 5 for additional information related to the accounting for embedded derivatives.

Reinsurance amounts included in the Company’s Unaudited Interim Consolidated Statements of Financial Position as of September 30, 2015 and December 31, 2014 were as follows:



	September 30, 2015			December 31, 2014
	(in thousands)
Reinsurance recoverable	$	22,390,247		$	20,594,371
Policy loans	(75,329		)	(69,501		)
Deferred policy acquisition costs	(2,007,717		)	(1,709,625		)
Other assets	36,478			39,458
Policyholders’ account balances	4,958,236			4,827,071
Future policy benefits and other policyholder liabilities	2,355,624			2,193,735
Other liabilities (reinsurance payables)	436,170			433,627

The reinsurance recoverables by counterparty is broken out below.



	September 30, 2015		December 31, 2014
	(in thousands)
UPARC	$	351,142	$	407,209
PAR U	9,622,194		9,147,870
PURC	2,007,832		1,564,913
PARCC	2,522,752		2,499,567
PAR Term	1,174,462		1,001,181
Term Re	238,601		97,099
Prudential Insurance	220,580		188,466
Pruco Re	5,055,044		4,522,665
Prudential of Taiwan	1,151,669		1,157,881
Unaffiliated	45,971		7,520
Total Reinsurance Recoverables	$	22,390,247	$	20,594,371

Reinsurance amounts, excluding investment gains (losses) on affiliated asset transfers, included in the Company’s Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014 were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Premiums:
Direct	$	379,576		$	351,605		$	1,129,131		$	1,043,664
Assumed	—			—			—			—
Ceded	(359,255		)	(339,985		)	(1,069,691		)	(998,792		)
Net Premiums	20,321			11,620			59,440			44,872
Policy charges and fee income:
Direct	761,722			673,238			2,188,413			2,026,012
Assumed	179,717			98,177			336,672			279,553
Ceded	(394,035		)	(269,420		)	(906,883		)	(766,749		)
Net policy charges and fee income	547,404			501,995			1,618,202			1,538,816
Net investment income:
Direct	102,847			101,603			309,201			304,601
Assumed	354			325			1,047			1,003
Ceded	(986		)	(974		)	(3,127		)	(2,953		)
Net investment income	102,215			100,954			307,121			302,651
Net other income:
Direct	8,138			11,644			33,289			38,217
Assumed & Ceded	3,576			3,747			10,655			3,748
Net other income	11,714			15,391			43,944			41,965
Interest credited to policyholders’ account balances:
Direct	182,788			114,506			398,983			320,629
Assumed	31,541			26,004			93,155			86,236
Ceded	(57,843		)	(50,384		)	(169,932		)	(153,160		)
Net interest credited to policyholders’ account balances	156,486			90,126			322,206			253,705
Policyholders’ benefits (including change in reserves):
Direct	538,619			450,192			1,491,043			1,414,187
Assumed	208,099			175,517			431,184			495,595
Ceded	(634,270		)	(535,030		)	(1,694,112		)	(1,661,937		)
Net policyholders’ benefits (including change in reserves)	112,448			90,679			228,115			247,845
Net reinsurance expense allowances, net of capitalization and amortization	(64,380		)	(60,309		)	(151,463		)	(188,476		)
Realized investment gains (losses), net:
Direct	(2,149,496		)	(1,031,777		)	18,471			(2,630,358		)
Assumed	—			—			—			—
Ceded	2,146,512			993,819			(133,086		)	2,709,599
Realized investment gains (losses), net	$	(2,984	)	$	(37,958	)	$	(114,615	)	$	79,241

The gross and net amounts of life insurance face amount in force as of September 30, 2015 and 2014 were as follows:



	September 30, 2015			September 30, 2014
	(in thousands)
Direct gross life insurance face amount in force	$	753,935,518		$	695,841,721
Assumed gross life insurance face amount in force	43,795,607			44,761,141
Reinsurance ceded	(736,832,258		)	(681,742,655		)
Net life insurance face amount in force	$	60,898,867		$	58,860,207

UPARC

Through June 30, 2011, the Company, excluding its subsidiaries, reinsured its Universal Protector policies having no-lapse guarantees with UPARC, an affiliated company. UPARC reinsured an amount equal to 90% of the net amount at risk related to the first $1 million in face amount plus 100% of the net amount at risk related to the face amount in excess of $1 million as well as 100% of the risk of uncollectible policy charges and fees associated with the no-lapse guarantee provision of these policies.

Effective July 1, 2011, the agreement between the Company and UPARC to reinsure its Universal Protector policies having no-lapse guarantees was amended for policies with effective dates prior to January 1, 2011. Under the amended agreement, UPARC reinsures an amount equal to 27% of the net amount at risk related to the first $1 million in face amount plus 30% of the net amount at risk related to the face amount in excess of $1 million as well as 30% of the risk of uncollectible policy charges and fees associated with the no-lapse guarantee provision of these policies. During the first quarter of 2013, the agreement between the Company and UPARC was further amended to revise language relating to the consideration due to the Company.

Effective July 1, 2013 the agreement between the Company and UPARC to reinsure its Universal Protector policies having no-lapse guarantees was amended for policies with effective dates January 1, 2011 through December 31, 2012. Under the amended agreement, UPARC reinsures an amount equal to 27% of the net amount at risk related to the first $1 million in face amount plus 30% of the net amount at risk related to the face amount in excess of $1 million as well as 30% of the risk of uncollectible policy charges and fees associated with the no-lapse guarantee provision of these policies.

Effective January 1, 2014, the agreement between the Company and UPARC to reinsure its Universal Protector policies having no-lapse guarantees was amended for policies with effective dates on or after January 1, 2014. Under the amended agreement, UPARC will no longer reinsure Universal Protector policies having no-lapse guarantees.

Effective July 1, 2014, the agreement between the Company and UPARC to reinsure its Universal Protector policies having no-lapse guarantees was further amended for policies with effective dates January 1, 2013 through December 31, 2013. Under the amended agreement, UPARC reinsures an amount equal to 27% of the net amount at risk related to the first $1 million in face amount plus 30% of the net amount at risk related to the face amount in excess of $1 million as well as 30% of the risk of uncollectible policy charges and fees associated with the no-lapse guarantee provision of these policies.

PAR U

Effective July 1, 2011, the Company, excluding its subsidiaries, entered into an automatic coinsurance agreement with PAR U, an affiliated company, to reinsure an amount equal to 70% of all the risks associated with its Universal Protector policies having no- lapse guarantees as well as its Universal Plus policies, with effective dates prior to January 1, 2011. During the first quarter of 2013, the agreement between the Company, excluding its subsidiaries, and PAR U was amended to revise language relating to the consideration due to PAR U.

Effective July 1, 2012, the Company’s wholly-owned subsidiary, PLNJ, entered into an automatic coinsurance agreement with PAR U, an affiliated company, to reinsure an amount equal to 95% of all the risks associated with its universal life policies. During the fourth quarter of 2012, the agreement between PLNJ and PAR U was amended to revise language relating to the consideration due to PAR U.

On January 2, 2013, the Company began to assume 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. Collectively, reinsurance of the GUL business does not have a material impact on the equity of the Company.

Effective July 1, 2013, the agreement between the Company, excluding its subsidiaries, and PAR U was amended for policies with effective dates from January 1, 2011 through December 31, 2012. Under the amended agreement, PAR U reinsures an amount equal to 70% of all the risks associated with its Universal Protector policies having no lapse guarantees as well as its Universal Plus policies, with effective dates from January 1, 2011 through December 31, 2012 in addition to policies covered by the initial reinsurance agreement discussed above.

Effective October 1, 2013, the Company entered into an Assumption and Novation Agreement with PAR U and PURC, an affiliated company. Under this agreement, PAR U novates, assigns, and transfers to PURC all of its rights, title, interests, duties, obligations, and liabilities under the aforementioned amendment entered into on July 1, 2013. PURC will succeed PAR U and become the counterparty to the Company with respect to the novated business pursuant to the Novated Coinsurance Agreement (the “PURC Novated Coinsurance Agreement”). There is no financial impact to the Company as a result of this transaction.

PURC

The Company, excluding its subsidiaries, reinsures an amount equal to 70% of all the risks associated with its Universal Protector policies having no lapse guarantees as well as its Universal Plus policies, with effective dates from January 1, 2011 through December 31, 2012 with PURC pursuant to the PURC Novated Coinsurance Agreement (as defined in “PARU” above).

Effective January 1, 2014, the Company, excluding its subsidiaries, entered into an automatic coinsurance agreement with PURC to reinsure an amount equal to 95% of all the risks associated with its Universal Protector policies having no-lapse guarantees, as well as its Universal Plus policies, with effective dates on or after January 1, 2014.

Effective July 1, 2014, the agreement between the Company, excluding its subsidiaries, and PURC was amended to reinsure policies with effective dates from January 1, 2013 through December 31, 2013. Under the amended agreement, PURC reinsures an amount equal to 70% of all the risks associated with its Universal Protector policies having no lapse guarantees as well as its Universal Plus policies in addition to policies initially covered by the PURC Novated Coinsurance Agreement.

PARCC

The Company reinsures 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.

PAR Term

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.

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 an automatic coinsurance agreement with Term Re.

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured.

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.

Pruco Re

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its optional living benefit features available under certain of its annuity products. Starting from 2005, the Company has entered into various automatic coinsurance agreements with Pruco Re, an affiliated company, to reinsure its living benefit features sold on certain of its annuities.

Taiwan Branch Reinsurance Agreement

On January 31, 2001, the Company transferred all of its assets and liabilities associated with its Taiwan branch, including its Taiwan insurance book of business to Prudential of Taiwan, an affiliated company.

The mechanism used to transfer this block of business in Taiwan is referred to as a “full acquisition and assumption” transaction. Under this mechanism, the Company is jointly liable with Prudential of Taiwan for two years from the giving of notice to all obligees for all matured obligations and for two years after the maturity date of not-yet-matured obligations. Prudential of Taiwan is also contractually liable, under indemnification provisions of the transaction, for any liabilities that may be asserted against the Company.

The transfer of the insurance related assets and liabilities was accounted for as a long-duration coinsurance transaction under accounting principles generally accepted in the United States. Under this accounting treatment, the insurance related liabilities remain on the books of the Company and an offsetting reinsurance recoverable is established. These assets and liabilities are denominated in US dollars.

Affiliated Asset Transfers

From time to time, 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 as of September 30, 2015 and December 31, 2014.



Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		Additional Paid-in Capital, Net of Tax Increase/(Decrease)			Realized Investment Gain/(Loss), Net			Derivative Gain/(Loss)
				(in millions)
Prudential Insurance	March-14	Purchase	Fixed Maturities	$	13	$	13	$	—		$	—		$	—
Prudential Financial	September-14	Transfer In	Fixed Maturities & Private Equity	81		77		3			—			—
Prudential Financial	September-14	Transfer Out	Fixed Maturities	142		136		(4		)	—			—
PURC	September-14	Transfer Out	Fixed Maturities, Commercial Mortgages, & Private Equity	178		172		—			6			(8		)
Prudential Annuities Life Assurance Corporation	October-14	Purchase	Fixed Maturities	10		9		—			(1		)	—
Prudential Insurance	December-14	Purchase	Fixed Maturities, Commercial Mortgages, & Private Equity	122		102		(13		)	—			—
PURC	December-14	Purchase	JV/LP Investment	3		3		—			—			—
Prudential Insurance	March-15	Purchase	Fixed Maturities & Trading Account Assets	92		74		(12		)	—			—
Prudential Insurance	June-15	Purchase	Fixed Maturities	11		10		(1		)	—			—

Debt Agreements

The Company is authorized to borrow funds up to $2.2 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 with affiliates:



Affiliate	Date Issued	Amount of Notes - September 30, 2015		Amount of Notes - December 31, 2014		Interest Rate					Date of Maturity
		(in thousands)
Prudential Financial	6/20/2011	$	—	$	50,000	2.64				%	6/21/2015
Prudential Financial	12/15/2011	11,000		11,000		3.61				%	12/15/2016
Prudential Financial	12/16/2011	22,000		22,000		3.32	%	-	3.61	%	12/16/2015	-	12/16/2016
Prudential Insurance	12/20/2010	204,000		204,000		3.47				%	12/21/2015
Washington Street Investment	6/20/2012	—		237,000		2.44	%	-	3.02	%	6/15/2015	-	6/15/2017
Washington Street Investment	12/17/2012	—		198,000		1.33	%	-	1.87	%	12/17/2015	-	12/17/2017
Washington Street Investment	12/17/2012	—		39,000		1.33	%	-	1.87	%	12/17/2015	-	12/17/2017
Prudential Financial	11/15/2013	9,000		9,000		2.24				%	12/15/2018
Prudential Financial	11/15/2013	23,000		23,000		3.19				%	12/15/2020
Prudential Insurance	12/6/2013	120,000		120,000		2.60				%	12/15/2018
Prudential Insurance	12/6/2013	130,000		130,000		4.39				%	12/15/2023
Prudential Insurance	12/6/2013	250,000		250,000		3.64				%	12/15/2020
Prudential Insurance	9/25/2014	30,000		30,000		1.89				%	6/20/2017
Prudential Insurance	9/25/2014	40,000		40,000		3.95				%	6/20/2024
Prudential Insurance	9/25/2014	20,000		20,000		2.80				%	6/20/2019
Prudential Insurance	9/25/2014	50,000		50,000		3.95				%	6/20/2024
Prudential Insurance	9/25/2014	50,000		50,000		2.80				%	6/20/2019
Prudential Insurance	9/25/2014	100,000		100,000		3.47				%	6/20/2021
Prudential Insurance	9/25/2014	100,000		100,000		3.95				%	6/20/2024
Prudential Financial	12/15/2014	5,000		5,000		2.57				%	12/15/2019
Prudential Financial	12/15/2014	23,000		23,000		3.14				%	12/15/2021
Prudential Financial	6/15/2015	66,000		—		3.52				%	6/15/2022
Prudential Financial	6/15/2015	6,000		—		2.86				%	6/15/2020
Prudential Financial	9/21/2015	158,000		—		1.09	%	-	1.63	%	6/15/2016	-	6/15/2017
Prudential Financial	9/21/2015	132,000		—		1.40	%	-	1.93	%	12/17/2016	-	12/17/2017
Prudential Financial	9/21/2015	26,000		—		1.40	%	-	1.93	%	12/17/2016	-	12/17/2017
Total Loans Payable to Affiliates		$	1,575,000	$	1,711,000

The total interest expense to the Company related to loans payable to affiliates was $13.0 million and $12.5 million for the three months ended September 30, 2015, and 2014, respectively, and $39.4 million and $38.4 million for the nine months ended September 30, 2015 and 2014, respectively.

Contributed Capital and Dividends

In June of 2015, the Company paid a dividend in the amount of $230 million to Prudential Insurance. In June and December of 2014, the Company paid dividends in the amounts of $338 million and $410 million, respectively, to Prudential Insurance.