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.

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 also 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 June 30, 2013 and 2012; and $1 million for both the six months ended June 30, 2013 and 2012. The expense charged to the Company for the deferred compensation program was $2 million and $1 million for the three months ended June 30, 2013 and 2012, respectively; and $3 million for both the six months ended June 30, 2013 and 2012.

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 and $4 million for the three months ended June 30, 2013 and 2012, respectively; and $11 million and $9 million for the six months ended June 30, 2013 and 2012, 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 June 30, 2013 and 2012; and $4 million for both the six months ended June 30, 2013 and 2012.

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, Incorporated (“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 $191 million and $318 million for the three months ended June 30, 2013 and 2012, respectively; and $478 million and $617 million for the six months ended June 30, 2013 and 2012, respectively.

The Company has sold four Corporate Owned Life Insurance or, “COLI,” policies to Prudential Insurance, and one to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was $2,391 million at June 30, 2013 and $2,390 million at December 31, 2012. Fees related to these COLI policies were $9 million and $8 million for the three months ended June 30, 2013 and 2012, respectively; and $18 million and $17 million for the six months ended June 30, 2013 and 2012, respectively. The Company retains the majority of the mortality risk associated with these COLI policies.

The Company participates in reinsurance with its affiliates Prudential of Taiwan, PARCC, UPARC, Pruco Re, or PAR TERM and PAR U, and its parent company, Prudential Insurance, in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential. The Company is not relieved of its primary obligation to the policyholder as a result of these agreements.

Reinsurance amounts included in the Company's Unaudited Interim Consolidated Statements of Financial Position as of June 30, 2013 and December 31, 2012 were as follows:

	June 30,		December 31,
	2013		2012

	(in thousands)

Reinsurance recoverables	$	11,886,884	$	7,032,175
Policy loans		(54,286)		(52,767)
Deferred policy acquisition costs		(1,320,321)		(1,112,195)
Policyholders' account balances		4,355,162		-
Future policy benefits and other policyholder liabilities		1,334,981		-
Other liabilities (reinsurance payables)		569,895		309,478


The reinsurance recoverables by counterparty is broken out below.



		June 30, 2013		December 31, 2012
		(in thousands)
UPARC	$	31,727	$	28,655
PAR U		7,573,964		1,633,026
PARCC		2,363,545		2,299,391
PAR TERM		626,180		486,012
Prudential Insurance		175,689		172,198
Pruco Re		527		1,287,660
Prudential of Taiwan		1,114,718		1,115,560
Unaffiliated		534		9,673
Total Reinsurance Recoverables	$	11,886,884	$	7,032,175

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 six months ended June 30, 2013 and 2012 were as follows:

	Three Months Ended					Six Months Ended
	June 30,						June 30,
	2013		2012			2013			2012

	(in thousands)

Premiums	$	(316,283)	$	(286,034)	$	(618,844)		$	(565,249)
Policy charges and fee income		(128,620)		(112,249)		(244,064)			(214,193)
Net investment income		(381)		(239)		(862)			(578)
Other income		-		4,455		(31,119)			8,029
Interest credited to policyholders' account balance		(14,600)		(11,718)		(28,354)			(23,573)
Policyholders' benefits		(278,436)		(372,758)		(622,435)			(682,153)
Reinsurance expense allowances, net of capitalization and amortization		(60,802)		(46,516)		(114,341)			(90,067)
Realized investment gains (losses) net		(1,017,294)		583,617		(1,890,820)			(40,428)

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. Policies with effective dates January 1, 2011 or later are reinsured with UPARC under the terms described in the previous paragraph. 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, 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 is subsequently retroceded to PAR U. Collectively, reinsurance of the GUL business does not have a material impact on the equity of the company.

The Company reinsures 90% of the risk under its term life insurance policies, with effective dates prior to January 1, 2010, through an automatic coinsurance agreement with PARCC.

The Company reinsures 95% of the risk under its term life insurance policies with effective dates on or after January 1, 2010, through an automatic coinsurance agreement with PAR TERM.

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

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 is subsequently retroceded to PAR U. Collectively, reinsurance of this GUL business does not have a material impact on the equity of the Company.

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its optional living benefit features. 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.

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.

The Company participates in a revenue sharing agreement with AST Investment Services, Inc., formerly known as American Skandia Investment Services, Inc, whereby the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust, formerly known as American Skandia Trust. Income received from AST Investment Services, Inc. related to this agreement was $76 million and $53 million for the three months ended June 30, 2013 and 2012, respectively, and $147 million and $101 million for the six months ended June 30, 2013 and 2012, 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 participates in a revenue sharing agreement with Prudential Investments LLC, whereby the Company receives fee income from policyholders' account balances invested in The Prudential Series Fund (“PSF”). Income received from Prudential Investments LLC, related to this agreement was $3 million for both the three months ended June 30, 2013 and 2012, and $6 million and $5 million for the six months ended June 30, 2013 and 2012, respectively. These revenues are recorded as “Asset administration fees” in the Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

In accordance with an agreement with Prudential Investment Management, Inc. (“PIMI”), the Company pays investment management expenses to PIMI who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PIMI related to this agreement was $4 million and $3 million for the three months ended June 30, 2013 and 2012, respectively, and $7 million for both the six months ended June 30, 2013 and 2012. These expenses are recorded as “Net Investment Income” in the Unaudited Interim Consolidated Statements of Operations and Comprehensive Income (Loss).

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 gain(loss), respectively.

Affiliate	Date	Transaction	Security Type		Fair Value		Book Value		Additional Paid-in Capital, Net of Tax Increase/ (Decrease)		Realized Investment Gain/ (Loss)		Derivative Gain/ (Loss)
					(in millions)
Prudential Insurance	Apr-12	Transfer	Fixed Maturities	$	3	$	2	$	(1)	$	-	$	-
Prudential Financial	Apr-12	Transfer	Fixed Maturities		28		25		(2)		-		-
Prudential Insurance	Jun-12	Transfer	Fixed Maturities		91		74		(11)		-		-
PAR U	Sep-12	Sale	Fixed Maturities & Commercial Mortgages		156		142		-		14		(5)
Prudential Financial	Sep-12	Transfer	Fixed Maturities		46		41		3		-		-
Prudential Insurance	Nov-12	Transfer	Fixed Maturities		110		102		(5)		-		-
Prudential Financial	Nov-12	Transfer	Fixed Maturities		12		12		(1)		-		-
Prudential Insurance	Dec-12	Transfer	Fixed Maturities		59		56		(2)		-		-
Prudential Insurance	Jan-13	Transfer	Fixed Maturities		126		108		(12)		-		-
PAR U	Jan-13	Sale	Fixed Maturities		126		108		-		18		-
Prudential Insurance	Jan-13	Transfer	Fixed Maturities & Commercial Mortgages		4,825		4,825		(1)		-		-
PAR U	Jan-13	Sale	Fixed Maturities & Commercial Mortgages		4,826		4,821		-		5		-
UPARC	Feb-13	Purchase	Fixed Maturities		56		52		-		-		-
PAR U	Feb-13	Sale	Fixed Maturities		132		122		-		10		-
Prudential Insurance	Mar-13	Transfer	Fixed Maturities		47		44		(2)		-		-

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:

The total interest expense to the Company related to loans payable to affiliates was $10 million for the three months ended June 30, 2013 and 2012, respectively, and $20 million for the six months ended June 30, 2013 and 2012, respectively.

Subsequent to the balance sheet date, the Company paid a dividend in the amount of $155 million to Prudential Insurance.