REINSURANCE

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its living benefit features and variable annuity base contracts. Through March 31, 2016, the Company reinsured its living benefit guarantees on certain variable annuity products to Pruco Re and Prudential Insurance, which are the legal entities in which the Company previously executed its living benefit hedging program. Effective April 1, 2016 the Company recaptured the risks related to its variable annuity living benefit guarantees that were previously reinsured to Pruco Re and Prudential Insurance, as discussed further in Note 1. 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.

In the fourth quarter of 2015, the Company surrendered its New York license. The Company recaptured the New York living benefits previously ceded to Pruco Re, and reinsured the majority of its New York business, both the living benefit guarantees and base contracts, to Prudential Insurance. See Note 1 for additional information.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. The Company has entered into reinsurance agreements to assume living benefit guarantees from Pruco Life, excluding PLNJ business which was reinsured to Prudential Insurance. See Note 1 for additional information on the change to the reinsurance agreements effective April 1, 2016. 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 11 for additional information related to the accounting for embedded derivatives.

Reinsurance amounts included in the Company's Statements of Financial Position as of December 31, were as follows:



	2016			2015
	(in thousands)
Reinsurance recoverables	$	588,608		$	3,088,328
Deferred policy acquisition costs	3,557,248			(73,864		)
Deferred sales inducements	520,182			(39,253		)
Value of business acquired	(2,357		)	(2,632		)
Other assets	112,802			0
Policyholders’ account balances	2,576,357			0
Future policy benefits	5,130,753			0
Reinsurance payables(1)	275,822			250,277
Other liabilities	335,713			0


(1)	"Reinsurance payables" includes $0.1 million and $0.2 million of unaffiliated activity as of December 31, 2016 and 2015, respectively.

The reinsurance recoverables by counterparty are broken out below:



	December 31, 2016		December 31, 2015
	(in thousands)
Prudential Insurance	$	306,191	$	323,363
Pruco Life	282,326		0
Pruco Re	0		2,764,927
Unaffiliated	91		38
Total reinsurance recoverables	$	588,608	$	3,088,328

Reinsurance amounts, included in the Company’s Statements of Operations and Comprehensive Income for the years ended December 31, were as follows:



	2016			2015			2014
	(in thousands)
Premiums:
Direct	$	39,326		$	33,250		$	34,903
Assumed	860,831			0			0
Ceded	(3,318		)	(23,463		)	0
Net premiums	896,839			9,787			34,903
Policy charges and fee income:
Direct	647,226			743,956			809,072
Assumed	1,153,752			0			0
Ceded(1)	(45,754		)	(3,133		)	(2,745		)
Net policy charges and fee income	1,755,224			740,823			806,327
Asset administration fees and other income:
Direct	103,892			177,479			227,619
Assumed	205,221			0			0
Ceded	(9,729		)	0			0
Net asset administration fees and other income	299,384			177,479			227,619
Realized investment gains (losses), net:
Direct	(3,612,578		)	247,525			(1,967,588		)
Assumed	(81,510		)	0			0
Ceded	251,328			(241,473		)	1,974,956
Realized investment gains (losses), net	(3,442,760		)	6,052			7,368
Policyholders' benefits (including change in reserves):
Direct(3)	74,438			81,719			137,502
Assumed	553,280			0			0
Ceded (2)(3)	(23,661		)	(21,258		)	(367		)
Net policyholders' benefits (including change in reserves)	604,057			60,461			137,135
Interest credited to policyholders’ account balances:
Direct	74,389			225,555			211,058
Assumed	(1,551		)	0			0
Ceded	(3,949		)	0			0
Net interest credited to policyholders’ account balances	68,889			225,555			211,058
Net reinsurance expense allowances, net of capitalization and amortization(3)	563,027			(6,054		)	(3,874		)


(1)	"Policy charges and fee income ceded" includes $(2) million, $(3) million and $(3) million of unaffiliated activity for the years ended December 31, 2016, 2015 and 2014, respectively.


(2)	"Policyholders' benefits (including change in reserves) ceded" includes $(0.3) million, $(0.1) million and $(0.4) million of unaffiliated activity for the years ended December 31, 2016, 2015 and 2014, respectively.


(3)	Prior period amounts are presented on a basis consistent with the current period presentation.