Swaps may be attributed to specific assets or liabilities or to a portfolio of assets or liabilities. Under interest rate swaps, the Company agrees with counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed upon notional principal amount.

The Company also uses interest rate swaptions, caps and floors to manage interest rate risk. A swaption is an option to enter into a swap with a forward starting effective date. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. In an interest rate cap, the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price. Similarly, in an interest rate floor, the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price. Swaptions, caps and floors are included in interest rate options.

In standardized exchange-traded interest rate futures transactions, the Company purchases or sells a specified number of contracts, the values of which are determined by the daily market values of underlying referenced investments. The Company enters into exchange-traded futures with regulated futures commission's merchants who are members of a trading exchange.

Equity index options are contracts which will settle in cash based on differentials in the underlying indices at the time of exercise and the strike price. The Company uses combinations of purchases and sales of equity index options to hedge the effects of adverse changes in equity indices within a predetermined range.

Total return swaps are contracts whereby the Company agrees with counterparties to exchange, at specified intervals, the difference between the return on an asset (or market index) and London Inter-Bank Offered Rate ("LIBOR") plus an associated funding spread based on a notional amount. The Company generally uses total return swaps to hedge the effect of adverse changes in equity indices.

In standardized exchange-traded equity futures transactions, the Company purchases or sells a specified number of contracts, the values of which are determined by the daily market values underlying referenced equity indices. The Company enters into exchange-traded futures with regulated futures commission's merchants who are members of a trading exchange.

Under currency forwards, the Company agrees with counterparties to deliver a specified amount of an identified currency at a specified future date. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company executes forward sales of the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of these forwards correspond with the future periods in which the non-U.S. dollar-denominated earnings are expected to be generated.

Under currency swaps, the Company agrees with counterparties to exchange, at specified intervals, the difference between one currency and another at an exchange rate and calculated by reference to an agreed principal amount. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party.

The Company writes credit protection to gain exposure similar to investment in public fixed maturity cash instruments. With these credit derivatives the Company sells credit protection on a single name reference, or certain index reference, and in return receives a quarterly premium. This premium or credit spread generally corresponds to the difference between the yield on the referenced name (or an index's referenced names) public fixed maturity cash instruments and swap rates, at the time the agreement is executed. If there is an event of default by the referenced name or one of the referenced names in the index, as defined by the agreement, then the Company is obligated to pay the referenced amount of the contract to the counterparty and receive in return the referenced defaulted security or similar security or (in the case of a credit default index) pay the referenced amount less the auction recovery rate.

The Company sells certain products (for example, variable annuities and fixed indexed annuities) which may include features that are accounted for as embedded derivatives. Effective April 1, 2016, the Company assumed variable annuities living benefit guarantees from Pruco Life, excluding PLNJ business. See Note 1 for additional information on the change to the reinsurance agreements.

These embedded derivatives and certain elements of the associated reinsurance agreements, also accounted for as derivatives, are carried at fair value and marked to market through “Realized investment gains (losses), net” based on the change in value of the underlying contractual guarantees, which are determined using valuation models, as described in Note 5.

The table below provides a summary of the gross notional amount and fair value of derivative contracts by the primary underlying risks, excluding embedded derivatives and associated reinsurance recoverables. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements and cash collateral.



	December 31, 2019							December 31, 2018
Primary Underlying Risk/Instrument Type	Gross Notional		Fair Value					Gross Notional		Fair Value
Primary Underlying Risk/Instrument Type	Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate
Foreign Currency Swaps	$	1,172,899	$	39,019	$	(26,511	)	$	768,075	$	33,348	$	(21,794	)
Total Derivatives Designated as Hedge Accounting Instruments	$	1,172,899	$	39,019	$	(26,511	)	$	768,075	$	33,348	$	(21,794	)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Futures	$	3,857,700	$	638	$	(5,872	)	$	908,100	$	4,380	$	(664	)
Interest Rate Swaps	88,557,425		6,598,625		(1,997,944		)	82,172,825		3,344,033		(1,395,270		)
Interest Rate Options	12,583,000		283,386		(172,085		)	19,255,000		139,765		(245,523		)
Interest Rate Forwards	959,772		24,487		(4,185		)	1,713,947		56,562		(1,976		)
Foreign Currency
Foreign Currency Forwards	16,683		0		(394		)	19,467		287		(27		)
Currency/Interest Rate
Foreign Currency Swaps	234,767		11,482		(663		)	231,245		11,659		(2,850		)
Equity
Equity Futures	1,191,237		0		(2,638		)	860,718		0		(6,629		)
Total Return Swaps	16,314,165		36,692		(573,957		)	14,456,836		986,130		(53,235		)
Equity Options	12,866,043		329,722		(422,700		)	26,861,807		271,630		(412,821		)
Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	136,580,792	$	7,285,032	$	(3,180,438	)	$	146,479,945	$	4,814,446	$	(2,118,995	)
Total Derivatives (1)(2)	$	137,753,691	$	7,324,051	$	(3,206,949	)	$	147,248,020	$	4,847,794	$	(2,140,789	)

The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance recoverables), and repurchase and reverse repurchase agreements, that are offset in the Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Statements of Financial Position.



	December 31, 2019
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statement of Financial Position			Net Amounts Presented in the Statement of Financial Position		Financial Instruments/ Collateral(1)			Net Amount
	(in thousands)
Offsetting of Financial Assets:
Derivatives(1)	$	7,324,051	$	(7,324,049	)	$	2	$	0		$	2
Securities purchased under agreements to resell	302,000		0			302,000		(302,000		)	0
Total Assets	$	7,626,051	$	(7,324,049	)	$	302,002	$	(302,000	)	$	2
Offsetting of Financial Liabilities:
Derivatives(1)	$	3,206,949	$	(3,053,132	)	$	153,817	$	(820	)	$	152,997
Securities sold under agreements to repurchase	0		0			0		0			0
Total Liabilities	$	3,206,949	$	(3,053,132	)	$	153,817	$	(820	)	$	152,997

	December 31, 2018
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statement of Financial Position			Net Amounts Presented in the Statement of Financial Position		Financial Instruments/ Collateral(1)			Net Amount
	(in thousands)
Offsetting of Financial Assets:
Derivatives(1)	$	4,847,794	$	(4,804,816	)	$	42,978	$	0		$	42,978
Securities purchased under agreements to resell	675,000		0			675,000		(675,000		)	0
Total Assets	$	5,522,794	$	(4,804,816	)	$	717,978	$	(675,000	)	$	42,978
Offsetting of Financial Liabilities:
Derivatives(1)	$	2,140,789	$	(2,134,160	)	$	6,629	$	(6,629	)	$	0
Securities sold under agreements to repurchase	0		0			0		0			0
Total Liabilities	$	2,140,789	$	(2,134,160	)	$	6,629	$	(6,629	)	$	0

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “Credit Risk” below and Note 14. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Financial Statements.

The primary derivative instruments used by the Company in its cash flow hedge accounting relationships are currency swaps. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, and equity derivatives in any of its cash flow hedge accounting relationships.



	Year Ended December 31, 2019
	Realized Investment Gains (Losses)			Net Investment Income		Other Income			AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	(1,257	)	$	12,104	$	(3,793	)	$	3,520
Total cash flow hedges	(1,257		)	12,104		(3,793		)	3,520
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	3,309,573			0		0			0
Currency	(153		)	0		0			0
Currency/Interest Rate	11,964			0		15			0
Credit	1,775			0		0			0
Equity	(3,730,006		)	0		0			0
Embedded Derivatives	(2,269,455		)	0		0			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	(2,676,302		)	0		15			0
Total	$	(2,677,559	)	$	12,104	$	(3,778	)	$	3,520

	Year Ended December 31, 2018(2)
	Realized Investment Gains (Losses)			Net Investment Income		Other Income			AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	(845	)	$	8,285	$	13,321		$	22,002
Total cash flow hedges	(845		)	8,285		13,321			22,002
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(1,021,687		)	0		0			0
Currency	1,022			0		0			0
Currency/Interest Rate	21,888			0		91			0
Credit	0			0		0			0
Equity	995,958			0		0			0
Embedded Derivatives	971,167			0		0			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	968,348			0		91			0
Total	$	967,503		$	8,285	$	13,412		$	22,002



	Year Ended December 31, 2017(2)
	Realized Investment Gains (Losses)			Net Investment Income		Other Income			AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	3,052		$	6,152	$	(11,043	)	$	(37,596	)
Total cash flow hedges	3,052			6,152		(11,043		)	(37,596		)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	550,797			0		0			0
Currency	(454		)	0		0			0
Currency/Interest Rate	(33,225		)	0		(183		)	0
Credit	0			0		0			0
Equity	(2,000,297		)	0		0			0
Embedded Derivatives	678,698			0		0			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	(804,481		)	0		(183		)	0
Total	$	(801,429	)	$	6,152	$	(11,226	)	$	(37,596	)



	(in thousands)
Balance, December 31, 2016	$	11,745
Amount recorded in AOCI
Currency/Interest Rate	(39,434		)
Total amount recorded in AOCI	(39,434		)
Amount reclassified from AOCI to income
Currency/Interest Rate	1,838
Total amount reclassified from AOCI to income	1,838
Balance, December 31, 2017	$	(25,851	)
Amount recorded in AOCI
Currency/Interest Rate	42,763
Total amount recorded in AOCI	42,763
Amount reclassified from AOCI to income
Currency/Interest Rate	(20,761		)
Total amount reclassified from AOCI to income	(20,761		)
Balance, December 31, 2018	$	(3,849	)
Cumulative-effect adjustment from the adoption of ASU 2017-12(1)	42
Amount recorded in AOCI
Currency/Interest Rate	10,574
Total amount recorded in AOCI	10,574
Amount reclassified from AOCI to income
Currency/Interest Rate	(7,054		)
Total amount reclassified from AOCI to income	(7,054		)
Balance, December 31, 2019	$	(287	)

The changes in fair value of cash flow hedges are deferred in AOCI and are included in “Net unrealized investment gains (losses)” in the Statements of Operations and Comprehensive Income (Loss); these amounts are then reclassified to earnings when the hedged item affects earnings. Using December 31, 2019 values, it is estimated that a pre-tax gain of approximately $16 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending December 31, 2020.

There were no material amounts reclassified from AOCI into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

The Company is exposed to credit-related losses in the event of non-performance by counterparty to financial derivative transactions with a positive fair value. The Company manages credit risk by entering into derivative transactions with its affiliate, Prudential Global Funding, LLC (“PGF”), related to its OTC derivatives. PGF, in turn, manages its credit risk by: (i) entering into derivative transactions with highly rated major international financial institutions and other creditworthy counterparties governed by master netting agreement, as applicable; (ii) trading through central clearing and OTC parties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single party credit exposures which are subject to periodic management review.