Reinsurance

9 Months Ended

Sep. 30, 2020

REINSURANCE

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its living benefit guarantees and variable annuity base contracts. Effective April 1, 2016, the Company recaptured the risks related to its variable annuity living benefit guarantees that were previously reinsured to affiliates. 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.

Effective December 31, 2015, the Company surrendered its New York license and reinsured the majority of its New York business, both the living benefit guarantees and base contracts, to Prudential Insurance. 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.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. 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 4 for additional information related to the accounting for embedded derivatives.

Reinsurance amounts included in the Company's Unaudited Interim Statements of Financial Position as of September 30, 2020 and December 31, 2019 were as follows:


	September 30, 2020		December 31, 2019
	(in thousands)
Reinsurance recoverables(1)	$	790,715	$	621,510
Deferred policy acquisition costs	3,382,501		3,725,719
Deferred sales inducements	368,470		437,594
Value of business acquired	(2,120)		(2,275)
Other assets(2)	43,804		65,819
Policyholders’ account balances	3,301,271		3,253,474
Future policy benefits	15,676,899		8,328,777
Reinsurance payables(3)	188,463		235,318
Other liabilities(4)	582,105		337,909

(1)Includes $0.5 million and $0.2 million of unaffiliated activity as of September 30, 2020 and December 31, 2019, respectively.

(2)Includes $(19.6) million and $(3.9) million of unaffiliated activity as of September 30, 2020 and December 31, 2019, respectively.

(3)Includes $1.5 million of unaffiliated activity at both September 30, 2020 and December 31, 2019.

(4)Includes $318.3 million and $60.4 million of unaffiliated activity as of September 30, 2020 and December 31, 2019, respectively.

Reinsurance recoverables by counterparty are broken out below:


	September 30, 2020		December 31, 2019
	(in thousands)
Prudential Insurance	$	579,379	$	387,355
Pruco Life	210,835		233,933
Unaffiliated	501		222
Total reinsurance recoverables	$	790,715	$	621,510

Reinsurance amounts, included in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Premiums:
Direct	$	6,161	$	6,522	$	20,376	$	22,957
Assumed	8,630		6,355		27,060		25,848
Ceded	(855)		(371)		(1,908)		(563)
Net premiums	13,936		12,506		45,528		48,242
Policy charges and fee income:
Direct	102,669		119,509		304,593		363,540
Assumed	395,381		416,389		1,161,236		1,222,535
Ceded(1)	(8,610)		(8,746)		(23,838)		(26,201)
Net policy charges and fee income	489,440		527,152		1,441,991		1,559,874
Asset administration fees and other income:
Direct	26,244		44,616		132,081		124,587
Assumed	78,547		78,408		227,511		227,182
Ceded	(2,033)		(2,097)		(5,852)		(6,249)
Net asset administration fees and other income	102,758		120,927		353,740		345,520
Realized investment gains (losses), net:
Direct	(2,520,872)		1,644,998		1,878,766		1,404,528
Assumed	2,332,646		(2,243,942)		(6,422,045)		(4,290,175)
Ceded	(57,748)		61,677		163,850		111,946
Realized investment gains (losses), net	(245,974)		(537,267)		(4,379,429)		(2,773,701)
Policyholders' benefits (including change in reserves):
Direct	14,018		22,680		73,651		47,399
Assumed	30,844		48,154		181,079		82,130
Ceded(2)	(1,038)		(1,001)		(6,145)		(3,856)
Net policyholders' benefits (including change in reserves)	43,824		69,833		248,585		125,673
Interest credited to policyholders’ account balances:
Direct	40,428		27,944		73,983		49,289
Assumed	43,457		30,959		89,311		55,053
Ceded	(2,601)		(1,956)		(2,294)		(3,613)
Net interest credited to policyholders’ account balances	81,284		56,947		161,000		100,729
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	307,043		298,565		890,849		738,045

(1)Includes $(1.7) million and $(1.0) million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively, and $(2.4) million and $(1.0) million for the nine months ended September 30, 2020 and 2019, respectively.

(2)Includes $0.1 million and $0.0 million of unaffiliated activity for the three months ended September 30, 2020 and 2019, respectively, and $(0.3) million and $0.0 million for the nine months ended September 30, 2020 and 2019, respectively.