XML 26 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions
 9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions 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

The majority 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-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was $0.0 million for both the three months ended September 30, 2020 and 2019, and $0.1 million for both the nine months ended September 30, 2020 and 2019. The expense charged to the Company for the deferred compensation program was $0.2 million and $0.0 million for the three months ended September 30, 2020 and 2019, respectively, and $0.5 million for both the nine months ended September 30, 2020 and 2019.

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was $0.9 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $2.0 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.
The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was $0.6 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $1.6 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Prudential Insurance sponsors voluntary savings plans for its employee 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 $0.3 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.8 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively.

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 was $61 million and $24 million for the three months ended September 30, 2020 and 2019, respectively, and $113 million and $74 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was $5 million and $4 million for the three months ended September 30, 2020 and 2019, respectively, and $11 million and $12 million for the nine months ended September 30, 2020 and 2019, respectively.

Affiliated Investment Management Expenses

In accordance with an agreement with PGIM, Inc. (“PGIM”), the Company pays investment management expenses to PGIM who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were $6 million and $4 million for the three months ended September 30, 2020 and 2019, respectively, and $16 million and $12 million for the nine months ended September 30, 2020 and 2019, respectively. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

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. See Note 4 for additional information.

Joint Ventures
The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. "Other invested assets" includes $514 million and $391 million as of September 30, 2020 and December 31, 2019, respectively. "Net investment income" related to these ventures includes a gain of $8 million and $3 million for the three months ended September 30, 2020 and 2019, respectively, and a gain of $5 million and $11 million for the nine months ended September 30, 2020 and 2019, respectively.
Affiliated Asset Administration Fee Income

The Company has a revenue sharing agreement with AST Investment Services, Inc. (“ASTISI”) and PGIM Investments LLC (“PGIM Investments”) whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust and The Prudential Series Fund. Income received from ASTISI and PGIM Investments related to this agreement was $23 million and $24 million for the three months ended September 30, 2020 and 2019, respectively, and $66 million and $72 million for the nine months ended September 30, 2020 and 2019, respectively. These revenues are recorded as “Asset administration fees and other income” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Affiliated Notes Receivable

Affiliated notes receivable included in "Receivables from parent and affiliates" at September 30, 2020 and December 31, 2019 were as follows:
Maturity DatesInterest RatesSeptember 30, 2020December 31, 2019
(in thousands)
U.S. dollar fixed rate notes2026 - 20272.62%-14.85 %$56,906 $52,573 
Total notes receivable - affiliated(1)$56,906 $52,573 

(1)All notes receivable may be called for prepayment prior to the respective maturity dates under specified circumstances.

The affiliated notes receivable shown above are classified as available-for-sale securities carried at fair value. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Insurance for loans due from affiliates.

Accrued interest receivable related to these loans was $0.2 million and $0.0 million at September 30, 2020 and December 31, 2019, respectively, and is included in “Other assets”. Revenues related to these assets were a gain of $0.3 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and a gain of $1.1 million and a loss of $0.1 million for the nine months ended September 30, 2020 and 2019, respectively, and are included in “Asset administration fees and other income”.

Affiliated Commercial Mortgage Loan

The affiliated commercial mortgage loan included in "Commercial mortgage and other loans" at September 30, 2020 was as follow:
Maturity DateInterest RateSeptember 30, 2020
(in thousands)
Affiliated Commercial Mortgage Loan20254.66%$74,005 

The Company did not have any affiliated commercial mortgage loans outstanding at December 31, 2019.

The commercial mortgage loan shown above is carried at unpaid principal balance, net of unamortized deferred loan origination fees and expenses, and net of an allowance for losses. The Company reviews the performance and credit quality of the commercial mortgage on an on-going basis.

Accrued interest receivable related to the loan was $0.2 million at September 30, 2020 and is included in "Accrued investment income". Revenues were $0.9 million for the three months ended September 30, 2020 and $1.2 million for the nine months ended September 30, 2020 and is included in "Net investment income".
Affiliated Asset Transfers

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 for the nine months ended September 30, 2020 and for the year ended December 31, 2019.
AffiliateDateTransaction  Security Type  Fair Value  Book Value  APIC, Net of Tax Increase/(Decrease)Realized
Investment
Gain (Loss)
(in thousands)
Prudential InsuranceJanuary 2019SaleFixed Maturities$20,504 $20,781 $0 $(277)
Prudential InsuranceFebruary 2019SaleCommercial Mortgages$97,953 $98,506 $0 $(554)
Prudential InsuranceMarch 2019PurchaseFixed Maturities$141,476 $141,476 $0 $7,776 
Prudential InsuranceApril 2019PurchaseEquity Securities$4,300 $4,300 $0 $0 
Prudential Retirement Insurance and Annuity CompanyApril 2019PurchaseEquity Securities$1,258 $1,258 $0 $0 
Pruco Life Insurance CompanyApril 2019PurchaseEquity Securities$14,525 $14,525 $0 $0 
Prudential InsuranceJune 2019Transfer outFixed Maturities$23,066 $23,002 $0 $64 
Prudential InsuranceJune 2019Transfer InFixed Maturities$19,919 $19,919 $0 $0 
Prudential InsuranceAugust 2019SaleFixed Maturities$66,346 $64,735 $0 $1,611 
Prudential InsuranceAugust 2019SaleCommercial Mortgages$106,307 $104,733 $0 $1,574 
Prudential InsuranceNovember 2019SaleOther Invested Assets$2,289 $2,362 $0 $(73)
Prudential InsuranceNovember 2019SaleFixed Maturities$6,517 $8,550 $0 $(2,033)
Prudential InsuranceDecember 2019PurchaseFixed Maturities$5,271 $5,271 $0 $0 
Prudential InsuranceDecember 2019PurchaseFixed Maturities$85,261 $85,261 $0 $0 
Prudential InsuranceDecember 2019SaleFixed Maturities$21,425 $20,628 $0 $797 
Prudential International Insurance Service CompanyMarch 2020PurchaseFixed Maturities$107,014 $107,014 $0 $0 
Prudential InsuranceMarch 2020PurchaseFixed Maturities$258,885 $258,885 $0 $0 
Prudential InsuranceApril 2020PurchaseFixed Maturities$91,131 $91,131 $0 $0 
Prudential InsuranceJune 2020SaleFixed Maturities$65,646 $57,699 $0 $7,947 
Gibraltar Life Insurance CompanyJune 2020PurchaseFixed Maturities$222,091 $222,091 $0 $0 
Debt Agreements

The Company is authorized to borrow funds up to $9 billion from Prudential Financial and its affiliates to meet its capital and other funding needs. The following table provides the breakout of the Company's short and long-term debt to affiliates as of September 30, 2020 and December 31, 2019:
AffiliateDate
Issued		Amount of Notes - September 30, 2020Amount of Notes - December 31, 2019Interest Rate  Date of Maturity  
  (in thousands)  
Prudential Insurance4/20/2016$37,468 $37,468 3.64 %12/6/2020
Prudential Insurance4/20/2016103,039 103,039 3.64 %12/15/2020
Prudential Insurance4/20/201693,671 93,671 3.64 %12/15/2020
Prudential Insurance4/20/201693,671 93,671 3.47 %6/20/2021
Prudential Insurance4/20/201693,671 93,671 4.39 %12/15/2023
Prudential Insurance4/20/201628,102 28,102 4.39 %12/15/2023
Prudential Insurance4/20/201693,671 93,671 3.95 %6/20/2024
Prudential Insurance4/20/201637,468 37,468 3.95 %6/20/2024
Prudential Insurance4/20/201646,835 46,835 3.95 %6/20/2024
Prudential Insurance6/28/201626,000 26,000 2.59 %6/28/2021
Prudential Funding LLC12/16/20190 1,298 2.02 %1/16/2020
Prudential Funding LLC12/17/20190 1,478 2.02 %1/15/2020
Prudential Funding LLC12/17/20190 502 2.02 %1/16/2020
Prudential Funding LLC12/18/20190 4,638 2.02 %1/16/2020
Prudential Funding LLC9/25/2020387 0 0.26 %10/26/2020
Prudential Funding LLC9/25/20202,962 0 0.26 %10/26/2020
Prudential Funding LLC9/28/20204,014 0 0.26 %10/23/2020
Prudential Funding LLC9/28/2020325 0 0.26 %10/23/2020
Prudential Funding LLC9/29/2020194 0 0.26 %10/30/2020
Prudential Funding LLC9/30/202011,355 0 0.26 %10/30/2020
Total Loans Payable to Affiliates$672,833 $661,512 

The total interest expense to the Company related to loans and other payables to affiliates was $9 million and $38 million for the three months ended September 30, 2020 and 2019, respectively, and $45 million and $78 million for the nine months ended September 30, 2020 and 2019, respectively.

Contributed Capital and Dividends

Through September 2020 and December 2019, the Company did not receive any capital contributions.

In March, June and September 2020, there was a $207 million, $173 million and $192 million return of capital, respectively, to PAI. In March, June, September and December 2019, there was a $245 million, $247 million, $245 million and $241 million return of capital, respectively, to PAI.

Reinsurance with Affiliates

As discussed in Note 6, the Company participates in reinsurance transactions with certain affiliates.