Reinsurance

3 Months Ended

Mar. 31, 2021

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. As of December 31, 2020, Pruco Life discontinued the sales of traditional variable annuities with guaranteed living benefit riders. This discontinuation has no impact on the reinsurance agreement between Pruco Life and the Company.

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 March 31, 2021 and December 31, 2020 were as follows:


	March 31, 2021		December 31, 2020
	(in thousands)
Reinsurance recoverables	$	543,849	$	694,040
Deferred policy acquisition costs	3,282,938		3,414,620
Deferred sales inducements	354,475		374,631
Value of business acquired	(2,101)		(2,124)
Other assets	59,572		61,471
Policyholders’ account balances	3,238,339		3,273,863
Future policy benefits	7,457,026		12,610,942
Reinsurance payables(1)	160,279		178,860
Other liabilities	243,013		262,462

(1)Includes $0.4 million and $2.3 million of unaffiliated activity as of March 31, 2021 and December 31, 2020, respectively.

The reinsurance recoverables by counterparty are broken out below:


	March 31, 2021		December 31, 2020
	(in thousands)
Prudential Insurance	$	356,434	$	494,611
Pruco Life	187,113		198,547
Unaffiliated	302		882
Total reinsurance recoverables	$	543,849	$	694,040

Reinsurance amounts, included in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, were as follows:


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Premiums:
Direct	$	6,137	$	6,498
Assumed	10,076		10,427
Ceded	(451)		(346)
Net premiums	15,762		16,579
Policy charges and fee income:
Direct	107,332		106,254
Assumed	407,138		398,661
Ceded(1)	(6,887)		(8,046)
Net policy charges and fee income	507,583		496,869
Asset management and service fees(2):
Direct	23,916		23,048
Assumed	81,622		76,781
Ceded	(2,017)		(1,979)
Net asset management and service fees	103,521		97,850
Realized investment gains (losses), net:
Direct	(2,106,085)		9,042,990
Assumed	5,377,897		(10,060,454)
Ceded	(142,676)		259,773
Realized investment gains (losses), net	3,129,136		(757,691)
Policyholders' benefits (including change in reserves):
Direct	17,289		59,166
Assumed	12,390		188,524
Ceded(3)	(51)		(5,161)
Net policyholders' benefits (including change in reserves)	29,628		242,529
Interest credited to policyholders’ account balances:
Direct	81,621		45,839
Assumed	70,946		68,415
Ceded	(4,657)		(1,284)
Net interest credited to policyholders’ account balances	147,910		112,970
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	339,711		545,464

(1)Includes $(0.3) million of unaffiliated activity for both the three months ended March 31, 2021 and 2020.

(2)Prior period amounts updated to conform to current period presentation.

(3)Includes $(0.1) million and $0.1 million of unaffiliated activity for the three months ended March 31, 2021 and 2020, respectively.