Reinsurance

12 Months Ended

Dec. 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 1, 2021, the Company entered into a reinsurance agreement with Pruco Life under which the Company reinsured all of its variable indexed annuities. The reinsurance of the variable indexed annuities transfers all significant risks, including mortality risk, embedded in the reinsured contracts to Pruco Life. As a result of the agreement, Reinsurance payables includes the assumed modified coinsurance arrangement, which reflects the value of the invested assets retained by the Company and the associated asset returns.

Effective July 1, 2021, Pruco Life recaptured the risks related to its business, as discussed above, that had previously been reinsured to the Company from April 1, 2016 through June 30, 2021. The recapture does not impact PLNJ, which will continue to reinsure its new and in force business to Prudential Insurance. The product risks related to the previously reinsured business that were being managed in the Company, were transferred to Pruco Life. In addition, the living benefit hedging program related to the previously reinsured living benefit riders are being managed within Pruco Life. See Note 1 for the additional information.

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. See Note 1 for additional information. 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 Statements of Financial Position as of December 31, were as follows:


	2021		2020
	(in thousands)
Reinsurance recoverables	$	8,108,267	$	694,040
Deferred policy acquisition costs	(530,095)		3,414,620
Deferred sales inducements	(26,080)		374,631
Value of business acquired	(2,047)		(2,124)
Other assets	53,622		61,471
Policyholders’ account balances	0		3,273,863
Future policy benefits	0		12,610,942
Reinsurance payables(1)	7,182,652		178,860
Other liabilities	824,387		262,462

(1)Includes $0.0 million and $2.3 million of unaffiliated activity at December 31, 2021 and December 31, 2020, respectively.

The reinsurance recoverables by counterparty are broken out below:


	December 31, 2021		December 31, 2020
	(in thousands)
Prudential Insurance	$	371,851	$	494,611
Pruco Life	7,736,416		198,547
Unaffiliated	0		882
Total reinsurance recoverables	$	8,108,267	$	694,040

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


	2021		2020		2019
	(in thousands)
Premiums:
Direct	$	23,582	$	26,272	$	29,022
Assumed	16,093		37,806		31,570
Ceded	(3,102)		(3,493)		(1,042)
Net premiums	36,573		60,585		59,550
Policy charges and fee income:
Direct	438,869		409,331		477,478
Assumed	819,191		1,564,776		1,638,023
Ceded(1)	(26,244)		(30,508)		(34,455)
Net policy charges and fee income	1,231,816		1,943,599		2,081,046
Asset management and service fees(2):
Direct	97,984		90,658		97,887
Assumed	165,177		308,272		306,892
Ceded	(8,411)		(8,003)		(8,346)
Net asset management and service fees	254,750		390,927		396,433
Realized investment gains (losses), net:
Direct	(4,688,812)		(2,208,057)		(1,137,422)
Assumed	12,350,170		(3,131,107)		(1,584,764)
Ceded	(172,551)		78,224		40,866
Realized investment gains (losses), net	7,488,807		(5,260,940)		(2,681,320)
Policyholders' benefits (including change in reserves):
Direct	49,377		72,467		58,308
Assumed	(253,812)		156,320		89,284
Ceded(3)	(15,548)		(6,175)		(3,667)
Net policyholders' benefits (including change in reserves)	(219,983)		222,612		143,925
Interest credited to policyholders’ account balances:
Direct	175,053		85,454		82,444
Assumed	476,408		97,373		84,182
Ceded	(11,829)		(2,667)		(5,417)
Net interest credited to policyholders’ account balances	639,632		180,160		161,209
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	1,694,472		1,036,119		988,951

(1)Includes $(0.4) million, $(2.6) million and $(1.0) million of unaffiliated activity for the years ended December 31, 2021, 2020 and 2019, respectively.

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

(3)Includes $(13.8) million, $0.1 million and $(0.1) million of unaffiliated activity for the years ended December 31, 2021, 2020 and 2019, respectively.