Prudential Annuities Life Assurance Corporation (the “Company” or “PALAC”), with its principal offices in Shelton, Connecticut, is a wholly-owned subsidiary of Prudential Annuities, Inc. (“PAI”), which in turn is an indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey corporation.

The Company has developed long-term savings and retirement products, which are distributed through its affiliated broker dealer company, Prudential Annuities Distributors, Inc. (“PAD”), and third-party distribution networks. The Company issued variable and fixed deferred and immediate annuities for individuals and groups in the United States of America and Puerto Rico. In addition, the Company has a relatively small in-force block of variable life insurance policies. The Company ceased offering these products in March 2010. However, the Company continues to accept additional customer deposits on certain in-force contracts, subject to applicable contract provisions and administrative rules. In 2018, the Company resumed offering annuity products to new investors (except in New York).

The Company surrendered its New York license effective December 31, 2015, and reinsured the majority of its New York business to an affiliate, The Prudential Insurance Company of America ("Prudential Insurance"). The license surrender relieves the Company of the requirement to hold New York statutory reserves on its business in excess of the statutory reserves required by its domiciliary regulator, the Arizona Department of Insurance ("AZDOI"). For the small portion of New York business retained by the Company, a custodial account has been established to hold collateral assets in an amount equal to a percentage of the reserves associated with such business, as calculated in accordance with PALAC's New York Regulation 109 Plan approved by the New York Department of Financial Services.

The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing long-term savings and retirement products, including insurance products, and individual and group annuities.

Effective April 1, 2016, the Company reinsured the variable annuity base contracts, along with the living benefit guarantees, from Pruco Life Insurance Company ("Pruco Life"), excluding the Pruco Life Insurance Company of New Jersey ("PLNJ") business which was reinsured to Prudential Insurance, in each case under a coinsurance and modified coinsurance agreement. This reinsurance agreement 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. The discontinuation has no impact on the reinsurance agreement between Pruco Life and the Company.

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. This transaction is referred to as the "2021 Variable Annuities Recapture".


Day 1 Impact of 2021 Variable Annuities Recapture	Impacts of Recapture
	(in millions)
ASSETS
Total investments(1)(2)	$	(8,327)
Cash and cash equivalents	(409)
Deferred policy acquisition costs	(3,286)
Accrued investment income	(42)
Reinsurance recoverables	(181)
Income tax receivable	(787)
Value of business acquired	0
Deferred sales inducements	(388)
Receivables from parent and affiliates	(41)
Other assets	0
Separate account assets	0
TOTAL ASSETS	$	(13,461)
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	(9,048)
Policyholders’ account balances	(3,199)
Payables to parent and affiliates	0
Long-term debt	0
Reinsurance payable	(115)
Other liabilities	(245)
Separate account liabilities	0
Total liabilities	(12,607)
EQUITY
Common stock	0
Additional paid-in capital(3)	(3,786)
Retained earnings	3,026
Accumulated other comprehensive income	(94)
Total equity	(854)
TOTAL LIABILITIES AND EQUITY	$	(13,461)


Day 1 Impact of 2021 Variable Annuities Recapture	Impacts of Recapture
	(in millions)
REVENUES
Other income (loss)	$	1
Realized investment gains (losses), net	5,142
TOTAL REVENUES	5,143
BENEFITS AND EXPENSES
Policyholders’ benefits	(257)
Interest credited to policyholders’ account balances	399
Commission expense	1,362
General, administrative and other expenses	(191)
TOTAL BENEFITS AND EXPENSES	1,313
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	3,830
Income tax expense (benefit)	804
NET INCOME (LOSS)	$	3,026


Affiliate	Period	Transaction	Security Type	Fair Value		Book Value		APIC Increase/(Decrease)		Realized Investment Gain/(Loss), Net		Derivative Gain/(Loss)
				(in millions)
Pruco Life	July 1, 2021	Sale	Derivatives, Fixed Maturities, Equity Securities, Commercial Mortgages and JV/LP Investments	$	4,908	$	4,720	$	0	$	173	$	15
PAI	July 1, 2021	Return of Capital	Fixed Maturities	$	3,420	$	3,420	$	(3,420)	$	0	$	0

As part of the recapture transaction, the Company sent invested assets of $6.8 billion, net of $2.0 billion ceding commissions as consideration to Pruco Life, which is equivalent to the amount of statutory reserve credit taken as of June 30, 2021. The company released living benefit liabilities of $8.3 billion as well as variable annuity base contracts of $3.0 billion and benefit and payout reserves of $0.9 billion.

Also, the Company derecognized its assumed Deferred Policy Acquisition Costs ("DAC") and Deferred Sales Inducements ("DSI") balances as of June 30, 2021. The company also recognized a deferred reinsurance gain from the original transaction of $0.2 billion. As a result of the recapture transaction, the Company recognized a pre-tax gain of $3.8 billion immediately.

Effective December 1, 2021, the Company entered into a reinsurance agreement with Pruco Life under which the Company reinsured all of its variable and fixed indexed annuities and fixed annuities with a guaranteed lifetime withdrawal income feature to Pruco Life. As a result, the Company recognized a deferred reinsurance gain of $833 million. As of December 31, 2021, the reinsurance recoverable and payable resulting from the reinsurance of variable indexed annuities were $7.8 billion and $7.2 billion, respectively, and the deposit assets resulting from the reinsurance of fixed indexed annuities and fixed annuities with a guaranteed lifetime withdrawal income was $2.7 billion.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining DAC and related amortization; policyholders' account balances and reinsurance related to the fair value of embedded derivative instruments associated with the index-linked features of certain annuity products; value of business acquired ("VOBA") and its amortization; amortization of DSI; valuation of investments including derivatives, measurement of allowance for credit losses, and the recognition of other-than-temporary impairments ("OTTI"); future policy benefits including guarantees; provision for income taxes and valuation of deferred tax assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal and regulatory matters.

Since the first quarter of 2020, the novel coronavirus (“COVID-19”) has resulted in extreme stress and disruption in the global economy and financial markets. While markets have rebounded, the pandemic has adversely impacted, and may continue to adversely impact, the Company's results of operations, financial condition and cash flows. Due to the highly uncertain nature of these conditions, it is not possible to estimate the ultimate impacts at this time. The risks may have manifested, and may continue to manifest, in the Company's financial statements in the areas of, among others, i) investments: increased risk of loss on our investments due to default or deterioration in credit quality or value; and ii) insurance liabilities and related balances: potential changes to assumptions regarding investment returns, mortality and policyholder behavior which are reflected in our insurance liabilities and certain related balances (e.g., DAC, VOBA, etc.). The Company cannot predict what impact the COVID-19 pandemic will ultimately have on its businesses.

In September 2021, PAI entered into a definitive agreement to sell its equity interest in PALAC to Fortitude Group Holdings, LLC. The transaction will result in a benefit to Prudential Financial comprised of the purchase price for PALAC, a pre-closing net capital distribution by PALAC and an expected tax impact. The transaction is expected to close in the first half of 2022, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.