Reinsurance

3 Months Ended

Mar. 31, 2022

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. 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, 2022 and December 31, 2021 were as follows:


	March 31, 2022		December 31, 2021
	(in thousands)
Reinsurance recoverables	$	8,128,490	$	8,108,267
Deferred policy acquisition costs	(520,154)		(530,095)
Deferred sales inducements	(21,288)		(26,080)
Value of business acquired	(1,794)		(2,047)
Other assets	51,988		53,622


Reinsurance payables	6,999,679		7,182,652
Other liabilities	802,535		824,387

The reinsurance recoverables by counterparty are broken out below:


	March 31, 2022		December 31, 2021
	(in thousands)
Prudential Insurance	$	325,811	$	371,851
Pruco Life	7,802,679		7,736,416

Total reinsurance recoverables	$	8,128,490	$	8,108,267

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,
		2022		2021
		(in thousands)
Premiums:
Direct		$	8,944	$	6,137
Assumed		0		10,076
Ceded		(1,393)		(451)
Net premiums		7,551		15,762
Policy charges and fee income:
Direct		102,008		107,332
Assumed		0		407,138
Ceded(1)		(5,164)		(6,887)
Net policy charges and fee income		96,844		507,583
Asset management and service fees:
Direct		22,256		23,916
Assumed		0		81,622
Ceded		(1,915)		(2,017)
Net asset management and service fees		20,341		103,521
Realized investment gains (losses), net:
Direct		312,198		(2,106,085)
Assumed		0		5,377,897
Ceded		168,727		(142,676)
Realized investment gains (losses), net		480,925		3,129,136
Policyholders' benefits (including change in reserves):
Direct		31,145		17,289
Assumed		0		12,390
Ceded(2)		(4,891)		(51)
Net policyholders' benefits (including change in reserves)		26,254		29,628
Interest credited to policyholders’ account balances:
Direct		91,152		81,621
Assumed		0		70,946
Ceded		(6,509)		(4,657)
Net interest credited to policyholders’ account balances		84,643		147,910
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization		(41,108)		339,711

(1)Includes $0 million and $(0.3) million of unaffiliated activity for the three months ended March 31, 2022 and 2021, respectively.

(2)Includes $0 million and $(0.1) million of unaffiliated activity for the three months ended March 31, 2022 and 2021, respectively.