PRUDENTIAL ANNUITIES LIFE ASSURANCE CORP/CT – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following analysis of our financial condition and results of
operations in conjunction with the "Forward-Looking Statements" included below
the Table of Contents, "Risk Factors", and the Financial Statements included in
this Annual Report on Form 10-K.

                                    Overview

The Company was established in 1969 and has been a provider of annuity contracts
for the individual market in the United States. The Company's products have been
sold primarily to individuals to provide for long-term savings and retirement
needs and to address the economic impact of premature death, estate planning
concerns and supplemental retirement income.

The Company has sold a wide array of annuities, including deferred and immediate
variable annuities with (1) fixed interest rate allocation options, subject to a
market value adjustment, that are registered with the United States Securities
and Exchange Commission (the "SEC"), and (2) fixed-rate allocation options
subject to a limited market value adjustment or no market value adjustment and
not registered with the SEC. The Company ceased offering these products in March
2010. In 2018, the Company resumed offering annuity products to new investors
(except in New York). For more information on products, see "Item 1
Business-Products".

Effective July 1, 2021, Pruco Life Insurance Company ("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 Pruco Life Insurance Company of New Jersey ("PLNJ"), which will
continue to reinsure its new and in force business to The Prudential Insurance
Company of America ("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".

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.

Sale of PALAC

In September 2021, Prudential Annuities, Inc. ("PAI") entered into a definitive
agreement to sell its equity interest in Prudential Annuities Life Assurance
Corporation (the "Company" or "PALAC") to Fortitude Group Holdings, LLC. The
transaction will result in a benefit to Prudential Financial Inc. ("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.
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COVID-19

Since the first quarter of 2020, the novel coronavirus ("COVID-19") has caused
extreme stress and disruption in the global economy and financial markets, and
elevated mortality and morbidity for the global population. The COVID-19
pandemic continued to impact our results of operations in the current period and
is expected to impact our results of operations in future periods.

In 2021, the United States experienced multiple waves of COVID-19, with the
severity of each wave depending on such factors as seasonality, varying levels
of population immunity, and the evolution of the virus itself into different
variants. Deaths from COVID-19 in the United States peaked in the first quarter
of 2021, prior to widespread vaccination, and again in the third quarter, due to
the emergence of the Delta variant. In December, the Omicron variant emerged in
the United States and has since become the dominant strain, causing many more
infections but with a smaller percentage of infections resulting in
hospitalizations and deaths compared to prior waves. Several vaccines are now
widely accessible and other therapeutics, such as antiviral treatments, are
increasingly becoming available. As a result, the overall financial impact to
the Company is expected to remain manageable; however, the future evolution of
the virus, among other factors, could cause the actual course of the pandemic to
differ from our current expectations. The Company has taken several measures to
manage the impacts of this pandemic. The actual and expected impacts of these
measures and other items are set forth below:

•Results of Operations. See "Results of Operations" for a discussion of results
for the full year of 2021.

•Business Continuity. Throughout the COVID-19 pandemic, we have been executing
Prudential Financial's and our business continuity protocols to ensure our
employees are safe and able to serve our customers. This included effectively
transitioning the vast majority of our employees to remote work arrangements in
2020 and 2021.

We believe we can sustain long-term remote work and social distancing while
ensuring that critical business operations are sustained. In addition, we are
managing COVID-19-related impacts on third-party provided services, and do not
anticipate significant interruption in critical operations.

•Risk Factors. See "Risk Factors" for a discussion of the risks to our
businesses posed by the COVID-19 pandemic.

•CARES Act and Other Regulatory Developments. See "Business-Regulation" for
additional information.

Revenues and Expenses

The Company earns revenues principally from contract charges, mortality and
expense fees, asset administration fees from annuity and investment products and
from net investment income on the investment of general account and other funds.
The Company earns contract fees, mortality and expense fees and asset
administration fees primarily from the sale and servicing of annuity products.
The Company's operating expenses principally consist of annuity benefit
guarantees provided and reserves established for anticipated future annuity
benefit guarantees and costs of managing risk related to these products,
interest credited to contractholders' account balances, general business
expenses, reinsurance premiums, commissions and other costs of selling and
servicing the various products it sold.

Industry Trends

Our business is impacted by financial markets, economic conditions, regulatory
oversight, and a variety of trends that affect the industries where we compete.

Financial and Economic Environment. Interest rates in the U.S. have experienced
a sustained period of historically low levels, which continue to negatively
impact our investment-related activity, including our investment income returns,
net investment spread results, and portfolio income and reinvestment yields. See
"Impact of a Low Interest Rate Environment" below. In addition, we are subject
to financial impacts associated with movements in equity markets and the
evolution of the credit cycle as discussed in "Risk Factors".

Demographics. Customer demographics continue to evolve and new opportunities
present themselves in different consumer segments such as the millennial and
multicultural markets. Consumer expectations and preferences are changing. We
believe existing customers and potential customers are increasingly looking for
cost-effective solutions that they can easily understand and access through
technology-enabled devices. At the same time, income protection, wealth
accumulation and the needs of retiring baby boomers are continuing to shape the
insurance industry. A persistent retirement security gap exists in terms of both
savings and protection. Despite the ongoing phenomenon of the risk and
responsibility of retirement savings shifting from employers to employees,
employers are becoming increasingly focused on the financial wellness of the
individuals they employ.

Regulatory Environment. See "Business-Regulation" for a discussion of regulatory
developments that may impact the Company and the associated risks.

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Competitive Environment. See "Business" for a discussion of the competitive
environment and the basis on which we compete.

Impact of a Low Interest Rate Environment

As a financial services company, market interest rates are a key driver of the
Company's results of operations and financial condition. Changes in interest
rates can affect our results of operations and/or our financial condition in
several ways, including favorable or adverse impacts to:

•  investment-related activity, including: investment income returns, net
interest margins, net investment spread results,
new money rates, mortgage loan prepayments and bond redemptions;
•  hedging costs and other risk mitigation activities;
•  insurance reserve levels, market experience true-ups and amortization of
deferred policy acquisition costs ("DAC")/value of business acquired
("VOBA")/deferred sales inducements ("DSI");
•  customer account values, including their impact on fee income;
•fair value of, and possible impairments, on intangible assets;
•product offerings, design features, crediting rates and sales mix; and
•policyholder behavior, including surrender or withdrawal activity.

For more information on interest rate risks, see "Risk Factors-Market Risk".

                      Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America ("U.S. GAAP") requires the
application of accounting policies that often involve a significant degree of
judgment. Management, on an ongoing basis, reviews estimates and assumptions
used in the preparation of financial statements. If management determines that
modifications in assumptions and estimates are appropriate given current facts
and circumstances, the Company's results of operations and financial position as
reported in the Financial Statements could change significantly.

The following sections discuss the accounting policies applied in preparing our
financial statements that management believes are most dependent on the
application of estimates and assumptions and require management's most
difficult, subjective or complex judgments.

Insurance Assets

Deferred Policy Acquisition Costs and Deferred Sales Inducements

We capitalize costs that are directly related to the acquisition of annuity
contracts. These costs primarily include commissions, as well as costs of policy
issuance and underwriting and certain other expenses that are directly related
to successfully negotiated contracts. We have also deferred costs associated
with sales inducements offered in the past related to our variable and fixed
annuity contracts. Sales inducements are amounts that are credited to the
policyholders' account balances mainly as an inducement to purchase the
contract. For additional information about sales inducements, see Note 9 to the
Financial Statements. We generally amortize DAC and DSI over the expected lives
of the contracts, based on our estimates of the level and timing of gross
profits. As described in more detail below, in calculating DAC and DSI
amortization we are required to make assumptions about investment returns,
mortality, persistency, and other items that impact our estimates of the level
and timing of gross profits. We also periodically evaluate the recoverability of
our DAC and DSI. For certain contracts, this evaluation is performed as part of
our premium deficiency testing, as discussed further below in "Insurance
Liabilities-Future Policy Benefits". As of December 31, 2021, DAC and DSI were
$567 million and $295 million, respectively.
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Amortization methodologies

We generally amortize DAC and other costs over the expected life of the policies
in proportion to total gross profits. Total gross profits include both actual
gross profits and estimates of gross profits for future periods. Gross profits
are defined as (i) amounts assessed for mortality, contract administration,
surrender charges, and other assessments plus amounts earned from investment of
policyholder balances, less (ii) benefits in excess of policyholder balances,
costs incurred for contract administration, the net cost of reinsurance for
certain products, interest credited to policyholder balances and other credits.
If significant negative gross profits are expected in any periods, the amount of
insurance in force is generally substituted as the base for computing
amortization. U.S. GAAP gross profits and amortization rates also include the
impacts of the embedded derivatives associated with certain of the optional
living benefit features of our variable annuity contracts and indexed annuity
contracts and related hedging activities. In calculating amortization expense,
we estimate the amounts of gross profits that will be included in our U.S. GAAP
results, and utilize these estimates to calculate distinct amortization rates
and expense amounts. In addition, in calculating gross profits, we include the
profits and losses related to contracts previously issued by the Company that
are reported in affiliated legal entities other than the Company as a result of,
for example, reinsurance agreements with those affiliated entities. The Company
is an indirect subsidiary of Prudential Financial (an SEC registrant) and has
extensive transactions and relationships with other subsidiaries of Prudential
Financial, including reinsurance agreements, as discussed in Note 10 and Note 14
to the Financial Statements. Incorporating all product-related profits and
losses in gross profits, including those that are reported in affiliated legal
entities, produces an amortization pattern representative of the total economics
of the products. For a further discussion of the amortization of DAC and other
costs, see "-Results of Operations".

We also regularly evaluate and adjust the related DAC and DSI balances with a
corresponding charge or credit to current period earnings for the impact of
actual gross profits and changes in our projections of estimated future gross
profits on our DAC and DSI amortization rates. Adjustments to the DAC and DSI
balances include the impact to our estimate of total gross profits of the annual
review of assumptions, our quarterly adjustments for current period experience,
and our quarterly adjustments for market performance. Each of these adjustments
is further discussed below in "-Annual assumptions review and quarterly
adjustments".

Value of Business Acquired

In addition to DAC and DSI, we also recognize an asset for value of business
acquired, or VOBA, which is an intangible asset that represents an adjustment to
the stated value of acquired in-force insurance contract liabilities to present
them at fair value, determined as of the acquisition date. VOBA is amortized
over the expected life of the acquired contracts using the same methodology and
assumptions used to amortize DAC and DSI (see "-Deferred Policy Acquisition
Costs and Deferred Sales Inducements" above for additional information). VOBA is
also subject to recoverability testing. As of December 31, 2021, VOBA was $28
million.

Annual assumptions review and quarterly adjustments

We perform an annual comprehensive review of the assumptions used in estimating
gross profits for future periods. Over the last several years, the Company's
most significant assumption updates that have resulted in a change to expected
future gross profits and the amortization of DAC, DSI and VOBA have been related
to lapse and other contractholder behavior assumptions, mortality, and revisions
to expected future rates of returns on investments. These assumptions may also
cause potential significant variability in amortization expense in the future.
The impact on our results of operations of changes in these assumptions can be
offsetting and we are unable to predict their movement or offsetting impact over
time.

The quarterly adjustments for current period experience referred to above
reflect the impact of differences between actual gross profits for a given
period and the previously estimated expected gross profits for that period. To
the extent each period's actual experience differs from the previous estimate
for that period, the assumed level of total gross profits may change. In these
cases, we recognize a cumulative adjustment to all previous periods'
amortization, also referred to as an experience true-up adjustment.

The quarterly adjustments for market performance referred to above reflect the
impact of changes to our estimate of total gross profits to reflect actual fund
performance and market conditions. A significant portion of gross profits for
our variable annuity contracts is dependent upon the total rate of return on
assets held in separate account investment options. This rate of return
influences the fees we earn on variable annuity contracts, costs we incur
associated with the guaranteed minimum death and guaranteed minimum income
benefit features related to our variable annuity contracts, as well as other
sources of profit. Returns that are higher than our expectations for a given
period produce higher than expected account balances, which increase the future
fees we expect to earn on variable annuity contracts and decrease the future
costs we expect to incur associated with the guaranteed minimum death and
guaranteed minimum income benefit features related to our variable annuity
contracts. The opposite occurs when returns are lower than our expectations. The
changes in future expected gross profits are used to recognize a cumulative
adjustment to all prior periods' amortization.

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The weighted average rate of return assumptions used in developing estimated
market returns consider many factors specific to each product type, including
asset durations, asset allocations and other factors. With regard to equity
market assumptions, the near-term future rate of return assumption used in
evaluating DAC, DSI and VOBA and liabilities for future policy benefits for
certain of our products, primarily our domestic variable annuity products, is
generally updated each quarter and is derived using a reversion to the mean
approach, a common industry practice. Under this approach, we consider
historical equity returns and adjust projected equity returns over an initial
future period of five years (the "near-term") so that equity returns converge to
the long-term expected rate of return. If the near-term projected future rate of
return is greater than our near-term maximum future rate of return of 15.0%, we
use our maximum future rate of return. If the near-term projected future rate of
return is lower than our near-term minimum future rate of return of 0%, we use
our minimum future rate of return. As of December 31, 2021, we assume an 8.0%
long-term equity expected rate of return and a 0.0% near-term mean reversion
equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and
liabilities for future policy benefits for certain of our products, we generally
update the long-term and near-term future rates used to project fixed income
returns annually and quarterly, respectively. As a result of our 2021 annual
reviews and update of assumptions and other refinements, we kept our long-term
expectation of the 10-year U.S. Treasury rate unchanged and continue to grade to
a rate of 3.25% over ten years. As part of our quarterly market experience
updates, we update our near-term projections of interest rates to reflect
changes in current rates.

Insurance Liabilities

Future Policy Benefits

Future Policy Benefit Reserves

We establish reserves for future policy benefits to, or on behalf of,
policyholders, using methodologies prescribed by U.S. GAAP. The reserving
methodologies used include the following:

•For life contingent payout annuities, we utilize a net premium valuation
methodology in measuring the liability for future policy benefits. Under this
methodology, a liability for future policy benefits is accrued when premium
revenue is recognized. The liability, which represents the present value of
future benefits to be paid to or on behalf of policyholders and related expenses
less the present value of future net premiums (portion of the gross premium
required to provide for all benefits and expenses), is estimated using methods
that include assumptions applicable at the time the insurance contracts are made
with provisions for the risk of adverse deviation, as appropriate. Original
assumptions continue to be used in subsequent accounting periods to determine
changes in the liability for future policy benefits (often referred to as the
"lock-in concept"), unless a premium deficiency exists. The result of the net
premium valuation methodology is that the liability at any point in time
represents an accumulation of the portion of premiums received to date expected
to be needed to fund future benefits (i.e., net premiums received to date), less
any benefits and expenses already paid. The liability does not necessarily
reflect the full policyholder obligation the Company expects to pay at the
conclusion of the contract since a portion of that obligation would be funded by
net premiums received in the future and would be recognized in the liability at
that time. We perform premium deficiency tests using best estimate assumptions
as of the testing date without provisions for adverse deviation. If the
liabilities determined based on these best estimate assumptions are greater than
the net reserves (i.e., GAAP reserves net of any DAC, DSI or VOBA asset), the
existing net reserves are adjusted by first reducing these assets by the amount
of the deficiency or to zero through a charge to current period earnings. If the
deficiency is more than these asset balances for insurance contracts, we then
increase the net reserves by the excess, again through a charge to current
period earnings. If a premium deficiency is recognized, the assumptions as of
the premium deficiency test date are locked-in and used in subsequent valuations
and the net reserves continue to be subject to premium deficiency testing. In
addition, for limited-payment contracts, future policy benefit reserves also
include a deferred profit liability representing gross premiums received in
excess of net premiums. The deferred profits are generally recognized in revenue
in a constant relationship with insurance in force or with the amount of
expected future benefit payments.
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•For certain contract features, such as those related to guaranteed minimum
death benefits ("GMDB") and guaranteed minimum income benefits ("GMIB"), a
liability is established when associated assessments (which include policy
charges for administration, mortality, expense, surrender, and other, regardless
of how characterized) are recognized. This liability is established using
current best estimate assumptions and is based on the ratio of the present value
of total expected excess payments (e.g., payments in excess of account value)
over the life of the contract divided by the present value of total expected
assessments (i.e., benefit ratio). The liability equals the current benefit
ratio multiplied by cumulative assessments recognized to date, plus interest,
less cumulative excess payments to date. The result of the benefit ratio method
is that the liability at any point in time represents an accumulation of the
portion of assessments received to date expected to be needed to fund future
excess payments, less any excess payments already paid. The liability does not
necessarily reflect the full policyholder obligation the Company expects to pay
at the conclusion of the contract since a portion of that excess payment would
be funded by assessments received in the future and would be recognized in the
liability at that time. Similar to as described above for DAC, the reserves are
subject to adjustments based on annual reviews of assumptions and quarterly
adjustments for experience, including market performance. These adjustments
reflect the impact on the benefit ratio of using actual historical experience
from the issuance date to the balance sheet date plus updated estimates of
future experience. The updated benefit ratio is then applied to all prior
periods' assessments to derive an adjustment to the reserve recognized through a
benefit or charge to current period earnings.

•For certain product guarantees, primarily certain optional living benefit
features of the variable annuity products including guaranteed minimum
accumulation benefits ("GMAB"), guaranteed minimum withdrawal benefits ("GMWB")
and guaranteed minimum income and withdrawal benefits ("GMIWB"), the benefits
are accounted for as embedded derivatives using a fair value accounting
framework. The fair value of these contracts is calculated as the present value
of expected future benefit payments to contractholders less the present value of
assessed rider fees attributable to the embedded derivative feature. Under U.S.
GAAP, the fair values of these benefit features are based on assumptions a
market participant would use in valuing these embedded derivatives. Changes in
the fair value of the embedded derivatives are recorded quarterly through a
benefit or charge to current period earnings. For additional information
regarding the valuation of these embedded derivatives, see Note 5 to the
Financial Statements.

The assumptions used in establishing reserves are generally based on the
Company's experience, industry experience and/or other factors, as applicable.
We update our actuarial assumptions, such as mortality and policyholder behavior
assumptions annually, unless a material change is observed in an interim period
that we feel is indicative of a long-term trend. Generally, we do not expect
trends to change significantly in the short-term and, to the extent these trends
may change, we expect such changes to be gradual over the long-term. In a
sustained low interest rate environment, there is an increased likelihood that
the reserves determined based on best estimate assumptions may be greater than
the net liabilities.

The following paragraphs provide additional details about the reserves we have
established:

The reserves for future policy benefits of our business relate to reserves for
the GMDB and GMIB features of our variable annuities, and for the optional
living benefit features that are accounted for as embedded derivatives. As
discussed above, in establishing reserves for GMDBs and GMIBs, we utilize
current best estimate assumptions. The primary assumptions used in establishing
these reserves generally include annuitization, lapse, withdrawal and mortality
assumptions, as well as interest rate and equity market return assumptions.
Lapse rates are adjusted at the contract level based on the in-the-moneyness of
the benefit and reflect other factors, such as the applicability of any
surrender charges. Lapse rates are reduced when contracts are more in-the-money.
Lapse rates are also generally assumed to be lower for the period where
surrender charges apply. For life contingent payout annuity contracts, we
establish reserves using best estimate assumptions with provisions for adverse
deviations as of inception or best estimate assumptions as of the most recent
loss recognition date.

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The reserves for certain optional living benefit features, including GMAB, GMWB
and GMIWB are accounted for as embedded derivatives at fair value, as described
above. This methodology could result in either a liability or contra-liability
balance, given changing capital market conditions and various actuarial
assumptions. Since there is no observable active market for the transfer of
these obligations, the valuations are calculated using internally-developed
models with option pricing techniques. The models are based on a risk neutral
valuation framework and incorporate premiums for risks inherent in valuation
techniques, inputs, and the general uncertainty around the timing and amount of
future cash flows. The significant inputs to the valuation models for these
embedded derivatives include capital market assumptions, such as interest rate
levels and volatility assumptions, the Company's market-perceived risk of its
own non-performance risk ("NPR"), as well as actuarially determined assumptions,
including mortality rates and contractholder behavior, such as lapse rates,
benefit utilization rates and withdrawal rates. Capital market inputs and actual
contractholders' account values are updated each quarter based on capital market
conditions as of the end of the quarter, including interest rates, equity
markets and volatility. In the risk neutral valuation, the initial swap curve
drives the total returns used to grow the contractholders' account values. The
Company's discount rate assumption is based on the London Inter-Bank Offered
Rate ("LIBOR") swap curve adjusted for an additional spread, which includes an
estimate of NPR. Actuarial assumptions, including contractholder behavior and
mortality, are reviewed at least annually and updated based upon emerging
experience, future expectations and other data, including any observable market
data, such as available industry studies or market transactions such as
acquisitions and reinsurance transactions. For additional information regarding
the valuation of these optional living benefit features, see Note 5 to the
Financial Statements.

Policyholders' Account Balances

Policyholders' account balances liability represents the contract value that has
accrued to the benefit of the policyholder as of the balance sheet date. This
liability is primarily associated with the accumulated account deposits, plus
interest credited, less policyholder withdrawals and other charges assessed
against the account balance, as applicable. The liability also includes
provisions for benefits under non-life contingent payout annuities.
Policyholders' account balances also include amounts representing the fair value
of embedded derivative instruments associated with the index-linked features of
certain annuity products. For additional information regarding the valuation of
these embedded derivatives, see Note 5 to the Financial Statements.


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Sensitivities for Insurance Assets and Liabilities

The following table summarizes the impact that could result on each of the
listed financial statement balances from changes in certain key assumptions. The
information below is for illustrative purposes and includes only the
hypothetical direct impact on December 31, 2021 balances of changes in a single
assumption and not changes in any combination of assumptions. Additionally, the
illustration of the insurance assumption impacts below reflects a parallel shift
in the insurance assumptions; however, these may be non-parallel in practice.
Changes in current assumptions could result in impacts to financial statement
balances that are in excess of the amounts illustrated. A description of the
estimates and assumptions used in the preparation of each of these financial
statement balances is provided above. For traditional long-duration and
limited-payment contracts, U.S. GAAP requires the original assumptions used when
the contracts are issued to be locked-in and that those assumptions be used in
all future liability calculations as long as the resulting liabilities are
adequate to provide for the future benefits and expenses (i.e., there is no
premium deficiency). Therefore, these products are not reflected in the
sensitivity table below unless the hypothetical change in assumption would
result in an adverse impact that would cause a premium deficiency. Similarly,
the impact of any favorable change in assumptions for traditional long-duration
and limited-payment contracts is not reflected in the table below given that the
current assumption is required to remain locked-in and instead the positive
impacts would be recognized into net income over the life of the policies in
force.

The impacts presented within this table exclude the related impacts of our asset
liability management strategy, which seeks to offset the changes in the balances
presented within this table and is primarily composed of investments and
derivatives. See further below for a discussion of the estimates and assumptions
involved with the application of U.S. GAAP accounting policies for these
instruments and "Quantitative and Qualitative Disclosures about Market Risk" for
hypothetical impacts on related balances as a result of changes in certain
significant assumptions.

                                                                              December 31, 2021
                                                                            Increase (Decrease) in
                                            Deferred Policy
                                              Acquisition
                                            Costs, Deferred
                                                 Sales
                                            Inducements and                                  Future Policy
                                               Value of                                       Benefits and
                                               Business              Reinsurance             Policyholders'
                                               Acquired              Recoverables           Account Balances          Net Impact
                                                                                (in millions)
Hypothetical change in current assumptions:
Long-term interest rate
     Increase by 25 basis points            $          5          $             0          $             0          $         5
     Decrease by 25 basis points            $         (5)         $             0          $             0          $        (5)

Long-term equity expected rate of return

     Increase by 50 basis points            $         25          $             0          $            (5)         $        30
     Decrease by 50 basis points            $        (10)         $             0          $             0          $       (10)

NPR credit spread

     Increase by 50 basis points            $        (90)         $        

(30) $ (390) $ 270

     Decrease by 50 basis points            $         95          $        

   30          $           415          $      (290)
Mortality
     Increase by 1%                         $          0          $            (5)         $           (40)         $        35
     Decrease by 1%                         $          0          $             5          $            40          $       (35)
Lapse
     Increase by 10%                        $        (10)         $           (10)         $          (120)         $       100
     Decrease by 10%                        $         10          $            10          $           125          $      (105)

Valuation of Investments, Including Derivatives, Measurement of Allowance for
Credit Loss, and the Recognition of Other-than-Temporary Impairments

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Our investment portfolio consists of public and private fixed maturity
securities, commercial mortgage and other loans, equity securities, other
invested assets and derivative financial instruments. Derivatives are financial
instruments whose values are derived from interest rates, foreign exchange
rates, financial indices or the values of securities. Derivative financial
instruments we generally use include swaps, futures, forwards and options and
may be exchange-traded or contracted in the over-the-counter ("OTC") market. We
are also party to financial instruments that contain derivative instruments that
are "embedded" in the financial instruments. Management believes the following
accounting policies related to investments, including derivatives, are most
dependent on the application of estimates and assumptions. Each of these
policies is discussed further within other relevant disclosures related to
investments and derivatives, as referenced below:

•Valuation of investments, including derivatives;

•Measurement of the allowance for credit losses on fixed maturity securities
classified as available-for-sale, commercial mortgage loans, and other loans;
and

•Recognition of other-than-temporary impairments ("OTTI") for equity method
investments.

We present at fair value in the statements of financial position our debt
security investments classified as available-for-sale, investments classified as
trading, and certain fixed maturities, equity securities, and certain
investments within "Other invested assets," such as derivatives. For additional
information regarding the key estimates and assumptions surrounding the
determination of fair value of fixed maturity and equity securities, as well as
derivative instruments, embedded derivatives and other investments, see Note 5
to the Financial Statements.

For our investments classified as available-for-sale, the impact of changes in
fair value is recorded as an unrealized gain or loss in "Accumulated other
comprehensive income (loss)" ("AOCI"), a separate component of equity. For our
investments classified as trading and equity securities, the impact of changes
in fair value is recorded within "Other income (loss)". Our commercial mortgage
and other loans are carried primarily at unpaid principal balances, net of
unamortized deferred loan origination fees and expenses and unamortized premiums
or discounts and a valuation allowance for losses.

In addition, an allowance for credit losses is measured each quarter for
available-for-sale fixed maturity securities, commercial mortgage and other
loans. For additional information regarding our policies regarding the
measurement of credit losses, see Note 2 to the Financial Statements.

For equity method investments, the carrying value of these investments is
written down or impaired to fair value when a decline in value is considered to
be other-than-temporary. For additional information regarding our OTTI policies,
see Note 2 to the Financial Statements.

Taxes on Income

Our effective tax rate is based on income, non-taxable and non-deductible items,
tax credits, statutory tax rates and tax planning opportunities available in the
various jurisdictions in which we operate. Inherent in determining our annual
tax rate are judgments regarding business plans, planning opportunities and
expectations about future outcomes. The Dividend Received Deduction ("DRD") is a
major reason for the difference between the Company's effective tax rate and the
U.S. federal statutory rate. The DRD is an estimate that incorporates the prior
and current year information, as well as the current year's equity market
performance. Both the current estimate of the DRD and the DRD in future periods
can vary based on factors such as, but not limited to, changes in the amount of
dividends received that are eligible for the DRD, changes in the amount of
distributions received from underlying fund investments, changes in the account
balances of variable life and annuity contracts, and the Company's taxable
income before the DRD.

An increase or decrease in our effective tax rate by one percentage point would
have resulted in a decrease or increase in our 2021 "Income tax expense
(benefit)" of $63 million.

The CARES Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act") was enacted into law. One provision of the CARES
Act amends the Tax Act of 2017 and allows companies with net operating losses
("NOLs") originating in 2020, 2019 or 2018 to carry back those losses for up to
five years. The Company has generated taxable income in 2020. Therefore, there
is no impact from the change in law for NOL carry back to tax years that have a
35% tax rate.

Contingencies

A contingency is an existing condition that involves a degree of uncertainty
that will ultimately be resolved upon the occurrence of future events. Under
U.S. GAAP, accruals for contingencies are required to be established when the
future event is probable and its impact can be reasonably estimated, such as in
connection with an unresolved legal matter. The initial reserve reflects
management's best estimate of the probable cost of ultimate resolution of the
matter and is revised accordingly as facts and circumstances change and,
ultimately, when the matter is brought to closure.

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Adoption of New Accounting Pronouncements

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements
to the Accounting for Long-Duration Contracts, was issued by the Financial
Accounting Standards Board ("FASB") on August 15, 2018 and was amended by ASU
2019-09, Financial Services - Insurance (Topic 944): Effective Date, issued in
October 2019 and ASU 2020-11, Financial Services-Insurance (Topic 944):
Effective Date and Early Application, issued in November 2020. Large
calendar-year public companies that early adopt ASU 2018-12 are allowed to apply
the guidance either as of January 1, 2020 or January 1, 2021 (and record
transition adjustments as of January 1, 2020 or January 1, 2021, respectively)
in the 2022 financial statements. Companies that do not early adopt ASU 2018-12
would apply the guidance as of January 1, 2021 (and record transition
adjustments as of January 1, 2021) in the 2023 financial statements. The Company
will adopt ASU 2018-12 using the modified retrospective transition method where
permitted.

ASU 2018-12 will impact, at least to some extent, the accounting and disclosure
requirements for all long-duration insurance and investment contracts issued by
the Company. The Company expects the standard to have a significant financial
impact on the Financial Statements and will significantly enhance disclosures.
In addition to the significant impacts to the balance sheet upon adoption, the
Company also expects an impact to the pattern of earnings emergence following
the transition date. See Note 2 to the Financial Statements for a more detailed
discussion of ASU 2018-12, as well as other accounting pronouncements issued but
not yet adopted and newly adopted accounting pronouncements.

                         Changes in Financial Position

2021 to 2020 Annual Comparison

Total assets decreased $5.7 billion from $64.3 billion at December 31, 2020 to
$58.6 billion at December 31, 2021. Significant components were:

•$10.4 billion decrease in Total investments and Cash and cash equivalents
primarily driven by consideration paid related to the 2021 Variable Annuities
Recapture and new reinsurance with Pruco Life and dividend distributions;

•$3.7 billion decrease in Deferred policy acquisition costs primarily due to the
unwinding of assumed costs as part of the 2021 Variable Annuities Recapture and
ceding costs as part of the new reinsurance with Pruco Life;

Partially offset by:

•$7.4 billion increase in Reinsurance recoverables driven by the new reinsurance
with Pruco Life; and

•$1.9 billion increase in Other assets driven by the new reinsurance with Pruco
Life.

Total liabilities decreased by $4.6 billion from $61.5 billion at December 31,
2020 to $56.9 billion at December 31, 2021. Significant components were:

•$14.0 billion decrease in Future policy benefits primarily driven by the 2021
Variable Annuities Recapture and a decrease in reserves related to our variable
annuity living benefit guarantees due to favorable equity market performance and
rising interest rates;

Partially offset by:

•$7.0 billion increase in Reinsurance payables driven by the new reinsurance
with Pruco Life; and

•$2.6 billion increase in Policyholders' account balances primarily driven by
incremental general account product sales.

Total equity decreased $1.0 billion from $2.7 billion at December 31, 2020 to
$1.7 billion at December 31, 2021, primarily driven by return of capital of $3.8
billion related to the 2021 Variable Annuities Recapture and $1.4 billion due to
unrealized losses on investments driven by rising interest rates reflected in
Accumulated other comprehensive income/(loss), partially offset by an after-tax
net income of $4.1 billion.
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                             Results of Operations

Income (loss) from Operations before Income Taxes

2021 to 2020 Annual Comparison

Income (loss) from operations before income taxes increased $10.3 billion from a
loss of $4.0 billion in 2020 to a gain of $6.3 billion in 2021. Excluding the
impact of our annual reviews and update of assumptions and other refinements,
income from operations increased $10.4 billion primarily driven by:

•Significant Realized investment gains (losses), reflecting a favorable impact
related to the 2021 Variable Annuities Recapture and portions of the U.S. GAAP
liability before NPR, that are excluded from our hedge target driven by
favorable equity market performance and rising interest rates.

The following table illustrates the net impact on our results of operations from
changes in the U.S. GAAP embedded derivative liability and hedge positions under
the Asset Liability Management ("ALM") strategy, and the related amortization of
DAC and other costs, for the periods indicated:

                                                                          

For the Year Ended December 31,

                                                                              2021                   2020
                                                                            

(in millions)(1)
U.S. GAAP embedded derivative and hedging positions
Change in value of U.S.GAAP liability, pre-NPR(2)

                      $          5,752          $  (5,904)
Change in the NPR adjustment                                                       (945)               520

Change in fair value of hedge assets, excluding capital hedges(3)

      (3,224)             2,077
Change in fair value of capital hedges(4)                                          (900)              (921)
2021 Variable Annuities Recapture Impact                                          5,142                     0
Other                                                                             1,201              1,622
Realized investment gains (losses), net, and related adjustments                  7,026             (2,606)
Market experience updates(5)                                                        180                (96)
Charges related to realized investments gains (losses), net                        (215)                72

Net impact from changes in the U.S. GAAP embedded derivative and hedge
positions, after the impact of NPR, DAC and other costs(6)

             $    

6,991 $ (2,631)

(1)Positive amount represents income; negative amount represents a loss.
(2)Represents the change in the liability (excluding NPR) for our variable
annuities which is measured utilizing a valuation methodology that is required
under U.S. GAAP. This liability includes such items as risk margins which are
required by U.S. GAAP but not included in our best estimate of the liability.
(3)Represents the changes in fair value of the derivatives utilized to hedge
potential claims associated with our variable annuity living benefit guarantees.
(4)Represents the changes in fair value of equity derivatives of the capital
hedge program intended to protect a portion of the overall capital position of
our business against exposure to the equity markets.
(5)Represents the immediate impacts in current period results from changes in
current market conditions on estimates of profitability.
(6)Excludes amounts from the changes in unrealized gains and losses from fixed
income instruments recorded in other comprehensive income (versus net income) of
$1,659 million and $1,298 million for the years ended December 31, 2021 and
2020, respectively.

For 2021, the gain of $7.0 billion primarily reflected favorable impacts related
to the portions of the U.S. GAAP liability before NPR that are excluded from the
hedge target driven by rising interest rates and favorable equity markets and
the 2021 Variable Annuities Recapture impact, partially offset by changes in
fair value of hedge assets and capital hedges driven by rising interest rates
and favorable equity markets and unfavorable NPR adjustment.

For 2020, the loss of $2.6 billion primarily reflected unfavorable impacts
related to the portions of the U.S. GAAP liability before NPR that are excluded
from the hedge target, partially offset by changes in fair value of hedge assets
driven by declining interest rates.

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Revenues, Benefits and Expenses

2021 to 2020 Annual Comparison

Revenues increased $11.2 billion from a loss of $2.2 billion for the year ended
December 31, 2020 to a gain of $8.9 billion for the year ended December 31,
2021. Excluding the impact of our annual reviews and update to our assumptions
and other refinements, the increase was $11.3 billion primarily driven by:

•Significant Realized investment gains (losses), reflecting a favorable impact
to the 2021 Variable Annuities Recapture and portions of the U.S. GAAP liability
before NPR, that are excluded from our hedge target driven by favorable equity
market performance and rising interest rates.

Benefits and expenses increased $0.9 billion from $1.8 billion for the year
ended December 31, 2020 to $2.7 billion for the year ended December 31, 2021.
Excluding the impact of our annual reviews and update to our assumptions and
other refinements, the increase of $1.1 billion primarily was driven by:

•Higher Commission expense primarily driven by the unwinding of assumed deferred
acquisition costs, partially offset by ceding allowance received as part of the
2021 Variable Annuities Recapture.

Risks and Risk Mitigants

Fixed Annuity Risks and Risk Mitigants. The primary risk exposure of our fixed
annuity products relates to investment risks we bear for providing customers a
minimum guaranteed interest rate or an index-linked interest rate required to be
credited to the customer's account value, which include interest rate
fluctuations and/or sustained periods of low interest rates, and credit risk
related to the underlying investments. We manage these risk exposures primarily
through our investment strategies and product design features, which include
credit rate resetting subject to the minimum guaranteed interest rate, as well
as surrender charges applied during the early years of the contract that help to
provide protection for premature withdrawals. In addition, a portion of our
fixed annuity products has a market value adjustment provision that affords
protection of lapse in the case of rising interest rates. We also manage these
risk exposures through affiliated reinsurance. For information on our affiliated
reinsurance agreements, see "Business-Reinsurance" section and Note 14 to the
Financial Statements.

Indexed Variable Annuity Risks and Risk Mitigants. The primary risk exposure of
our indexed variable annuity products relates to the investment risks we bear in
order to credit to the customer's account balance the required crediting rate
based on the performance of the elected indices at the end of each term. We
manage this risk primarily through our investment strategies including
derivatives and product design features, which include credit rate resetting
subject to contractual minimums as well as surrender charges applied during the
early years of the contract that help to provide protection for premature
withdrawals. In addition, our indexed variable annuity strategies have an
interim value provision that provides protection from lapse in the case of
rising interest rates. We also manage these risk exposures through affiliated
reinsurance. For information on our affiliated reinsurance agreements, see
"Business-Reinsurance" section and Note 14 to the Financial Statements.

Variable Annuity Risks and Risk Mitigants. The primary risk exposures of our
variable annuity contracts relate to actual deviations from, or changes to, the
assumptions used in the original pricing of these products, including capital
markets assumptions such as equity market returns, interest rates and market
volatility, along with actuarial assumptions such as contractholder mortality,
the timing and amount of annuitization and withdrawals, and contract lapses. For
these risk exposures, achievement of our expected returns is subject to the risk
that actual experience will differ from the assumptions used in the original
pricing of these products. We manage our exposure to certain risks driven by
fluctuations in capital markets primarily through a combination of i) Product
Design Features, ii) our Asset Liability Management Strategy, and iii) our
Capital Hedge Program as discussed below.

Effective July 1, 2021, Pruco Life recaptured the risks related to its business
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. For more information on this transaction, see
Note 1 to the Financial Statements.

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i. Product Design Features:

A portion of the variable annuity contracts that we offer include an asset
transfer feature. This feature is implemented at the contract level, and
transfers assets between certain variable investment sub-accounts selected by
the annuity contractholder and, depending on the benefit feature, a fixed-rate
account in the general account or a bond fund sub-account within the separate
account. The objective of the asset transfer feature is to reduce our exposure
to equity market risk and market volatility. The transfers are based on a static
mathematical formula used with the particular benefit which considers a number
of factors, including, but not limited to, the impact of investment performance
on the contractholder's total account value. Other product design features we
utilize include, among others, asset allocation restrictions, minimum issuance
age requirements and certain limitations on the amount of contractholder
purchase payments, as well as a required minimum allocation to our general
account for certain of our products. We continue to introduce products that
diversify our risk profile and have incorporated provisions in product design
allowing frequent revisions of key pricing elements for certain of our products.
In addition, there is diversity in our fee arrangements, as certain fees are
primarily based on the benefit guarantee amount, the contractholder account
value and/or premiums, which helps preserve certain revenue streams when market
fluctuations cause account values to decline.

ii. Asset Liability Management Strategy (including fixed income instruments and
derivatives):

We employ an ALM strategy that utilizes a combination of both traditional fixed
income instruments and derivatives to help defray potential claims associated
with our variable annuity living benefit guarantees. The economic liability we
manage with this ALM strategy consists of expected living benefit claims under
less severe market conditions, which are managed using fixed income and
derivative instruments, and potential living benefit claims resulting from more
severe market conditions, which are hedged using derivative instruments. For the
portion of our ALM strategy executed with derivatives, we enter into a range of
exchange-traded and over-the-counter ("OTC") equity, interest rate and credit
derivatives, including, but not limited to: equity and treasury futures; total
return, credit default and interest rate swaps; and options, including equity
options, swaptions, and floors and caps. The intent of this strategy is to more
efficiently manage the capital and liquidity associated with these products
while continuing to mitigate fluctuations in net income due to movements in
capital markets.

The valuation of the economic liability we seek to defray excludes certain items
that are included within the U.S. GAAP liability, such as NPR in order to
maximize protection irrespective of the possibility of our own default, as well
as risk margins (required by U.S. GAAP but different from our best estimate) and
valuation methodology differences. The following table provides a reconciliation
between the liability reported under U.S. GAAP and the economic liability we
manage through our ALM strategy as of the periods indicated:

                                                                        As of December 31,
                                                                    2021                  2020
                                                                          (in millions)
U.S. GAAP liability (including NPR)                            $      3,769          $    16,905
NPR adjustment                                                          522                3,705
   Subtotal                                                           4,290               20,610

Adjustments including risk margins and valuation methodology
differences

                                                          (1,331)              (4,596)

Economic liability managed through the ALM strategy $ 2,959

$ 16,014

As of December 31, 2021, the fair value of our fixed income instruments and
derivative assets exceed our economic liability.

Under our ALM strategy, we expect differences in the U.S. GAAP net income impact
between the changes in value of the fixed income instruments (either designated
as available-for-sale or designated as trading) and derivatives as compared to
the changes in the embedded derivative liability these assets support. These
differences can be primarily attributed to three distinct areas:

•Different valuation methodologies in measuring the liability we intend to cover
with fixed income instruments and derivatives versus the liability reported
under U.S. GAAP. The valuation methodology utilized in estimating the economic
liability we intend to defray with fixed income instruments and derivatives is
different from that required to be utilized to measure the liability under U.S.
GAAP. Additionally, the valuation of the economic liability excludes certain
items that are included within the U.S. GAAP liability, such as NPR in order to
maximize protection irrespective of the possibility of our own default and risk
margins (required by U.S. GAAP but different from our best estimate).

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•Different accounting treatment between liabilities and assets supporting those
liabilities. Under U.S. GAAP, changes in fair value of the embedded derivative
liability, derivative income and fixed income instruments designated as trading
are immediately reflected in net income, while changes in the fair value of
fixed income instruments that are designated as available-for-sale are recorded
as unrealized gains (losses) in other comprehensive income.

•General hedge results. For the derivative portion of the ALM strategy, the net
hedging impact (the extent to which the changes in value of the hedging
instruments offset the change in value of the portion of the economic liability
we are hedging) may be impacted by a number of factors, including: cash flow
timing differences between our hedging instruments and the corresponding portion
of the economic liability we are hedging, basis differences attributable to
actual underlying contractholder funds to be hedged versus hedgeable indices,
rebalancing costs related to dynamic rebalancing of hedging instruments as
markets move, certain elements of the economic liability that may not be hedged
(including certain actuarial assumptions), and implied and realized market
volatility on the hedge positions relative to the portion of the economic
liability we seek to hedge.

iii. Capital Hedge Program:

We employ a capital hedge program within the Company to protect a portion of the
overall capital position of the variable annuities business against its exposure
to the equity markets. The capital hedge program is conducted using equity
derivatives which include equity call and put options, total return swaps and
futures contracts.

                                  Income Taxes

The differences between income taxes expected at the U.S. federal statutory
income tax rate of 21% applicable for 2021, 2020 and 2019, and the reported
income tax expense (benefit) are provided in the following table:

                                                                        Year Ended December 31,
                                                                2021              2020              2019
                                                                             (in millions)
Expected federal income tax expense (benefit) at federal    $   1,314          $   (847)         $   (269)
statutory rate
Non-taxable investment income                                     (12)              (11)              (12)
Tax credits                                                       (10)               (8)              (12)
Other                                                               1                 0                 2
Reported income tax expense (benefit)                       $   1,294          $   (866)         $   (291)
Effective tax rate                                               20.7  %           21.5  %           22.7  %



Effective Tax Rate

The effective tax rate is the ratio of "Income tax expense (benefit)" divided by
"Income before income taxes". Our effective tax rate for fiscal years 2021, 2020
and 2019 was 20.7%, 21.5% and 22.7%, respectively. For a detailed description of
the nature of each significant reconciling item, see Note 11 to the Financial
Statements. The change in the effective tax rate from 21.5% in 2020 to 20.7% in
2021 was primarily driven by the increase in pre-tax income. The change in the
effective tax rate from 22.7% in 2019 to 21.5% in 2020 was primarily driven by
the decrease in pre-tax income.

Unrecognized Tax Benefits

The Company's liability for income taxes includes the liability for unrecognized
tax benefits and interest that relate to tax years still subject to review by
the Internal Revenue Service or other taxing authorities. The completion of
review or the expiration of the Federal statute of limitations for a given audit
period could result in an adjustment to the liability for income taxes. The
Company had no unrecognized benefit as of December 31, 2021, 2020 and 2019. We
do not anticipate any significant changes within the next 12 months to our total
unrecognized tax benefits related to tax years for which the statute of
limitations has not expired.

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Income Tax Expense vs. Income Tax Paid in Cash

Income tax expense recorded under U.S. GAAP routinely differs from the income
taxes paid in cash in any given year. Income tax expense recorded under U.S.
GAAP is based on income reported in our Statements of Operations for the current
period and it includes both current and deferred taxes. Income taxes paid during
the year include tax installments made for the current year as well as tax
payments and refunds related to prior periods.

For additional information on income tax related items, see
"Business-Regulation" and Note 11 to the Financial Statements.

                        Liquidity and Capital Resources

Overview

Liquidity refers to the ability to generate sufficient cash resources to meet
the payment obligations of the Company. Capital refers to the long-term
financial resources available to support the operations of our business, fund
business growth, and provide a cushion to withstand adverse circumstances. Our
ability to generate and maintain sufficient liquidity and capital depends on the
profitability of our business, general economic conditions, our ability to
borrow from affiliates and our access to the capital markets through affiliates
as described herein.

Effective and prudent liquidity and capital management is a priority across the
organization. Management monitors the liquidity of the Company on a daily basis
and projects borrowing and capital needs over a multi-year time horizon. We use
a Risk Appetite Framework ("RAF") to ensure that all risks taken by the Company
align with our capacity and willingness to take those risks. The RAF provides a
dynamic assessment of capital and liquidity stress impacts, including scenarios
similar to, and more severe than, those occurring due to COVID-19, and is
intended to ensure that sufficient resources are available to absorb those
impacts. We believe that our capital and liquidity resources are sufficient to
satisfy the capital and liquidity requirements of the Company.

Our businesses are subject to comprehensive regulation and supervision by
domestic and international regulators. These regulations currently include
requirements (many of which are the subject of ongoing rule-making) relating to
capital, leverage, liquidity, stress-testing, overall risk management, credit
exposure reporting and credit concentration. For information on these regulatory
initiatives and their potential impact on us, see "Business-Regulation" and
"Risk Factors".

Capital

We manage PALAC to regulatory capital levels consistent with our "AA" ratings
targets. We utilize the risk-based capital ("RBC") ratio as a primary measure of
capital adequacy. RBC is calculated based on statutory financial statements and
risk formulas consistent with the practices of the National Association of
Insurance Commissioners ("NAIC"). RBC considers, among other things, risks
related to the type and quality of the invested assets, insurance-related risks
associated with an insurer's products and liabilities, interest rate risks and
general business risks. RBC ratio calculations are intended to assist insurance
regulators in measuring an insurer's solvency and ability to pay future claims.
The reporting of RBC measures is not intended for the purpose of ranking any
insurance company or for use in connection with any marketing, advertising or
promotional activities, but is available to the public. The Company's capital
levels substantially exceed the minimum level required by applicable insurance
regulations. Our regulatory capital levels may be affected in the future by
changes to the applicable regulations, proposals for which are currently under
consideration by both domestic and international insurance regulators.

The regulatory capital level of the Company can be materially impacted by
interest rate and equity market fluctuations, changes in the values of
derivatives, the level of impairments recorded, and credit quality migration of
the investment portfolio, among other items. In addition, the reinsurance of
business or the recapture of business subject to reinsurance arrangements due to
defaults by, or credit quality migration affecting, the reinsurers or for other
reasons could negatively impact regulatory capital levels. The Company's
regulatory capital level is also affected by statutory accounting rules, which
are subject to change by each applicable insurance regulator.

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The Company has returned capital to its parent, PAI, for the periods indicated
below.
                      Return of Capital
                        (in millions)
December 31, 2021    $              451
September 30, 2021   $            3,813
June 30, 2021        $              188
March 31, 2021       $              192
December 31, 2020    $              188
September 30, 2020   $              192
June 30, 2020        $              173
March 31, 2020       $              207


Liquidity

Our liquidity is managed to ensure stable, reliable and cost-effective sources
of cash flows to meet all of our obligations. Liquidity is provided by a variety
of sources, as described more fully below, including portfolios of liquid
assets. Our investment portfolios are integral to the overall liquidity of the
Company. We use a projection process for cash flows from operations to ensure
sufficient liquidity to meet projected cash outflows, including claims. The
impact of Prudential Funding, LLC's ("Prudential Funding"), a wholly-owned
subsidiary of Prudential Insurance, financing capacity on liquidity (as
described below) is considered in the internal liquidity measures of the
Company.

Liquidity is measured against internally-developed benchmarks that take into
account the characteristics of both the asset portfolio and the liabilities that
they support. We consider attributes of the various categories of liquid assets
(e.g., type of asset and credit quality) in calculating internal liquidity
measures to evaluate our liquidity under various stress scenarios, including
company-specific and market-wide events. We continue to believe that cash
generated by ongoing operations and the liquidity profile of our assets provide
sufficient liquidity under reasonably foreseeable stress scenarios.

The principal sources of the Company's liquidity are premiums and certain
annuity considerations, investment and fee income, investment maturities, sales
of investments and internal borrowings. The principal uses of that liquidity
include benefits, claims, and payments to policyholders and contractholders in
connection with surrenders, withdrawals and net policy loan activity. Other uses
of liquidity include commissions, general and administrative expenses, purchases
of investments, the payment of dividends and returns of capital to the parent
company, hedging and reinsurance activity and payments in connection with
financing activities.

In managing liquidity, we consider the risk of policyholder and contractholder
withdrawals of funds earlier than our assumptions when selecting assets to
support these contractual obligations. We use surrender charges and other
contract provisions to mitigate the extent, timing and profitability impact of
withdrawals of funds by customers.

Liquid Assets

Liquid assets include cash and cash equivalents, short-term investments, U.S.
Treasury fixed maturities, fixed maturities that are not designated as
held-to-maturity, and public equity securities. As of December 31, 2021 and
2020, the Company had liquid assets of $12 billion and $21 billion,
respectively. The portion of liquid assets comprised cash and cash equivalents
and short-term investments was $3 billion and $1 billion as of December 31, 2021
and 2020, respectively. As of December 31, 2021, $8 billion, or 92%, of the
fixed maturity investments in the Company's general account portfolios were
rated high or highest quality based on NAIC or equivalent rating.

Financing Activities

Prudential Funding, LLC

Prudential Financial and Prudential Funding borrow funds in the capital markets
primarily through the direct issuance of commercial paper. The borrowings serve
as an additional source of financing to meet our working capital needs.
Prudential Funding operates under a support agreement with Prudential Insurance
whereby Prudential Insurance has agreed to maintain Prudential Funding's
positive tangible net worth at all times.

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Hedging activities associated with living benefit guarantees

The hedging portion of our risk management strategy associated with our living
benefit guarantees is being managed within the Company. For the portion of the
risk management strategy executed through hedging, we enter into a range of
exchange-traded, cleared and other OTC equity and interest rate derivatives in
order to hedge certain living benefit guarantees accounted for as embedded
derivatives against changes in certain capital market risks above a designated
threshold. The portion of the risk management strategy comprising the hedging
portion requires access to liquidity to meet the Company's payment obligations
relating to these derivatives, such as payments for periodic settlements,
purchases, maturities and terminations. These liquidity needs can vary
materially due to, among other items, changes in interest rates, equity markets,
mortality and policyholder behavior.

The hedging portion of the risk management strategy may also result in
derivative-related collateral postings to (when we are in a net pay position) or
from (when we are in a net receive position) counterparties. The net collateral
position depends on changes in interest rates and equity markets related to the
amount of the exposures hedged. Depending on market conditions, the collateral
posting requirements can result in material liquidity needs when we are in a net
pay position.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Market risk is defined as the risk of loss from changes in interest rates,
equity prices, and foreign currency exchange rates resulting from
asset/liability mismatches where the change in the value of our liabilities is
not offset by the change in value of our assets. See Item 1A, "Risk Factors"
above for a discussion of how difficult conditions in the financial markets and
the economy generally may materially adversely affect our business and results
of our operations.

Effective April 1, 2016, the Company reinsured variable annuity base contracts,
along with living benefit guarantees, from Pruco Life, excluding the 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 which had no impact on the
reinsurance agreement. Effective July 1, 2021, Pruco Life recaptured the risks
related to its variable annuity business, including base contracts, along with
the living benefit guarantees that had previously been reinsured to the Company
from April 1, 2016 through June 30, 2021, as described above. 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 to the Financial Statements for additional
information.

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. Additionally, the hedging program related to these
product risks are being managed within Pruco Life.

Market Risk Management

Management of market risk, which we consider to be a combination of both
investment risk and market risk exposures, includes the identification and
measurement of various forms of risk, the establishment of risk thresholds and
the creation of processes intended to maintain risks within these thresholds
while optimizing returns on the underlying assets or liabilities. As an indirect
wholly-owned subsidiary of Prudential Financial, the Company benefits from the
risk management strategies implemented by Prudential Financial.

Our risk management process utilizes a variety of tools and techniques,
including:

•Measures of price sensitivity to market changes (e.g., interest rates, equity
index prices, foreign exchange);

•Asset/liability management;

•Stress scenario testing;

•Hedging programs; and

•Risk management governance, including policies, limits and a committee that
oversees investment and market risk.

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Market Risk Mitigation

Risk mitigation takes three primary forms:

•Asset/Liability Management: Managing assets to liability-based measures. For
example, investment policies identify target durations for assets based on
liability characteristics and asset portfolios are managed to within ranges
around them. This mitigates potential unanticipated economic losses from
interest rate movements.

•Hedging: Using derivatives to offset risk exposures. For example, for our
variable annuities, potential living benefit claims resulting from more severe
market conditions are hedged using derivative instruments.

•Management of portfolio concentration risk: For example, ongoing monitoring and
management of key rate, currency and other concentration risks support
diversification efforts to mitigate exposure to individual markets and sources
of risk.

Market Risk Related to Interest Rates

We perform liability-driven investing and engage in careful asset/liability
management. Asset/liability mismatches create the risk that changes in liability
values will differ from the changes in the value of the related assets.
Additionally, changes in interest rates may impact other items including, but
not limited to, the following:

•Net investment spread between the amounts that we are required to pay and the
rate of return we are able to earn on investments for certain products supported
by general account investments;

•Asset-based fees earned on assets under management or contractholder account
values;

•Estimated total gross profits and the amortization of deferred policy
acquisition and other costs;

•Net exposure to the guarantees provided under certain products; and

•Our capital levels.

In order to mitigate the impact that an unfavorable interest rate environment
has on our net interest margins, we employ a proactive asset/liability
management program, which includes strategic asset allocation and derivative
strategies within a disciplined risk management framework. These strategies seek
to match the characteristics of our products, and to approximate the interest
rate sensitivity of the assets with the estimated interest rate sensitivity of
the product liabilities. Our asset/liability management program also helps
manage duration gaps, currency and other risks between assets and liabilities
through the use of derivatives. We adjust this dynamic process as products
change, as customer behavior changes and as changes in the market environment
occur. As a result, our asset/liability management process has permitted us to
manage interest rate risk successfully through several market cycles.

We use duration and convexity analyses to measure price sensitivity to interest
rate changes. Duration measures the relative sensitivity of the fair value of a
financial instrument to changes in interest rates. Convexity measures the rate
of change in duration with respect to changes in interest rates. We use
asset/liability management and derivative strategies to manage our interest rate
exposure by matching the relative sensitivity of asset and liability values to
interest rate changes, or controlling "duration mismatch" of assets and
liability duration targets. In certain markets, capital market limitations that
hinder our ability to acquire assets that approximate the duration of some of
our liabilities are considered in setting duration targets. We consider
risk-based capital and tax implications as well as current market conditions in
our asset/liability management strategies.

The Company also mitigates interest rate risk through a market value adjusted
("MVA") provision on certain of the Company's annuity products' fixed investment
options. This MVA provision limits interest rate risk by subjecting the
contractholder to an MVA when funds are withdrawn or transferred to variable
investment options before the end of the guarantee period. In the event of
rising interest rates, which generally make the fixed maturity securities
underlying the guarantee less valuable, the MVA could be negative. In the event
of declining interest rates, which generally make the fixed maturity securities
underlying the guarantee more valuable, the MVA could be positive. The resulting
increase or decrease in the value of the fixed option, from calculation of the
MVA, is designed to offset the decrease or increase in the market value of the
securities underlying the guarantee.

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We assess the impact of interest rate movements on the value of our financial
assets, financial liabilities and derivatives using hypothetical test scenarios
that assume either upward or downward 100 basis point parallel shifts in the
yield curve from prevailing interest rates, reflecting changes in either credit
spreads or the risk-free rate. The following table sets forth the net estimated
potential loss in fair value on these financial instruments from a hypothetical
100 basis point upward shift at December 31, 2021 and 2020. This table is
presented on a gross basis and excludes offsetting impacts to insurance
liabilities that are not considered financial liabilities under U.S. GAAP. This
scenario results in the greatest net exposure to interest rate risk of the
hypothetical scenarios tested at those dates. While the test scenario is for
illustrative purposes only and does not reflect our expectations regarding
future interest rates or the performance of fixed income markets, it is a
near-term, reasonably possible hypothetical change that illustrates the
potential impact of such events. These test scenarios do not measure the changes
in value that could result from non-parallel shifts in the yield curve, which we
would expect to produce different changes in discount rates for different
maturities. As a result, the actual loss in fair value from a 100 basis point
change in interest rates could be different from that indicated by these
calculations. The estimated changes in fair values do not include separate
account assets.

                                                                    As of December 31, 2021                                        As of December 31, 2020(1)
                                                                                              Hypothetical                                                     Hypothetical
                                                                                                Change in                                                     Change in Fair
                                                     Notional             Fair Value           Fair Value           Notional             Fair Value               Value
                                                                                                          (in millions)
Financial assets with interest rate risk:
Fixed maturities(2)                                                     $     8,798          $       (612)                             $    19,699          $        (2,561)
Policy loans                                                                     12                     0                                       12                        0
Commercial mortgage and other loans                                           1,516                   (75)                                   1,837                      (79)
Derivatives:
Swaps                                              $    17,914                  175                  (870)         $  156,430                1,785                   (4,322)
Futures                                                    910                    0                     0              10,156                  (14)                    (149)
Options                                                 20,582                  (65)                  150              34,054                1,095                     (534)
Forwards                                                    50                    0                     0                 110                    0                       (6)
Variable annuity and other living benefit
feature embedded derivatives                                                 (4,060)                1,348                                  (17,302)                   7,161
Indexed annuity contracts                                                    (2,041)                 (312)                                     580                     (115)
Total embedded derivatives(3)                                                (6,101)                1,036                                  (16,722)                   7,046
Financial liabilities with interest rate
risk(4):
Policyholders' account balances-investment
contracts                                                                    (2,391)                    4                                   (2,426)                       4
Net estimated potential gain (loss)                                                          $       (367)                                              

$ (601)

(1)Prior period amounts have been updated to conform to current period
presentation.
(2)Includes assets classified as "Fixed maturities, available-for-sale, at fair
value" and "Fixed maturities, trading, at fair value".
(3)Excludes any offsetting impact of derivative instruments purchased to hedge
changes in the embedded derivatives. Amounts reported gross of reinsurance.
(4)Excludes $14 billion and $25 billion as of December 31, 2021 and 2020,
respectively, of insurance reserve and deposit liabilities which are not
considered financial liabilities. We believe that the interest rate
sensitivities of these insurance liabilities would serve as an offset to the net
interest rate risk of the financial assets and financial liabilities, including
investment contracts.

Market Risk Related to Equity Prices

We have exposure to equity risk primarily through asset/liability mismatches,
including our equity-based derivatives, and embedded derivatives associated with
certain of the optional living benefit features of variable annuity contracts,
and index-linked crediting features of indexed annuity contracts. Our capital
hedging program primarily holds equity derivatives. In addition to the impact on
our equity derivatives, changes in equity prices may impact other items
including, but not limited to, the following:

•Asset-based fees earned on assets under management or contractholder account
value;

•Estimated total gross profits and the amortization of deferred policy
acquisition and other costs; and

•Net exposure to the guarantees provided under certain products.

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We manage equity risk against benchmarks in respective markets. We benchmark our
return on equity holdings against a blend of market indices, mainly the S&P 500
and Russell 2000 for U.S. equities. We benchmark foreign equities against the
Tokyo Price Index, and the MSCI EAFE, a market index of European, Australian and
Far Eastern equities. We target price sensitivities that approximate those of
the benchmark indices. For equity investments within the separate accounts, the
investment risk is borne by the separate account contractholder rather than by
the Company.

We estimate our equity risk from a hypothetical 10% decline in equity benchmark
levels. The following table sets forth the net estimated potential loss in fair
value from such a decline as of December 31, 2021 and 2020. While these
scenarios are for illustrative purposes only and do not reflect our expectations
regarding future performance of equity markets or of our equity portfolio, they
do represent near-term, reasonably possible hypothetical changes that illustrate
the potential impact of such events. These scenarios consider only the direct
impact on fair value of declines in equity benchmark market levels and not
changes in asset-based fees recognized as revenue, changes in our estimates of
total gross profits used as a basis for amortizing deferred policy acquisition
and other costs, or changes in any other assumptions such as market volatility
or mortality, utilization or persistency rates in our variable annuity contracts
that could also impact the fair value of our living benefit features. In
addition, these scenarios do not reflect the impact of basis risk, such as
potential differences in the performance of the investment funds underlying the
variable annuity products relative to the market indices we use as a basis for
developing our hedging strategy. The impact of basis risk could result in larger
differences between the change in fair value of the equity-based derivatives and
the related living benefit features in comparison to these scenarios. In
calculating these amounts, we exclude separate account equity securities.

                                                                   As of December 31, 2021                                         As of December 

31, 2020(1)

                                                                                              Hypothetical                                              

Hypothetical

                                                                             Fair              Change in                                      Fair      

Change in

                                                      Notional               Value             Fair Value              Notional              Value              Fair Value
                                                                                                        (in millions)
Equity securities                                                         $    322          $         (32)                                $     278          $         (28)
Equity-based derivatives(2)                      $    26,240                   (58)                  (192)         $      51,537               (451)                 2,031
Variable annuity and other living benefit
feature embedded derivatives                                                (4,060)                  (432)                                  (17,302)                (1,794)
Indexed annuity contracts                                                   (2,041)                   628                                       580                    186
Total embedded derivatives(3)                                               (6,101)                   196                                   (16,722)                (1,608)
Net estimated potential loss                                                                $         (28)                                                   $         395



(1)Prior period amounts have been updated to conform to current period
presentation.
(2)Both the notional amount and fair value of equity-based derivatives and the
fair value of embedded derivatives are also reflected in amounts under "Market
Risk Related to Interest Rates" above and are not cumulative.
(3)Excludes any offsetting impact of derivative instruments purchased to hedge
changes in the embedded derivatives. Amounts reported gross of reinsurance.

Derivatives

We use derivative financial instruments primarily to reduce market risk from
changes in interest rates and equity prices, including their use to alter
interest rate exposures arising from mismatches between assets and liabilities.
Our derivatives primarily include swaps, futures, options and forward contracts
that are exchange-traded or contracted in the OTC market. See Note 4 to the
Financial Statements for more information.

Market Risk Related to Certain Variable Annuity Products

The primary risk exposures of our variable annuity contracts relate to actual
deviations from, or changes to, the assumptions used in the original pricing of
these products, including capital market assumptions, such as equity market
returns, interest rates and market volatility, and actuarial assumptions.
Certain variable annuity optional living benefit features are accounted for as
embedded derivatives and recorded at fair value.
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