pru-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number 001-16707

Prudential Financial, Inc.

(Exact Name of Registrant as Specified in its Charter)


New Jersey			22-3703799
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)

751 Broad Street

Newark, NJ 07102

(973) 802-6000

(Address and Telephone Number of Registrant’s Principal Executive Offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of Each Class	Trading Symbols(s)	Name of Each Exchange on Which Registered
Common Stock, Par Value $.01	PRU	New York Stock Exchange
5.950% Junior Subordinated Notes	PRH	New York Stock Exchange
5.625% Junior Subordinated Notes	PRS	New York Stock Exchange
4.125% Junior Subordinated Notes	PFH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of October 31, 2023, 361 million shares of the registrant’s Common Stock (par value $0.01) were outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Interim Consolidated Statements of Financial Position as of September 30, 2023 and December 31, 2022	1
	Unaudited Interim Consolidated Statements of Operations for the three and nine months ended September 30 , 2023 and 2022	2
	Unaudited Interim Consolidated Statements of Comprehensive Income for the three and nine months ended September 30 , 2023 and 2022	3
	Unaudited Interim Consolidated Statements of Equity for the three and nine months ended September 30 , 2023 and 2022	4
	Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30 , 2023 and 2022	6
	Notes to Unaudited Interim Consolidated Financial Statements	8
	1. Business and Basis of Presentation	8
	2. Significant Accounting Policies and Pronouncements	19
	3. Investments	30
	4. Variable Interest Entities	48
	5. Derivatives and Hedging	49
	6. Fair Value of Assets and Liabilities	59
	7. Deferred Policy Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired	77
	8. Separate Accounts	79
	9. Liability for Future Policy Benefits	81
	10. Policyholders’ Account Balances	90
	11. Market Risk Benefits	94
	12. Reinsurance	96
	13. Closed Block	99
	14. Income Taxes	100
	15. Short-Term and Long-Term Debt	102
	16. Employee Benefit Plans	104
	17. Equity	105
	18. Earnings Per Share	108
	19. Segment Information	110
	20. Commitments and Contingent Liabilities	118

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	195
Item 4.	Controls and Procedures	197
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	198
Item 1A.	Risk Factors	198
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	198
Item 5.	Other Information	198
Item 6.	Exhibits	199
GLOSSARY		200
SIGNATURES		202

Table of Contents

Forward-Looking Statements

Certain of the statements included in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. There can be no assurance that future developments affecting Prudential Financial, Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) rapidly rising interest rates and equity market declines and their impact on our liquidity, capital positions, cash flows, results of operations and financial position; (2) losses on investments or financial contracts due to deterioration in credit quality or value, or counterparty default; (3) losses on insurance products due to mortality experience, morbidity experience or policyholder behavior experience that differs significantly from our expectations when we price our products; (4) changes in interest rates, equity prices and foreign currency exchange rates that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; (5) guarantees within certain of our products which are market sensitive and may decrease our earnings or increase the volatility of our results of operations or financial position; (6) liquidity needs resulting from (a) derivative collateral market exposure, (b) asset/liability mismatches, (c) the lack of available funding in the financial markets or (d) unexpected cash demands due to severe mortality calamity or lapse events; (7) financial or customer losses, or regulatory and legal actions, due to inadequate or failed processes or systems, external events, and human error or misconduct such as (a) disruption of our systems and data, (b) an information security breach, (c) a failure to protect the privacy of sensitive data, (d) reliance on third-parties or (e) labor and employment matters; (8) changes in the regulatory landscape, including related to (a) financial sector regulatory reform, (b) changes in tax laws, (c) fiduciary rules and other standards of care, (d) U.S. state insurance laws and developments regarding group-wide supervision, capital and reserves, (e) insurer capital standards outside the U.S. and (f) privacy and cybersecurity regulation; (9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; (10) an inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (11) ratings downgrades; (12) market conditions that may adversely affect the sales or persistency of our products; (13) competition; (14) reputational damage; (15) the costs, effects, timing, or success of our plans to execute our strategy; and (16) the risks related to COVID-19 could reemerge. Prudential Financial, Inc. does not undertake to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2022 for discussion of certain risks relating to our businesses and investment in our securities.

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

September 30, 2023 and December 31, 2022 (in millions, except share amounts)


	September 30, 2023		December 31, 2022
ASSETS
Fixed maturities, available-for-sale, at fair value (allowance for credit losses: 2023-$239; 2022-$138) (amortized cost: 2023-$332,035; 2022-$335,447)(1)	$	295,318	$	307,719
Fixed maturities, held-to-maturity, at amortized cost, net of allowance for credit losses (allowance for credit losses: 2023-$0; 2022-$2) (fair value: 2023-$0; 2022-$1,455)(1)	0		1,296
Fixed maturities, trading, at fair value (amortized cost: 2023-$8,671; 2022-$7,303)(1)	7,129		5,951
Assets supporting experience-rated contractholder liabilities, at fair value	2,943		2,844
Equity securities, at fair value (cost: 2023-$4,895; 2022-$5,306)(1)	7,039		7,150
Commercial mortgage and other loans (net of $332 and $203 allowance for credit losses; includes $387 and $137 of loans measured at fair value under the fair value option at September 30, 2023 and December 31, 2022, respectively)(1)	57,908		56,745
Policy loans	9,959		10,046
Other invested assets (net of $1 and $1 allowance for credit losses; includes $5,549 and $5,682 of assets measured at fair value at September 30, 2023 and December 31, 2022, respectively)(1)	21,868		21,099
Short-term investments (net of allowance for credit losses: 2023-$0; 2022-$6)	5,072		4,591
Total investments	407,236		417,441
Cash and cash equivalents(1)	16,892		17,251
Accrued investment income(1)	3,191		3,012
Deferred policy acquisition costs(2)	20,394		20,546
Value of business acquired(2)	514		621
Income tax assets	1,108		0

Market risk benefit assets(2)	2,200		800
Other assets (net of allowance for credit losses: 2023-$15; 2022-$26)(1)(2)	39,077		31,679
Separate account assets	190,642		197,679
TOTAL ASSETS	$	681,254	$	689,029
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits(2)	$	253,551	$	261,773
Policyholders’ account balances(2)	140,788		135,624
Market risk benefit liabilities(2)	4,660		5,864
Policyholders’ dividends	657		694
Securities sold under agreements to repurchase	5,547		6,589
Cash collateral for loaned securities	6,067		6,100
Income tax liabilities(2)	0		277
Short-term debt	615		775
Long-term debt	18,877		19,908

Other liabilities (including allowance for credit losses: 2023-$15; 2022-$18 )(1)(2)	32,112		21,824
Notes issued by consolidated variable interest entities (includes $392 and $0 measured at fair value under the fair value option at September 30, 2023 and December 31, 2022, respectively)(1)	791		374
Separate account liabilities	190,642		197,679
Total liabilities	654,307		657,481
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 20)
EQUITY
Preferred Stock ($0.01 par value; 10,000,000 shares authorized; none issued)	0		0
Common Stock ($0.01 par value; 1,500,000,000 shares authorized; 666,305,189 shares issued as of both September 30, 2023 and December 31, 2022)	6		6
Additional paid-in capital	25,714		25,747
Common Stock held in treasury, at cost (304,991,645 and 300,342,458 shares at September 30, 2023 and December 31, 2022, respectively)	(23,568)		(23,068)
Accumulated other comprehensive income (loss)(2)	(7,831)		(3,806)
Retained earnings(2)	31,493		31,714
Total Prudential Financial, Inc. equity	25,814		30,593
Noncontrolling interests	1,133		955
Total equity	26,947		31,548
TOTAL LIABILITIES AND EQUITY	$	681,254	$	689,029

__________

(1)See Note 4 for details of balances associated with variable interest entities (“VIEs”).

(2)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2023 and 2022 (in millions, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
REVENUES
Premiums (includes $36, $34, $311 and $(414) of gains (losses) from changes in estimates on deferred profit liability amortization for the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and 2022, respectively)(1)	$	4,173	$	15,845	$	20,445	$	30,011
Policy charges and fee income(1)	1,112		1,143		3,319		3,417
Net investment income	4,571		3,631		13,367		11,927
Asset management and service fees	952		966		2,787		3,086
Other income (loss)(1)	197		(896)		2,260		(845)
Realized investment gains (losses), net(1)	(2,402)		(430)		(3,123)		(3,110)
Change in value of market risk benefits, net of related hedging gains (losses)(1)	(251)		(58)		(160)		(1,038)
Total revenues	8,352		20,201		38,895		43,448
BENEFITS AND EXPENSES
Policyholders’ benefits(1)	5,163		16,152		23,128		32,885
Change in estimates of liability for future policy benefits(1)	(49)		(35)		231		597
Interest credited to policyholders’ account balances(1)	872		691		3,002		1,395
Dividends to policyholders	(3)		90		619		118
Amortization of deferred policy acquisition costs(1)	361		363		1,092		1,092

General and administrative expenses(1)	3,066		3,066		9,413		9,213
Total benefits and expenses	9,410		20,327		37,485		45,300
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(1,058)		(126)		1,410		(1,852)
Total income tax expense (benefit)(1)	(251)		(11)		254		(274)
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(807)		(115)		1,156		(1,578)
Equity in earnings of operating joint ventures, net of taxes	16		7		26		(53)


NET INCOME (LOSS)	(791)		(108)		1,182		(1,631)
Less: Income (loss) attributable to noncontrolling interests	11		(16)		11		(36)
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	(802)	$	(92)	$	1,171	$	(1,595)
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(2.23)	$	(0.26)	$	3.17	$	(4.32)
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(2.23)	$	(0.26)	$	3.15	$	(4.32)

__________

(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, 2023 and 2022 (in millions)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
NET INCOME (LOSS)	$	(791)	$	(108)	$	1,182	$	(1,631)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period(1)	(291)		(586)		(649)		(1,887)
Net unrealized investment gains (losses)(1)	(15,044)		(14,147)		(9,479)		(56,134)
Interest rate remeasurement of future policy benefits(1)	14,430		15,469		5,529		64,087
Gain (loss) from changes in non-performance risk on market risk benefits(1)	(451)		(8)		(528)		1,299
Defined benefit pension and postretirement unrecognized periodic benefit (cost)	22		52		67		505
Total	(1,334)		780		(5,060)		7,870
Less: Income tax expense (benefit) related to other comprehensive income (loss)(1)	(152)		307		(1,035)		2,608
Other comprehensive income (loss), net of taxes	(1,182)		473		(4,025)		5,262
Comprehensive income (loss)	(1,973)		365		(2,843)		3,631
Less: Comprehensive income (loss) attributable to noncontrolling interests	11		(16)		11		(37)
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	(1,984)	$	381	$	(2,854)	$	3,668

__________

(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity

Three and Nine Months Ended September 30, 2023 (in millions)


	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held In Treasury		Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2022(1)	$	6	$	25,747	$	31,714	$	(23,068)	$	(3,806)	$	30,593	$	955	$	31,548

Common Stock acquired							(250)				(250)				(250)

Contributions from noncontrolling interests													93		93
Distributions to noncontrolling interests													(2)		(2)

Stock-based compensation programs			(104)				171				67				67
Dividends declared on Common Stock					(468)						(468)				(468)
Comprehensive income:
Net income (loss)					1,462						1,462		15		1,477
Other comprehensive income (loss), net of tax									(19)		(19)		1		(18)
Total comprehensive income (loss)											1,443		16		1,459
Balance, March 31, 2023	6		25,643		32,708		(23,147)		(3,825)		31,385		1,062		32,447

Common Stock acquired							(252)				(252)				(252)

Contributions from noncontrolling interests													30		30
Distributions to noncontrolling interests													(19)		(19)
Consolidations (deconsolidations) of noncontrolling interests													(36)		(36)
Stock-based compensation programs			33				44				77				77
Dividends declared on Common Stock					(463)						(463)				(463)
Comprehensive income:
Net income (loss)					511						511		(15)		496
Other comprehensive income (loss), net of tax									(2,824)		(2,824)		(1)		(2,825)
Total comprehensive income (loss)											(2,313)		(16)		(2,329)
Balance, June 30, 2023	6		25,676		32,756		(23,355)		(6,649)		28,434		1,021		29,455

Common Stock acquired							(252)				(252)				(252)

Contributions from noncontrolling interests													5		5
Distributions to noncontrolling interests													(6)		(6)
Consolidations (deconsolidations) of noncontrolling interests													102		102
Stock-based compensation programs			38				39				77				77
Dividends declared on Common Stock					(461)						(461)				(461)
Comprehensive income:
Net income (loss)					(802)						(802)		11		(791)
Other comprehensive income (loss), net of tax									(1,182)		(1,182)		0		(1,182)
Total comprehensive income (loss)											(1,984)		11		(1,973)
Balance, September 30, 2023	$	6	$	25,714	$	31,493	$	(23,568)	$	(7,831)	$	25,814	$	1,133	$	26,947

__________

(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity—Continued

Three and Nine Months Ended September 30, 2022 (in millions)


	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held In Treasury		Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2021(1)	$	6	$	25,732	$	35,183	$	(21,838)	$	(9,493)	$	29,590	$	732	$	30,322

Common Stock acquired							(375)				(375)				(375)

Contributions from noncontrolling interests													3		3
Distributions to noncontrolling interests													(21)		(21)

Stock-based compensation programs			(73)				162				89				89
Dividends declared on Common Stock					(462)						(462)				(462)
Comprehensive income:
Net income (loss)					(493)						(493)		(13)		(506)
Other comprehensive income (loss), net of tax									940		940		(1)		939
Total comprehensive income (loss)											447		(14)		433
Balance, March 31, 2022(1)	6		25,659		34,228		(22,051)		(8,553)		29,289		700		29,989

Common Stock acquired							(375)				(375)				(375)

Contributions from noncontrolling interests													26		26
Distributions to noncontrolling interests													(36)		(36)

Stock-based compensation programs			2				35				37				37
Dividends declared on Common Stock					(457)						(457)				(457)
Comprehensive income:
Net income (loss)					(1,010)						(1,010)		(7)		(1,017)
Other comprehensive income (loss), net of tax									3,850		3,850		0		3,850
Total comprehensive income (loss)											2,840		(7)		2,833
Balance, June 30, 2022(1)	6		25,661		32,761		(22,391)		(4,703)		31,334		683		32,017

Common Stock acquired							(375)				(375)				(375)

Contributions from noncontrolling interests													14		14
Distributions to noncontrolling interests													(12)		(12)

Stock-based compensation programs			46				30				76				76
Dividends declared on Common Stock					(454)						(454)				(454)
Comprehensive income:
Net income (loss)					(92)						(92)		(16)		(108)
Other comprehensive income (loss), net of tax									473		473		0		473
Total comprehensive income (loss)											381		(16)		365
Balance, September 30, 2022(1)	$	6	$	25,707	$	32,215	$	(22,736)	$	(4,230)	$	30,962	$	669	$	31,631

__________

(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2023 and 2022 (in millions)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)(1)	$	1,182	$	(1,631)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses, net(1)	3,123		3,110
Change in value of market risk benefits, net of related hedging (gains) losses(1)	160		1,038
Policy charges and fee income(1)	(1,626)		(1,665)
Interest credited to policyholders’ account balances(1)	3,002		1,395
Depreciation and amortization(1)	1		58
(Gains) losses on assets supporting experience-rated contractholder liabilities, net	(426)		1,100
Change in:
Deferred policy acquisition costs(1)	(600)		(521)
Future policy benefits and other insurance liabilities(1)	4,729		5,997
Income taxes(1)	(282)		(1,505)
Derivatives, net(1)	(737)		(472)
Other, net(1)	(3,119)		(1,124)
Cash flows from (used in) operating activities	5,407		5,780
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	32,743		38,851
Fixed maturities, held-to-maturity	22		24
Fixed maturities, trading	862		1,421
Assets supporting experience-rated contractholder liabilities	1,693		11,011
Equity securities	3,237		3,070
Commercial mortgage and other loans	2,722		4,294
Policy loans	1,319		1,278
Other invested assets	797		1,427
Short-term investments	24,197		30,119
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(36,969)		(45,004)

Fixed maturities, trading	(1,774)		(385)
Assets supporting experience-rated contractholder liabilities	(1,741)		(11,346)
Equity securities	(2,393)		(2,992)
Commercial mortgage and other loans	(3,938)		(3,832)
Policy loans	(1,151)		(904)
Other invested assets	(1,949)		(2,127)
Short-term investments	(24,512)		(27,823)

Dispositions, net of cash disposed	0		422
Derivatives, net	(1,909)		(1,701)
Other, net	(280)		(65)
Cash flows from (used in) investing activities	(9,024)		(4,262)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	20,690		22,108
Policyholders’ account withdrawals	(13,646)		(18,212)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	(1,075)		(142)
Cash dividends paid on Common Stock	(1,391)		(1,371)
Net change in financing arrangements (maturities 90 days or less)	(77)		(245)
Common Stock acquired	(754)		(1,113)
Common Stock reissued for exercise of stock options	91		128
Proceeds from the issuance of debt (maturities longer than 90 days)	662		2,538
Repayments of debt (maturities longer than 90 days)	(1,948)		(1,181)
Proceeds from notes issued by consolidated VIEs	484		0
Repayments of notes issued by consolidated VIEs	(39)		0

Other, net	470		1,565
Cash flows from (used in) financing activities	3,467		4,075
Effect of foreign exchange rate changes on cash balances	(220)		(446)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS INCLUDING BALANCES CLASSIFIED AS HELD-FOR-SALE	(370)		5,147
NET CHANGE IN CASH BALANCES CLASSIFIED AS HELD-FOR-SALE(2)	0		(2,071)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS	(370)		7,218
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR	17,299		12,934
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	16,929	$	20,152

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PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2023 and 2022 (in millions)


	Nine Months Ended September 30,
	2023		2022
HELD-FOR-SALE CLASSIFICATION(1)(2)
Change in assets classified as held-for-sale	$	0	$	(153,935)
Change in liabilities classified as held-for-sale	0		(151,508)
Change in net assets classified as held-for-sale	$	0	$	(2,427)

NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs	$	276	$	232
Novation of annuity contracts(3)	$	491	$	2,611
Assets transferred upon surrender of IRA contracts(4)	$	2,019	$	0
Significant Pension Risk Transfer transactions:
Assets received, excluding Cash and cash equivalents	$	2,264	$	8,246
Liabilities assumed	3,257		8,764
Net cash received	$	993	$	518




Prismic Re reinsurance transaction(5):
Net assets transferred, excluding Cash and cash equivalents	$	1,351	$	0
Payable established under coinsurance with funds withheld	8,184		0
Reinsurance recoverables established for Future policy benefits ceded	(5,584)		0
Deposit assets established for Policyholders' account balances ceded	(3,723)		0
Unwind of Deferred policy acquisition costs ceded	23		0
Deferred reinsurance loss	(393)		0
Net cash paid	$	(142)	$	0

RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Cash and cash equivalents	$	16,892	$	20,104
Restricted cash and restricted cash equivalents (included in “Other assets”)	37		48
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	16,929	$	20,152

__________

(1)Prior period amounts adjusted for the implementation of ASU 2018-12: Targeted Improvements to the Accounting for Long-Duration Contracts.

(2)See Note 1 for additional information regarding the dispositions.

(3)“Cash flows from (used in) operating activities” and “Cash flows from (used in) investing activities” exclude certain non-cash activities related to the novation of certain, previously reinsured, annuity products, from Fortitude Group Holdings, LLC to the Company. See Note 1 for additional information.

(4)“Cash flows from (used in) operating activities” exclude certain non-cash activities related to the sale of the Full Service Retirement business as a result of the surrender of certain Stable Value Individual Retirement Account (“IRA”) contracts from the Company to Great-West Life & Annuity Insurance Company. See Note 1 for additional information regarding this sale.

(5)See Note 12 for additional information regarding the reinsurance agreement with Prismic Life Reinsurance, Ltd (“Prismic Re”).

See Notes to Unaudited Interim Consolidated Financial Statements

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Prudential Financial, Inc. (“Prudential Financial”) and its subsidiaries (collectively, “Prudential” or the “Company”) provide a wide range of insurance, investment management, and other financial products and services to both individual and institutional customers throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities, retirement solutions, mutual funds and investment management.

Effective January 1, 2023, the Company made the following segment reporting changes, which do not impact the Company’s consolidated financial statements:

•Based on the write-down of Assurance IQ’s (“AIQ”) goodwill asset, and that its financial results and operations are not considered significant, AIQ no longer represents a separately reportable segment and is now included within the Company’s Corporate and Other operations.

•Since Prudential Advisors, the Company’s proprietary nationwide distribution business, is no longer managed through the Individual Life segment and its financial results and operations are not considered significant, it is now included within the Company’s Corporate and Other operations.

Historical segment results have been updated to conform to the current period presentation.

The Company’s principal operations consist of PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the Retirement Strategies, Group Insurance and Individual Life businesses), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included within Corporate and Other operations. Divested and Run-off Businesses consist of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind-down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments, as well as the Divested and Run-off Businesses described above.

In September 2023, the Company, through its Corporate and Other operations, invested approximately $200 million, and acquired a 20% equity interest as a limited partner, in Prismic Life Holding Company, LP (“Prismic HoldCo”), a Bermuda exempted limited partnership that owns all of the outstanding capital stock of Prismic Life Reinsurance, Ltd (“Prismic Re”), a licensed Bermuda-based life and annuity reinsurance company. As this investment is accounted for under the equity method, Prismic Re is considered a related party. Beginning with the fourth quarter of 2023, the operating results of Corporate and Other will reflect the Company’s share of earnings in Prismic HoldCo on a quarter lag. For information regarding the Company’s initial reinsurance transaction with Prismic Re, effective September 2023, see Note 12.

Basis of Presentation

On January 1, 2023, the Company adopted Accounting Standard Update (“ASU”) 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, which provided new authoritative guidance impacting the accounting and disclosure requirements for long-duration insurance and investment contracts issued by the Company. See “Adoption of ASU 2018-12” below for additional information regarding this adoption, including the impacts to the Company’s 2022 financial statements from implementing the new accounting standard as well as the transition impacts recorded as of January 1, 2021. See Note 2 for additional details regarding the key policy changes effected by this ASU and updated accounting policies resulting from the adoption of this ASU for all periods presented in the Unaudited Interim Consolidated Financial Statements.

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner, and variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. See Note 4 for additional information regarding the Company’s consolidated variable interest entities. Intercompany balances and transactions have been eliminated.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Adoption of ASU 2018-12

In August 2018, the FASB issued ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts which provides new authoritative guidance impacting the accounting and disclosure requirements for long-duration insurance and investment contracts issued by the Company. The Company adopted this guidance, effective January 1, 2023, using the modified retrospective transition method, where permitted, for changes to the liability for future policy benefits and deferred policy acquisition costs (“DAC”) and related balances, and using the retrospective transition method, as required, for market risk benefits. The Company applied the guidance as of the transition date of January 1, 2021 and retrospectively adjusted prior period amounts shown in the 2023 financial statements to reflect the new guidance.

The following tables present amounts as previously reported in 2022, the effect upon those amounts from the adoption of the new guidance under ASU 2018-12, and the adjusted amounts that are reflected in the Unaudited Interim Consolidated Financial Statements included herein.

Unaudited Interim Consolidated Statements of Financial Position:


	December 31, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in millions)
Deferred policy acquisition costs	$	19,537	$	1,009	$	20,546
Value of business acquired	595		26		621
Income tax assets	4,214		(4,214)		0
Market risk benefit assets	0		800		800
Other assets	30,188		1,491		31,679
TOTAL ASSETS	689,917		(888)		689,029

Future policy benefits	284,452		(22,679)		261,773
Policyholders' account balances	135,602		22		135,624
Market risk benefit liabilities	0		5,864		5,864
Income taxes	0		277		277
Other liabilities	20,536		1,288		21,824
Total liabilities	672,709		(15,228)		657,481

Accumulated other comprehensive income (loss)	(19,827)		16,021		(3,806)
Retained earnings	33,392		(1,678)		31,714
Total Prudential Financial, Inc. equity	16,250		14,343		30,593
Noncontrolling interests	958		(3)		955
Total equity	17,208		14,340		31,548
TOTAL LIABILITIES AND EQUITY	$	689,917	$	(888)	$	689,029

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Unaudited Interim Consolidated Statements of Operations:


	Three Months Ended September 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in millions, except per share amounts)
REVENUES
Premiums	$	16,247	$	(402)	$	15,845
Policy charges and fee income	1,233		(90)		1,143
Other income (loss)	(1,083)		187		(896)
Realized investment gains (losses), net	(514)		84		(430)
Change in value of market risk benefits, net of related hedging gain	0		(58)		(58)
Total revenues	20,480		(279)		20,201
BENEFITS AND EXPENSES
Policyholders' benefits	16,581		(429)		16,152
Change in estimates of liability for future policy benefits	0		(35)		(35)
Interest credited to policyholders' account balances	703		(12)		691
Amortization of deferred policy acquisition costs	485		(122)		363
General and administrative expenses	3,058		8		3,066
Total benefits and expenses	20,917		(590)		20,327
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(437)		311		(126)
Total income tax expense (benefit)	(148)		137		(11)
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(289)		174		(115)
Equity in earnings of operating joint ventures, net of taxes	(1)		8		7
NET INCOME (LOSS)	(290)		182		(108)
Less: Income attributable to noncontrolling interests	(6)		(10)		(16)
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	(284)	$	192	$	(92)

EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(0.78)	$	0.52	$	(0.26)
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(0.78)	$	0.52	$	(0.26)

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in millions, except per share amounts)
REVENUES
Premiums	$	31,311	$	(1,300)	$	30,011
Policy charges and fee income	4,243		(826)		3,417
Other income (loss)	(1,874)		1,029		(845)
Realized investment gains (losses), net	(1,977)		(1,133)		(3,110)
Change in value of market risk benefits, net of related hedging gain	0		(1,038)		(1,038)
Total revenues	46,716		(3,268)		43,448
BENEFITS AND EXPENSES
Policyholders' benefits	35,061		(2,176)		32,885
Change in estimates of liability for future policy benefits	0		597		597
Interest credited to policyholders' account balances	1,537		(142)		1,395
Amortization of deferred policy acquisition costs	1,913		(821)		1,092
General and administrative expenses	9,150		63		9,213
Total benefits and expenses	47,779		(2,479)		45,300
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(1,063)		(789)		(1,852)
Total income tax expense (benefit)	(206)		(68)		(274)
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	(857)		(721)		(1,578)
Equity in earnings of operating joint ventures, net of taxes	(49)		(4)		(53)
NET INCOME (LOSS)	(906)		(725)		(1,631)
Less: Income attributable to noncontrolling interests	(26)		(10)		(36)
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	(880)	$	(715)	$	(1,595)

EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(2.41)	$	(1.91)	$	(4.32)
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	(2.41)	$	(1.91)	$	(4.32)

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Unaudited Interim Consolidated Statements of Comprehensive Income:


	Three Months Ended September 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in millions)
NET INCOME (LOSS)	$	(290)	$	182	$	(108)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	(592)		6		(586)
Net unrealized investment gains (losses)	(13,182)		(965)		(14,147)
Interest rate remeasurement of future policy benefits	0		15,469		15,469
Gain (loss) from changes in non-performance risk on market risk benefits	0		(8)		(8)
Total	(13,722)		14,502		780
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(3,025)		3,332		307
Other comprehensive income (loss), net of taxes	(10,697)		11,170		473
Comprehensive income (loss)	(10,987)		11,352		365
Less: Comprehensive income (loss) attributable to noncontrolling interests	(7)		(9)		(16)
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	(10,980)	$	11,361	$	381


	Nine Months Ended September 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in millions)
NET INCOME (LOSS)	$	(906)	$	(725)	$	(1,631)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	(1,928)		41		(1,887)
Net unrealized investment gains (losses)	(52,692)		(3,442)		(56,134)
Interest rate remeasurement of future policy benefits	0		64,087		64,087
Gain (loss) from changes in non-performance risk on market risk benefits	0		1,299		1,299
Total	(54,115)		61,985		7,870
Less: Income tax expense (benefit) related to other comprehensive income (loss)	(11,915)		14,523		2,608
Other comprehensive income (loss), net of taxes	(42,200)		47,462		5,262
Comprehensive income (loss)	(43,106)		46,737		3,631
Less: Comprehensive income (loss) attributable to noncontrolling interests	(28)		(9)		(37)
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	(43,078)	$	46,746	$	3,668

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Unaudited Interim Consolidated Statements of Cash Flows:


	Nine Months Ended September 30, 2022
IMPACTED LINES ONLY	As Previously Reported		Effect of Change		As Currently Reported
	(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(906)	$	(725)	$	(1,631)
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses, net	1,977		1,133		3,110
Change in value of market risk benefits, net of related hedging (gain) loss	0		1,038		1,038
Policy charges and fee income	(1,915)		250		(1,665)
Interest credited to policyholders' account balances	1,537		(142)		1,395
Depreciation and amortization	62		(4)		58
Change in:
Deferred policy acquisition costs	277		(798)		(521)
Future policy benefits and other insurance liabilities	6,403		(406)		5,997
Income taxes	(1,437)		(68)		(1,505)
Derivatives, net	(913)		441		(472)
Other, net	(405)		(719)		(1,124)
Cash flows from (used in) operating activities	$	5,780	$	0	$	5,780

The following tables detail the January 1, 2021 transition adjustments by providing a rollforward of the ending reported balances as of December 31, 2020 to the opening balances as of January 1, 2021 for retained earnings, accumulated other comprehensive income (“AOCI”) and the impacted insurance-related balances.


	January 1, 2021
	Retained Earnings
	(in millions)
Balance after-tax, prior to transition	$	30,749
Reclassification of market risk benefits non-performance risk to AOCI(1)	(1,588)
Updates to certain universal life contract liabilities(2)	(1,025)
Change in non-participating traditional and limited-payment contract liabilities(3)	(543)
Other	(271)
Total pre-tax adjustments	(3,427)
Tax impacts	815
Balance after-tax, after transition	$	28,137

__________

(1)Reflects the cumulative impact of changes in the fair value of market risk benefits (“MRB”) non-performance risk (“NPR”) from the date of contract issuance to January 1, 2021. These amounts were previously recorded in retained earnings but are now reflected in AOCI under the new guidance.

(2)Reflects the impact on additional insurance reserves (“AIR”) and other related balances primarily related to the no-lapse guarantee features on certain universal life contracts in the Individual Life segment. For additional information, see Note 2.

(3)Reflects the impact on in-force contract liabilities where expected benefits exceed expected gross premiums and/or exhausts any deferred profit liabilities at any issue-year cohort level as a result of updating to current best estimate cash flow assumptions as of transition date, as well as the impact of flooring the liability for future policy benefits at zero at the issue-year cohort level as of transition date.

At transition, there was a pre-tax charge to retained earnings of $402 million for certain issue-year cohorts related to non-participating traditional and limited-payment products where the expected benefits exceeded the expected gross premiums and/or exhausted any deferred profit liabilities. The charge is primarily driven by the loss of the aggregation benefit as sufficiencies in issue-year cohorts cannot offset issue-year cohorts with deficiencies. For additional information regarding the liability for future policy benefits, see Note 2.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	January 1, 2021
	Accumulated Other Comprehensive Income
	(in millions)
Balance after-tax, prior to transition	$	30,738
Unwinding amounts related to unrealized investment gains and losses(1)	5,534
Reclassification of MRB NPR to AOCI(2)	1,588
Interest rate remeasurement of future policy benefits(3)	(62,711)
Change in operating joint ventures	(12)

Total pre-tax adjustments	(55,601)
Tax impacts	13,205
Balance after-tax, after transition	$	(11,658)

__________

(1)Primarily reflects i) the removal of amounts related to the impact of unrealized investment gains and losses on premium deficiency reserves for non-participating traditional and limited-payment contracts and ii) amounts related to DAC and other balances as unrealized investment gains or losses no longer impact the amortization pattern of such balances under the new guidance. Also includes the impacts from updates to reserves and other related balances for certain universal life contracts. For additional information, see Note 2.

(2)Reflects the cumulative impact of changes in NPR on the fair value of market risk benefits from the date of contract issuance to January 1, 2021. These amounts were previously recorded in retained earnings but are now reflected in AOCI under the new guidance.

(3)Reflects the impact of remeasuring in-force non-participating traditional and limited-payment contract liabilities using current upper-medium grade fixed income instrument yields. This adjustment largely reflects the difference between discount rates locked-in at contract inception versus current discount rates as of January 1, 2021.


	January 1, 2021
	Deferred Policy Acquisition Costs
	Retirement Strategies		Individual Life				International Businesses				Other Businesses		Total
	Individual Variable		Term Life		Variable/ Universal Life		Life Planner		Gibraltar Life and Other
	(in millions)
Balance prior to transition	$	4,643	$	2,417	$	3,779	$	4,278	$	3,390	$	520	$	19,027
Unwinding amounts related to unrealized investment gains and losses and other activity	273		0		450		337		570		106		1,736

Balance after transition	$	4,916	$	2,417	$	4,229	$	4,615	$	3,960	$	626	$	20,763


	January 1, 2021
	Deferred Sales Inducements(1)
	Retirement Strategies		Other Businesses		Total
	Individual Variable
	(in millions)
Balance prior to transition	$	781	$	39	$	820
Unwinding amounts related to unrealized investment gains and losses	85		2		87
Balance after transition	$	866	$	41	$	907

__________

(1)Deferred sales inducements (“DSI”) are included in “Other assets”.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	January 1, 2021
	Value of Business Acquired
	International Businesses		Other Businesses(1)		Total
	Gibraltar Life and Other
	(in millions)
Balance prior to transition	$	852	$	251	$	1,103
Unwinding amounts related to unrealized investment gains and losses and other activity	59		1		60
Balance after transition	$	911	$	252	$	1,163

__________

(1)Primarily represents value of business acquired (“VOBA”) for the Full Service Retirement business.


	January 1, 2021
	Benefit Reserves(1)
	Retirement Strategies		Individual Life		International Businesses				Corporate and Other		Other Businesses(2)		Total
	Institutional		Term Life		Life Planner		Gibraltar Life and Other		Long- Term Care
	(in millions)
Balance prior to transition	$	65,383	$	7,887	$	51,607	$	69,542	$	7,975	$	6,624	$	209,018
Changes in cash flow assumptions and other activity	(3,805)		0		10		(523)		(18)		1		(4,335)
Balance after transition, at original discount rate	61,578		7,887		51,617		69,019		7,957		6,625		204,683
Cumulative changes in discount rate assumptions and other activity	13,548		2,662		22,590		13,784		4,905		5,381		62,870
Balance after transition, at current discount rate	75,126		10,549		74,207		82,803		12,862		12,006		267,553
Less: Reinsurance recoverable	0		799		160		307		0		13		1,279
Balance after transition, net of reinsurance recoverable	$	75,126	$	9,750	$	74,047	$	82,496	$	12,862	$	11,993	$	266,274

__________

(1)Benefit reserves, excluding amounts for reinsurance recoverable, are included in "Future policy benefits." For additional information regarding the liability for future policy benefits, see Note 9.

(2)Primarily represents benefit reserves related to the Prudential of Taiwan business that was sold in the second quarter of 2021. The Company did not choose to apply ASU 2022-05 to this disposal transaction. See Note 2 for additional information.


	January 1, 2021
	Deferred Profit Liability(1)
	Retirement Strategies		International Businesses				Other Businesses		Total
	Institutional		Life Planner		Gibraltar Life and Other
	(in millions)
Balance prior to transition	$	1,315	$	1,964	$	3,746	$	349	$	7,374
Changes in benefit reserves	3,801		110		730		148		4,789
Balance after transition	5,116		2,074		4,476		497		12,163
Less: Reinsurance recoverable	0		7		15		0		22
Balance after transition, net of reinsurance recoverable	$	5,116	$	2,067	$	4,461	$	497	$	12,141

__________

(1)Deferred profit liability (“DPL”), excluding amounts for reinsurance recoverable, is included in "Future policy benefits." For additional information regarding the liability for future policy benefits, see Note 9.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	January 1, 2021
	Additional Insurance Reserves(1)
	Retirement Strategies		Individual Life		Other Businesses		Total
	Individual Variable		Variable/ Universal Life
	(in millions)
Balance prior to transition	$	889	$	9,415	$	483	$	10,787
Unwinding amounts related to unrealized investment gains and losses	(65)		(1,444)		(106)		(1,615)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses	824		7,971		377		9,172
Reclassification of future policy benefits AIR to MRB	(824)		0		(92)		(916)
Reclassification of policyholders’ account balances AIR to MRB	0		0		(48)		(48)
Updates to certain universal life contract liabilities(2)	0		1,772		7		1,779
Change in discount rate for annuitization benefits	0		0		116		116
Balance after transition, excluding amounts related to unrealized investment gains and losses	0		9,743		360		10,103
Amounts related to unrealized investment gains and losses after transition	0		1,186		0		1,186
Balance after transition	0		10,929		360		11,289
Less: Reinsurance recoverable	0		4,387		0		4,387
Balance after transition, net of reinsurance recoverable	$	0	$	6,542	$	360	$	6,902

__________

(1)Additional insurance reserves (“AIR”), excluding amounts for reinsurance recoverable, are included in “Future policy benefits”. For additional information regarding the liability for future policy benefits, see Note 9.

(2)For additional information regarding updates to reserves and other related balances for certain universal life contracts, see Note 2.


	January 1, 2021
	Universal Life Loss Recognition Reserves/Profit Followed by Losses Liability(1)
	Individual Life		Other Businesses
					Total
	(in millions)
Balance prior to transition	$	1,823	$	6	$	1,829
Unwinding amounts related to unrealized investment gains and losses	(1,149)		0		(1,149)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses	674		6		680
Derecognizing LRR & PFL	(674)		0		(674)
Balance after transition, excluding amounts related to unrealized investment gains and losses	0		6		6
Amounts related to unrealized investment gains and losses after transition	1,018		0		1,018
Balance after transition	$	1,018	$	6	$	1,024

__________

(1)Universal life loss recognition reserves (“LRR”) / profit followed by losses liability (“PFL”) are included in “Future policy benefits”. For additional information regarding the liability for future policy benefits, see Note 9.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	January 1, 2021
	Non-Participating Traditional and Limited-Payment Loss Recognition Reserves/Profit Followed by Losses Liability(1)
	Retirement Strategies		International Businesses				Corporate and Other		Other Businesses		Total
	Institutional		Life Planner		Gibraltar Life and Other		Long- Term Care
	(in millions)
Balance prior to transition	$	1,985	$	181	$	670	$	734	$	145	$	3,715
Unwinding amounts related to unrealized investment gains and losses	(1,985)		(169)		(670)		(734)		(105)		(3,663)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses	0		12		0		0		40		52
Derecognizing LRR & PFL	0		(12)		0		0		(40)		(52)
Balance after transition	$	0	$	0	$	0	$	0	$	0	$	0

__________

(1)Prior to the adoption of ASU 2018-12, non-participating traditional and limited-payment loss recognition reserves / profit followed by losses liabilities were included in “Future policy benefits”.


	January 1, 2021
	Terminal Dividend Liability(1)
	Individual Life				Closed Block Division		Total
	Variable/ Universal Life		Term Life
	(in millions)
Balance prior to transition	$	212	$	4	$	375	$	591
Unwinding amounts related to unrealized investment gains and losses and other activity	(11)		0		0		(11)
Balance after transition	201		4		375		580
Less: Reinsurance recoverable	0		0		0		0
Balance after transition, net of reinsurance recoverable	$	201	$	4	$	375	$	580

__________

(1)Terminal dividend liability is included in “Future policy benefits”.


	January 1, 2021
	Unearned Revenue Reserves(1)
		Individual Life		International Businesses
		Variable/Universal Life		Life Planner		Gibraltar Life and Other		Corporate and Other		Other Businesses		Total
	(in millions)
Balance prior to transition		$	2,204	$	161	$	45	$	152	$	30	$	2,592
Unwinding amounts related to unrealized investment gains and losses and other activity		539		2		5		38		0		584
Balance after transition		2,743		163		50		190		30		3,176
Less: Reinsurance recoverable		0		0		0		0		0		0
Balance after transition, net of reinsurance recoverable		$	2,743	$	163	$	50	$	190	$	30	$	3,176

__________

(1)Unearned revenue reserves (“URR”) are included in “Policyholders' account balances”.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	January 1, 2021
	Market Risk Benefits(1)
	Retirement Strategies		Other Businesses		Total
	Individual Variable
	(in millions)
Liability for guaranteed benefits recorded at fair value, prior to transition	$	18,731	$	148	$	18,879
AIR to be reclassified to MRB, prior to transition, excluding amounts related to unrealized investment gains and losses	824		140		964
Total liability prior to transition	19,555		288		19,843
Change in reserve basis to MRB framework	122		98		220
MRB after transition, at current NPR value	19,677		386		20,063
Less: Reinsured MRB	204		7		211
MRB after transition, net of reinsurance	19,473		379		19,852

MRB after transition, at contract inception NPR value	21,259		392		21,651
Cumulative change in NPR	1,582		6		1,588
MRB after transition, at current NPR value	$	19,677	$	386	$	20,063

__________

(1)For additional information regarding market risk benefits, see Note 11.


	January 1, 2021
	Cost of Reinsurance(1)
	Individual Life
	Variable/Universal Life
	(in millions)
Balance prior to transition	$	3,058
Unwinding amounts related to unrealized investment gains and losses	(659)
Balance prior to transition, excluding amounts related to unrealized investment gains and losses	2,399
Impact from updates to certain universal life contract liabilities(2)	860
Balance after transition, excluding amounts related to unrealized investment gains and losses	3,259
Amounts related to unrealized investment gains and losses after transition	580
Balance after transition	$	3,839

_________

(1)Cost of reinsurance is included in “Other liabilities.”

(2)For additional information regarding updates to reserves and other related balances for certain universal life contracts, see Note 2.

Use of Estimates

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

The most significant estimates include those used in determining future policy benefits; policyholders’ account balances related to the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products; market risk benefits; the measurement of goodwill and any related impairment; the valuation of investments including derivatives, the measurement of allowance for credit losses, and the recognition of other-than-temporary impairments (“OTTI”); pension and other postretirement benefits; any provision for income taxes and valuation of deferred tax assets; and accruals for contingent liabilities, including estimates for losses in connection with unresolved legal and regulatory matters.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reclassifications

Certain amounts in prior periods have been reclassified for reasons unrelated to the adoption of ASU 2018-12 to conform to the current period presentation.

Business Dispositions

Prudential Annuities Life Assurance Corporation, Representing a Portion of Individual Annuities’ Traditional Variable Annuity Block of Business

On April 1, 2022, the Company completed the sale of Prudential Annuities Life Assurance Corporation (“PALAC”), a wholly owned subsidiary, representing a portion of its in-force traditional variable annuity block of business, to Fortitude Group Holdings, LLC (“Fortitude”). The PALAC block primarily consisted of non-New York traditional variable annuities with guaranteed living benefits that were issued prior to 2011, which constituted approximately $30 billion of Prudential’s total in-force individual annuity account values at the closing of the transaction. The Company, through coinsurance and modified coinsurance agreements, has retained the economics of certain variable annuities, indexed annuities, and fixed annuities with a guaranteed lifetime withdrawal income feature issued by PALAC.

The Company recognized a pre-tax gain on sale of $1,448 million within “Other income”, which is included in adjusted operating income within the Retirement Strategies segment.

Full Service Retirement Business

On April 1, 2022, the Company completed the sale of its Full Service Retirement business to Great-West Life & Annuity Insurance Company (“Great-West”), primarily through a combination of (i) the sale of all of the outstanding equity interests of certain legal entities, including Prudential Retirement Insurance and Annuity Company (“PRIAC”); (ii) the ceding of certain insurance policies through reinsurance; and (iii) the sale, transfer and/or novation of certain in-scope contracts and brokerage accounts.

The Company recognized a net pre-tax gain on sale of $650 million, composed of (i) an $850 million gain recorded in “Other income”; (ii) $150 million of realized losses recorded in “Realized investment gains (losses), net”, related to assets transferred as part of the reinsurance of certain retained policies to Great-West; and (iii) $50 million of indirect expenses and charges recorded in “General and administrative expenses” on the Consolidated Statements of Operations. These amounts reflect certain post-closing adjustments in accordance with the terms of the transaction agreement. The net gain was excluded from adjusted operating income and reported within Divested Businesses as part of Corporate and Other operations. In addition, the Company recognized a deferred gain of approximately $400 million, including a post-closing true-up, for the ceding of certain insurance policies through reinsurance to Great-West. This deferred reinsurance gain will be recognized in income over the term of the ceded policies.

Excluding the gain on sale, the Full Service Retirement business generated pre-tax income/(loss) of $0 million and $(218) million for the three and nine months ended September 30, 2022, respectively. This amount excludes the impact of overhead costs retained in the Company’s Corporate and Other operations and not transferred to Great-West.

2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

Recent Accounting Pronouncements

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of ASUs to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs listed below include those that have been adopted during the current fiscal year and/or those that have been issued but not yet adopted as of September 30, 2023, and as of the date of this filing. ASUs not listed below were assessed and determined to be either not applicable or not material.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Adoption of ASU 2018-12

Effective January 1, 2023, the Company adopted ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. Adoption of this ASU impacted, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company and had a significant financial impact on the Consolidated Financial Statements and disclosures. See Note 1 for additional information.

As of the January 1, 2021 transition date, the adoption of the standard resulted in a decrease to “Retained earnings” of $2.6 billion primarily from reclassifying the cumulative effect of changes in non-performance risk on market risk benefits from “Retained earnings” to “Accumulated other comprehensive income” (“AOCI”) as well as from a net increase in additional insurance reserves and other related balances primarily related to the no-lapse guarantee features on certain universal life contracts. AOCI decreased $42.4 billion as of the January 1, 2021 transition date largely from remeasuring in-force contract liabilities using upper-medium grade fixed income instrument yields as of the transition date. As of the January 1, 2023 adoption date, the impacts amounted to a decrease to “Retained earnings” of $1.7 billion and an increase to AOCI of $16.0 billion. The changes in the impacts from January 1, 2021 to January 1, 2023 primarily reflect the increase in interest rates during 2021 and 2022.

Outlined below are: (1) key accounting policy changes effected by the ASU and (2) updated accounting policies for all of the periods presented in the Unaudited Interim Consolidated Financial Statements.

(1) Key Accounting Policy Changes

Area of Change

Description

Method of adoption

Effect on the financial statements or other significant matters

Cash flow assumptions used to measure the liability for future policy benefits for non-participating traditional and limited-payment insurance products

Requires an entity to review and, if necessary, update the cash flow assumptions used to measure the liability for future policy benefits, for both changes in future assumptions and actual experience, at least annually using a retrospective update method with a cumulative catch-up adjustment recorded in a separate line item in the Consolidated Statements of Operations.

Effective January 1, 2023 using the modified retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021 (the “transition date”). Under this method, the amendments to contracts in force were applied as of January 1, 2021 on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI.

The impact upon transition reflects the impact on in-force contract liabilities in instances where expected net premiums exceeded expected gross premiums at an issue-year cohort level as a result of updating to current best estimate cash flow assumptions as of the transition date. As a result of the modified retrospective transition method, the vast majority of the impact of updating cash flow assumptions to best estimates as of the transition date will be reflected in the pattern of earnings in subsequent periods. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 9 for additional information.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-payment insurance products

Requires discount rate assumptions to be based on upper-medium grade fixed income instrument yields, which will be updated each quarter with the impact recorded through OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the discount rate assumptions.

As noted above, the guidance for the liability for future policy benefits was adopted effective January 1, 2023 using the modified retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021. Under this method, for balance sheet remeasurement purposes, the liability for future policy benefits is remeasured using discount rates as of January 1, 2021 with the impact recorded as a cumulative effect adjustment to AOCI.

Adoption of the ASU resulted in a significant impact to AOCI as a result of remeasuring in-force contract liabilities using current upper-medium grade fixed income instrument yields. This adjustment largely reflects the difference between discount rates locked-in at contract inception versus current discount rates. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 9 for additional information.

Amortization of deferred acquisition costs (“DAC”) and other balances

Requires DAC and other balances, such as unearned revenue reserves and DSI, to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.

Effective January 1, 2023 using the modified retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021. Under this method, the amendments to contracts in force were applied as of January 1, 2021 on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI.

Adoption of the ASU did not have a significant impact on DAC and other balances upon transition, other than the impact of the removal of any related amounts in AOCI. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 7 for additional information.

Market Risk Benefits (“MRB”)

Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, and record MRB assets and liabilities separately on the Consolidated Statements of Financial Position. Changes in the fair value of market risk benefits are recorded in net income, except for the portion attributable to changes in an entity’s NPR, which is recognized in OCI. An entity shall maximize the use of relevant observable information and minimize the use of unobservable information in determining the balance of the market risk benefits upon adoption.

Effective January 1, 2023 using the retrospective transition method, which includes a cumulative effect adjustment to the balance sheet as of January 1, 2021.

Adoption of the ASU resulted in an adjustment to retained earnings for the difference between the fair value and carrying value of benefits not measured at fair value prior to the adoption of the ASU (e.g., guaranteed minimum death benefits on variable annuities) and a reclass of the cumulative effect of changes in NPR from retained earnings to AOCI. See Note 1 for additional information regarding the effect on the financial statements. Adoption of the standard also resulted in additional required disclosures. See Note 11 for additional information.

In addition to the significant key accounting changes noted above, ASU 2018-12 also clarified the definition of assessments used to accrue additional insurance reserves and other related balances, primarily for no-lapse guarantee features on certain universal life contracts in the Individual Life segment. Application of the new guidance changed the pattern of

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

reserve recognition for these guarantees and resulted in an increase to the net contract liabilities related to these products at transition. See Note 1 for additional information regarding the effect on the financial statements.

ASU 2022-05, Financial Services – Insurance (Topic 944) Transition for Sold Contracts was issued on December 15, 2022, to amend the transition guidance in ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The amendment allows an insurance entity to make an accounting policy election to not apply ASU 2018-12 to contracts or legal entities sold or disposed of before the effective date, and in which the insurance entity has no significant continuing involvement with the derecognized contracts. An insurance entity is permitted to apply the policy election on a transaction by transaction basis to each sale or disposal transaction. An insurance entity is required to disclose whether it has chosen to apply this accounting policy election and provide a qualitative description of the sale or disposal transactions to which the accounting policy election is applied. The Company did not choose to apply this accounting policy election to any of its eligible sale or disposal transactions.

(2) Updated Accounting Policies

This section includes the updated accounting policies resulting from the adoption of ASU 2018-12, which are applicable to all of the periods presented in the Unaudited Interim Consolidated Financial Statements. This section is meant to serve as an update to, and should be read in conjunction with, Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

ASSETS

Deferred policy acquisition costs (“DAC”) represents costs directly related to the successful acquisition of new and renewal insurance and annuity business. Such DAC primarily includes commissions, costs of policy issuance and underwriting, and certain other expenses that are directly related to successfully acquired contracts. In each reporting period, previously capitalized DAC is amortized and included in “Amortization of deferred policy acquisition costs”. Upon the adoption of ASU 2018-02, the carrying amount of DAC for long-duration contracts is no longer subject to recoverability testing.

DAC for most long-duration contracts is amortized on a constant-level basis at a grouped contract level over the expected life of the underlying insurance contracts. Contracts are grouped consistent with the groupings used to estimate the liability for future policy benefits (or other related balances) for the corresponding contracts. Since contracts within a grouping may be of different sizes, contracts within a group are weighted to achieve appropriate amortization and to ensure that DAC is derecognized when a policy is no longer in force. The constant-level basis used to weight contracts within a grouping and amortize DAC is generally defined as follows:

•Life insurance contracts – DAC associated with life insurance contracts is generally amortized in proportion to the initial face amount of life insurance in force. This is applicable to traditional and universal life insurance products in the Individual Life and International Insurance segments and Closed Block division, and group corporate- and bank-owned life insurance contracts in the Group Insurance segment.

•Payout annuity contracts – DAC associated with payout annuity contracts in the Retirement Strategies segment is amortized in proportion to annual benefit payments.

•Deferred annuity contracts – DAC associated with fixed and variable deferred annuity contracts in the Retirement Strategies and International Insurance segments is amortized in proportion to deposits.

•Health contracts – DAC associated with health contracts in the International Insurance segment is generally amortized in proportion to maximum lifetime benefits.

For funding agreement note contracts, single premium structured settlement contracts without life contingencies, and single premium immediate annuities without life contingencies, acquisition expenses are deferred and amortized over the expected life of the contracts using the interest method. For other group life and disability insurance contracts and guaranteed investment contracts (“GICs”), acquisition costs are expensed as incurred.

Current period DAC amortization reflects the impact of changes in actual insurance in force during the period and changes in future assumptions effected as of the end of the quarter, where applicable. The Company typically updates actuarial assumptions annually in the second quarter (see “Annual Assumptions Review” below), unless a material change is observed in

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

an interim period that is indicative of a long-term trend. Generally, the Company does not expect trends to change significantly in the short-term and, to the extent these trends may change, the Company expects such changes to be gradual over the long-term.

Assumptions used for DAC are consistent with those used in estimating the liability for future policy benefits (or any other related balance) for the corresponding contract. Determining the level of aggregation and actuarial assumptions used in projecting in-force terminations requires judgment. Internal criteria are developed to determine the level of aggregation by considering both qualitative and quantitative materiality thresholds.

The assumptions used in projecting in-force terminations are mortality, mortality improvement, and lapse assumptions. These assumptions are generally based on the Company’s experience, industry experience and/or other factors, as applicable. For variable deferred annuity contracts, lapse rates are adjusted at the contract level based on the in-the-moneyness of the living benefits 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 some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. If policyholders surrender traditional life insurance policies in exchange for life insurance policies that do not have fixed and guaranteed terms, the Company immediately charges to expense the remaining unamortized DAC on the surrendered policies. For other internal replacement transactions, except those that involve the addition of a non-integrated contract feature that does not change the existing base contract, the unamortized DAC is immediately charged to expense if the terms of the new policies are not substantially similar to those of the former policies. If the new terms are substantially similar to those of the earlier policies, the DAC is retained with respect to the new policies and amortized over the expected life of the new policies. See Note 7 for additional information regarding DAC.

Value of business acquired (“VOBA”) represents identifiable intangible assets to which a portion of the purchase price in a business acquisition is attributed under the application of purchase accounting. VOBA represents an adjustment to the stated value of in-force insurance contract liabilities to present them at fair value, determined as of the acquisition date. VOBA balances are subject to recoverability testing in the manner in which they were acquired. The Company has established a VOBA asset primarily for its acquired life insurance products and accident and health products with fixed benefits. As of September 30, 2023, the majority of the VOBA balance relates to the 2011 acquisition of AIG Star Life Insurance Co., Ltd, AIG Edison Life Insurance Company, AIG Financial Assurance Japan K.K. and AIG Edison Service Co., Ltd. (collectively, the “Star and Edison Businesses”). The Company records amortization of VOBA in “General and administrative expenses” and amortizes it over the anticipated life of the acquired contracts using the same methodology, factors, and assumptions used to amortize DAC and deferred sales inducements (“DSI”). See Note 7 for additional information regarding VOBA.

Market risk benefits assets represents market risk benefits (“MRBs”) in an asset position and are presented separately from MRBs in a liability position. See “Market risk benefit liabilities” below. MRB assets also reflect ceded MRBs resulting from reinsurance of the Company’s Prudential Defined Income (“PDI”) traditional variable annuity contracts. See Note 12 for additional information regarding the reinsurance of PDI.

Other assets consists primarily of prepaid pension benefit costs, certain restricted assets (e.g., cash and cash equivalents), trade receivables, goodwill and other intangible assets, “right-of-use” lease assets (see “Other liabilities” below), DSI, the Company’s investments in operating joint ventures, property and equipment, reinsurance recoverables (see “Reinsurance” below), and receivables resulting from sales of securities that had not yet settled at the balance sheet date.

Deferred Sales Inducements are amounts that are credited to a policyholders’ account balance primarily as an inducement to purchase fixed and/or variable deferred annuity contracts. The Company defers sales inducements and amortizes them over the expected life of the policy using the same methodology, factors and assumptions used to amortize DAC. The Company records amortization of DSI in “Interest credited to policyholders’ account balances.” Unlike DAC, DSI are considered contractual cash flows and, as a result, are subject to periodic recoverability testing. See Note 7 for additional information regarding DSI.

Separate account assets represents segregated funds that are invested for certain policyholders, pension funds and other customers. The assets consist primarily of equity securities, fixed maturities, real estate-related investments, real estate mortgage loans, short-term investments and derivative instruments and are reported at fair value. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Investment risks associated

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. The investment income and realized investment gains or losses from separate account assets generally accrue to the policyholders and are not included in the Company’s results of operations. Mortality, policy administration and surrender charges assessed against the accounts are included in “Policy charges and fee income.” Asset management fees charged to the accounts are included in “Asset management and service fees.” Seed money that the Company invests in separate accounts is reported in the appropriate general account asset line. Investment income and realized investment gains or losses from seed money invested in separate accounts accrue to the Company and are included in the Company’s results of operations. See Note 8 for additional information regarding separate account arrangements with contractual guarantees. See also “Separate account liabilities” below.

LIABILITIES

Future policy benefits is primarily comprised of the present value of expected future payments to or on behalf of policyholders, where the timing and amount of such payments depend on policyholder mortality or morbidity, less the present value of expected future net premiums (where net premiums are gross premiums multiplied by the Net-To-Gross (“NTG”) ratio discussed below). The liability for future policy benefits is accrued over time as premium revenue is recognized. See Note 9 for additional information regarding future policy benefits.

The reserving methodology used for non-participating traditional and limited-payment contracts include the following:

•Cash Flow Assumptions. In measuring the liability for future policy benefits, the net premium valuation methodology is utilized. Under this methodology, a liability for future policy benefits is established using current best estimate insurance assumptions and interest rate assumptions locked-in at contract issuance date. The NTG ratio is calculated as the ratio of the present value of expected policy benefits and non-level claim settlement expenses divided by the present value of expected gross premiums. The NTG ratio is applied to gross premiums, as premium revenue is recognized, to determine net premiums. The liability is then determined as the present value of expected future policy benefits and non-level claim settlement expenses less the present value of expected future net premiums. For purposes of liability measurement, contracts are grouped into cohorts based primarily on issue year, reportable segment and major product line.

The NTG ratio is generally updated quarterly for actual experience and annually for future cash flow assumption updates during the Company’s annual assumptions review process in the second quarter of each year unless a material change is observed in an interim period that is indicative of a long-term trend (see “Annual Assumptions Review” below), with the exception of claim settlement expense assumptions which the Company has made an entity-wide election to lock-in as of contract issuance. The NTG ratio is subject to a retrospective unlocking method whereby the Company updates its best estimate of cash flows expected over the life of the cohort using actual historical experience and updated future cash flow assumptions. These updated cash flows are used to calculate the revised NTG ratio, which is used to derive an updated liability for future policy benefits as of the beginning of the current reporting period, discounted at the original contract issuance discount rate. The updated liability for future policy benefit amount as of the beginning of the quarter is then compared to the carrying amount of the liability as of that same date, before the updates for actual experience or future cash flow assumptions, to determine the current period change in liability estimate. This current period change in the liability is the liability remeasurement gain or loss that is recorded through current period earnings in “Change in estimates of liability for future policy benefits.” In subsequent periods, the revised NTG ratio is used to measure the liability for future policy benefits, subject to future revisions.

If a cohort is in a loss position where the liability for future policy benefits plus the present value of expected future gross premiums are determined to be insufficient to provide for expected future policy benefits and non-level claim settlement expenses, the NTG ratio is capped at 100%. In these instances, all changes in expected benefits resulting from both actual experience deviations and changes in future assumptions are recognized immediately. While the liability for future policy benefits cannot be less than zero (i.e., a contra-liability) at the cohort level and thus the balance is floored at zero (i.e., “flooring”), the NTG ratio may be negative. This would be the case whereby conditions have improved such that the present value of future net premiums plus the existing liability for future policy benefits as of the valuation date exceed the present value of expected future policy benefits and non-level claim settlement expenses. In this case, the negative NTG ratio would be applied going forward to gross premiums received, effectively amortizing the gain into income and reducing the liability over time.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

In addition, for limited-payment contracts, the liability for future policy benefits also includes a Deferred Profit Liability (“DPL”) representing gross premiums received in excess of net premiums and is generally recognized in revenue in a constant relationship with insurance in force for life contracts or with the amount of expected future benefit payments for annuity contracts. The DPL is subject to a retrospective unlocking adjustment consistent with the liability for future policy benefits discussed above. The DPL cannot be less than zero (i.e., a contra-liability) at the cohort level and thus the balance is floored at zero (i.e., “flooring”).

For contracts issued prior to January 1, 2021, the modified retrospective transition method was used to transition to ASU 2018-12. Under this method, the transition date of January 1, 2021 serves as the new issue date of the contracts in force for purposes of retrospectively unlocking the NTG ratio and DPL, as described above.

•Discount Rate Assumption. The locked-in discount rate is generally based on expected investment returns at contract inception for contracts issued prior to January 1, 2021 and the upper medium grade fixed income corporate instrument yield (i.e., global single A) at contract inception for contracts issued after January 1, 2021. The discount rate in effect at contract inception is locked-in for the calculation of the NTG ratio and accretion of interest cost on the liability through net income. However, for balance sheet remeasurement purposes, the discount rate is updated using the current single A rate at each reporting period, with the effect on the liability resulting from such update recorded in “Interest rate remeasurement of future policy benefits” in OCI.

The methodology used in constructing the single A discount rate curve for discounting cash flows used to calculate the liability for future policy benefits is intended to be reflective of the characteristics of the applicable insurance liabilities. The single A discount rate curve is developed by reference to upper medium grade (low credit risk) fixed income instrument yields that reflect the duration characteristics of the applicable insurance liabilities. The single A discount curve for the United States and foreign economies, such as Japan, with observable corporate A spreads, is developed using government bond rates, plus globally equivalent public corporate A spreads in the observable periods. The definition of upper medium grade is based on Moody’s definition which includes the spectrum of A (i.e., A- to A+). The rate used in foreign operations (with the exception of certain emerging markets, as discussed below) is based on the equivalent of a single A rate from a global rating agency for corporate bonds issued in the same currency and country in which the insurance contract is written. Liquidity is considered in defining the observable period and linear extrapolation is performed to the Company’s ultimate long-term economic assumptions. See “Annual Assumptions Review” below for further discussion regarding the Company’s long-term economic assumption setting process.

The Company has foreign currency denominated insurance obligations to policyholders in certain emerging markets where there is limited or no observable market data on upper medium grade (low credit risk) fixed income instrument yields. As a proxy for the upper medium grade fixed income instrument yield, the Company estimates an equivalent global single A yield in the currency of the emerging economy by converting a global single A U.S. dollar bond yield curve based on the relationship between market observable U.S. Treasury and foreign sovereign yield curves of similar duration as the insurance liability cash flows. The derived global single A curves in the foreign currency are evaluated against available evidence of observable global single A corporate bond rates in similar emerging economies. The Company uses interpolation and extrapolation techniques to complete the discount rate construction for the duration of the insurance liabilities to calculate the liability for future policy benefits denominated in the local currencies.

The Company’s liability for future policy benefits also includes net liabilities for guaranteed benefits related to certain long-duration life contracts, such as no-lapse guarantee contract features (Additional Insurance Reserves or “AIR” liability), for which a liability is established when associated assessments are recognized (which include investment margin on policyholders’ account balances in the general account and all policy charges including charges for administration, mortality, expense, surrender and other charges). This liability is established using current best estimate assumptions and is based on the ratio of the present value of total expected excess payments (i.e., 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).

For universal life type contracts and participating contracts, the Company performs premium deficiency tests using best estimate assumptions as of the testing date. If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., GAAP reserves including URR, net of reinsurance, and any 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, the net reserves are increased by the excess through a charge to current period earnings included in “policyholders’ benefits”. Since investment yields are used as the discount rate, the premium deficiency test is also performed using a discount rate based on the market yield (i.e., assuming what

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

would be the impact if any unrealized gains (losses) were realized as of the testing date). In the event that by using the market yield a deficiency occurs, an adjustment is established for the deficiency and is included in AOCI.

In certain instances, for universal life type contracts and participating contracts, the policyholder liability for a particular line of business may not be deficient in the aggregate to trigger loss recognition, but the pattern of earnings may be such that profits are expected to be recognized in earlier years followed by losses in later years. In these situations, accounting standards require that an additional liability (Profits Followed by Losses or “PFL” liability) be recognized by an amount necessary to sufficiently offset the losses that would be recognized in later years. Historically, PFL liabilities have been predominately associated with certain universal life contracts that measure GAAP reserves using a dynamic approach, and accordingly, are updated each quarter, using current in-force and market data, and as part of the annual assumption update, such that the liability as of each measurement date represents the Company’s current estimate of the present value of the amount necessary to offset anticipated future losses.

The Company’s liability for future policy benefits also includes a liability for unpaid claims and claim adjustment expenses. The Company does not establish claim liabilities until a loss has been incurred. However, unpaid claims and claim adjustment expenses include estimates of claims that the Company believes have been incurred but have not yet been reported as of the balance sheet date.

Policyholders’ account balances 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. These policyholders’ account balances also include provision for benefits under non-life contingent payout annuities and certain unearned revenues. The unearned revenue liability represents policy charges for services to be provided in future periods. The charges are deferred as incurred and are generally amortized over the expected life of the contract using the same methodology, factors, and assumption used to amortize DAC. See Note 10 for additional information regarding policyholders’ account balances. Policyholders’ account balances also include amounts representing the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products. For additional information regarding the valuation of these embedded derivatives, see Note 6.

Market risk benefit liabilities represents contracts or contract features that provide protection to the contractholder and exposes the Company to other than nominal capital market risk, primarily related to deferred annuities with guaranteed minimum benefits in the Retirement Strategies segment including guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum income and withdrawal benefits (“GMIWB”). The benefits are accounted for using a fair value measurement framework. If a contract contains multiple market risk benefits, the benefits are bundled together and accounted for as a single compound market risk benefit. Market risk benefits in an asset position are presented separately from those in a liability position as there is no legal right of offset between contracts. The fair value of market risk benefits is calculated as the present value of expected future benefit payments to contractholders less the present value of expected future rider fees attributable to the market risk benefit. The fair value of market risk benefits is based on assumptions a market participant would use in valuing market risk benefits. For additional information regarding the valuation of market risk benefits, see Note 6. On a quarterly basis, changes in the fair value of market risk benefits are recorded in net income, net of related hedges, in “Change in value of market risk benefits, net of related hedging gains (losses)”, except for the portion of the change attributable to changes in the Company’s NPR which is recorded in OCI. See Note 11 for additional information regarding market risk benefits. See “Reinsurance” below for information regarding the reinsurance of MRBs.

Policyholders’ dividends includes dividends payable to policyholders and the policyholder dividend obligation associated with the participating policies included in the Closed Block. The dividends payable for participating policies included in the Closed Block are determined at the end of each year for the following year by the Board of Directors of The Prudential Insurance Company of America (“PICA”) based on its statutory results, capital position, ratings, and the emerging experience of the Closed Block. The policyholder dividend obligation represents amounts expected to be paid to Closed Block policyholders as an additional policyholder dividend unless otherwise offset by future Closed Block performance. Any adjustments to the policyholder dividend obligation related to net unrealized gains (losses) on securities classified as available-for-sale are included in AOCI. For additional information regarding the policyholder dividend obligation, see Note 13. The dividends payable for policies other than the participating policies included in the Closed Block include dividends payable in accordance with certain group and individual insurance policies.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Separate account liabilities primarily represents the contractholders’ account balances in separate account assets and to a lesser extent borrowings of the separate account, and will be equal and offsetting to total separate account assets. See also “Separate account assets” above.

REVENUES, BENEFITS AND EXPENSES

Insurance Revenue and Expense Recognition

Premiums from individual life products, other than universal and variable life contracts, and health insurance and long-term care products are recognized when due. When premiums are due over a significantly shorter period than the period over which benefits are provided, any gross premium in excess of the net premium (i.e., the portion of the gross premium required to provide for all expected future policy benefits and non-level claim settlement expenses) is generally deferred and recognized into revenue in a constant relationship to insurance in force. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized as described in “Future policy benefits” above.

Premiums from non-participating group annuities with life contingencies, single premium structured settlements with life contingencies and single premium immediate annuities with life contingencies are recognized when due. When premiums are due over a significantly shorter period than the period over which benefits are provided, any gross premium in excess of the net premium is generally deferred and recognized into revenue based on expected future benefit payments. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized as described in “Future policy benefits” above.

Certain individual annuity contracts provide the contractholder a guarantee that the benefit received upon death or annuitization will be no less than a minimum prescribed amount. These benefits are generally accounted for as market risk benefits (see “Market risk benefits” above).

Amounts received from policyholders as payment for universal or variable group and individual life contracts, deferred fixed or variable annuities, structured settlements and other contracts without life contingencies, and participating group annuities are reported as deposits to “Policyholders’ account balances” and/or “Separate account liabilities.” Revenues from these contracts are reflected in “Policy charges and fee income” consisting primarily of fees assessed during the period against the policyholders’ account balances for mortality and other benefit charges, policy administration charges and surrender charges. In addition to fees, the Company earns investment income from the investment of deposits in the Company’s general account portfolio. Fees assessed that represent compensation to the Company for services to be provided in future periods and certain other fees are generally deferred and amortized into revenue over the life of the related contracts using the same methodology, factors, and assumption used to amortize DAC as described above. Benefits and expenses for these products include claims in excess of related account balances, expenses of contract administration, interest credited to policyholders’ account balances and amortization of DAC, DSI and VOBA.

Policyholders’ account balances also include amounts representing the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and annuity products where changes in the value of the embedded derivatives are recorded through “Realized investment gains (losses), net”. For additional information regarding the valuation of these embedded derivatives, see Note 6.

For group life, other than universal and variable group life contracts, and disability insurance, premiums are generally recognized over the period to which the premiums relate in proportion to the amount of insurance protection provided. Claim and claim adjustment expenses are recognized when incurred.

OTHER ACCOUNTING POLICIES

Reinsurance

For each of its reinsurance contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject, or features that delay the timely reimbursement of claims.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The Company participates in reinsurance arrangements in various capacities as either the ceding entity or as the reinsurer (i.e., assuming entity). See Note 12 for additional information regarding the Company’s reinsurance arrangements. Reinsurance assumed business is generally accounted for consistent with direct business. Amounts currently recoverable under reinsurance agreements are included in “Other assets” and amounts payable are included in “Other liabilities.” “Other assets” also includes recoverables from assumed modified coinsurance arrangements which generally reflect the fair value of the invested assets retained by the cedant and contain an embedded derivative that is bifurcated and accounted for at fair value separately from the host contract. Under coinsurance with funds withheld ceded arrangements, invested assets are retained by the Company. “Other liabilities” includes amounts payable to the reinsurer, which generally reflect the fair value of the invested assets retained by the Company and contain an embedded derivative that is bifurcated and accounted for at fair value separately from the host contract. Revenues and benefits and expenses include amounts assumed under reinsurance agreements and are reflected net of reinsurance ceded.

Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. Reinsurance recoverables are reported net of the CECL allowance. The CECL allowance considers the credit quality of the reinsurance counterparty and is generally determined based on the probability of default and loss given default assumptions, after considering any applicable collateral arrangements. Additions to or releases of the allowance are reported in “Policyholders’ benefits”. Reinsurance premiums, commissions, expense reimbursements, benefits and reserves related to reinsured long-duration contracts under coinsurance arrangements are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the underlying contracts. For reinsurance of in- force blocks of non-participating traditional and limited-payment contracts, the current value of the direct liability as of inception of the reinsurance agreement is used to calculate the reinsurance recoverable and cost of reinsurance such that there is no immediate other comprehensive income or loss from recognition of the reinsurance recoverable at inception. Consistent with the direct liability, the reinsurance recoverable for non-participating traditional and limited-payment contracts is remeasured each period using current single A rates with the effect on the liability resulting from such updates recorded in “Interest rate remeasurement of future policy benefits” in OCI. For reinsurance of limited-payment contracts, the Company establishes a cost of reinsurance asset relating to the direct DPL and amortizes this balance through “Premiums” using the same methodology and assumptions used to amortize the direct DPL.

Consistent with direct contracts, reinsurance arrangements may also include features that meet the definition of an MRB and, if so, are accounted for at fair value. The fair value of direct or assumed MRBs reflects the Company’s NPR, while the fair value of ceded MRBs reflects the counterparty credit risk of the reinsurer. Changes in the fair value of ceded MRBs, including the impact of changes in counterparty credit risk, are recorded in net income in “Change in value of market risk benefits, net of related hedging gains (losses)”.

Coinsurance arrangements contrast with the Company’s yearly renewable term arrangements, where only mortality risk is transferred to the reinsurer and premiums are paid to the reinsurer to reinsure that risk. The mortality risk that is reinsured under yearly renewable term arrangements represents the difference between the stated death benefits in the underlying reinsured contracts and the corresponding reserves or account value carried by the Company on those same contracts. The premiums paid to the reinsurer are based upon negotiated amounts, not on the actual premiums paid by the underlying contractholders to the Company. As yearly renewable term arrangements are usually entered into by the Company with the expectation that the contracts will be in force for the lives of the underlying policies, they are considered to be long-duration reinsurance contracts. The cost of reinsurance for universal life products is generally recognized based on the gross assessments of the underlying direct policies. The cost of reinsurance for term insurance products is generally recognized in proportion to direct premiums over the life of the underlying policies. The cost of reinsurance related to short-duration reinsurance contracts is accounted for over the reinsurance contract period.

If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in “Other liabilities” and deposits made are included in “Other assets”. As amounts are paid or received, consistent with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as “Net investment income” or “General and administrative expenses,” as appropriate.

Annual Assumptions Review

Annually, the Company performs a comprehensive review of the assumptions set for purposes of estimating future premiums, benefits, and other cash flows. Assumptions include those that are economic and those that are insurance related.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Insurance related assumptions are based on the Company’s best estimates of future rates of mortality, morbidity, lapse, surrender, annuitization, expenses and other items. The Company generally looks to relevant Company experience as the primary basis for these assumptions. If relevant Company experience is not available or does not have sufficient credibility, the Company may look to experience of similar blocks of business, either in the Company or the industry. Mortality rate assumptions are generally based on Company experience, sometimes blending Company experience with an industry table where the Company experience alone is not sufficiently credible. The Company sets mortality and morbidity assumptions that vary by major type of business. Within type of business, rates vary by age and gender. The Company applies an adjustment for future mortality improvement, consistent with observed long-term trends of population mortality over time. Lapse and surrender assumptions are based on Company and industry experience, where available. The Company sets rates that vary by product type, taking into account features specific to the product.

As part of this review, the Company may update these assumptions and make refinements to its models based upon emerging experience, future expectations and other data, including any observable market data it feels is indicative of a long-term trend. These assumptions are generally updated annually, unless a material change is observed in an interim period that the Company feels is also indicative of a long-term trend. Generally, the Company does not expect trends to change significantly in the short-term and, to the extent these trends may change, it expects such changes to be gradual over the long-term.

The Company also performs a comprehensive review of the economic assumptions, including long-term interest rate assumptions and equity return assumptions, that impact reserve calculations. The Company generally utilizes relevant economic outlook information and industry surveys as the primary basis for these assumptions.

Other ASUs adopted during the nine months ended September 30, 2023

The Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosure, effective January 1, 2023, on a prospective basis. This ASU eliminates the accounting guidance for Troubled Debt Restructurings (“TDR”) for creditors and adds enhanced disclosure requirements. Following adoption of the ASU, all loan refinancings and restructurings are subject to the modification guidance in ASC 310-20. Specific to the accounting policy for commercial mortgage and other loans, adoption of the ASU resulted in the elimination of TDRs such that, on a prospective basis, all modifications are evaluated under the existing modification guidance in ASC 310-20 to determine whether a modification results in a new financial instrument or a continuation of the existing financial instrument. Furthermore, for modifications of loans that have a CECL allowance and result in a continuation of the existing loan, the CECL allowance of the loan is remeasured using the modified terms and the post-modification effective yield. Prior to the adoption of the ASU, if a loan modification was a TDR, the CECL allowance of the loan was remeasured using the modified terms and the loan’s original effective yield. Adoption of the ASU did not have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

3. INVESTMENTS

Fixed Maturity Securities

The following tables set forth the composition of fixed maturity securities (excluding investments classified as trading), as of the dates indicated:


	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	25,359	$	747	$	6,157	$	0	$	19,949
Obligations of U.S. states and their political subdivisions	8,905		154		1,062		0		7,997
Foreign government bonds	68,510		3,387		5,324		64		66,509
U.S. public corporate securities	105,698		942		17,276		93		89,271
U.S. private corporate securities(1)	41,659		637		4,078		27		38,191
Foreign public corporate securities	20,618		297		2,207		47		18,661
Foreign private corporate securities	34,563		177		5,421		6		29,313
Asset-backed securities(2)	13,349		216		201		2		13,362
Commercial mortgage-backed securities	10,932		5		1,027		0		9,910
Residential mortgage-backed securities(3)	2,442		17		304		0		2,155
Total fixed maturities, available-for-sale(1)	$	332,035	$	6,579	$	43,057	$	239	$	295,318


	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	0	$	0	$	0	$	0	$	0	$	0
Foreign public corporate securities	0		0		0		0		0		0
Residential mortgage-backed securities	0		0		0		0		0		0
Total fixed maturities, held-to-maturity(4)	$	0	$	0	$	0	$	0	$	0	$	0

__________

(1)Excludes notes with amortized cost of $12,290 million (fair value, $12,290 million), which have been offset with the associated debt under a netting agreement.

(2)Includes credit-tranched securities collateralized by loan obligations, auto loans, education loans, home equity loans and other asset types.

(3)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.

(4)In the third quarter of 2023, the Company changed its intent to hold a portion of its held-to-maturity portfolio, which will be redeemed as part of a recently announced reinsurance transaction. As a result, the entire held-to-maturity portfolio was reclassified to available-for-sale and recorded at fair value.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	29,372	$	1,110	$	4,413	$	0	$	26,069
Obligations of U.S. states and their political subdivisions	10,179		238		728		0		9,689
Foreign government bonds	74,103		4,503		5,379		1		73,226
U.S. public corporate securities	99,854		1,311		13,563		16		87,586
U.S. private corporate securities(1)	39,867		507		3,438		57		36,879
Foreign public corporate securities	22,235		416		1,945		19		20,687
Foreign private corporate securities	32,755		150		5,201		44		27,660
Asset-backed securities(2)	12,972		166		286		1		12,851
Commercial mortgage-backed securities	11,497		19		861		0		10,655
Residential mortgage-backed securities(3)	2,613		29		225		0		2,417
Total fixed maturities, available-for-sale(1)	$	335,447	$	8,449	$	36,039	$	138	$	307,719


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	725	$	128	$	0	$	853	$	0	$	725
Foreign public corporate securities	430		24		0		454		2		428
Residential mortgage-backed securities(3)	143		5		0		148		0		143
Total fixed maturities, held-to-maturity(4)	$	1,298	$	157	$	0	$	1,455	$	2	$	1,296

__________

(1)Excludes notes with amortized cost of $8,040 million (fair value, $8,040 million), which have been offset with the associated debt under a netting agreement.

(2)Includes credit-tranched securities collateralized by loan obligations, education loans, auto loans, home equity loans and other asset types.

(3)Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.

(4)Excludes notes with amortized cost of $4,250 million (fair value, $4,250 million), which have been offset with the associated debt under a netting agreement.

In the third quarter of 2023, the Company changed its intent to hold a portion of its held-to-maturity portfolio, which will be redeemed as part of a recently announced reinsurance transaction. As a result, the entire held-to-maturity portfolio (amortized cost, net of allowance of $1,212 million) was reclassified to fixed maturities available-for-sale and recorded at fair value, while the $136 million net unrealized gain on the portfolio was recorded in “Accumulated other comprehensive income” as of September 30, 2023.

The following tables set forth the fair value and gross unrealized losses on available-for-sale fixed maturity securities without an allowance for credit losses aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the dates indicated:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2023
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,499	$	565	$	11,344	$	5,592	$	17,843	$	6,157
Obligations of U.S. states and their political subdivisions	3,297		215		3,696		847		6,993		1,062
Foreign government bonds	10,240		574		18,507		4,745		28,747		5,319
U.S. public corporate securities	23,484		1,702		57,332		15,566		80,816		17,268
U.S. private corporate securities	7,695		370		25,553		3,708		33,248		4,078
Foreign public corporate securities	4,073		198		10,574		1,987		14,647		2,185
Foreign private corporate securities	6,311		414		20,938		5,005		27,249		5,419
Asset-backed securities	2,114		45		7,564		156		9,678		201
Commercial mortgage-backed securities	1,301		38		8,399		989		9,700		1,027
Residential mortgage-backed securities	350		13		1,500		291		1,850		304
Total fixed maturities, available-for-sale	$	65,364	$	4,134	$	165,407	$	38,886	$	230,771	$	43,020


	December 31, 2022
	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	18,009	$	3,143	$	2,563	$	1,270	$	20,572	$	4,413
Obligations of U.S. states and their political subdivisions	5,510		526		558		202		6,068		728
Foreign government bonds	16,932		2,384		9,877		2,971		26,809		5,355
U.S. public corporate securities	58,816		7,790		15,780		5,726		74,596		13,516
U.S. private corporate securities	24,610		2,065		6,705		1,373		31,315		3,438
Foreign public corporate securities	10,168		932		4,098		993		14,266		1,925
Foreign private corporate securities	16,909		2,521		8,196		2,678		25,105		5,199
Asset-backed securities	5,385		130		5,059		156		10,444		286
Commercial mortgage-backed securities	9,289		655		1,080		206		10,369		861
Residential mortgage-backed securities	1,322		130		402		93		1,724		223
Total fixed maturities, available-for-sale	$	166,950	$	20,276	$	54,318	$	15,668	$	221,268	$	35,944

As of September 30, 2023 and December 31, 2022, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance of $41,394 million and $33,778 million, respectively, related to “1” highest quality or “2” high quality securities based on the National Association of Insurance Commissioners (“NAIC”) or equivalent rating and $1,626 million and $2,166 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. As of September 30, 2023, the $38,886 million of gross unrealized losses of twelve months or more were concentrated in the finance, consumer non-cyclical and utility sectors within corporate securities and both U.S. and foreign government securities. As of December 31, 2022, the $15,668 million of gross unrealized losses of twelve months or more were concentrated in consumer non-cyclical, finance and utility sectors within corporate securities and foreign government securities.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

In accordance with its policy described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, the Company concluded that an adjustment to earnings for credit losses related to these fixed maturity securities was not warranted at September 30, 2023. This conclusion was based on detailed analysis of the underlying credit and cash flows for each security. Gross unrealized losses are primarily attributable to increases in interest rates, general credit spread widening and foreign currency exchange rate movements. As of September 30, 2023, the Company did not intend to sell these securities, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the amortized cost basis.

The following table sets forth the amortized cost and fair value of fixed maturities by contractual maturities, as of the date indicated:


	September 30, 2023
	Available-for-Sale
	Amortized Cost		Fair Value
	(in millions)
Fixed maturities:
Due in one year or less	$	10,091	$	10,169
Due after one year through five years	51,618		49,759
Due after five years through ten years	61,821		58,437
Due after ten years(1)	181,782		151,526
Asset-backed securities	13,349		13,362
Commercial mortgage-backed securities	10,932		9,910
Residential mortgage-backed securities	2,442		2,155
Total	$	332,035	$	295,318

__________

(1)Excludes available-for-sale notes with amortized cost of $12,290 million (fair value, $12,290 million), which have been offset with the associated debt under a netting agreement.

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed and residential mortgage-backed securities are shown separately in the table above, as they do not have a single maturity date.

The following table sets forth the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on write-downs and the allowance for credit losses of fixed maturities, for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	6,619	$	4,978	$	20,741	$	24,056
Proceeds from maturities/prepayments	4,051		5,186		12,092		14,792
Gross investment gains from sales and maturities	295		325		724		940
Gross investment losses from sales and maturities	(734)		(376)		(1,436)		(1,963)
Write-downs recognized in earnings(2)	(53)		(21)		(63)		(113)
(Addition to) release of allowance for credit losses	37		(42)		(101)		(37)
Fixed maturities, held-to-maturity:
Proceeds from maturities/prepayments(3)	$	4	$	7	$	21	$	24
(Addition to) release of allowance for credit losses	2		1		2		3

__________

(1)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $(90) million and $3 million for the nine months ended September 30, 2023 and 2022, respectively.

(2)Amounts represent write-downs on credit adverse securities and securities actively marketed for sale.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(3)Excludes activity from non-cash related proceeds due to the timing of trade settlements of $1 million and less than $1 million for the nine months ended September 30, 2023 and 2022, respectively.

The following tables set forth the activity in the allowance for credit losses for fixed maturity securities, as of the dates indicated:


	Three Months Ended September 30, 2023
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	56	$	219	$	1	$	0	$	0	$	276
Additions to allowance for credit losses not previously recorded	0		0		9		0		0		0		9
Reductions for securities sold during the period	0		0		(71)		0		0		0		(71)
Additions (reductions) on securities with previous allowance	0		8		16		1		0		0		25
Balance, end of period	$	0	$	64	$	173	$	2	$	0	$	0	$	239


	Three Months Ended September 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	6	$	102	$	1	$	0	$	0	$	109
Additions to allowance for credit losses not previously recorded	0		0		30		4		0		0		34
Reductions for securities sold during the period	0		(3)		(2)		0		0		0		(5)
Reductions for securities with intent to sell	0		0		0		0		0		0		0
Additions (reductions) on securities with previous allowance	0		(2)		15		0		0		0		13
Balance, end of period	$	0	$	1	$	145	$	5	$	0	$	0	$	151

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2023
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	1	$	136	$	1	$	0	$	0	$	138
Additions to allowance for credit losses not previously recorded	0		62		87		0		0		0		149
Reductions for securities sold during the period	0		0		(116)		0		0		0		(116)
Additions (reductions) on securities with previous allowance	0		1		66		1		0		0		68
Balance, end of period	$	0	$	64	$	173	$	2	$	0	$	0	$	239


	Nine Months Ended September 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of period	$	0	$	7	$	107	$	0	$	0	$	0	$	114
Additions to allowance for credit losses not previously recorded	0		11		103		5		0		0		119
Reductions for securities sold during the period	0		(5)		(55)		0		0		0		(60)
Reductions for securities with intent to sell	0		(13)		(67)		0		0		0		(80)
Additions (reductions) on securities with previous allowance	0		1		57		0		0		0		58
Balance, end of period	$	0	$	1	$	145	$	5	$	0	$	0	$	151

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2023
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	2	$	0	$	0	$	0	$	2
Current period provision for expected losses(1)	0		0		(2)		0		0		0		(2)
Change in foreign exchange	0		0		0		0		0		0		0
Balance, end of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0

__________

(1)In the third quarter of 2023, the Company changed its intent to hold a portion of its held-to-maturity portfolio, which will be redeemed as part of a recently announced reinsurance transaction. As a result, the entire held-to-maturity portfolio was reclassified to available-for-sale and recorded at fair value.


	Three Months Ended September 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	3	$	0	$	0	$	0	$	3
Current period provision for expected losses	0		0		(1)		0		0		0		(1)
Change in foreign exchange	0		0		0		0		0		0		0
Balance, end of period	$	0	$	0	$	2	$	0	$	0	$	0	$	2


	Nine Months Ended September 30, 2023
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	2	$	0	$	0	$	0	$	2
Current period provision for expected losses(1)	0		0		(2)		0		0		0		(2)
Change in foreign exchange	0		0		0		0		0		0		0
Balance, end of period	$	0	$	0	$	0	$	0	$	0	$	0	$	0

__________

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Nine Months Ended September 30, 2022
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of period	$	0	$	0	$	5	$	0	$	0	$	0	$	5
Current period provision for expected losses	0		0		(2)		0		0		0		(2)
Change in foreign exchange	0		0		(1)		0		0		0		(1)
Balance, end of period	$	0	$	0	$	2	$	0	$	0	$	0	$	2

For additional information regarding the Company’s methodology for developing its allowance and expected losses, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

For the three months ended September 30, 2023, the net decrease in the allowance for credit losses on available-for-sale securities was primarily related to a net release in the capital goods and utilities sectors within corporate securities due to investment restructurings. Partially offsetting the release, was a net addition within foreign government securities due to adverse projected cash flows. For the three months ended September 30, 2022, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to net additions in the consumer non-cyclical, capital goods and utility sectors within corporate securities, partially offset by a net release within the transportation sector.

For the nine months ended September 30, 2023, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to net additions in the communications and technology sectors within corporate securities as well as foreign government securities due to adverse projected cash flows. Partially offsetting the additions was a net release within the capital goods and utility sectors within corporate securities. For the nine months ended September 30, 2022, the net increase in the allowance for credit losses on available-for-sale securities was primarily related to net additions in the capital goods, consumer non-cyclical and utility sectors within corporate securities, partially offset by net releases in the communications and transportation sectors.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of September 30, 2023 or December 31, 2022.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Assets Supporting Experience-Rated Contractholder Liabilities

The following table sets forth the composition of “Assets supporting experience-rated contractholder liabilities,” as of the dates indicated:


	September 30, 2023				December 31, 2022
	Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value
	(in millions)
Fixed maturities:
Corporate securities	$	77	$	75	$	91	$	88
Foreign government bonds	625		609		705		668
U.S. government authorities and agencies and obligations of U.S. states	192		204		188		189
Total fixed maturities(1)	894		888		984		945
Equity securities	1,476		2,055		1,628		1,899
Total assets supporting experience-rated contractholder liabilities(2)	$	2,370	$	2,943	$	2,612	$	2,844

__________

(1)As a percentage of amortized cost, 99% and 98% of the portfolio was considered high or highest quality based on NAIC or equivalent ratings, as of September 30, 2023 and December 31, 2022, respectively.

(2)As a percentage of amortized cost, 100% of the portfolio consisted of public securities, as of both September 30, 2023 and December 31, 2022.

The net change in unrealized gains (losses) from assets supporting experience-rated contractholder liabilities still held at period end, recorded within “Other income (loss),” was $(27) million and $(52) million during the three months ended September 30, 2023 and 2022, respectively and $341 million and $(743) million during the nine months ended September 30, 2023 and 2022, respectively.

Fixed Maturities, Trading

The net change in unrealized gains (losses) from fixed maturities, trading still held at period end, recorded within “Other income (loss),” was $(295) million and $(496) million during the three months ended September 30, 2023 and 2022, respectively and $(190) million and $(1,653) million during the nine months ended September 30, 2023 and 2022, respectively.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was $(276) million and $(396) million during the three months ended September 30, 2023 and 2022, respectively and $300 million and $(1,253) million during the nine months ended September 30, 2023 and 2022, respectively.

Concentrations of Financial Instruments

The Company monitors its concentrations of financial instruments and mitigates credit risk by maintaining a diversified investment portfolio which limits exposure to any single issuer.

As of the dates indicated, the Company’s exposure to concentrations of credit risk of single issuers greater than 10% of the Company’s equity included securities of the U.S. government and certain U.S. government agencies and securities guaranteed by the U.S. government, as well as the securities disclosed below:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale	$	59,682	$	58,439	$	65,198	$	64,959
Fixed maturities, held-to-maturity	0		0		706		831
Fixed maturities, trading	18		17		20		19
Assets supporting experience-rated contractholder liabilities	537		521		613		587
Total	$	60,237	$	58,977	$	66,537	$	66,396


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Investments in Brazil government and government agency securities:
Fixed maturities, available-for-sale	$	2,838	$	2,673	$	2,264	$	2,010
Short-term investments	1		1		60		61
Cash equivalents	437		437		210		210
Total	$	3,276	$	3,111	$	2,534	$	2,281

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Commercial Mortgage and Other Loans

The following table sets forth the composition of “Commercial mortgage and other loans,” as of the dates indicated:


	September 30, 2023				December 31, 2022
	Amount (in millions)		% of Total		Amount (in millions)		% of Total
Commercial mortgage and agricultural property loans by property type:
Office	$	8,403	14.6	%	$	9,096	16.2	%
Retail	5,869		10.2		6,103		10.8
Apartments/Multi-Family	15,985		27.7		15,381		27.3
Industrial	14,430		25.0		13,079		23.2
Hospitality	2,139		3.7		2,027		3.6
Other	3,939		6.8		3,791		6.7
Total commercial mortgage loans	50,765		88.0		49,477		87.8
Agricultural property loans	6,939		12.0		6,857		12.2
Total commercial mortgage and agricultural property loans	57,704		100.0	%	56,334		100.0	%
Allowance for credit losses	(331)				(201)
Total net commercial mortgage and agricultural property loans	57,373				56,133
Other loans:
Uncollateralized loans	406				463
Residential property loans	30				43
Other collateralized loans	100				108
Total other loans	536				614
Allowance for credit losses	(1)				(2)
Total net other loans	535				612
Total net commercial mortgage and other loans(1)	$	57,908			$	56,745

__________

(1)Includes loans which are carried at fair value under the fair value option and are collateralized primarily by apartment complexes. As of September 30, 2023 and December 31, 2022, the net carrying value of these loans were $387 million and $137 million, respectively.

As of September 30, 2023, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States with the largest concentrations in California (31%), Texas (8%) and New York (6%), and included loans secured by properties in Europe (6%), Asia (1%), Mexico (1%) and Australia (1%).

The following tables set forth the activity in the allowance for credit losses for commercial mortgage and other loans, as of the dates indicated:


	Three Months Ended September 30, 2023
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	224	$	16	$	0	$	0	$	1	$	241
Addition to (release of) allowance for expected losses	90		0		0		0		0		90
Reduction for loans sold during the period	0		0		0		0		0		0
Change in foreign exchange	1		0		0		0		0		1
Allowance, end of period	$	315	$	16	$	0	$	0	$	1	$	332

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended September 30, 2022
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	156	$	8	$	0	$	0	$	32	$	196
Addition to (release of) allowance for expected losses	22		2		0		0		0		24
Reclassified (to) from “Assets held-for-sale”	(6)		0		0		0		0		(6)
Other	4		0		0		0		0		4
Allowance, end of period	$	176	$	10	$	0	$	0	$	32	$	218


	Nine Months Ended September 30, 2023
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	188	$	13	$	0	$	0	$	2	$	203
Addition to (release of) allowance for expected losses	125		3		0		0		0		128
Reduction for loans sold during the period	0		0		0		0		(1)		(1)
Change in foreign exchange	2		0		0		0		0		2
Allowance, end of period	$	315	$	16	$	0	$	0	$	1	$	332


	Nine Months Ended September 30, 2022
	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance, beginning of period	$	111	$	4	$	0	$	0	$	4	$	119
Addition to (release of) allowance for expected losses	62		6		0		0		28		96
Reclassified (to) from “Assets held-for-sale”	0		0		0		0		0		0
Other	3		0		0		0		0		3
Allowance, end of period	$	176	$	10	$	0	$	0	$	32	$	218

For the three months ended September 30, 2023, the net addition to the allowance for credit losses on commercial mortgage and other loans was due to an increase in loan-specific reserves and increases to the portfolio reserve to reflect declining market conditions. For the three months ended September 30, 2022, the net addition to the allowance for credit losses on commercial mortgage and other loans was due to increases in loan-specific reserves as well as increases to the portfolio reserve to reflect declining market conditions.

For the nine months ended September 30, 2023, the net addition to the allowance for credit losses on commercial mortgage and other loans was due to an increase in loan-specific reserves and increases to the portfolio reserve to reflect declining market conditions. For the nine months ended September 30, 2022, the net addition to the allowance for credit losses on commercial mortgage and other loans was due to increases in loan-specific reserves as well as increases to the portfolio reserve to reflect declining market conditions.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following tables set forth key credit quality indicators based upon the recorded investment gross of allowance for credit losses, as of the dates indicated:


	September 30, 2023
	Amortized Cost by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
	(in millions)
Commercial mortgage loans
Loan-to-Value Ratio:
0%-59.99%	$	1,340	$	946	$	2,243	$	1,393	$	3,454	$	18,461	$	0	$	27,837
60%-69.99%	1,600		1,636		2,846		1,542		2,113		4,089		0		13,826
70%-79.99%	833		966		1,003		46		939		1,824		0		5,611
80% or greater	85		130		148		282		185		2,661		0		3,491
Total	$	3,858	$	3,678	$	6,240	$	3,263	$	6,691	$	27,035	$	0	$	50,765
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	3,494	$	3,161	$	6,078	$	3,169	$	6,063	$	23,697	$	0	$	45,662
1.0 - 1.2x	214		365		84		39		307		1,762		0		2,771
Less than 1.0x	150		152		78		55		321		1,576		0		2,332
Total	$	3,858	$	3,678	$	6,240	$	3,263	$	6,691	$	27,035	$	0	$	50,765
Agricultural property loans
Loan-to-Value Ratio:
0%-59.99%	$	194	$	891	$	2,020	$	784	$	460	$	1,593	$	86	$	6,028
60%-69.99%	98		671		40		56		20		4		0		889
70%-79.99%	7		0		0		0		15		0		0		22
80% or greater	0		0		0		0		0		0		0		0
Total	$	299	$	1,562	$	2,060	$	840	$	495	$	1,597	$	86	$	6,939
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	294	$	1,549	$	2,017	$	809	$	494	$	1,510	$	86	$	6,759
1.0 - 1.2x	0		5		43		31		0		74		0		153
Less than 1.0x	5		8		0		0		1		13		0		27
Total	$	299	$	1,562	$	2,060	$	840	$	495	$	1,597	$	86	$	6,939

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2022
	Amortized Cost by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
	(in millions)
Commercial mortgage loans
Loan-to-Value Ratio:
0%-59.99%	$	971	$	1,747	$	1,282	$	2,831	$	4,697	$	15,111	$	0	$	26,639
60%-69.99%	1,997		3,502		1,553		2,804		1,732		3,780		0		15,368
70%-79.99%	865		1,127		519		1,025		645		1,445		0		5,626
80% or greater	2		26		7		119		24		1,666		0		1,844
Total	$	3,835	$	6,402	$	3,361	$	6,779	$	7,098	$	22,002	$	0	$	49,477
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	3,249	$	6,135	$	3,013	$	5,749	$	6,505	$	18,318	$	0	$	42,969
1.0 - 1.2x	586		252		164		454		383		2,183		0		4,022
Less than 1.0x	0		15		184		576		210		1,501		0		2,486
Total	$	3,835	$	6,402	$	3,361	$	6,779	$	7,098	$	22,002	$	0	$	49,477
Agricultural property loans
Loan-to-Value Ratio:
0%-59.99%	$	931	$	1,994	$	853	$	461	$	326	$	1,348	$	74	$	5,987
60%-69.99%	675		85		8		47		8		0		0		823
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		13		34		0		47
Total	$	1,606	$	2,079	$	861	$	508	$	347	$	1,382	$	74	$	6,857
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	1,593	$	2,035	$	781	$	507	$	323	$	1,272	$	74	$	6,585
1.0 - 1.2x	5		44		80		0		6		68		0		203
Less than 1.0x	8		0		0		1		18		42		0		69
Total	$	1,606	$	2,079	$	861	$	508	$	347	$	1,382	$	74	$	6,857

For additional information regarding the Company’s commercial mortgage and other loans credit quality monitoring process, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following tables set forth an aging of past due commercial mortgage and other loans based upon the recorded investment gross of allowance for credit losses, as well as the amount of commercial mortgage and other loans on non-accrual status, as of the dates indicated:


	September 30, 2023
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)(2)		Total Past Due		Total Loans		Non-Accrual Status(3)
	(in millions)
Commercial mortgage loans	$	50,707	$	0	$	0	$	58	$	58	$	50,765	$	61
Agricultural property loans	6,935		0		4		0		4		6,939		25
Residential property loans	30		0		0		0		0		30		0
Other collateralized loans	100		0		0		0		0		100		0
Uncollateralized loans	406		0		0		0		0		406		25
Total	$	58,178	$	0	$	4	$	58	$	62	$	58,240	$	111

__________

(1)As of September 30, 2023, there were no loans in this category accruing interest.

(2)Primarily includes loans for which no credit losses are expected due to U.S. agency guarantees.

(3)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.


	December 31, 2022
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)
Commercial mortgage loans	$	49,465	$	0	$	3	$	9	$	12	$	49,477	$	11
Agricultural property loans	6,844		0		11		2		13		6,857		17
Residential property loans	43		0		0		0		0		43		0
Other collateralized loans	108		0		0		0		0		108		0
Uncollateralized loans	463		0		0		0		0		463		0
Total	$	56,923	$	0	$	14	$	11	$	25	$	56,948	$	28

__________

(1)As of December 31, 2022, there were no loans in this category accruing interest.

(2)For additional information regarding the Company’s policies for accruing interest on loans, see Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Loans on non-accrual status recognized interest of less than $1 million for both the three months ended September 30, 2023 and 2022 and $1 million and less than $1 million for the nine months ended September 30, 2023 and 2022. Loans on non-accrual status that did not have a related allowance for credit losses were $108 million and $27 million as of September 30, 2023 and December 31, 2022, respectively.

The Company did not have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of both September 30, 2023 and December 31, 2022.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Other Invested Assets

The following table sets forth the composition of “Other invested assets,” as of the dates indicated:


	September 30, 2023		December 31, 2022
	(in millions)
LPs/LLCs:
Equity method:
Private equity	$	8,556	$	7,215
Hedge funds	3,145		3,220
Real estate-related	2,592		2,793
Subtotal equity method	14,293		13,228
Fair value:
Private equity	1,341		1,476
Hedge funds	2,068		1,908
Real estate-related	276		305
Subtotal fair value	3,685		3,689
Total LPs/LLCs	17,978		16,917
Real estate held through direct ownership(1)	1,821		1,617
Derivative instruments	1,001		1,457
Other(2)	1,068		1,108
Total other invested assets	$	21,868	$	21,099

_________

(1)As of September 30, 2023 and December 31, 2022, real estate held through direct ownership had mortgage debt of $181 million and $208 million, respectively.

(2)Primarily includes equity investments accounted for under the measurement alternative, strategic investments made by investment management operations, leveraged leases and member and activity stock held in the Federal Home Loan Bank of New York. For additional information regarding the Company’s holdings in the Federal Home Loan Bank of New York, see Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Accrued Investment Income

The following table sets forth the composition of “Accrued investment income,” as of the dates indicated:


	September 30, 2023		December 31, 2022
	(in millions)
Fixed maturities	$	2,662	$	2,517
Equity securities	9		6
Commercial mortgage and other loans	203		190
Policy loans	253		253
Other invested assets	16		18
Short-term investments and cash equivalents	48		28
Total accrued investment income	$	3,191	$	3,012

Write-downs on accrued investment income were less than $1 million for both the three months ended September 30, 2023 and 2022, and less than $1 million for both the nine months ended September 30, 2023 and 2022.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Investment Income

The following table sets forth “Net investment income” by investment type, for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in millions)
Fixed maturities, available-for-sale(1)	$	3,390	$	2,836	$	9,921	$	8,666
Fixed maturities, held-to-maturity(1)	48		52		148		160
Fixed maturities, trading	65		56		177		171
Assets supporting experience-rated contractholder liabilities	9		11		34		155
Equity securities	38		27		142		103
Commercial mortgage and other loans	578		533		1,681		1,646
Policy loans	124		125		372		376
Other invested assets(2)	352		70		1,046		1,002
Short-term investments and cash equivalents	260		143		720		218
Gross investment income	4,864		3,853		14,241		12,497
Less: investment expenses(2)	(293)		(222)		(874)		(570)
Net investment income	$	4,571	$	3,631	$	13,367	$	11,927

__________

(1)Includes income on credit-linked notes which are reported on the same financial statement line items as related surplus notes, as conditions are met for right to offset.

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

Realized Investment Gains (Losses), Net

The following table sets forth “Realized investment gains (losses), net” by investment type, for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in millions)
Fixed maturities(1)	$	(453)	$	(113)	$	(874)	$	(1,170)
Commercial mortgage and other loans	(83)		(9)		(109)		(75)
Investment real estate	22		(7)		49		83
LPs/LLCs	(4)		(13)		(21)		(19)
Derivatives	(1,972)		(285)		(2,277)		(1,928)
Other	88		(3)		109		(1)
Realized investment gains (losses), net	$	(2,402)	$	(430)	$	(3,123)	$	(3,110)

__________

(1)Includes fixed maturity securities classified as available-for-sale and held-to-maturity and excludes fixed maturity securities classified as trading.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Unrealized Gains (Losses) on Investments within AOCI

The following table sets forth net unrealized gains (losses) on investments, as of the dates indicated:


	September 30, 2023		December 31, 2022
	(in millions)
Fixed maturity securities, available-for-sale with an allowance	$	(95)	$	(45)
Fixed maturity securities, available-for-sale without an allowance(1)	(36,383)		(27,545)
Derivatives designated as cash flow hedges(2)	1,947		2,616
Derivatives designated as fair value hedges(2)	(18)		(54)
Other investments(3)	17		2
Net unrealized gains (losses) on investments	$	(34,532)	$	(25,026)

__________

(1)Includes $136 million of net unrealized gains related to the transfer of held-to-maturity securities to available-for-sale securities.

(2)For additional information regarding cash flow and fair value hedges, see Note 5.

(3)Includes net unrealized gains on certain joint ventures that are strategic in nature and are included in “Other assets.”

Repurchase Agreements and Securities Lending

In the normal course of business, the Company sells securities under agreements to repurchase and enters into securities lending transactions. The following table sets forth the composition of “Securities sold under agreements to repurchase,” as of the dates indicated:


	September 30, 2023								December 31, 2022
	Remaining Contractual Maturities of the Agreements								Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		30 to 90 Days		Total		Overnight & Continuous		Up to 30 Days		30 to 90 Days		Total
	(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	5,149	$	0	$	0	$	5,149	$	6,179	$	200	$	200	$	6,579
'U.S. public corporate securities	0		94		0		94		0		0		0		0
Foreign public corporate securities	0		22		0		22		0		0		0		0
Commercial mortgage-backed securities	282		0		0		282		0		0		0		0
Residential mortgage-backed securities	0		0		0		0		10		0		0		10
Total securities sold under agreements to repurchase	$	5,431	$	116	$	0	$	5,547	$	6,189	$	200	$	200	$	6,589

The following table sets forth the composition of “Cash collateral for loaned securities” which represents the liability to return cash collateral received for the following types of securities loaned, as of the dates indicated:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	September 30, 2023						December 31, 2022
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	1	$	0	$	1	$	1	$	0	$	1
Obligations of U.S. states and their political subdivisions	48		0		48		61		0		61
Foreign government bonds	236		1		237		285		14		299
U.S. public corporate securities	3,823		499		4,322		4,109		395		4,504
Foreign public corporate securities	589		93		682		806		69		875
Equity securities	777		0		777		360		0		360
Total cash collateral for loaned securities(1)	$	5,474	$	593	$	6,067	$	5,622	$	478	$	6,100

__________

(1)The Company did not have any agreements with remaining contractual maturities greater than thirty days, as of the dates indicated.

4. VARIABLE INTEREST ENTITIES

In the normal course of its activities, the Company enters into relationships with various special-purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). For additional information, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Consolidated Variable Interest Entities

The table below reflects the carrying amount and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported. The liabilities primarily comprise obligations under debt instruments issued by the VIEs. The creditors of these VIEs do not have recourse to the Company in excess of the assets contained within the VIEs.


	Consolidated VIEs for which the Company is the Investment Manager(1)				Other Consolidated VIEs(1)
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
	(in millions)
Fixed maturities, available-for-sale	$	440	$	398	$	782	$	90
Fixed maturities, held-to-maturity	0		0		0		689
Fixed maturities, trading	547		164		0		0
Equity securities	119		85		0		0
Commercial mortgage and other loans	669		784		0		0
Other invested assets	4,019		3,397		438		68
Cash and cash equivalents	342		375		0		0
Accrued investment income	3		2		2		3
Other assets	591		352		600		706
Total assets of consolidated VIEs	$	6,730	$	5,557	$	1,822	$	1,556
Other liabilities	$	586	$	389	$	0	$	0
Notes issued by consolidated VIEs(2)	791		374		0		0
Total liabilities of consolidated VIEs	$	1,377	$	763	$	0	$	0

__________

(1)Total assets of consolidated VIEs reflect $3,771 million and $3,403 million as of September 30, 2023 and December 31, 2022, respectively, related to VIEs whose beneficial interests are wholly-owned by consolidated subsidiaries.

(2)Recourse is limited to the assets of the respective VIE and does not extend to the general credit of the Company. As of September 30, 2023, the maturities of these obligations were between 0 and 12 years.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Unconsolidated Variable Interest Entities

The Company has determined that it is not the primary beneficiary of certain VIEs for which it is the investment manager. The Company’s maximum exposure to loss resulting from its relationship with unconsolidated VIEs for which it is the investment manager is limited to its investment in the VIEs, which was $844 million and $950 million as of September 30, 2023 and December 31, 2022, respectively. These investments are reflected in “Fixed maturities, available-for-sale,” “Fixed maturities, trading,” “Equity securities” and “Other invested assets.” There are no liabilities associated with these unconsolidated VIEs on the Company’s Unaudited Interim Consolidated Statements of Financial Position.

In the normal course of its activities, the Company will invest in limited partnerships and limited liability companies (“LPs/LLCs”), which include hedge funds, private equity funds and real estate-related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company classifies these investments as “Other invested assets” and its maximum exposure to loss associated with these entities was $17,978 million and $16,917 million as of September 30, 2023 and December 31, 2022, respectively.

In addition, in the normal course of its activities, the Company will invest in structured investments including VIEs for which it is not the investment manager. These structured investments typically invest in fixed income investments and are managed by third-parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The Company’s maximum exposure to loss on these structured investments, both VIEs and non-VIEs, is limited to the amount of its investment. See Note 3 for details regarding the carrying amounts and classification of these assets. The Company has not provided material financial or other support that was not contractually required to these structures. The Company has determined that it is not the primary beneficiary of these structures due to the fact that it does not control these entities.

5. DERIVATIVES AND HEDGING

Types of Derivative and Hedging Instruments

The Company utilizes various derivatives and hedging instruments to manage certain of its risks. Commonly used derivative and non-derivative hedging instruments include, but are not necessarily limited to:

•Interest rate contracts: futures, swaps, forwards, options, caps and floors

•Equity contracts: futures, options and total return swaps

•Foreign exchange contracts: futures, options, forwards, swaps, and foreign currency debt instruments

•Credit contracts: single and index reference credit default swaps

Other types of financial contracts that the Company accounts for as derivatives are:

•To-be-announced (“TBA”) forward contracts, loan commitments, embedded derivatives and synthetic guaranteed investment contracts (“GICs”).

For detailed information regarding these contracts and the related strategies, see Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Primary Risks Managed by Derivatives

The table below provides a summary of the gross notional amount and fair value of derivative contracts by the primary underlying risks they are utilized to manage, excluding embedded derivatives. Many derivative instruments contain multiple underlying risks. The fair value amounts below represent the value of derivative contracts prior to taking into account the netting effects of master netting agreements and cash collateral. These netting impacts resulted in total derivative assets of $1,005 million and $1,455 million as of September 30, 2023 and December 31, 2022, respectively, and total derivative liabilities of $5,421 million and $3,055 million as of September 30, 2023 and December 31, 2022, respectively, reflected in the Unaudited Interim Consolidated Statements of Financial Position.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


Primary Underlying Risk /Instrument Type	September 30, 2023						December 31, 2022
			Fair Value						Fair Value
	Gross Notional		Assets		Liabilities		Gross Notional		Assets		Liabilities
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	3,743	$	6	$	(437)	$	3,627	$	66	$	(245)
Interest Rate Forwards	50		0		(18)		398		0		(85)
Foreign Currency
Foreign Currency Forwards	4,707		116		(183)		4,830		155		(262)
Currency/Interest Rate
Foreign Currency Swaps	27,436		2,896		(390)		25,636		3,469		(333)
Total Derivatives Designated as Hedge Accounting Instruments	$	35,936	$	3,018	$	(1,028)	$	34,491	$	3,690	$	(925)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	224,304	$	13,132	$	(28,286)	$	212,934	$	9,097	$	(21,154)
Interest Rate Futures	13,253		26		(11)		18,080		13		(24)
Interest Rate Options	32,398		523		(1,638)		9,778		224		(280)
Interest Rate Forwards	3,084		88		(188)		2,354		21		(42)
Foreign Currency
Foreign Currency Forwards	28,568		1,405		(1,357)		31,317		1,556		(1,924)
Foreign Currency Options	0		0		0		0		0		0
Currency/Interest Rate
Foreign Currency Swaps	7,916		704		(155)		8,410		813		(170)
Credit
Credit Default Swaps	6,407		29		(39)		6,351		27		(57)
Equity
Equity Futures	1,081		0		(5)		1,372		1		(2)
Equity Options	48,867		896		(1,462)		38,323		708		(1,590)
Total Return Swaps	10,701		361		(135)		11,806		106		(184)
Other
Other(1)	1,250		0		0		1,250		0		0
Synthetic GICs	80,152		1		(1)		84,338		1		(1)
Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	457,981	$	17,165	$	(33,277)	$	426,313	$	12,567	$	(25,428)
Total Derivatives(2)(3)	$	493,917	$	20,183	$	(34,305)	$	460,804	$	16,257	$	(26,353)

__________

(1)“Other” primarily includes derivative contracts used to improve the balance of the Company’s tail longevity and mortality risk. Under these contracts, the Company’s gains (losses) are capped at the notional amount.

(2)Excludes embedded derivatives which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of $5,051 million and $2,997 million as of September 30, 2023 and December 31, 2022, respectively, primarily included in "Policyholder account balances" and “Other liabilities”.

(3)Recorded in “Other invested assets” and “Other liabilities” on the Unaudited Interim Consolidated Statements of Financial Position.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

As of September 30, 2023, the following amounts were recorded on the Unaudited Interim Consolidated Statements of Financial Position related to the carrying amount of the hedged assets (liabilities) and cumulative basis adjustments included in the carrying amount for fair value hedges.


	September 30, 2023				December 31, 2022
Balance Sheet Line Item in which Hedged Item is Recorded	Carrying Amount of the Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)		Carrying Amount of the Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)

	(in millions)
Fixed maturities, available-for-sale, at fair value	$	206	$	10	$	297	$	27
Commercial mortgage and other loans	$	0	$	0	$	0	$	0
Policyholders’ account balances	$	(742)	$	322	$	(966)	$	217
Future policy benefits	$	(2,238)	$	502	$	(2,354)	$	391

__________

(1)There were no material fair value hedging adjustments for hedged assets and liabilities for which hedge accounting has been discontinued.

Most of the Company’s derivatives do not qualify for hedge accounting for various reasons. For example: (i) derivatives that economically hedge embedded derivatives do not qualify for hedge accounting because changes in the fair value of the embedded derivatives are already recorded in net income; (ii) derivatives that are utilized as macro hedges of the Company’s exposure to various risks typically do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedge accounting rules; and (iii) synthetic GICs, which are product standalone derivatives, do not qualify as hedging instruments under hedge accounting rules.

Offsetting Assets and Liabilities

The following tables present recognized derivative instruments (excluding embedded derivatives), and repurchase and reverse repurchase agreements that are offset in the Unaudited Interim Consolidated Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Unaudited Interim Consolidated Statements of Financial Position.


	September 30, 2023
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in millions)
Offsetting of Financial Assets:
Derivatives	$	20,084	$	(19,178)	$	906	$	(210)	$	696
Securities purchased under agreement to resell	607		0		607		(467)		140
Total assets	$	20,691	$	(19,178)	$	1,513	$	(677)	$	836
Offsetting of Financial Liabilities:
Derivatives	$	34,305	$	(28,884)	$	5,421	$	(5,175)	$	246
Securities sold under agreement to repurchase	5,547		0		5,547		(5,265)		282
Total liabilities	$	39,852	$	(28,884)	$	10,968	$	(10,440)	$	528

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	December 31, 2022
	Gross Amounts of Recognized Financial Instruments		Gross Amounts Offset in the Statements of Financial Position		Net Amounts Presented in the Statements of Financial Position		Financial Instruments/ Collateral(1)		Net Amount
	(in millions)
Offsetting of Financial Assets:
Derivatives	$	16,178	$	(14,802)	$	1,376	$	(702)	$	674
Securities purchased under agreement to resell	385		0		385		(385)		0
Total assets	$	16,563	$	(14,802)	$	1,761	$	(1,087)	$	674
Offsetting of Financial Liabilities:
Derivatives	$	26,352	$	(23,298)	$	3,054	$	(3,054)	$	0
Securities sold under agreement to repurchase	6,589		0		6,589		(6,589)		0
Total liabilities	$	32,941	$	(23,298)	$	9,643	$	(9,643)	$	0

__________

(1)Amounts exclude the excess of collateral received/pledged from/to the counterparty.

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above, see “—Counterparty Credit Risk” below. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information regarding the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.

Cash Flow, Fair Value and Net Investment Hedges

The primary derivative and non-derivative instruments used by the Company in its fair value, cash flow and net investment hedge accounting relationships are interest rate swaps, currency swaps, currency forwards, and foreign currency denominated debts. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, or equity derivatives in any of its fair value, cash flow or net investment hedge accounting relationships.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following tables provide the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, including the offset of the hedged item in fair value hedge relationships.


	Three Months Ended September 30, 2023
	Realized Investment Gains (Losses)		Change in Value of Market Risk Benefits, Net of Related Hedging Gain (Loss)		Net Investment Income		Other Income (Loss)		Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits		Change in AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	10	$	0	$	0	$	0	$	0	$	(110)	$	(141)	$	0
Currency	0		0		0		0		0		0		(73)		0
Total gains (losses) on derivatives designated as hedge instruments	10		0		0		0		0		(110)		(214)		0
Gains (losses) on the hedged item:
Interest Rate	(9)		0		3		0		0		104		189		0
Currency	0		0		0		0		0		0		72		0
Total gains (losses) on hedged item	(9)		0		3		0		0		104		261		0
Amortization for gains (losses) excluded from assessment of the effectiveness

Currency	0		0		0		0		0		0		(2)		131
Total Amortization for gain (loss) excluded from assessment of the effectiveness	0		0		0		0		0		0		(2)		131
Total gains (losses) on fair value hedges net of hedged item	1		0		3		0		0		(6)		45		131
Cash flow hedges
Interest Rate	0		0		(3)		0		0		0		0		(40)
Currency	0		0		0		0		0		0		0		0
Currency/Interest Rate	3		0		75		144		0		0		0		(109)
Total gains (losses) on cash flow hedges	3		0		72		144		0		0		0		(149)
Net investment hedges
Currency	0		0		0		0		0		0		0		11
Currency/Interest Rate	0		0		0		0		0		0		0		0
Total gains (losses) on net investment hedges	0		0		0		0		0		0		0		11
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(1,918)		(2,314)		0		0		0		0		0		0
Currency	70		0		0		(1)		0		0		0		0
Currency/Interest Rate	34		0		0		1		0		0		0		0
Credit	1		0		0		0		0		0		0		0
Equity	(461)		314		0		0		0		0		0		0
Other	0		0		0		0		0		0		0		0
Embedded Derivatives	298		0		0		0		0		0		0		0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(1,976)		(2,000)		0