10.78false--12-31Q220190001038509PRUCO LIFE INSURANCE OF NEW JERSEY129789200055400000400000400000400000400000400000003000000060000001300000081360005186000600000100000020000004000000106730002201200010000008000000100000015000000300000010000010000000100000100000100000744600010491000 0001038509 cik1038509:ReceivablesFromParentsAndAffiliatesMember 2019-04-01 2019-06-30

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 ~~June 30, 2019~~March 31, 2020



☐	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 333-18053

____________________________________________________________

Pruco Life Insurance Company of New Jersey

(Exact Name of Registrant as Specified in its Charter)



New Jersey		22-2426091
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

213 Washington 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 Symbol(s)	Name of Each Exchange on Which Registered
Not Applicable	Not Applicable	Not Applicable

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 ☒ 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 ☒ 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 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 ☒

As of ~~August 13, 2019,~~May 14, 2020, 400,000 shares of the registrant’s Common Stock (par value $5) were outstanding. As of such date, Pruco Life Insurance Company, an Arizona corporation, owned all of the registrant’s Common Stock.

Pruco Life Insurance Company of New Jersey meets the conditions set

forth in General Instruction (H) (1) (a) and (b) on Form 10-Q and

is therefore filing this Form 10-Q in the reduced disclosure format.

Table of Contents

TABLE OF CONTENTS



		Page Number
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Unaudited Interim Statements of Financial Position as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	4
��
	Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	5

	Unaudited Interim Statements of Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	6

	Unaudited Interim Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	7

	Notes to Unaudited Interim Financial Statements	8

	1. Business and Basis of Presentation	8

	2. Significant Accounting Policies and Pronouncements	9

	3. Investments	1114

	4. Derivative Instruments	2023

	5. Fair Value of Assets and Liabilities	2528

	6. Reinsurance	3536

	7. Income Taxes	3740

	8. Equity	3841

	9. Related Party Transactions	4043

	10. Commitments and Contingent Liabilities	4346

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4547

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5256

Item 4.	Controls and Procedures	5356

PART II—OTHER INFORMATION		5457

Item 1.	Legal Proceedings	5457

Item 1A.	Risk Factors	5457

Item 6.	Exhibits	5559

SIGNATURES		5660

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q, ~~including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations,~~ 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 Pruco Life Insurance Company of New Jersey and its subsidiary. There can be no assurance that future developments affecting Pruco Life Insurance Company of New Jersey and its subsidiary 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) the ongoing impact of the COVID-19 pandemic on the global economy, financial markets and our business, (2) losses on investments or financial contracts due to deterioration in credit quality or value, or counterparty default; ~~(2)~~(3) losses on insurance products due to mortality experience or policyholder behavior experience that differs significantly from our expectations when we price our products; ~~(3)~~(4) changes in interest rates and equity prices 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; ~~(4)~~(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; ~~(5)~~(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; ~~(6)~~(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 or (d) reliance on ~~third-parties; (7)~~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) state insurance laws and developments regarding group-wide supervision, capital and reserves, and (e) privacy and cybersecurity regulation; ~~(8)~~(9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; ~~(9)~~(10) ratings downgrades; ~~(10)~~(11) market conditions that may adversely affect the sales or persistency of our products; ~~(11)~~(12) competition; and ~~(12)~~(13) reputational damage. Pruco Life Insurance Company of New Jersey does not intend, and is under no obligation, 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, ~~2018~~2019 for discussion of certain risks relating to our business and investment in our securities.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Financial Position

~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands, except share amounts)

June 30, 2019 December 31, 2018
ASSETS
Fixed maturities available for sale, at fair value (amortized cost: 2019–$1,373,556; 2018–$1,297,892) $ 1,449,052
$ 1,277,824
Fixed maturities, trading, at fair value (amortized cost: 2019–$10,491; 2018–$7,466) 9,304
5,770
Equity securities, at fair value (cost: 2019–$5,186; 2018–$8,136) 7,457
9,870
Policy loans 209,578
206,448
Commercial mortgage and other loans 122,644
118,636
Other invested assets (includes $22,012 and $10,673 measured at fair value at June 30, 2019 and December 31, 2018, respectively) 79,201
58,413
Total investments 1,877,236
1,676,961
Cash and cash equivalents 45,641
70,441
Deferred policy acquisition costs 165,502
165,478
Accrued investment income 18,810
17,764
Reinsurance recoverables 3,099,079
2,723,518
Receivables from parent and affiliates 32,603
40,388
Income taxes receivable 8,406
19,134
Other assets 23,936
23,973
Separate account assets 15,132,687
13,382,345
TOTAL ASSETS $ 20,403,900
$ 18,120,002
LIABILITIES AND EQUITY
LIABILITIES
Policyholders’ account balances $ 2,352,257
$ 2,314,958
Future policy benefits 2,227,311
1,820,092
Cash collateral for loaned securities 2,447
2,702
Payables to parent and affiliates 17,412
20,413
Other liabilities 132,995
134,771
Separate account liabilities 15,132,687
13,382,345
Total liabilities 19,865,109
17,675,281
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)

EQUITY
Common stock ($5 par value; 400,000 shares authorized, issued and outstanding) 2,000
2,000
Additional paid-in capital 213,261
213,261
Retained earnings 264,533
243,827
Accumulated other comprehensive income (loss) 58,997
(14,367 )
Total equity 538,791
444,721
TOTAL LIABILITIES AND EQUITY $ 20,403,900
$ 18,120,002



	March 31, 2020		December 31, 2019
ASSETS
Fixed maturities available for sale, at fair value (amortized cost: 2020 - $1,543,477; 2019–$1,437,796)	$	1,617,145	$	1,550,096
Fixed maturities, trading, at fair value (amortized cost: 2020 - $14,221; 2019–$14,221)	11,684		13,700
Equity securities, at fair value (cost: 2020 - $5,139; 2019–$5,139)	7,037		7,512
Policy loans	214,072		211,986
Commercial mortgage and other loans (net of $442 and $165 allowance for credit losses)(1)	138,615		143,098
Other invested assets (includes $37,450 and $24,726 of assets measured at fair value at March 31, 2020 and December 31, 2019, respectively)	104,361		89,536
Total investments	2,092,914		2,015,928
Cash and cash equivalents	84,785		55,924
Deferred policy acquisition costs	195,064		178,813
Accrued investment income	20,270		19,539
Reinsurance recoverables	4,395,263		3,200,642
Receivables from parent and affiliates	33,029		32,820
Income taxes receivable(1)	10,160		6,268
Other assets	21,045		21,203
Separate account assets	13,578,984		15,904,208
TOTAL ASSETS	$	20,431,514	$	21,435,345
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	3,485,351	$	2,302,959
Policyholders’ account balances	2,466,862		2,424,120
Cash collateral for loaned securities	2,587		2,481
Short-term debt to affiliates	0		89
Payables to parent and affiliates	24,369		24,958
Other liabilities(1)	158,802		140,628
Separate account liabilities	13,578,984		15,904,208
Total liabilities	19,716,955		20,799,443
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 10)
EQUITY
Common stock ($5 par value; 400,000 shares authorized, issued and outstanding)	2,000		2,000
Additional paid-in capital	348,865		268,021
Retained earnings	294,624		280,246
Accumulated other comprehensive income (loss)	69,070		85,635
Total equity	714,559		635,902
TOTAL LIABILITIES AND EQUITY	$	20,431,514	$	21,435,345


(1)	March 31, 2020 amounts include the impacts of the January 1, 2020 adoption of ASU 2016-13. See Note 2 for details.

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Operations and Comprehensive Income (Loss)

Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
REVENUES
Premiums	$	3,281		$	3,152		$	6,619		$	5,649		$	5,194		$	3,338
Policy charges and fee income	22,605			20,538			42,454			45,352			23,969			19,849
Net investment income	19,472			17,608			38,213			34,157			16,965			18,741
Asset administration fees	1,449			1,334			2,792			2,640			1,565			1,343
Other income	1,329			(27		)	2,643			344			(1,949		)	1,314
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	0			0			(2,784		)	0
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income	0			0			(379		)	0
Other realized investment gains (losses), net	(5,056		)	(1,896		)	(8,003		)	(5,827		)
Total realized investment gains (losses), net	(5,056		)	(1,896		)	(11,166		)	(5,827		)
Realized investment gains (losses), net													13,065			(6,110		)
TOTAL REVENUES	43,080			40,709			81,555			82,315			58,809			38,475
BENEFITS AND EXPENSES
Policyholders’ benefits	10,351			8,607			20,328			17,159			16,686			9,977
Interest credited to policyholders’ account balances	10,005			8,911			19,058			17,475			10,191			9,053
Amortization of deferred policy acquisition costs	6,174			6,027			7,399			11,994			5,312			1,225
General, administrative and other expenses	6,858			10,103			13,956			17,859			10,374			7,098
TOTAL BENEFITS AND EXPENSES	33,388			33,648			60,741			64,487			42,563			27,353
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	9,692			7,061			20,814			17,828			16,246			11,122
Income tax expense (benefit)	(805		)	745			(228		)	1,492			1,701			577
NET INCOME (LOSS)	$	10,497		$	6,316		$	21,042		$	16,336		$	14,545		$	10,545
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	4			(917		)	4			(1,152		)	(1		)	0
Net unrealized investment gains (losses)	46,263			(20,757		)	92,861			(57,318		)	(20,968		)	46,598
Total	46,267			(21,674		)	92,865			(58,470		)	(20,969		)	46,598
Less: Income tax expense (benefit) related to other comprehensive income (loss)	9,715			(4,551		)	19,501			(12,279		)	(4,404		)	9,786
Other comprehensive income (loss), net of taxes	36,552			(17,123		)	73,364			(46,191		)	(16,565		)	36,812
Comprehensive income (loss)	$	47,049		$	(10,807	)	$	94,406		$	(29,855	)	$	(2,020	)	$	47,357

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Equity

Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands)


	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, December 31, 2018	$	2,000	$	213,261	$	243,827		$	(14,367	)	$	444,721
Balance, December 31, 2019														$	2,000	$	268,021		$	280,246		$	85,635		$	635,902
Cumulative effect of adoption of accounting changes(1)					(336		)	0			(336		)						(167		)	0			(167		)
Contributed capital			0								0					85,112									85,112
Contributed (distributed) capital - parent/child asset transfers																(4,268		)							(4,268		)
Comprehensive income (loss):
Net income (loss)					10,545						10,545								14,545						14,545
Other comprehensive income (loss), net of tax								36,812			36,812											(16,565		)	(16,565		)
Total comprehensive income (loss)											47,357														(2,020		)
Balance, March 31, 2019	2,000		213,261		254,036			22,445			491,742
Contributed capital			0								0
Comprehensive income:
Net income (loss)					10,497						10,497
Other comprehensive income (loss), net of taxes								36,552			36,552
Total comprehensive income (loss)											47,049
Balance, June 30, 2019	$	2,000	$	213,261	$	264,533		$	58,997		$	538,791
Balance, March 31, 2020														$	2,000	$	348,865		$	294,624		$	69,070		$	714,559


	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity			Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, December 31, 2017	$	2,000	$	211,961		$	218,067		$	34,330		$	466,358
Cumulative effect of adoption of ASU 2016-01						372			(175		)	197
Cumulative effect of adoption of ASU 2018-02						(5,893		)	5,893			0
Balance, December 31, 2018															$	2,000	$	213,261	$	243,827		$	(14,367	)	$	444,721
Cumulative effect of adoption of accounting changes(2)																			(336		)	0			(336		)
Contributed capital			1,300									1,300					0								0
Contributed (distributed) capital-parent/child asset transfers																	0								0
Comprehensive income (loss):
Net income (loss)						10,020						10,020							10,545						10,545
Other comprehensive income (loss), net of tax									(29,068		)	(29,068		)								36,812			36,812
Total comprehensive income (loss)												(19,048		)											47,357
Balance, March 31, 2018	2,000		213,261			222,566			10,980			448,807
Contributed capital			(113		)							(113		)
Comprehensive income:
Net income (loss)						6,316						6,316
Other comprehensive income (loss), net of tax									(17,123		)	(17,123		)
Total comprehensive income (loss)												(10,807		)
Balance, Balance, June 30, 2018	$	2,000	$	213,148		$	228,882		$	(6,143	)	$	437,887
Balance, March 31, 2019															$	2,000	$	213,261	$	254,036		$	22,445		$	491,742


(1)	Includes the impact from the adoption of ASU 2016-13. See Note 2.


(2)	Includes the impact from the adoption of ASUs 2017-08 and 2017-12. See Note 2.2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information.

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Unaudited Interim Statements of Cash Flows

~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands)


	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	21,042		$	16,336		$	14,545		$	10,545
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Policy charges and fee income	(25,026		)	(16,804		)	(8,571		)	(5,763		)
Interest credited to policyholders’ account balances	19,058			17,475			10,191			9,053
Realized investment (gains) losses, net	11,166			5,827			(13,065		)	6,110
Amortization and other non-cash items	(7,220		)	(4,744		)	1,063			(3,644		)
Change in:
Future policy benefits	148,113			92,246			108,205			37,994
Reinsurance recoverables	(133,304		)	(87,886		)	(96,083		)	(29,362		)
Accrued investment income	(1,046		)	(881		)	(731		)	(369		)
Net payables to/receivables from parent and affiliates	(1,306		)	(5,069		)	(951		)	4,328
Deferred policy acquisition costs	(7,803		)	(3,107		)	(12,994		)	(5,032		)
Income taxes	(8,684		)	(995		)	1,690			566
Derivatives, net	(1,378		)	(4,275		)	(251		)	(596		)
Other, net	(16,605		)	3,564			1,313			(15,723		)
Cash flows from (used in) operating activities	(2,993		)	11,687			4,361			8,107
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	33,123			27,469			13,664			5,559
Fixed maturities, trading	0			0
Equity securities	3,298			5			0			5
Policy loans	12,885			10,873			6,512			6,130
Ceded policy loans	(713		)	(608		)	(297		)	(489		)
Commercial mortgage and other loans	6,576			1,193			5,457			899
Other invested assets	1,161			1,639			857			259
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(111,939		)	(94,921		)	(28,895		)	(61,694		)
Fixed maturities, trading	(3,045		)	0
Equity securities	(50		)	(2,002		)	0			(50		)
Policy loans	(12,010		)	(13,040		)	(8,623		)	(5,238		)
Ceded policy loans	1,036			1,163			2,474			453
Commercial mortgage and other loans	(10,557		)	(1,595		)	(2,198		)	0
Other invested assets	(8,939		)	(2,673		)	(3,452		)	(2,898		)
Notes receivable from parent and affiliates, net	6,127			220			75			6,068
Derivatives, net	25			(16		)	(416		)	10
Other, net	(139		)	2			7			(62		)
Cash flows from (used in) investing activities	(83,161		)	(72,291		)	(14,835		)	(51,048		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders’ account deposits	284,528			249,188			136,986			137,408
Ceded policyholders’ account deposits	(172,340		)	(167,109		)	(91,138		)	(84,766		)
Policyholders’ account withdrawals	(162,051		)	(134,241		)	(73,651		)	(77,259		)
Ceded policyholders’ account withdrawals	113,527			86,696			57,603			55,068
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities	(256		)	(11,317		)	106			385
Net change in all other financing arrangements (maturities 90 days or less)							(89		)	0
Drafts outstanding	(2,054		)	7,726			5,000			(10,381		)
Other, net							4,518			0
Cash flows from (used in) financing activities	61,354			30,943			39,335			20,455
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(24,800		)	(29,661		)	28,861			(22,486		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	70,441			44,618			55,924			70,441
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	45,641		$	14,957		$	84,785		$	47,955

Significant Non-Cash Transactions

For the three months ended March 31, 2020, the Company received $85 million of non-cash assets from its parent, Pruco Life Insurance Company. There were no0 significant non-cash transactions for the ~~six~~three months ended ~~June 30, 2019 and 2018.~~March 31, 2019. See Note 9 for additional information.

See Notes to Unaudited Interim Financial Statements

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Pruco Life Insurance Company of New Jersey ("PLNJ") is a wholly-owned subsidiary of Pruco Life Insurance Company (“Pruco Life”), which in turn is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential Insurance”). Prudential Insurance is a direct wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). PLNJ is a stock life insurance company organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities in New Jersey and New York only, and sells such products primarily through affiliated and unaffiliated distributors.

~~PLNJ had one subsidiary, formed in 2009 for the purpose of holding certain commercial mortgage loans and other investments which ceased operations and was dissolved as of December 31, 2018.~~

Basis of Presentation

The Unaudited Interim Financial Statements have been prepared in accordance with accounting principles generally accepted 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”). Intercompany balances and transactions have been eliminated.

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 Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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 deferred policy acquisition costs ("DAC") and related amortization; ~~amortization~~policyholders' account balances related to the fair value of ~~deferred sales inducements ("DSI");~~embedded derivative instruments associated with the index-linked features of certain universal life products; valuation of investments including derivatives, measurement of allowance for credit losses, and ~~the~~ recognition of other-than-temporary impairments (“OTTI”); future policy benefits including guarantees; reinsurance recoverables; 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.

COVID-19

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

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

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 Accounting Standards Updates ("~~ASU"~~ASUs") to the FASB Accounting Standards ~~Codification.~~Codification ("ASC"). The Company considers the applicability and impact of all ~~ASU. ASU~~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 March 31, 2020, and as of the date of this filing. ~~ASU~~ASUs not listed below were assessed and determined to be either not applicable or not material.

Adoption of ASU 2016-13

The Company adopted ASU 2016-13, and related ASUs, effective January 1, 2020 using the modified retrospective method for certain financial assets carried at amortized cost and certain off-balance sheet exposures. The modified retrospective method results in a cumulative effect adjustment to opening retained earnings. The Company adopted the guidance related to fixed maturities, available-for-sale on a prospective basis.

This ASU requires the use of a new current expected credit loss (“CECL”) model to account for expected credit losses on certain financial assets reported at amortized cost (e.g., loans held for investment, reinsurance receivables, etc.) and certain off-balance sheet credit exposures (e.g., indemnification of serviced mortgage loans and certain loan commitments). The guidance requires an entity to estimate lifetime credit losses related to such financial assets and credit exposures based on relevant information about past events, current conditions, and reasonable and supportable forecasts that may affect the collectability of the reported amounts. The standard also modifies the other-than-temporary-impairment (“OTTI”) guidance for fixed maturities, available-for-sale requiring the use of an allowance rather than a direct write-down of the investment.

The impacts of this ASU on the Company’s Financial Statements primarily include (1) A Cumulative Effect Adjustment Upon Adoption; (2) Changes to the Presentation of the Statements of Financial Position and Statements of Operations; and (3) Changes to Accounting Policies. Each of these impacts is described below. This section is meant to serve as an update to, and should be read in conjunction with, Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

(1) Cumulative Effect Adjustment Upon Adoption

Adoption of the standard resulted in a cumulative effect adjustment to opening retained earnings in the amount of $0.2 million, primarily related to commercial mortgage and other loans. The impact of adoption is not material to the following financial statement line items: income taxes receivable and other liabilities. The prospective adoption of the portions of the standard related to fixed maturities, available-for-sale resulted in no impact to opening retained earnings.

(2) Changes to the Presentation of the Statements of Financial Position and Statements of Operations

The allowance for credit losses is presented parenthetically on relevant line items in the Statements of Financial Position. In the Statements of Operations, realized investment gains (losses), net are presented on one line item and will no longer reflect the breakout of OTTI on fixed maturity securities; OTTI on fixed maturity securities transferred to other comprehensive income (“OCI”); and other realized investment gains (losses), net. The presentation of this detail in prior periods is immaterial.

(3) Changes to Accounting Policies

This section has been updated to include the changes in our accounting policies resulting from the adoption of ASU 2016-13.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Fixed maturities, available-for-sale

Fixed maturities, available-for-sale (“AFS debt securities”) are reported at fair value in the Statements of Financial Position. Interest income, and amortization of premium and accretion of discount are included in “Net investment income” under the effective yield method. For mortgage-backed and asset-backed securities, the effective yield is based on estimated cash flows, including interest rate and prepayment assumptions based on data from widely accepted third-party data sources or internal estimates. In addition to interest rate and prepayment assumptions, cash flow estimates also vary based on other assumptions relating to the underlying collateral, including default rates and changes in value. These assumptions can significantly impact income recognition and the amount of impairments recognized in earnings and OCI. For mortgage-backed and asset-backed securities rated below AA, the effective yield is adjusted prospectively for any changes in the estimated timing and amount of cash flows unless the investment is impaired. For impaired mortgage-backed and asset-backed securities rated below AA, the effective yield is adjusted prospectively only if subsequent favorable or adverse changes in expected cash flows are not reflected in the allowance for credit losses. Prior to the adoption of this standard, the effective yield was adjusted prospectively regardless of whether the investment was impaired or not.

AFS debt securities with unrealized losses are reviewed quarterly to determine whether the amortized cost basis of the security is recoverable. In evaluating whether the amortized cost basis is recoverable, the Company considers several factors including, but not limited to the extent of the decline and the reasons for the decline in value (credit events, currency or interest-rate related, including general credit spread widening), and the financial condition of the issuer.

When an AFS debt security is in an unrealized loss position and (1) the Company has the intent to sell the AFS debt security, or (2) it is more likely than not the Company will be required to sell the AFS debt security before its anticipated recovery, or (3) the Company has deemed the AFS debt security to be uncollectable, the amortized cost basis of the AFS debt security is written down to fair value and any previously recognized allowance is reversed. The impairment is reported in “Realized investment gains (losses), net.” The new cost basis is not adjusted for subsequent increases in estimated fair value.

For an AFS debt security in an unrealized loss position that does not meet these conditions, the Company analyzes its ability to recover the amortized cost by comparing the net present value of projected future cash flows (the “net present value”) with the amortized cost of the security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the AFS debt security prior to impairment. The Company may use the estimated fair value of collateral, if any, as a proxy for the net present value if it believes that the security is dependent on the liquidation of collateral for recovery of its investment. If the net present value is less than the amortized cost of the investment, an allowance for losses is recognized in earnings for the difference between amortized cost and the net present value and is limited to the difference between amortized cost and fair value of the AFS debt security. Any difference between the fair value and the net present value of the debt security at the impairment measurement date remains in “Other comprehensive income (loss).” Changes in the allowance for losses are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, any impairments on AFS debt securities were reported as an adjustment to the amortized cost basis of the security. Subsequent to the impairment, the AFS debt security was treated as if it were newly acquired at the date of impairment, and any increases in cash flows expected to be collected were accreted into net investment income over the life of the investment.

Commercial mortgage and other loans

Commercial mortgage and other loans are reported in the Statements of Financial Position at amortized cost net of the CECL allowance. Additionally, certain off-balance sheet credit exposures (e.g. indemnification of serviced mortgage loans, and certain unfunded mortgage loan commitments where the Company cannot unconditionally cancel the commitment) are also subject to a

CECL allowance.

The CECL allowance represents the Company’s best estimate of expected credit losses over the remaining life of the assets or off-balance sheet credit exposures. The determination of the allowance considers historical credit loss experience, current conditions, and reasonable and supportable forecasts. The allowance is calculated separately for commercial mortgage loans, agricultural mortgage loans, and other collateralized and uncollateralized loans.

For commercial mortgage and agricultural mortgage loans (and related unfunded commitments where the Company cannot unconditionally cancel the commitment), the allowance is calculated using an internally developed CECL model.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Key inputs to the CECL model include unpaid principal balances, internal credit ratings, annual expected loss factors, average lives of the loans adjusted for prepayment considerations, current and historical interest rate assumptions, and other factors influencing the Company’s view of the current stage of the economic cycle and future economic conditions. Subjective considerations include a review of whether historical loss experience is representative of current market conditions and the Company’s view of the credit cycle. Model assumptions and factors are reviewed and updated as appropriate. Information about certain key inputs is detailed below.

Key factors in determining the internal credit ratings for commercial mortgage and agricultural mortgage loans include loan-to-value and debt-service-coverage ratios. Other factors include amortization, loan term, and estimated market value growth rate and volatility for the property type and region. The loan-to-value ratio compares the carrying amount of the loan to the fair value of the underlying property or properties collateralizing the loan and is commonly expressed as a percentage. Loan-to-value ratios greater than 100% indicate that the carrying amount of the loan exceeds the collateral value. A loan-to-value ratio less than 100% indicates an excess of collateral value over the carrying amount of the loan. The debt-service-coverage ratio is a property’s net operating income as a percentage of its debt service payments. Debt-service-coverage ratios less than 1.0 times indicate that a property’s operations do not generate enough income to cover the loan’s current debt payments. A debt-service-coverage ratio greater than 1.0 times indicates an excess of net operating income over the debt service payments. The values utilized in calculating these ratios are developed as part of the Company’s periodic review of the commercial mortgage and agricultural mortgage loan portfolios, which includes an internal appraisal of the underlying collateral value. The Company’s periodic review also includes a credit re-rating process, whereby the internal credit rating originally assigned at underwriting is updated based on current loan, property and market information using a proprietary credit quality rating system. See Note 3 for additional information related to the loan-to-value ratios and debt-service-coverage ratios related to the Company’s commercial mortgage and agricultural mortgage loan portfolios. Generally, every loan is re-rated at least annually.

Annual expected loss rates are based on historical default and loss experience factors. Using average lives, the annual expected loss rates are converted into life-of-loan loss expectations.

When individual loans no longer have the credit risk characteristics of the commercial or agricultural mortgage loan pools, they are removed from the pools and are evaluated individually for an allowance. The allowance is determined based on the outstanding loan balance less the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The CECL allowance on commercial mortgage and other loans can increase or decrease from period to period based on the factors noted above. The change in allowance is reported in “Realized investment gains (losses), net.” As it relates to unfunded commitments that are in scope of this guidance, the CECL allowance is reported in “Other liabilities”, and the change in the allowance is reported in “Realized investment gains (losses), net.”

When a commercial mortgage or other loan is deemed to be uncollectible, any allowance is reversed and a direct write-down of the carrying amount of the loan is recorded through "Realized investment gains (losses), net." The carrying amount of the loan is not adjusted for subsequent recoveries in value.

The CECL allowance for other collateralized and uncollateralized loans carried at amortized cost is determined based on probability of default and loss given default assumptions by sector, credit quality and average lives of the loans. Additions to or releases of the allowance are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, the impairments on commercial mortgage and other loans were collectively reviewed at a portfolio level for impairment based on probable incurred but not specifically identified losses with any such losses reflected in an allowance for credit losses. When a loan was individually identified to be impaired, the loan was individually evaluated for an allowance. Changes in these allowances were reported in “Realized investment gains (losses), net.” Additionally, an allowance for credit losses was not required on unfunded loan commitments.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Reinsurance

Reinsurance recoverables are reported on the Statements of Financial Position 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. The CECL allowance does not apply to reinsurance recoverables with affiliated counterparties under common control. Additions to or releases of the allowance are reported in “Policyholders’ benefits.”

Prior to the adoption of this standard, an allowance for credit losses for reinsurance recoverables was established only when it was deemed probable that a reinsurer may fail to make payments to us in a timely manner.

Other ASUs adopted during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.



Standard	Description	Effective date and method of adoption	Effect on the financial statements or other significant matters
ASU ~~2017-08,~~2020-04, Reference Rate Reform (Topic 848): Facilitation ~~Receivables -~~ ~~Nonrefundable Fees~~ ~~and Other Costs~~ ~~(Subtopic 310-20)~~ ~~Premium~~ ~~Amortization~~of the Effects of Reference Rate Reform on ~~Purchased Callable~~ ~~Debt Securities~~ Financial Reporting	This ASU ~~requires~~provides optional relief for certain ~~premiums on callable debt securities~~contracts impacted by reference rate reform. The standard permits an entity to consider contract modification due to reference rate reform to be ~~amortized~~an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU also temporarily (until December 31, 2022) allows hedge relationships to continue without de-designation upon changes due to reference rate reform.	March 12, 2020 to December 31, 2022 using the ~~earliest call date.~~prospective method.	~~January 1, 2019 using the modified~~ ~~retrospective method which included~~ ~~cumulative-effect~~ ~~adjustment on the~~ ~~balance sheet as of the beginning of the fiscal year of adoption.~~	~~Adoption of the~~This ASU did not have a significant impact on the Company’s Financial Statements and Notes to the Financial Statements. The ~~impact of~~Company made the ~~cumulative-effect adjustment~~election under ASU 2020-04 for all applicable contracts as they converted from the current reference rate to ~~retained earnings was immaterial.~~
~~ASU 2017-12~~, ~~Derivatives and~~ ~~Hedging (Topic~~ ~~815): Targeted~~ ~~Improvements to~~ ~~Accounting for~~ ~~Hedging Activities~~the new reference rate.	~~This ASU makes targeted changes to the existing hedge accounting model to better portray the economics of an entity’s risk management activities and to simplify the use of hedge accounting.~~ The ASU eliminates separate measurement and recording of hedge ineffectiveness. It requires entities to present the earnings effect of the hedging instrument in the same income statement line item in which the hedged item is reported and also requires expanded disclosures.	~~January 1, 2019 using~~ ~~the modified~~ ~~retrospective method which included cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption.~~	Adoption of the ASU did not have a significant impact on the Company’s Financial Statements and Notes to the Financial Statements. The impact of the cumulative-effect adjustment to retained earnings and accumulated other comprehensive income (loss) ("AOCI") related to ineffectiveness of the hedge instruments outstanding at the date of the adoption was immaterial. See Note 4 for additional required disclosures.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

ASU issued but not yet adopted as of ~~June 30, 2019~~March 31, 2020 — ASU 2018-12

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB on August 15, 2018 and is expected to have a significant impact on the Company’s Financial Statements and Notes to the Financial Statements. In ~~July~~October 2019, the FASB ~~made a tentative~~issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ~~this~~ ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. ~~A final decision regarding the effective date is expected in the third quarter of 2019.~~ This ASU will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. Outlined below are four key areas of change, although there are other changes not noted below. In addition to the impacts to the balance sheet upon adoption, the Company also expects an impact to how earnings emerge thereafter.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)



ASU 2018-12 Amended Topic	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-pay 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 Statements of Operations.	An entity may choose one of two adoption methods for the liability for future policy benefits: (1) a modified retrospective transition method whereby the entity will apply the amendments to contracts in force as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in ~~AOCI~~Accumulated Other Comprehensive Income (loss) ("AOCI") or (2) a full retrospective transition method.	The options for method of adoption and the impacts of such methods are under assessment.
Discount rate assumption used to measure the liability for future policy benefits for non-participating traditional and limited-pay insurance products	Requires discount rate assumptions to be based on an upper-medium grade fixed income instrument yield and will be required to be updated each quarter with the impact recorded through Other Comprehensive Income ("OCI").	As noted above, an entity may choose either a modified retrospective transition method or full retrospective transition method for the liability for future policy benefits. Under either method, for balance sheet remeasurement purposes, the liability for future policy benefits will be remeasured using current discount rates as of the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.	Upon adoption, under either transition method, there will be an adjustment to AOCI as a result of remeasuring in force contract liabilities using current upper-medium grade fixed income instrument yields. The adjustment upon adoption will largely reflect the difference between the discount rate locked-in at contract inception versus current discount rates at transition. The magnitude of such adjustment is currently being assessed.
Amortization of DAC and other balances	Requires DAC and other balances, such as unearned revenue reserves and ~~DSI,~~deferred sales inducements ("DSI"), to be amortized on a constant level basis over the expected term of the related contract, independent of expected profitability.	An entity may apply one of two adoption methods: (1) a modified retrospective transition method whereby the entity will apply the amendments to contracts in force as of the beginning of the earliest period presented on the basis of their existing carrying amounts, adjusted for the removal of any related amounts in AOCI or (2) if an entity chooses a full retrospective transition method for its liability for future policy benefits, as described above, it is required to also use a retrospective transition method for DAC and other balances.	The options for method of adoption and the impacts of such methods are under assessment. Under the modified retrospective transition method, the Company would not expect a significant impact to the balance sheet, other than the impact of the removal of any related amounts in AOCI.
Market Risk Benefits	Requires an entity to measure all market risk benefits (e.g., living benefit and death benefit guarantees associated with variable annuities) at fair value, ~~with changes~~and record market risk benefit assets and liabilities separately on the Statements of Financial Position. Changes in fair value of market risk benefits are recorded in net income, except for the portion of the change that is attributable to changes in an entity’s non-performance risk ("NPR") ~~to be~~ recognized in OCI.	An entity ~~will apply a~~shall adopt the guidance for market risk benefits using the retrospective transition method which ~~will include~~includes a cumulative-effect adjustment on the balance sheet as of the earliest period presented. 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.	Upon adoption, the Company expects an impact to retained earnings for the difference between the fair value and carrying value of benefits not currently measured at fair value (e.g., guaranteed minimum death benefits ("GMDB") on variable annuities) and an impact from reclassifying the cumulative effect of changes in NPR from retained earnings to AOCI. The magnitude of such adjustments is currently being assessed.

1013

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

~~Other ASU issued but not yet adopted as of June 30, 2019~~

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:


	June 30, 2019											March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)											(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	15,189	$	1,156	$	0	$	16,345	$	0		$	14,880	$	1,379	$	0	$	0	$	16,259
Obligations of U.S. states and their political subdivisions	120,450		8,259		0		128,709		0			158,880		12,967		128		0		171,719
Foreign government bonds	70,733		3,978		10		74,701		0			69,412		3,082		661		0		71,833
U.S. public corporate securities	553,331		44,374		1,311		596,394		0			699,895		70,282		10,558		0		759,619
U.S. private corporate securities	233,673		9,042		1,066		241,649		0			225,996		5,644		4,086		0		227,554
Foreign public corporate securities	50,777		3,343		418		53,702		0			52,538		3,330		1,436		0		54,432
Foreign private corporate securities	155,829		4,346		2,757		157,418		0			158,866		391		12,890		0		146,367
Asset-backed securities(1)	19,323		1,015		18		20,320		(31		)	17,841		217		407		0		17,651
Commercial mortgage-backed securities	149,791		5,116		10		154,897		0			141,288		6,300		259		0		147,329
Residential mortgage-backed securities(2)	4,460		457		0		4,917		(58		)	3,881		513		12		0		4,382
Total fixed maturities, available-for-sale	$	1,373,556	$	81,086	$	5,590	$	1,449,052	$	(89	)	$	1,543,477	$	104,105	$	30,437	$	0	$	1,617,145


(1)	Includes credit-tranched securities collateralized by loan obligations ~~sub-prime mortgages,~~and education ~~loans and other asset types.~~loans.


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



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(3)
	(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	14,983	$	1,032	$	0	$	16,015	$	0
Obligations of U.S. states and their political subdivisions	123,505		10,172		0		133,677		0
Foreign government bonds	70,287		6,993		0		77,280		0
U.S. public corporate securities	627,880		70,167		527		697,520		0
U.S. private corporate securities	222,952		10,416		153		233,215		0
Foreign public corporate securities	53,115		4,958		80		57,993		0
Foreign private corporate securities	161,597		4,505		2,210		163,892		0
Asset-backed securities(1)	17,816		753		27		18,542		0
Commercial mortgage-backed securities	141,593		5,796		0		147,389		0
Residential mortgage-backed securities(2)	4,068		509		4		4,573		(50		)
Total fixed maturities, available-for-sale	$	1,437,796	$	115,301	$	3,001	$	1,550,096	$	(50	)


~~(3)~~(1)	~~Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $0.6 million of net unrealized losses on impaired available-for-sale~~Includes credit-tranched securities ~~relating to changes in the value of such~~collateralized by loan obligations, sub-prime mortgages, and education loans.


(2)	Includes publicly-traded agency pass-through securities ~~subsequent to the impairment measurement date.~~and collateralized mortgage obligations.

1114

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

December 31, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

OTTI
in AOCI(3)
(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 15,388
$ 940
$ 0
$ 16,328
$ 0
Obligations of U.S. states and their political subdivisions 121,031
1,830
555
122,306
0
Foreign government bonds 68,720
96
3,522
65,294
0
U.S. public corporate securities 486,872
8,798
14,945
480,725
0
U.S. private corporate securities 231,953
1,935
7,522
226,366
0
Foreign public corporate securities 49,684
476
1,945
48,215
0
Foreign private corporate securities 149,611
736
5,584
144,763
0
Asset-backed securities(1) 22,352
1,040
41
23,351
(40 )
Commercial mortgage-backed securities 147,464
915
3,173
145,206
0
Residential mortgage-backed securities(2) 4,817
460
7
5,270
(66 )
Total fixed maturities, available-for-sale $ 1,297,892
$ 17,226
$ 37,294
$ 1,277,824
$ (106 )


~~(1)~~	~~Includes credit-tranched securities collateralized by loan obligations, sub-prime mortgages, auto loans, education loans and other asset types.~~


~~(2)~~	~~Includes publicly-traded agency pass-through securities and collateralized mortgage obligations.~~


(3)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes ~~$0.2~~$0.1 million of net unrealized gains on impaired available-for-sale securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The following ~~tables set~~table sets 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~~date indicated:


	June 30, 2019												March 31, 2020
	Less Than Twelve Months				Twelve Months or More				Total				Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)												(in thousands)
Fixed maturities, available-for-sale:
Obligations of U.S. states and their political subdivisions	$	0	$	0	$	0	$	0	$	0	$	0	$	2,743	$	128	$	0	$	0	$	2,743	$	128
Foreign government bonds	0		0		5,600		10		5,600		10		11,764		661		0		0		11,764		661
U.S. public corporate securities	0		0		37,873		1,311		37,873		1,311		113,107		10,558		0		0		113,107		10,558
U.S. private corporate securities	9,853		212		11,803		854		21,656		1,066		70,767		4,086		0		0		70,767		4,086
Foreign public corporate securities	0		0		8,344		418		8,344		418		21,254		1,436		0		0		21,254		1,436
Foreign private corporate securities	20,309		340		26,349		2,417		46,658		2,757		99,008		7,617		27,116		5,273		126,124		12,890
Asset-backed securities	4,785		15		999		3		5,784		18		8,004		240		2,333		167		10,337		407
Commercial mortgage-backed securities	0		0		2,961		10		2,961		10		36,570		259		0		0		36,570		259
Residential mortgage-backed securities	0		0		0		0		0		0		77		12		0		0		77		12
Total fixed maturities, available-for-sale	$	34,947	$	567	$	93,929	$	5,023	$	128,876	$	5,590	$	363,294	$	24,997	$	29,449	$	5,440	$	392,743	$	30,437

The following table sets forth the fair value and gross unrealized losses on fixed maturity securities aggregated by investment category and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of the date indicated:



	December 31, 2019
	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 thousands)
Fixed maturities, available-for-sale:
Obligations of U.S. states and their political subdivisions	$	0	$	0	$	0	$	0	$	0	$	0
Foreign government bonds	0		0		400		0		400		0
U.S. public corporate securities	16,892		190		1,073		337		17,965		527
U.S. private corporate securities	7,350		140		4,757		13		12,107		153
Foreign public corporate securities	2,054		23		2,427		57		4,481		80
Foreign private corporate securities	10,659		281		27,048		1,929		37,707		2,210
Asset-backed securities	1,488		12		2,985		15		4,473		27
Commercial mortgage-backed securities	0		0		0		0		0		0
Residential mortgage-backed securities	91		4		0		0		91		4
Total fixed maturities, available-for-sale	$	38,534	$	650	$	38,690	$	2,351	$	77,224	$	3,001

1215

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

December 31, 2018
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 thousands)
Fixed maturities, available-for-sale:
Obligations of U.S. states and their political subdivisions $ 36,191
$ 356
$ 7,585
$ 199
$ 43,776
$ 555
Foreign government bonds 28,009
1,002
30,924
2,520
58,933
3,522
U.S. public corporate securities 182,958
7,696
124,396
7,249
307,354
14,945
U.S. private corporate securities 57,562
4,549
106,828
2,973
164,390
7,522
Foreign public corporate securities 20,062
695
16,791
1,250
36,853
1,945
Foreign private corporate securities 97,538
4,321
14,107
1,263
111,645
5,584
Asset-backed securities 7,762
41
0
0
7,762
41
Commercial mortgage-backed securities 26,453
163
61,338
3,010
87,791
3,173
Residential mortgage-backed securities 535
4
243
3
778
7
Total fixed maturities, available-for-sale $ 457,070
$ 18,827
$ 362,212
$ 18,467
$ 819,282
$ 37,294

As of ~~June 30, 2019 and December~~March 31, ~~2018,~~2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of ~~$3.5~~$26.4 million ~~and $31.0 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 ~~$2.1~~$4.0 million ~~and $6.3 million, respectively,~~ related to other than high or highest quality securities based on NAIC or equivalent rating. As of ~~June 30, 2019,~~March 31, 2020, the ~~$5.0~~$5.4 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the finance, consumer non-cyclical, and transportation ~~and~~ sectors.

~~utility~~ ~~sectors.~~ As of December 31, ~~2018,~~2019, the ~~$18.5~~gross unrealized losses on fixed maturity securities were composed of $2.4 million related to “1” highest quality or “2” high quality securities based on the NAIC or equivalent rating and $0.6 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2019, the $2.4 million of gross unrealized losses of twelve months or more were concentrated in ~~commercial mortgage-backed securities~~ ~~and in~~ the Company’s corporate securities within the finance, ~~utility~~consumer on-cyclical and ~~consumer non-cyclical~~energy sectors.

In accordance with its policy described in Note 2, ~~to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,~~ the Company concluded that an adjustment to earnings for ~~OTTI for~~credit losses related to these fixed maturity securities was not warranted at ~~either June 30, 2019 or December~~March 31, ~~2018.~~2020. These conclusions were based on a detailed analysis of the underlying credit and cash flows on each security. Gross unrealized losses are primarily attributable to general credit spread widening, increases in interest rates, ~~and~~ foreign currency exchange rate ~~movements.~~movements and the financial condition or near-term prospects of the issuer. As of ~~June 30, 2019,~~March 31, 2020, 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 remaining amortized cost basis.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

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


	June 30, 2019				March 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Fixed maturities, available-for-sale:
Due in one year or less	$	41,356	$	41,328	$	49,726	$	50,015
Due after one year through five years	192,513		195,343		206,581		204,986
Due after five years through ten years	242,095		248,729		208,009		202,115
Due after ten years	724,018		783,518		916,151		990,667
Asset-backed securities	19,323		20,320		17,841		17,651
Commercial mortgage-backed securities	149,791		154,897		141,288		147,329
Residential mortgage-backed securities	4,460		4,917		3,881		4,382
Total fixed maturities, available-for-sale	$	1,373,556	$	1,449,052	$	1,543,477	$	1,617,145

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.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)												(in thousands)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	8,383		$	1,565		$	11,639		$	1,565		$	1,410		$	3,256
Proceeds from maturities/prepayments	19,043			21,510			22,206			30,311			12,254			3,163
Gross investment gains from sales and maturities	40			(56		)	143			(54		)	24			103
Gross investment losses from sales and maturities	(424		)	(130		)	(459		)	(130		)	0			(35		)
OTTI recognized in earnings(2)	0			0			(3,163		)	0			N/A			(3,163		)
Write-downs recognized in earnings(3)													(625		)	N/A
(Addition to) release of allowance for credit losses(4)													0			N/A


(1)	Includes ~~$0.7~~$0.0 million and ~~$4.4~~$0.9 million of non-cash related proceeds due to the timing of trade settlements for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.


(2)	~~Excludes~~For the three months ended March 31, 2019, amounts exclude the portion of OTTI amounts remaining in OCI, representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of ~~the~~ impairment.


(3)	For the three months ended March 31, 2020, amounts represent write-downs on securities approaching maturity related to foreign exchange movements and securities actively marketed for sale.


(4)	Effective January 1, 2020, credit losses on available-for-sale fixed maturity securities are recorded within the "allowance for credit losses."

See Note 2 for additional information about the Company's methodology for developing our allowance and expected losses.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of March 31, 2020.

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income,” was $(0.5) million and $0.2 million during the three months ended March 31, 2020 and 2019, respectively.

1417

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

~~The following table sets forth a rollforward of pre-tax amounts remaining in OCI related to fixed maturity securities with credit loss impairments recognized in earnings, for the periods indicated:~~

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Credit loss impairments:
Balance, beginning of period $ 3,142
$ 560
$ 179
$ 561
New credit loss impairments 1
0
3,022
0
Increases due to the passage of time on previously recorded credit losses 18
4
21
15
Reductions for securities which matured, paid down, prepaid or were sold during the period (6 ) (387 ) (9 ) (399 )
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected (6 ) 0
(64 ) 0
Balance, end of period $ 3,149
$ 177
$ 3,149
$ 177

~~Equity Securities~~

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income,” was $0.3 million and $(0.2) million during the three months ended June 30, 2019 and 2018, respectively, and $0.5 million and $(0.7) million during the six months ended June 30, 2019 and 2018, respectively.

Commercial Mortgage and Other Loans

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


	June 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total		Amount (in thousands)			% of Total		Amount (in thousands)			% of Total
Commercial mortgage and agricultural property loans by property type:
Apartments/Multi-Family	$	43,457		35.5	%	$	41,775		35.2	%	$	47,370		34.0	%	$	47,568		33.2	%
Hospitality	9,846			8.0		9,988			8.4		14,160			10.2		14,266			10.0
Industrial	15,731			12.8		12,264			10.3		16,111			11.6		18,907			13.2
Office	19,609			16.0		16,930			14.3		23,180			16.7		24,035			16.7
Other	16,858			13.7		19,024			16.0		18,752			13.5		18,853			13.2
Retail	13,661			11.1		13,838			11.6		16,095			11.6		16,174			11.3
Total commercial mortgage loans	119,162			97.1		113,819			95.8		135,668			97.6		139,803			97.6
Agricultural property loans	3,600			2.9		4,968			4.2		3,389			2.4		3,460			2.4
Total commercial mortgage and agricultural property loans by property type	122,762			100.0	%	118,787			100.0	%	139,057			100.0	%	143,263			100.0	%
Allowance for credit losses	(118		)			(151		)			(442		)			(165		)
Total commercial mortgage and other loans	$	122,644				$	118,636				$	138,615				$	143,098

As of ~~June 30, 2019,~~March 31, 2020, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in New York ~~(15%~~(13%), ~~Illinois~~Texas ~~(14%~~(11%) and ~~Texas~~Florida ~~(12%~~(10%)) and included loans secured by properties in Europe ~~(7%~~(10%).

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

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

Commercial Mortgage Loans Agricultural Property Loans Total
(in thousands)
Balance at December 31, 2017 $ 179
$ 1
$ 180
Addition to (release of) allowance for credit losses (29 ) 0
(29 )
Charge-offs, net of recoveries 0
0
0
Balance at December 31, 2018 150
1
151
Addition to (release of) allowance for credit losses (32 ) (1 ) (33 )
Charge-offs, net of recoveries 0
0
0
Balance at June 30, 2019 $ 118
$ 0
$ 118



	Commercial Mortgage Loans		Agricultural Property Loans		Total
	(in thousands)
Balance at December 31, 2018	$	150	$	1	$	151
Addition to (release of) allowance for credit losses	14		0		14
Balance at December 31, 2019	164		1		165
Cumulative effect of adoption of ASU 2016-13	204		0		204
Addition to (release of) allowance for expected losses	73		0		73
Balance at March 31, 2020	$	441	$	1	$	442

~~The following tables set forth~~See Note 2 for additional information about the Company's methodology for developing our allowance and expected losses.

As of March 31, 2020, the increase in the allowance for credit losses ~~and the recorded investment in~~on commercial mortgage and other loans was primarily related to the cumulative effect of adoption of ASU 2016-13.

The following table sets forth loan-to-value ratios based upon the recorded investment gross of allowance for credit losses, as of the ~~dates~~date indicated:

June 30, 2019
Commercial Mortgage Loans Agricultural Property Loans Total
(in thousands)
Allowance for credit losses:
Individually evaluated for impairment $ 0
$ 0
$ 0
Collectively evaluated for impairment 118
0
118
Total ending balance(1) $ 118
$ 0
$ 118
Recorded investment(2):
Individually evaluated for impairment $ 0
$ 0
$ 0
Collectively evaluated for impairment 119,162
3,600
122,762
Total ending balance(1) $ 119,162
$ 3,600
$ 122,762


~~(1)~~	~~As of June 30, 2019, there were no loans acquired with deteriorated credit quality.~~


~~(2)~~	~~Recorded investment reflects the carrying value gross of related allowance.~~

December 31, 2018
Commercial Mortgage Loans Agricultural Property Loans Total
(in thousands)
Allowance for credit losses:
Individually evaluated for impairment $ 0
$ 0
$ 0
Collectively evaluated for impairment 150
1
151
Total ending balance(1) $ 150
$ 1
$ 151
Recorded investment(2):
Individually evaluated for impairment $ 0
$ 0
$ 0
Collectively evaluated for impairment 113,819
4,968
118,787
Total ending balance(1) $ 113,819
$ 4,968
$ 118,787


~~(1)~~	~~As of December 31, 2018, there were no loans acquired with deteriorated credit quality.~~


~~(2)~~	~~Recorded investment reflects the carrying value gross of related allowance.~~

1618

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)



	March 31, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
	(in thousands)
Loan-to-Value Ratio:
Commercial mortgage loans
0%-59.99%	$	0	$	10,131	$	0	$	8,287	$	9,792	$	58,801	$	0	$	87,011
60%-69.99%	2,198		20,598		0		4,546		3,191		13,920		0		44,453
70%-79.99%	0		2,695		1,509		0		0		0		0		4,204
80% or greater	0		0		0		0		0		0		0		0
Subtotal	2,198		33,424		1,509		12,833		12,983		72,721		0		135,668
Agricultural property loans
0%-59.99%	0		0		0		0		0		3,389		0		3,389
60%-69.99%	0		0		0		0		0		0		0		0
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0		0
Subtotal	0		0		0		0		0		3,389		0		3,389
Total commercial mortgage and agricultural property loans
0%-59.99%	0		10,131		0		8,287		9,792		62,190		0		90,400
60%-69.99%	2,198		20,598		0		4,546		3,191		13,920		0		44,453
70%-79.99%	0		2,695		1,509		0		0		0		0		4,204
80% or greater	0		0		0		0		0		0		0		0
Total commercial mortgage and agricultural property loans	$	2,198	$	33,424	$	1,509	$	12,833	$	12,983	$	76,110	$	0	$	139,057

See Note 2 for additional information about the Company's commercial mortgage and other loans credit quality monitoring process.

The following ~~tables set~~table sets forth certain key credit quality indicators ~~for commercial mortgage and agricultural property loans~~ based upon the recorded investment gross of allowance for credit losses, as of the ~~dates~~date indicated:

June 30, 2019
Debt Service Coverage Ratio
≥ 1.2X 1.0X to < 1.2X < 1.0X Total
(in thousands)
Loan-to-Value Ratio:
0%-59.99% $ 93,881
$ 3,083
$ 0
$ 96,964
60%-69.99% 20,727
3,531
0
24,258
70%-79.99% 0
1,540
0
1,540
80% or greater 0
0
0
0
Total commercial mortgage and agricultural property loans $ 114,608
$ 8,154
$ 0
$ 122,762


	December 31, 2018								December 31, 2019
	Debt Service Coverage Ratio								Debt Service Coverage Ratio
	≥ 1.2X		1.0X to < 1.2X		< 1.0X		Total		≥ 1.2X		1.0X to < 1.2X		< 1.0X		Total
	(in thousands)								(in thousands)
Loan-to-Value Ratio:
0%-59.99%	$	88,427	$	1,210	$	0	$	89,637	$	93,315	$	1,131	$	0	$	94,446
60%-69.99%	19,975		5,513		0		25,488		42,726		1,877		0		44,603
70%-79.99%	2,102		1,560		0		3,662		2,695		1,519		0		4,214
80% or greater	0		0		0		0		0		0		0		0
Total commercial mortgage and agricultural property loans	$	110,504	$	8,283	$	0	$	118,787	$	138,736	$	4,527	$	0	$	143,263

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:

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)


	June 30, 2019												March 31, 2020
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)		Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)												(in thousands)
Commercial mortgage loans	$	119,162	$	0	$	0	$	0	$	119,162	$	0	$	135,668	$	0	$	0	$	0	$	135,668	$	0
Agricultural property loans	3,600		0		0		0		3,600		0		3,389		0		0		0		3,389		0
Total	$	122,762	$	0	$	0	$	0	$	122,762	$	0	$	139,057	$	0	$	0	$	0	$	139,057	$	0


(1)	As of ~~June 30, 2019,~~March 31, 2020, there were no0 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 Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.


	December 31, 2018												December 31, 2019
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)		Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Loans		Non-Accrual Status(2)
	(in thousands)												(in thousands)
Commercial mortgage loans	$	113,819	$	0	$	0	$	0	$	113,819	$	0	$	139,803	$	0	$	0	$	0	$	139,803	$	0
Agricultural property loans	4,968		0		0		0		4,968		0		3,460		0		0		0		3,460		0
Total	$	118,787	$	0	$	0	$	0	$	118,787	$	0	$	143,263	$	0	$	0	$	0	$	143,263	$	0


(1)	As of December 31, ~~2018,~~2019, there were no0 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 Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

There were 0 loans on non-accrual status with related allowance for credit losses which recognized interest income for the three months ended March 31, 2020.

For the three months ended March 31, 2020 and 2019, there were 0 commercial mortgage and other loans acquired, other than those through direct origination, and there were 0 commercial mortgage and other loans sold.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Other Invested Assets

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

June 30, 2019 December 31, 2018
(in thousands)
Company’s investment in separate accounts $ 3,147
$ 3,008
LPs/LLCs:
Equity method:
Private equity 20,178
15,081
Hedge funds 30,114
28,266
Real estate-related 3,750
1,385
Subtotal equity method 54,042
44,732
Fair value:
Private equity 871
920
Hedge funds 107
105
Real estate-related 2,456
1,856
Subtotal fair value 3,434
2,881
Total LPs/LLCs 57,476
47,613
Derivative instruments 18,578
7,792
Total other invested assets $ 79,201
$ 58,413

~~Net Investment Income~~

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

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Fixed maturities, available-for-sale $ 14,248
$ 12,957
$ 27,806
$ 25,596
Fixed maturities, trading 86
81
163
163
Equity securities, at fair value 91
91
182
182
Commercial mortgage and other loans 1,324
1,220
2,501
2,459
Policy loans 2,846
2,751
5,580
5,408
Short-term investments and cash equivalents 322
61
602
150
Other invested assets 1,414
1,315
3,096
1,988
Gross investment income 20,331
18,476
39,930
35,946
Less: investment expenses (859 ) (868 ) (1,717 ) (1,789 )
Net investment income $ 19,472
$ 17,608
$ 38,213
$ 34,157



	March 31, 2020		December 31, 2019
	(in thousands)
Company’s investment in separate accounts	$	3,411	$	3,418
LPs/LLCs:
Equity method:
Private equity	30,028		26,609
Hedge funds	29,238		30,629
Real estate-related	4,234		4,154
Subtotal equity method	63,500		61,392
Fair value:
Private equity	769		774
Hedge funds	76		78
Real estate-related	2,537		2,490
Subtotal fair value	3,382		3,342
Total LPs/LLCs	66,882		64,734
Derivative instruments	34,068		21,384
Total other invested assets	$	104,361	$	89,536

1821

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Accrued Investment Income

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



	March 31, 2020
	(in thousands)

Fixed maturities	$	14,006
Equity securities	92
Commercial mortgage and other loans	384
Policy loans	5,735
Short-term investments and cash equivalents	53
Total accrued investment income	$	20,270

There were 0 write-downs on accrued investment income for the three months ended March 31, 2020.

Net Investment Income

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



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Fixed maturities, available-for-sale	$	14,162		$	13,558
Fixed maturities, trading	121			77
Equity securities	91			91
Commercial mortgage and other loans	1,402			1,177
Policy loans	2,876			2,734
Other invested assets	(1,045		)	1,682
Short-term investments and cash equivalents	303			280
Gross investment income	17,910			19,599
Less: investment expenses	(945		)	(858		)
Net investment income	$	16,965		$	18,741

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 June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)												(in thousands)
Fixed maturities(1)	$	(384	)	$	(186	)	$	(3,479	)	$	(184	)	$	(601	)	$	(3,095	)
Commercial mortgage and other loans	21			7			33			(1		)	(73		)	12
LPs/LLCs	0			1			11			49			(60		)	11
Derivatives	(4,689		)	(1,718		)	(7,733		)	(5,691		)	13,871			(3,044		)
Short term investments and cash equivalents	(4		)	0			2			0			(72		)	6
Realized investment gains (losses), net	$	(5,056	)	$	(1,896	)	$	(11,166	)	$	(5,827	)	$	13,065		$	(6,110	)

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)


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

Net Unrealized Gains (Losses) on Investments within AOCI

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


	June 30, 2019			December 31, 2018			March 31, 2020		December 31, 2019
	(in thousands)						(in thousands)
Fixed maturity securities, available-for-sale—with OTTI	$	(660	)	$	143
Fixed maturity securities, available-for-sale—all other	76,156			(20,211		)
Derivatives designated as cash flow hedges(1)	3,128			1,793
Fixed maturity securities, available-for-sale — with OTTI(1)							$ N/A		$	51
Fixed maturity securities, available-for-sale — all other(1)							N/A		112,249
Fixed maturity securities, available-for-sale with an allowance							0		N/A
Fixed maturity securities, available-for-sale without an allowance							73,668		N/A
Derivatives designated as cash flow hedges(2)							19,204		3,193
Affiliated notes	543			509			400		480
Other investments	159			145			611		66
Net unrealized gains (losses) on investments	$	79,326		$	(17,621	)	$	93,883	$	116,039


(1)	Effective January 1, 2020, per ASU 2016-13, fixed maturity securities, available-for-sale are no longer required to be disclosed “with OTTI” and “all other.”


(2)	For more information on cash flow hedges, see Note 4.

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. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had no0 repurchase agreements.

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:


	June 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements						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		Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in thousands)												(in thousands)
U.S. public corporate securities	$	0	$	0	$	0	$	437	$	0	$	437
Foreign public corporate securities	2,447		0		2,447		2,265		0		2,265		$	2,587	$	0	$	2,587	$	2,481	$	0	$	2,481
Total cash collateral for loaned securities(1)	$	2,447	$	0	$	2,447	$	2,702	$	0	$	2,702	$	2,587	$	0	$	2,587	$	2,481	$	0	$	2,481


(1)	The Company did ~~not~~0t have any agreements with remaining contractual maturities ofgreater than thirty days, ~~or greater,~~ as of the dates indicated.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

4. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

The Company utilizes various derivative instruments and strategies to manage its risk. Commonly used derivative instruments include, but are not necessarily limited to:

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

•Equity contracts: futures, options and total return swaps

•Foreign exchange contracts: futures, options, forwards and swaps

•Credit contracts: single and index reference credit default swaps

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

•Embedded derivatives

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

For detailed information on these contracts and the related strategies, see Note 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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, excluding embedded derivatives and associated reinsurance recoverables. 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, and NPR.~~collateral.


	June 30, 2019							December 31, 2018							March 31, 2020							December 31, 2019
Primary Underlying Risk/Instrument Type			Fair Value							Fair Value							Fair Value							Fair Value
Primary Underlying Risk/Instrument Type	Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities
	(in thousands)														(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Currency/Interest Rate
Foreign Currency Swaps	$	123,132	$	5,042	$	(1,946	)	$	119,611	$	3,787	$	(2,271	)	$	133,301	$	20,008	$	0		$	131,212	$	4,653	$	(1,504	)
Total Derivatives Designated as Hedge Accounting Instruments:	$	123,132	$	5,042	$	(1,946	)	$	119,611	$	3,787	$	(2,271	)	$	133,301	$	20,008	$	0		$	131,212	$	4,653	$	(1,504	)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	59,075	$	3,462	$	0		$	59,075	$	2,360	$	0		$	32,075	$	5,023	$	(365	)	$	32,075	$	3,005	$	(5	)
Credit
Credit Default Swaps	0		0		0			756		0		(9		)	0		0		0			0		0		0
Currency/Interest Rate
Foreign Currency Swaps	25,998		2,801		(99		)	16,815		2,364		(111		)	33,224		6,508		0			33,224		2,691		(579		)
Foreign Currency
Foreign Currency Forwards	1,434		16		(4		)	1,460		21		0			2,010		54		0			1,858		0		(36		)
Equity
Equity Options	328,549		13,816		(4,486		)	281,400		2,616		(749		)	399,950		3,652		(1,198		)	379,350		24,064		(10,919		)
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	$	415,056	$	20,095	$	(4,589	)	$	359,506	$	7,361	$	(869	)	$	467,259	$	15,237	$	(1,563	)	$	446,507	$	29,760	$	(11,539	)
Total Derivatives(1)(2)	$	538,188	$	25,137	$	(6,535	)	$	479,117	$	11,148	$	(3,140	)	$	600,560	$	35,245	$	(1,563	)	$	577,719	$	34,413	$	(13,043	)

(1)

Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of $1,869 million and $761 million as of March 31, 2020 and December 31, 2019, respectively included in “Future policy benefits” and $124 million and $134 million as of March 31, 2020 and December 31, 2019, respectively included in “Policyholders’ account balances". The fair value of the related reinsurance, included in "Reinsurance recoverables" or "Other liabilities" was an asset of $1,869 million and $761 million as of March 31, 2020 and December 31, 2019, respectively.


(2)	Recorded in "Other invested assets" and ~~"Other liabilities"~~"Payables to parent and affiliates" on the Unaudited Interim ~~Consolidated~~ Statements of Financial Position.

2024

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

The fair value of the embedded derivatives, included in "Future policy benefits," was a net liability of $757 million and $489 million as of June 30, 2019 and December 31, 2018, respectively. The fair value of the related reinsurance recoverables, included in "Reinsurance recoverables," was a net asset of $757 million and $489 million as of June 30, 2019 and December 31, 2018, respectively. See Note 6 for additional information on these reinsurance agreements.

The fair value of the embedded derivatives, included in "Policyholders' account balances," was a net liability of $112 million and $2 million as of June 30, 2019 and December 31, 2018, respectively. There were no related reinsurance recoverables at each respective period.

Offsetting Assets and Liabilities

The following table presents recognized derivative instruments (excluding embedded derivatives and associated reinsurance recoverables), and repurchase and reverse repurchase agreements that are offset in the Unaudited Interim 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 Statements of Financial Position.


	June 30, 2019												March 31, 2020
	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		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 thousands)												(in thousands)
Offsetting of Financial Assets:
Derivatives(1)	$	25,137	$	(6,559	)	$	18,578	$	(18,528	)	$	50	$	35,245	$	(1,177	)	$	34,068	$	(34,068	)	$	0
Securities purchased under agreements to resell	0		0			0		0			0		0		0			0		0			0
Total Assets	$	25,137	$	(6,559	)	$	18,578	$	(18,528	)	$	50	$	35,245	$	(1,177	)	$	34,068	$	(34,068	)	$	0
Offsetting of Financial Liabilities:
Derivatives(1)	$	6,535	$	(6,535	)	$	0	$	0		$	0	$	1,563	$	(1,563	)	$	0	$	0		$	0
Securities sold under agreements to repurchase	0		0			0		0			0		0		0			0		0			0
Total Liabilities	$	6,535	$	(6,535	)	$	0	$	0		$	0	$	1,563	$	(1,563	)	$	0	$	0		$	0


	December 31, 2018												December 31, 2019
	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		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 thousands)												(in thousands)
Offsetting of Financial Assets:
Derivatives(1)	$	11,148	$	(3,355	)	$	7,793	$	(7,307	)	$	486	$	34,413	$	(13,029	)	$	21,384	$	(21,384	)	$	0
Securities purchased under agreements to resell	10,000		0			10,000		(10,000		)	0		0		0			0		0			0
Total Assets	$	21,148	$	(3,355	)	$	17,793	$	(17,307	)	$	486	$	34,413	$	(13,029	)	$	21,384	$	(21,384	)	$	0
Offsetting of Financial Liabilities:
Derivatives(1)	$	3,140	$	(3,140	)	$	0	$	0		$	0	$	13,043	$	(13,043	)	$	0	$	0		$	0
Securities sold under agreements to repurchase	0		0			0		0			0		0		0			0		0			0
Total Liabilities	$	3,140	$	(3,140	)	$	0	$	0		$	0	$	13,043	$	(13,043	)	$	0	$	0		$	0


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

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above see “Credit Risk” below and Note 9. 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 on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Cash Flow Hedges

The primary derivative instruments used by the Company in its cash flow hedge accounting relationships are currency swaps. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit and equity ~~or embedded~~ derivatives in any of its cash flow hedge accounting relationships.

The following tables provide the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships, excluding the offset of the hedged item in an effective hedge relationship.


	Three Months Ended June 30, 2019									Three Months Ended March 31, 2020
	Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI (1)		Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI (1)
	(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	0		$	411	$	235	$	1,543	$	26		$	478	$	1,005	$	16,011
Total cash flow hedges	0			411		235		1,543		26			478		1,005		16,011
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	850			0		0		0		1,839			0		0		0
Currency	9			0		0		0		73			0		0		0
Currency/Interest Rate	492			0		2		0		4,527			0		19		0
Credit	0			0		0		0		0			0		0		0
Equity	1,839			0		0		0		(10,384		)	0		0		0
Embedded Derivatives	(7,879		)	0		0		0		17,790			0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	(4,689		)	0		2		0		13,845			0		19		0
Total	$	(4,689	)	$	411	$	237	$	1,543	$	13,871		$	478	$	1,024	$	16,011

2226

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Six Months Ended June 30, 2019
Realized
Investment
Gains (Losses) Net
Investment
Income Other Income AOCI (1)
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate $ (10 )
$ 808

$ 26
$ 1,326
Total cash flow hedges (10 )
808

26
1,326
Derivatives Not Qualifying as Hedge Accounting Instruments:

Interest Rate 1,359

0

0
0
Currency 15

0

0
0
Currency/Interest Rate 602

0

0
0
Credit (1 )
0

0
0
Equity 5,979

0

0
0
Embedded Derivatives (15,677 )
0

0
0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: (7,723 )
0

0
0
Total $ (7,733 )
$ 808

$ 26
$ 1,326

Three Months Ended June 30, 2018(2)
Realized
Investment
Gains (Losses)
Net
Investment
Income
Other Income AOCI(1)
(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges

Currency/Interest Rate $ 60

$ 333

$ 651
$ 6,042
Total cash flow hedges 60

333

651
6,042
Derivatives Not Qualifying as Hedge Accounting Instruments:

Interest Rate (264 )
0

0
0
Currency 105

0

0
0
Currency/Interest Rate 1,025

0

11
0
Credit 0

0

0
0
Equity 917

0

0
0
Embedded Derivatives (3,561 )
0

0
0
Total Derivatives Not Qualifying as Hedge Accounting Instruments: (1,778 )
0

11
0
Total $ (1,718 )
$ 333

$ 662
$ 6,042

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~


	Six Months Ended June 30, 2018(2)									Three Months Ended March 31, 2019
	Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI(1)		Realized Investment Gains (Losses)			Net Investment Income		Other Income			AOCI(1)
	(in thousands)									(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	(497	)	$	646	$	241	$	1,605	$	(10	)	$	398	$	(209	)	$	(217	)
Total cash flow hedges	(497		)	646		241		1,605		(10		)	398		(209		)	(217		)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(1,137		)	0		0		0		509			0		0			0
Currency	52			0		0		0		6			0		0			0
Currency/Interest Rate	660			0		4		0		110			0		(2		)	0
Credit	(2		)	0		0		0		(1		)	0		0			0
Equity	343			0		0		0		4,140			0		0			0
Embedded Derivatives	(5,110		)	0		0		0		(7,798		)	0		0			0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	(5,194		)	0		4		0		(3,034		)	0		(2		)	0
Total	$	(5,691	)	$	646	$	245	$	1,605	$	(3,044	)	$	398	$	(211	)	$	(217	)


(1)	Net change in AOCI.


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

Presented below is a rollforward of current period cash flow hedges in AOCI before taxes:



	(in thousands)
Balance, December 31, 2019	$	3,193
Amount recorded in AOCI
Currency/Interest Rate	17,520
Total amount recorded in AOCI	17,520
Amount reclassified from AOCI to income
Currency/Interest Rate	(1,509		)
Total amount reclassified from AOCI to income	(1,509		)
Balance, March 31, 2020	$	19,204

(in thousands)
Balance, December 31, 2018 $ 1,793
Cumulative-effect adjustment from the adoption of ASU 2017-12(1) 9
Amount recorded in AOCI
Currency/Interest Rate 2,151
Total amount recorded in AOCI 2,151
Amount reclassified from AOCI to income
Currency/Interest Rate (825 )
Total amount reclassified from AOCI to income (825 )
Balance, June 30, 2019 $ 3,128


~~(1)~~	~~See Note 2 for details.~~

The changes in fair value of cash flow hedges are deferred in AOCI and are included in ~~“Net~~"Net unrealized investment gains (losses)”" in the Unaudited Interim Statements of Operations and Comprehensive Income (Loss); these amounts are then reclassified to earnings when the hedged item affects earnings. Using ~~June 30, 2019~~March 31, 2020 values, it is estimated that a pre-tax gain of ~~$1.6~~$1.9 million is expected to be reclassified from AOCI to earnings during the subsequent twelve months ending ~~June 30, 2020, offset by amounts pertaining to the hedged items.~~March 31, 2021.

The exposures the Company is hedging with these qualifying cash flow hedges include the variability of the payment or receipt of interest or foreign currency amounts on existing financial instruments.

There were no material amounts reclassified from AOCI into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

2427

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Credit Derivatives

The Company has no exposure from credit derivative positions where it has written or purchased credit protection as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~

The Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. The Company has outstanding notional amounts of $0.0 million and $1 million reported as of June 30, 2019 and December 31, 2018, respectively with a fair value of $0.0 million for both periods.2019.

Credit Risk

The Company is exposed to ~~credit-related~~ losses in the event of non-performance by a counterparty to financial derivative transactions with a positive fair value. The Company manages credit risk by entering into derivative transactions with its affiliate, Prudential Global Funding LLC (“PGF”), related to its over-the-counter ("OTC") derivatives. PGF, in turn, manages its credit risk by: (i) entering into derivative transactions with highly rated major international financial institutions and other creditworthy counterparties governed by master netting agreement, as applicable; (ii) trading through central clearing and OTC parties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single-party credit exposures which are subject to periodic management review.

Substantially all of the Company’s derivative agreements have zero thresholds which require daily full collateralization by the party in a liability position.

5. FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement – Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 - Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities.

Level 2 - Fair value is based on significant inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, and other market observable inputs.

Level 3 - Fair value is based on at least one significant unobservable input for the asset or liability. The assets and liabilities in this category may require significant judgment or estimation in determining the fair value.

For a discussion of the Company's valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 5 to the Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

2528

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Assets and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities reported at fair value on a recurring basis, as of the dates indicated.


	As of June 30, 2019											As of March 31, 2020
	Level 1		Level 2		Level 3		Netting(1)			Total		Level 1		Level 2		Level 3		Netting(1)			Total
	(in thousands)											(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	16,345	$	0	$	0		$	16,345	$	0	$	16,259	$	0	$	0		$	16,259
Obligations of U.S. states and their political subdivisions	0		128,709		0		0			128,709		0		171,719		0		0			171,719
Foreign government bonds	0		74,701		0		0			74,701		0		71,833		0		0			71,833
U.S. corporate public securities	0		596,394		0		0			596,394		0		759,619		0		0			759,619
U.S. corporate private securities	0		240,468		1,181		0			241,649		0		227,259		295		0			227,554
Foreign corporate public securities	0		53,702		0		0			53,702		0		54,432		0		0			54,432
Foreign corporate private securities	0		156,564		854		0			157,418		0		128,388		17,979		0			146,367
Asset-backed securities(2)	0		20,320		0		0			20,320		0		17,651		0		0			17,651
Commercial mortgage-backed securities	0		154,897		0		0			154,897		0		147,329		0		0			147,329
Residential mortgage-backed securities	0		4,917		0		0			4,917		0		4,382		0		0			4,382
Subtotal	0		1,447,017		2,035		0			1,449,052		0		1,598,871		18,274		0			1,617,145
Fixed maturities, trading	0		9,304		0		0			9,304		0		11,684		0		0			11,684
Equity securities	0		251		7,206		0			7,457		0		197		6,840		0			7,037
Cash equivalents	0		43,147		0		0			43,147		0		80,817		0		0			80,817
Other invested assets(3)	0		25,137		0		(6,559		)	18,578		0		35,245		0		(1,177		)	34,068
Reinsurance recoverables	0		0		757,236		0			757,236		0		0		1,868,539		0			1,868,539
Receivables from parent and affiliates	0		2,732		0		0			2,732		0		2,277		0		0			2,277
Subtotal excluding separate account assets	0		1,527,588		766,477		(6,559		)	2,287,506		0		1,729,091		1,893,653		(1,177		)	3,621,567
Separate account assets(4)(5)	0		13,220,641		0		0			13,220,641		0		11,883,558		0		0			11,883,558
Total assets	$	0	$	14,748,229	$	766,477	$	(6,559	)	$	15,508,147	$	0	$	13,612,649	$	1,893,653	$	(1,177	)	$	15,505,125
Future policy benefits(6)	$	0	$	0	$	757,236	$	0		$	757,236	$	0	$	0	$	1,868,539	$	0		$	1,868,539
Policyholders' account balances	0		0		112,417		0			112,417		0		0		123,608		0			123,608
Payables to parent and affiliates	0		6,535		0		(6,535		)	0		0		1,563		0		(1,563		)	0
Total liabilities	$	0	$	6,535	$	869,653	$	(6,535	)	$	869,653	$	0	$	1,563	$	1,992,147	$	(1,563	)	$	1,992,147

2629

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)


	As of December 31, 2018											As of December 31, 2019
	Level 1		Level 2		Level 3		Netting(1)			Total		Level 1		Level 2		Level 3		Netting(1)			Total
	(in thousands)											(in thousands)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	16,328	$	0	$	0		$	16,328	$	0	$	16,015	$	0	$	0		$	16,015
Obligations of U.S. states and their political subdivisions	0		122,306		0		0			122,306		0		133,677		0		0			133,677
Foreign government bonds	0		65,294		0		0			65,294		0		77,280		0		0			77,280
U.S. corporate public securities	0		480,725		0		0			480,725		0		697,520		0		0			697,520
U.S. corporate private securities	0		224,278		2,088		0			226,366		0		232,903		312		0			233,215
Foreign corporate public securities	0		48,215		0		0			48,215		0		57,993		0		0			57,993
Foreign corporate private securities	0		143,969		794		0			144,763		0		163,026		866		0			163,892
Asset-backed securities(2)	0		23,351		0		0			23,351		0		18,542		0		0			18,542
Commercial mortgage-backed securities	0		145,206		0		0			145,206		0		147,389		0		0			147,389
Residential mortgage-backed securities	0		5,270		0		0			5,270		0		4,573		0		0			4,573
Subtotal	0		1,274,942		2,882		0			1,277,824		0		1,548,918		1,178		0			1,550,096
Fixed maturities, trading	0		5,770		0		0			5,770		0		13,700		0		0			13,700
Equity securities	0		3,248		6,622		0			9,870		0		207		7,305		0			7,512
Cash equivalents	19,972		39,946		0		0			59,918		0		55,896		0		0			55,896
Other invested assets(3)	0		11,148		0		(3,355		)	7,793		0		34,413		0		(13,029		)	21,384
Reinsurance recoverables	0		0		488,825		0			488,825		0		0		760,558		0			760,558
Receivables from parent and affiliates	0		8,824		0		0			8,824		0		2,433		0		0			2,433
Subtotal excluding separate account assets	19,972		1,343,878		498,329		(3,355		)	1,858,824		0		1,655,567		769,041		(13,029		)	2,411,579
Separate account assets(4)(5)	0		11,648,322		0		0			11,648,322		0		13,927,275		0		0			13,927,275
Total assets	$	19,972	$	12,992,200	$	498,329	$	(3,355	)	$	13,507,146	$	0	$	15,582,842	$	769,041	$	(13,029	)	$	16,338,854
Future policy benefits(6)	$	0	$	0	$	488,825	$	0		$	488,825	$	0	$	0	$	760,558	$	0		$	760,558
Policyholders' account balances	0		0		1,949		0			1,949		0		0		133,793		0			133,793
Payables to parent and affiliates	0		3,140		0		(3,140		)	0		0		13,043		0		(13,043		)	0
Total liabilities	$	0	$	3,140	$	490,774	$	(3,140	)	$	490,774	$	0	$	13,043	$	894,351	$	(13,043	)	$	894,351


(1)	“Netting” amounts represent cash collateral of ~~$0.0~~$0.4 million and ~~$0.2~~$0.0 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively, and the impact of offsetting asset and liability positions held with the same counterparty, subject to master netting arrangements.~~2019, respectively.


(2)	Includes credit-tranched securities collateralized by syndicated bank loans, sub-prime mortgages, auto loans, credit cards, education loans and other asset types.

(3)

Other invested assets excluded from the fair value hierarchy include certain hedge funds, private equity funds and other funds for which fair value is measured at net asset value ("NAV") per share (or its equivalent) as a practical expedient. ~~As of June 30, 2019~~At March 31, 2020 and December 31, ~~2018,~~2019, the fair values of such investments were $3.4 million and ~~$2.9~~$3.3 million, respectively.

(4)

Separate account assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate, hedge funds and a corporate owned life insurance fund, for which fair value is measured at NAV per share (or its equivalent). At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the fair value of such investments was ~~$1,912~~$1,695 million and ~~$1,734~~$1,977 million, respectively.

(5)

Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated 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. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the ~~Company’s~~Company's Unaudited Interim Statements of Financial Position.

(6)

As of ~~June 30, 2019,~~March 31, 2020, the net embedded derivative liability position of ~~$757~~$1,869 million includes ~~$50~~$14 million of embedded derivatives in an asset position and ~~$807~~$1,883 million of embedded derivatives in a liability position. As of December 31, ~~2018,~~2019, the net embedded derivative liability position of ~~$489~~$761 million includes $60 million of embedded derivatives in an asset position and ~~$549~~$821 million of embedded derivatives in a liability position.

2730

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Quantitative Information Regarding Internally Priced Level 3 Assets and Liabilities – The tables below present quantitative information on significant internally-priced Level 3 assets and liabilities.


	As of June 30, 2019												As of March 31, 2020
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum			Weighted Average		Impact of Increase in Input on Fair Value(1)	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum			Weighted Average		Impact of Increase in Input on Fair Value(1)
	(in thousands)												(in thousands)
Assets:
Corporate securities(2)	$	2,035	Discounted cash flow	Discount rate	13.50	%	13.50	%		13.50	%	Decrease	$	18,274	Discounted cash flow	Discount rate	2.90	%	2.99	%		2.95	%	Decrease
Reinsurance recoverables	$	757,236	Fair values are determined using the same unobservable inputs as future policy benefits.										$	1,868,539	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3)	$	757,236	Discounted cash flow	Lapse rate(5)	1	%	18	%				Decrease	$	1,868,539	Discounted cash flow	Lapse rate(5)	1	%	18	%				Decrease
				Spread over LIBOR(6)	0.16	%	1.24	%				Decrease				Spread over LIBOR(6)	1.40	%	2.02	%				Decrease
				Utilization rate(7)	43	%	97	%				Increase				Utilization rate(7)	43	%	97	%				Increase
				Withdrawal rate					See table footnote (8) below							Withdrawal rate					See table footnote (8) below.
				Mortality rate (9)	0	%	15	%				Decrease				Mortality rate (9)	0	%	15	%				Decrease
				Equity volatility curve	13	%	23	%				Increase				Equity volatility curve	18	%	33	%				Increase
Policyholders' account balances(4)	$	112,417	Discounted cash flow	Lapse rate(5)	1	%	6	%				Decrease	$	123,608	Discounted cash flow	Lapse rate(5)	1	%	6	%				Decrease
				Spread over LIBOR(6)	0.16	%	1.24	%				Decrease				Spread over LIBOR(6)	1.40	%	2.02	%				Decrease
				Mortality rate (9)	0	%	24	%				Decrease				Mortality rate (9)	0	%	24	%				Decrease
				Equity volatility curve	10	%	23	%				Increase				Equity volatility curve	25	%	50	%				Increase


	As of December 31, 2018											As of December 31, 2019
	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average		Impact of Increase in Input on Fair Value(1)	Fair Value		Valuation Techniques	Unobservable Inputs	Minimum		Maximum		Weighted Average	Impact of Increase in Input on Fair Value(1)
	(in thousands)											(in thousands)
Assets:
Corporate securities(2)	$	2,882	Discounted cash flow	Discount rate	7	%	16.33	%	9.93	%	Decrease
Reinsurance recoverables	$	488,825	Fair values are determined using the same unobservable inputs as future policy benefits.									$	760,558	Fair values are determined using the same unobservable inputs as future policy benefits.
Liabilities:
Future policy benefits(3)	$	488,825	Discounted cash flow	Lapse rate(5)	1	%	13	%			Decrease	$	760,558	Discounted cash flow	Lapse rate(5)	1	%	18	%		Decrease
				Spread over LIBOR(6)	0.36	%	1.60	%			Decrease				Spread over LIBOR(6)	0.10	%	1.23	%		Decrease
				Utilization rate(7)	50	%	97	%			Increase				Utilization rate(7)	43	%	97	%		Increase
				Withdrawal rate	See table footnote(8) below.										Withdrawal rate	See table footnote(8) below.
				Mortality rate(9)	0	%	15	%			Decrease				Mortality rate(9)	0	%	15	%		Decrease
				Equity volatility curve	18	%	22	%			Increase				Equity volatility curve	13	%	23	%		Increase
Policyholders' account balances(4)												$	133,793	Discounted cash flow	Lapse rate(5)	1	%	6	%		Decrease
															Spread over LIBOR(6)	0.10	%	1.23	%		Decrease
															Mortality rate (9)	0	%	24	%		Decrease
															Equity volatility curve	10	%	23	%		Increase

2831

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)


(1)	Conversely, the impact of a decrease in input would have the opposite impact on fair value as that presented in the table.


(2)	Includes assets classified as fixed maturities available-for-sale.

(3)

Future policy benefits primarily represent general account liabilities for the living benefit features of the Company’s variable annuity contracts which are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than a weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

(4)

Policyholders’ account balances primarily represent general account liabilities for the index-linked interest credited on certain of the Company’s life products that are accounted for as embedded derivatives. Since the valuation methodology for these liabilities uses a range of inputs that vary at the contract level over the cash flow projection period, presenting a range, rather than a weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

(5)

Lapse rates for contracts with living benefit guarantees are adjusted at the contract level based on the in-the-moneyness of the living benefit and reflect other factors, such as the applicability of any surrender charges. Lapse rates are reduced when contracts are more in-the-money. Lapse rates for contracts with index-linked crediting guarantees may be adjusted at the contract level based on the applicability of any surrender charges, product type, and market related factors such as interest rates. Lapse rates are also generally assumed to be lower for the period where surrender charges apply. For any given contract, lapse rates vary throughout the period over which cash flows are projected for the purposes of valuing these embedded derivatives.

(6)

The spread over the London Inter-Bank Offered Rate ("LIBOR") swap curve represents the premium added to the proxy for the risk-free rate (LIBOR) to reflect the Company's estimates of rates that a market participant would use to value the living benefits in both the accumulation and payout phases and index-linked interest crediting guarantees. This spread includes an estimate of NPR, which is the risk that the obligation will not be fulfilled by the Company. NPR is primarily estimated by utilizing the credit spreads associated with issuing funding agreements, adjusted for any illiquidity risk premium. In order to reflect the financial strength ratings of the Company, credit spreads associated with funding agreements, as opposed to credit spread associated with debt, are utilized in developing this estimate because funding agreements, living benefit guarantees, and index-linked interest crediting guarantees are insurance liabilities and are therefore senior to debt.

(7)

The utilization rate assumption estimates the percentage of contracts that will utilize the benefit during the contract duration and begin lifetime withdrawals at various time intervals from contract inception. The remaining contractholders are assumed to either begin lifetime withdrawals immediately or never utilize the benefit. Utilization assumptions may vary by product type, tax status and age. The impact of changes in these assumptions is highly dependent on the product type, the age of the contractholder at the time of the sale, and the timing of the first lifetime income withdrawal. Range reflects the utilization rate for the vast majority of business with living benefits.

(8)

The withdrawal rate assumption estimates the magnitude of annual contractholder withdrawals relative to the maximum allowable amount under the contract. These assumptions vary based on the age of the contractholder, the tax status of the contract and the duration since the contractholder began lifetime withdrawals. As of ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018,~~2019, the minimum withdrawal rate assumption is 78% and the maximum withdrawal rate assumption may be greater than 100%. The fair value of the liability will generally increase the closer the withdrawal rate is to 100% and decrease as the withdrawal rate moves further away from 100%.

(9)

The range reflects the mortality rates for the vast majority of business with living benefits and other contracts, with policyholders ranging from 45 to 90 years old. While the majority of living benefits have a minimum age requirement, certain other contracts do not have an age restriction. This results in contractholders with mortality rates approaching 0% for certain benefits. Mortality rates may vary by product, age and duration. A mortality improvement assumption is also incorporated into the overall mortality table.

Interrelationships Between Unobservable Inputs – In addition to the sensitivities of fair value measurements to changes in each unobservable input in isolation, as reflected in the table above, interrelationships between these inputs may also exist, such that a change in one unobservable input may give rise to a change in another, or multiple, inputs. ~~For the discussion~~Examples of ~~the relationships between unobservable inputs as well as market factors that may affect the range of inputs used in the valuation of~~such interrelationships for significant internally-priced Level 3 assets and liabilities ~~see Note 5~~are as follows:

Corporate Securities - The rate used to discount future cash flows reflects current risk-free rates plus credit and liquidity spread requirements that market participants would use to value an asset. The discount rate may be influenced by many factors, including market cycles, expectations of default, collateral, term, and asset complexity. Each of these factors can influence discount rates, either in isolation, or in response to other factors. During weaker economic cycles, as the expectations of default increases, credit spreads widen, which results in a decrease in fair value.

Future Policy Benefits – The Company expects efficient benefit utilization and withdrawal rates to generally be correlated with lapse rates. However, behavior is highly dependent on the facts and circumstances surrounding the individual contractholder, such as their liquidity needs or tax situation, which could drive lapse behavior independent of other contractholder behavior assumptions. To the extent more efficient contractholder behavior results in greater in-the-moneyness at the contract level, lapse rates may decline for those contracts. Similarly, to the ~~Financial Statements included~~extent that increases in equity volatility are correlated with overall declines in the ~~Company's Annual Report on Form 10-K for the year ended December 31, 2018.~~capital markets, lapse rates may decline as contracts become more in-the-money.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Changes in Level 3 Assets and Liabilities – The following tables describe changes in fair values of Level 3 assets and liabilities as of the dates indicated, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at the end of their respective periods. When a determination is made to classify assets and liabilities within Level 3, the determination is based on significance of the unobservable inputs in the overall fair value measurement. All transfers are based on changes in the observability of the valuation inputs, including the availability of pricing service information that the Company can validate. ~~All transfers~~Transfers into Level 3 are generally ~~reported at~~ the ~~value~~result of unobservable inputs utilized within valuation methodologies and the use of indicative broker quotes for assets that were previously valued using observable inputs. Transfers out of Level 3 are generally due to the use of observable inputs in valuation methodologies as well as the availability of pricing service information for certain assets that the ~~beginning of the quarter in which transfers occur for any such assets still held at the end of the quarter.~~Company can validate.

Three Months Ended June 30, 2019
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3) $ 2,344
$ (310 ) $ 0
$ 0
$ 0
$ (638 ) $ 0
$ 639
$ 0
$ 2,035
$ 0
Structured securities(4) 25,324
0
0
0
0
0
0
0
(25,324 ) 0
0
Other assets:
Equity securities 6,576
630
0
0
0
0
0
0
0
7,206
630
Reinsurance recoverables 571,117
162,593
23,526
0
0
0
0
0
0
757,236
167,330
Receivables from parent and affiliates 0
0
0
0
0
0
0
0
0
0
0
Liabilities:
Future policy benefits (571,117 ) (162,593 ) 0
0
(23,526 ) 0
0
0
0
(757,236 ) (167,330 )
Policyholders' account balances(5) (7,529 ) (98,831 ) 0
0
(6,057 ) 0
0
0
0
(112,417 ) (98,831 )

Three Months Ended June 30, 2019
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss)
(in thousands)
Fixed maturities, available-for-sale $ 0
$ 0
$ (447 ) $ 137
$ 0
$ 0
Other assets:
Equity securities 0
630
0
0
0
630
Reinsurance recoverables 162,593
0
0
0
167,330
0
Receivables from parent and affiliates 0
0
0
0
0
0
Liabilities:
Future policy benefits (162,593 ) 0
0
0
(167,330 ) 0
Policyholders' account balances (98,831 ) 0
0
0
(98,831 ) 0

3032

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)



	Three Months Ended March 31, 2020
	Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)			Purchases		Sales			Issuances			Settlements		Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3)	$	1,178		$	(1,774	)	$	0	$	(860	)	$	0		$	0	$	0	$	19,730	$	0	$	18,274		$	(1,769	)
Structured securities(4)	0			0			0		0			0			0		0		0		0		0			0
Other assets:
Equity securities	7,305			(465		)	0		0			0			0		0		0		0		6,840			(465		)
Reinsurance recoverables	760,558			1,081,663			26,318		0			0			0		0		0		0		1,868,539			1,089,808
Liabilities:
Future policy benefits	(760,558		)	(1,081,663		)	0		0			(26,318		)	0		0		0		0		(1,868,539		)	(1,089,808		)
Policyholders' account balances(5)	(133,793		)	16,940			0		0			(6,755		)	0		0		0		0		(123,608		)	17,660



	Three Months Ended March 31, 2020
	Total realized and unrealized gains (losses)											Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)			Other income (loss)			Included in other comprehensive income (loss)			Net investment income		Realized investment gains (losses), net			Other income (loss)			Included in other comprehensive income (loss)(6)
	(in thousands)
Fixed maturities, available-for-sale	$	32		$	0		$	(1,814	)	$	8	$	0		$	0		$	(1,769	)
Other assets:
Equity securities	0			(465		)	0			0		0			(465		)	0
Reinsurance recoverables	1,081,663			0			0			0		1,089,808			0			0
Liabilities:
Future policy benefits	(1,081,663		)	0			0			0		(1,089,808		)	0			0
Policyholders' account balances	16,940			0			0			0		17,660			0			0

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)


	Six Months Ended June 30, 2019																													Three Months Ended March 31, 2019
	Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)			Purchases		Sales		Issuances			Settlements			Other		Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(2)			Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)			Purchases		Sales		Issuances			Settlements			Other		Transfers into Level 3		Transfers out of Level 3		Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in thousands)																													(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3)	$	2,882		$	(1,096	)	$	248	$	0	$	0		$	(638	)	$	0	$	639	$	0		$	2,035		$	(3,163	)	$	2,882		$	(786	)	$	248	$	0	$	0		$	0		$	0	$	0	$	0	$	2,344		$	(3,163	)
Structured securities(4)	0			432			0		0		0			(68		)	0		24,960		(25,324		)	0			0			0			432			0		0		0			(68		)	0		24,960		0		25,324			0
Other assets:
Equity securities	6,622			584			0		0		0			0			0		0		0			7,206			584			6,622			(46		)	0		0		0			0			0		0		0		6,576			(46		)
Reinsurance recoverables	488,825			222,383			46,028		0		0			0			0		0		0			757,236			229,926			488,825			59,790			22,502		0		0			0			0		0		0		571,117			63,207
Receivables from parent and affiliates	0			0			0		0		0			0			0		0		0			0			0
Liabilities:
Future policy benefits	(488,825		)	(222,383		)	0		0		(46,028		)	0			0		0		0			(757,236		)	(229,926		)	(488,825		)	(59,790		)	0		0		(22,502		)	0			0		0		0		(571,117		)	(63,207		)
Policyholders' account balances(5)	(1,949		)	(103,508		)	0		0		(6,960		)	0			0		0		0			(112,417		)	(103,504		)	(1,949		)	(4,677		)	0		0		0			(903		)	0		0		0		(7,529		)	(4,677		)

Six Months Ended June 30, 2019
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss)
(in thousands)
Fixed maturities, available-for-sale $ (3,163 ) $ 0
$ 2,353
$ 146
$ (3,163 ) $ 0
Other assets:
Equity securities 0
584
0
0
0
584
Reinsurance recoverables 222,383
0
0
0
229,926
0
Receivables from parent and affiliates 0
0
0
0
0
0
Liabilities:
Future policy benefits (222,383 ) 0
0
0
(229,926 ) 0
Policyholders' account balances (103,508 ) 0
0
0
(103,504 ) 0

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Three Months Ended June 30, 2018(6)
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3) $ 14,621
$ (876 ) $ 86
$ (45 ) $ 0
$ (3,779 ) $ 0
$ 0
$ 0
$ 10,007
$ 0
Structured securities(4) 8,455
(8 ) 0
(196 ) 0
(576 ) 0
0
(5,383 ) 2,292
0
Other assets:
Equity securities 7,183
(217 ) 0
0
0
0
0
0
0
6,966
(217 )
Reinsurance recoverables 358,391
(43,932 ) 21,625
0
0
0
0
0
0
336,084
(40,898 )
Receivables from parent and affiliates 6,029
0
0
0
0
0
0
0
(6,029 ) 0
0
Liabilities:
Future policy benefits (358,391 ) 43,932
0
0
(21,625 ) 0
0
0
0
(336,084 ) 40,898
Policyholders' account balances(5) (4,910 ) (943 ) 0
0
0
226
0
0
0
(5,627 ) (7,860 )

Three Months Ended June 30, 2018(6)
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net(1) Other income (loss) Included in other comprehensive income (loss) Net investment income Realized investment gains (losses), net Other income (loss)
(in thousands)
Fixed maturities, available-for-sale $ (103 ) $ 0
$ (831 ) $ 50
$ 0
$ 0
Other assets:
Equity securities 0
(217 ) 0
0
0
(217 )
Reinsurance recoverables (43,932 ) 0
0
0
(40,898 ) 0
Receivables from parent and affiliates 0
0
0
0
0
0
Liabilities:
Future policy benefits 43,932
0
0
0
40,898
0
Policyholders' account balances (943 ) 0
0
0
(7,860 ) 0

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Six Months Ended June 30, 2018(6)
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3) $ 14,516
$ (684 ) $ 146
$ (45 ) $ 0
$ (3,926 ) $ 0
$ 0
$ 0
$ 10,007
$ 0
Structured securities(4) 11,575
(3 ) 190
(196 ) 0
(581 ) 0
196
(8,889 ) 2,292
0
Other assets:
Equity securities 7,428
(462 ) 0
0
0
0
0
0
0
6,966
(462 )
Reinsurance recoverables 472,157
(179,053 ) 42,980
0
0
0
0
0
0
336,084
(171,183 )
Receivables from parent and affiliates 0
(18 ) 0
0
0
0
0
6,047
(6,029 ) 0
0
Liabilities:
Future policy benefits (472,157 ) 179,053
0
0
(42,980 ) 0
0
0
0
(336,084 ) 171,183
Policyholders' account balances(5) (5,463 ) (326 ) 0
0
0
162
0
0
0
(5,627 ) (326 )


	Six Months Ended June 30, 2018(6)																	Three Months Ended March 31, 2019
	Total realized and unrealized gains (losses)											Unrealized gains (losses) for assets still held(2)						Total realized and unrealized gains (losses)										Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net(1)			Other income (loss)			Included in other comprehensive income (loss)			Net investment income		Realized investment gains (losses), net			Other income (loss)			Realized investment gains (losses), net(1)			Other income (loss)			Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net			Other income (loss)
	(in thousands)																	(in thousands)
Fixed maturities, available-for-sale	$	(103	)	$	0		$	(666	)	$	82	$	0		$	0		$	(3,163	)	$	0		$	2,800	$	9	$	(3,163	)	$	0
Other assets:
Equity securities	0			(462		)	0			0		0			(462		)	0			(46		)	0		0		0			(46		)
Reinsurance recoverables	(179,053		)	0			0			0		(171,183		)	0			59,790			0			0		0		63,207			0
Receivables from parent and affiliates	0			0			(18		)	0		0			0
Liabilities:
Future policy benefits	179,053			0			0			0		171,183			0			(59,790		)	0			0		0		(63,207		)	0
Policyholders' account balances	(326		)	0			0			0		(326		)	0			(4,677		)	0			0		0		(4,677		)	0


(1)	Realized investment gains (losses) on future policy benefits and reinsurance recoverables primarily represent the change in the fair value of the Company's living benefit guarantees on certain of its variable annuity contracts.


(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.


(3)	Includes U.S. corporate ~~public, U.S. corporate~~ private ~~foreign corporate public~~ and foreign corporate private securities.


(4)	Includes asset-backed, commercial mortgage-backed and residential mortgage-backed securities.


(5)	Issuances and settlements for Policyholders' account balances are presented net in the rollforward.

(6)

~~Prior~~

Effective January 1, 2020, the changes in unrealized gains and losses for the period ~~amounts have been updated~~included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period were added prospectively due to ~~conform~~adoption of ASU 2018-13. Fair Value Measurement (Topic 820): Disclosure Framework - Changes to ~~current period presentation.~~the Disclosure Requirements for Fair Value Measurement.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Fair Value of Financial Instruments

The table below presents the carrying amount and fair value by fair value hierarchy level of certain financial instruments that are not reported at fair value. The financial instruments presented below are reported at carrying value on the Company’s Unaudited Interim Statements of Financial Position. In some cases, as described below, the carrying amount equals or approximates fair value.



	March 31, 2020
	Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total
	(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	142,392	$	142,392	$	138,615
Policy loans	0		0		214,072		214,072		214,072
Cash and cash equivalents	3,968		0		0		3,968		3,968
Accrued investment income	0		20,270		0		20,270		20,270
Reinsurance recoverables	0		0		26,782		26,782		26,459
Receivables from parent and affiliates	0		30,752		0		30,752		30,752
Other assets	0		3,336		0		3,336		3,336
Total assets	$	3,968	$	54,358	$	383,246	$	441,572	$	437,472
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	200,764	$	40,270	$	241,034	$	240,710
Cash collateral for loaned securities	0		2,587		0		2,587		2,587
Short-term debt to affiliates	0		0		0		0		0
Payables to parent and affiliates	0		24,369		0		24,369		24,369
Other liabilities	0		56,660		0		56,660		56,660
Total liabilities	$	0	$	284,380	$	40,270	$	324,650	$	324,326

3335

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

June 30, 2019
Fair Value
Carrying
Amount(1)
Level 1 Level 2 Level 3 Total Total
(in thousands)
Assets:
Commercial mortgage and other loans $ 0
$ 0
$ 128,103
$ 128,103
$ 122,644
Policy loans 0
0
209,578
209,578
209,578
Cash and cash equivalents 2,494
0
0
2,494
2,494
Accrued investment income 0
18,810
0
18,810
18,810
Receivables from parent and affiliates 0
29,871
0
29,871
29,871
Other assets 0
4,879
0
4,879
4,879
Total assets $ 2,494
$ 53,560
$ 337,681
$ 393,735
$ 388,276
Liabilities:
Policyholders’ account balances - investment contracts $ 0
$ 188,247
$ 40,466
$ 228,713
$ 228,735
Cash collateral for loaned securities 0
2,447
0
2,447
2,447
Payables to parent and affiliates 0
17,412
0
17,412
17,412
Other liabilities 0
43,869
0
43,869
43,869
Total liabilities $ 0
$ 251,975
$ 40,466
$ 292,441
$ 292,463


	December 31, 2018										December 31, 2019
	Fair Value								Carrying Amount(1)		Fair Value								Carrying Amount(1)
	Level 1		Level 2		Level 3		Total		Total		Level 1		Level 2		Level 3		Total		Total
	(in thousands)										(in thousands)
Assets:
Commercial mortgage and other loans	$	0	$	0	$	119,659	$	119,659	$	118,636	$	0	$	0	$	148,855	$	148,855	$	143,098
Policy loans	0		0		206,448		206,448		206,448		0		0		211,986		211,986		211,986
Cash and cash equivalents	523		10,000		0		10,523		10,523		28		0		0		28		28
Accrued investment income	0		17,764		0		17,764		17,764		0		19,539		0		19,539		19,539
Reinsurance recoverables											0		0		26,400		26,400		26,286
Receivables from parent and affiliates	0		31,564		0		31,564		31,564		0		30,387		0		30,387		30,387
Other assets	0		4,193		0		4,193		4,193		0		3,071		0		3,071		3,071
Total assets	$	523	$	63,521	$	326,107	$	390,151	$	389,128	$	28	$	52,997	$	387,241	$	440,266	$	434,395
Liabilities:
Policyholders’ account balances - investment contracts	$	0	$	179,239	$	40,349	$	219,588	$	220,553	$	0	$	192,239	$	40,475	$	232,714	$	232,600
Cash collateral for loaned securities	0		2,702		0		2,702		2,702		0		2,481		0		2,481		2,481
Short-term debt to affiliates											0		89		0		89		89
Payables to parent and affiliates	0		20,413		0		20,413		20,413		0		24,958		0		24,958		24,958
Other liabilities	0		58,357		0		58,357		58,357		0		41,310		0		41,310		41,310
Total liabilities	$	0	$	260,711	$	40,349	$	301,060	$	302,025	$	0	$	261,077	$	40,475	$	301,552	$	301,438


(1)	Carrying values presented herein differ from those in the Company’s Unaudited Interim Statements of Financial Position because certain items within the respective financial statement captions are not considered financial instruments or ~~are~~ out of scope under authoritative guidance relating to disclosures of the fair value of financial instruments.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

6. REINSURANCE

The Company participates in reinsurance with its affiliates Prudential Arizona Reinsurance Captive Company (“PARCC”), Prudential Arizona Reinsurance Term Company (“PAR Term”), Prudential Arizona Reinsurance Universal Company (“PAR U”), Prudential Term Reinsurance Company (“Term Re”) and Dryden Arizona Reinsurance Term Company (“DART”), its parent companies, Pruco Life and Prudential Insurance, as well as third parties. The reinsurance agreements provide risk diversification and additional capacity for future growth, limit the maximum net loss potential, manage statutory capital, and facilitate the Company's capital market hedging program. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. The Company believes a material reinsurance liability resulting from such inability of reinsurers to meet their obligations is unlikely.

Reserves related to reinsured long-duration contracts are accounted for using assumptions consistent with those used to account for the underlying contracts. Amounts recoverable from reinsurers for long-duration reinsurance arrangements are estimated in a manner consistent with the claim liabilities and policy benefits associated with the reinsured policies. Reinsurance policy charges and fee income ceded for universal life and variable annuity products are accounted for as a reduction of policy charges and fee income. Reinsurance premiums ceded for term insurance products are accounted for as a reduction of premiums.

Realized investment gains and losses include the impact of reinsurance agreements, particularly reinsurance agreements involving living benefit guarantees. The Company has entered into a reinsurance agreement to transfer the risk related to living benefit guarantees on variable annuities to Prudential Insurance. These reinsurance agreements are derivatives and have been accounted for in the same manner as embedded derivatives and the changes in the fair value of these derivatives are recognized through “Realized investment gains (losses), net”. See Note 4 for additional information related to the accounting for embedded derivatives.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Reinsurance amounts included in the Company’s Unaudited Interim Statements of Financial Position as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(in thousands)						(in thousands)
Reinsurance recoverables(1)	$	3,099,079		$	2,723,518		$	4,395,263		$	3,200,642
Policy loans	(17,892		)	(17,297		)	(20,999		)	(18,627		)
Deferred policy acquisition costs	(735,698		)	(754,569		)	(708,175		)	(736,575		)
Deferred sales inducements	(50,764		)	(52,875		)	(41,277		)	(47,423		)
Other assets	15,878			17,959			16,105			16,540
Other liabilities	76,839			65,225			90,634			93,557


(1)	Includes $1.5 million and $3.9 million of unaffiliated activity as of March 31, 2020 and December 31, 2019, respectively.

The reinsurance recoverables by counterparty are broken out below:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(in thousands)				(in thousands)
Prudential Insurance	$	1,214,078	$	924,847	$	2,378,044	$	1,245,450
PAR U	988,285		922,904		1,063,890		1,027,304
PARCC	471,848		480,627		471,159		458,441
PAR Term	216,322		205,972		225,080		219,757
Term Re	175,205		156,303		199,569		190,633
DART	24,990		13,367		42,852		38,651
Pruco Life	7,942		15,013		13,205		16,428
Unaffiliated	409		4,485		1,464		3,978
Total reinsurance recoverables	$	3,099,079	$	2,723,518	$	4,395,263	$	3,200,642

3537

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Reinsurance amounts, included in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, were as follows:



	Three Months Ended March 31,
	2020			2019
	(in thousands)
Premiums:
Direct	$	64,633		$	63,014
Ceded	(59,439		)	(59,676		)
Net premiums	5,194			3,338
Policy charges and fee income:
Direct	109,072			93,620
Ceded(1)	(85,103		)	(73,771		)
Net policy charges and fee income	23,969			19,849
Net investment income:
Direct	17,192			18,909
Ceded	(227		)	(168		)
Net investment income	16,965			18,741
Asset administration fees:
Direct	9,725			8,879
Ceded	(8,160		)	(7,536		)
Net asset administration fees	1,565			1,343
Realized investment gains (losses), net:
Direct	(1,069,448		)	(62,843		)
Ceded	1,082,513			56,733
Realized investment gains (losses), net	13,065			(6,110		)
Policyholders’ benefits (including change in reserves):
Direct	131,286			72,028
Ceded(2)	(114,600		)	(62,051		)
Net policyholders’ benefits (including change in reserves)	16,686			9,977
Interest credited to policyholders’ account balances:
Direct	22,258			15,217
Ceded	(12,067		)	(6,164		)
Net interest credited to policyholders’ account balances	10,191			9,053
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization	(75,533		)	(39,502		)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in thousands)
Premiums:
Direct $ 61,930
$ 60,485
$ 124,944
$ 119,859
Ceded (58,649 ) (57,333 ) (118,325 ) (114,210 )
Net premiums 3,281
3,152
6,619
5,649
Policy charges and fee income:
Direct 118,884
82,061
212,504
184,623
Ceded (96,279 ) (61,523 ) (170,050 ) (139,271 )
Net policy charges and fee income 22,605
20,538
42,454
45,352
Net investment income:
Direct 19,634
17,741
38,543
34,445
Ceded (162 ) (133 ) (330 ) (288 )
Net investment income 19,472
17,608
38,213
34,157
Asset administration fees:
Direct 9,394
9,039
18,273
18,060
Ceded (7,945 ) (7,705 ) (15,481 ) (15,420 )
Net asset administration fees 1,449
1,334
2,792
2,640
Realized investment gains (losses), net:
Direct (165,057 ) 44,637
(227,900 ) 177,775
Ceded 160,001
(46,533 ) 216,734
(183,602 )
Realized investment gains (losses), net (5,056 ) (1,896 ) (11,166 ) (5,827 )
Policyholders’ benefits (including change in reserves):
Direct 131,279
74,303
203,307
147,471
Ceded(1) (120,928 ) (65,696 ) (182,979 ) (130,312 )
Net policyholders’ benefits (including change in reserves) 10,351
8,607
20,328
17,159
Interest credited to policyholders’ account balances:
Direct 17,271
16,608
32,488
33,130
Ceded (7,266 ) (7,697 ) (13,430 ) (15,655 )
Net interest credited to policyholders’ account balances 10,005
8,911
19,058
17,475
Reinsurance expense allowances and general and administrative expenses, net of capitalization and amortization (58,171 ) (36,960 ) (97,673 ) (81,446 )


(1)	~~"Policyholders’ benefits (including change in reserves) ceded" includes~~ Includes $0.0 millionof unaffiliated activity at both three months ended March 31, 2020 and 2019.


(2)	Includes $1 million and ~~$0.8~~$0.9 million of unaffiliated activity for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $2 million and $0.2 million for the six months ended June 30, 2019 and 2018,~~ respectively.

The gross and net amounts of life insurance face amount in force as of ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:


	2019			2018			2020			2019
	(in thousands)						(in thousands)
Direct gross life insurance face amount in force	$	145,001,035		$	138,616,160		$	149,522,280		$	143,145,835
Reinsurance ceded	(132,123,416		)	(126,319,867		)	(136,956,945		)	(130,509,208		)
Net life insurance face amount in force	$	12,877,619		$	12,296,293		$	12,565,335		$	12,636,627

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Information regarding significant affiliated reinsurance agreements is described below.

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. Effective July 1, 2017, this agreement was terminated for certain new business, primarily Universal Life business, and such business was reinsured to Pruco Life under a yearly renewable term reinsurance agreement. As of January 1, 2020, the remaining portions of new business (specifically Term policies) ceased being reinsured by the Company to Prudential Insurance, and a separate yearly renewable term reinsurance agreement was established with Pruco Life for Term policies. Effective April 1, 2016, the Company entered into a reinsurance agreement with Prudential Insurance to reinsure its variable annuity base contracts, along with the living benefit guarantees. ~~This reinsurance agreement covers new and in force business and excludes business reinsured externally.~~

PAR U

Effective July 1, 2012, the Company reinsures an amount equal to 95% of all risks associated with Universal Protector policies having no-lapse guarantees as well as certain of its universal policies, excluding those policies that are subject to ~~principles-based~~principle-based reserving.

PARCC

The Company reinsures 90% of the risks under its term life insurance policies with effective dates prior to January 1, 2010 through an automatic coinsurance agreement with PARCC.

PAR Term

The Company reinsures 95% of the risks under its term life insurance policies, with effective dates January 1, 2010 through December 31, 2013, through an automatic coinsurance agreement with PAR Term.

Term Re

The Company reinsures 95% of the risks under its term life insurance policies with effective dates on or after January 1, 2014 through December 31, 2017, through an automatic coinsurance agreement with Term Re.

Pruco Life

Effective July 1, 2017, the Company entered into a yearly renewable term reinsurance agreement with Pruco Life for new business, primarily covering Universal Life policies. Effective January 1, 2020, the Company entered in a similar yearly renewable term reinsurance agreement with Pruco Life for new business relating to Term policies. Under ~~this agreement~~these agreements the majority of all mortality risk is ceded to Pruco Life. The Company also reinsures certain Corporate Owned Life Insurance (“COLI”) policies with Pruco Life. Through March 31, 2016, the Company reinsured Prudential Defined Income ("PDI") living benefit guarantees with Pruco Life. Effective April 1, 2016, the Company recaptured PDI living benefit guarantees from Pruco Life and reinsured them, together with the related variable annuity base contracts, with Prudential Insurance.

DART

Effective January 1, 2018, the Company entered into an automatic coinsurance agreement with DART to reinsure an amount equal to 95% of the risks associated with its term life insurance policies with effective dates on or after January 1, ~~2018.~~2018, excluding those policies that are subject to principle-based reserving.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

7. INCOME TAXES

The Company uses a full year projected effective tax rate approach to calculate year-to-date taxes. In addition, certain items impacting total income tax expense are recorded in the periods in which they occur. The projected effective tax rate is the ratio of projected “Income tax expense (benefit)” divided by projected “Income (loss) from operations before income taxes". The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the fiscal year.

The Company's income tax provision amounted to an income tax expense of $1.7 million, or 10.47% of income (loss) from operations before income taxes in the first three months of 2020, compared to an income tax expense of $0.6 million, or 5.19%, in the first three months of 2019. The Company’s current and prior effective tax rates differed from the U.S. statutory tax rate of 21% primarily due to non-taxable investment income and tax credits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. The CARES Act includes temporary changes to income tax laws, some of which were enacted under the Tax Cuts and Jobs Act in 2017. For interim reporting, income tax effects of new legislation are recognized in the interim period which includes the enactment date. One of the key provisions is to allow companies with net operating losses originating in 2018, 2019 or 2020 to carry back those losses for five years. However, this provision is elective and the Company is still in the process of evaluating the temporary tax law changes and its overall effect, including the sequencing of and interaction between its provisions and other federal tax laws. As a result, the tax provision for the first quarter of 2020 does not include any estimate for the impact of these changes.

3740

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

The Company's income tax provision amounted to an income tax benefit of $(0.2) million, or (1.10)% of income (loss) from operations before income taxes in the first six months of 2019, compared to an income tax expense of $1.5 million, or 8.47%, in the first six months of 2018. The Company’s current and prior effective tax rates differed from the U.S. statutory tax rate of 21% primarily due to non-taxable investment income and tax credits.

8. EQUITY

Accumulated Other Comprehensive Income (Loss)

AOCI represents the cumulative OCI items that are reported separate from net income and detailed on the Statements of Comprehensive Income. The balance of and changes in each component of AOCI as of and for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ are as follows:



	Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance, December 31, 2019	$	(981	)	$	86,616		$	85,635
Change in OCI before reclassifications	(1		)	(20,060		)	(20,061		)
Amounts reclassified from AOCI	0			(908		)	(908		)
Income tax benefit (expense)	0			4,404			4,404
Balance, March 31, 2020	$	(982	)	$	70,052		$	69,070

Accumulated Other Comprehensive Income (Loss)
Foreign Currency Translation Adjustment
Net Unrealized
Investment Gains
(Losses)(1)

Total
Accumulated
Other
Comprehensive
Income (Loss)
(in thousands)
Balance, December 31, 2018 $ (989 ) $ (13,378 ) $ (14,367 )
Change in OCI before reclassifications 4
88,557
88,561
Amounts reclassified from AOCI 0
4,304
4,304
Income tax benefit (expense) (1 ) (19,500 ) (19,501 )
Balance, June 30, 2019 $ (986 ) $ 59,983
$ 58,997

Accumulated Other Comprehensive Income (Loss)
Foreign Currency Translation Adjustment
Net Unrealized
Investment Gains
(Losses)(1)

Total
Accumulated
Other
Comprehensive
Income (Loss)
(in thousands)
Balance, December 31, 2017 $ (42 ) $ 34,372
$ 34,330
Change in OCI before reclassifications (1,152 ) (57,112 ) (58,264 )
Amounts reclassified from AOCI 0
(206 ) (206 )
Income tax benefit (expense) 240
12,039
12,279
Cumulative effect of adoption of ASU 2016-01 0
(175 ) (175 )
Cumulative effect of adoption of ASU 2018-02 (8 ) 5,901
5,893
Balance, June 30, 2018 $ (962 ) $ (5,181 ) $ (6,143 )



	Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance, December 31, 2018	(989		)	$	(13,378	)	$	(14,367	)
Change in OCI before reclassifications	0			43,324			43,324
Amounts reclassified from AOCI	0			3,274			3,274
Income tax benefit (expense)	0			(9,786		)	(9,786		)
Balance, March 31, 2019	$	(989	)	$	23,434		$	22,445


(1)	Includes cash flow hedges of $19 million and $3 million as of March 31, 2020 and December 31, 2019, respectively, and $2 million and $2 million as of ~~June 30,~~March 31, 2019 and December 31, 2018, respectively ~~and $(3) million and $(5) million as of June 30, 2018 and December 31, 2017, respectively~~.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)												(in thousands)
Amounts reclassified from AOCI (1)(2):
Net unrealized investment gains (losses):
Cash flow hedges - Currency/ Interest rate(3)	$	(646	)	$	1,044		$	(825	)	$	390		$	1,509		$	(179	)
Net unrealized investment gains (losses) on available-for-sale securities	(384		)	(186		)	(3,479		)	(184		)	(601		)	(3,095		)
Total net unrealized investment gains (losses)(4)	(1,030		)	858			(4,304		)	206			908			(3,274		)
Total reclassifications for the period	$	(1,030	)	$	858		$	(4,304	)	$	206		$	908		$	(3,274	)


(1)	All amounts are shown before tax.


(2)	Positive amounts indicate gains/ benefits reclassified out of AOCI. Negative amounts indicate losses/ costs reclassified out of AOCI.


(3)	See Note 4 for additional information on cash flow hedges.


(4)	See table below for additional information on unrealized investment gains (losses), including the impact on ~~deferred policy acquisition~~DAC and other costs, future policy benefits, policyholders’ account balances and other liabilities.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains (losses) on available-for-sale fixed maturity securities ~~classified as available-for-sale~~ and certain other invested assets and other assets are included in the Company’s Unaudited Interim Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from OCI those items that are included as part of “Net income” for a period that had been part of OCI in earlier periods. The amounts for the periods indicated below, split between amounts related to available-for-sale fixed maturity securities on which an ~~OTTI loss~~allowance for credit losses has been recognized, and all other net unrealized investment gains (losses), are as follows:

Net Unrealized Investment Gains (Losses) on Available-for-Sale Fixed Maturity Securities on which an ~~OTTI loss~~allowance for credit losses has been recognized

Net Unrealized Gains (Losses) on
Investments Deferred Policy Acquisition Costs and Other Costs(1) Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(2)
Deferred
Income Tax
(Liability)
Benefit

Accumulated Other Comprehensive
Income (Loss) Related To Net Unrealized Investment Gains (Losses)
(in thousands)
Balance, December 31, 2018 $ 143
$ (54 ) $ 42
$ (54 ) $ 77
Net investment gains (losses) on investments arising during the period (525 ) 0
0
110
(415 )
Reclassification adjustment for (gains) losses included in net income (71 ) 0
0
15
(56 )
Reclassification adjustment for OTTI (gains) losses excluded from net income (207 ) 0
0
43
(164 )
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and other costs 0
64
0
(13 ) 51
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities 0
0
(26 ) 5
(21 )
Balance, June 30, 2019 $ (660 ) $ 10
$ 16
$ 106
$ (528 )



	Net Unrealized Gains (Losses) on Investments		DAC and Other Costs(2)		Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(3)		Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2019(1)	$	0	$	0	$	0	$	0		$	0
Net investment gains (losses) on investments arising during the period	0		0		0		0			0
Reclassification adjustment for (gains) losses included in net income	0		0		0		0			0
Increase (decrease) due to non-credit related losses recognized in AOCI during the period	0		0		0		0			0
Impact of net unrealized investment (gains) losses on DAC and other costs	0		18		0		(4		)	14
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities	0		0		108		(23		)	85
Balance, March 31, 2020	$	0	$	18	$	108	$	(27	)	$	99


(1)	Allowance for credit losses on available-for-sale fixed maturity securities effective January 1, 2020.


(2)	"Other costs" primarily includes reinsurance recoverables and deferred reinsurance losses.


~~(2)~~(3)	"Other liabilities" primarily includes reinsurance payables.

3942

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

All Other Net Unrealized Investment Gains (Losses) in AOCI

Net Unrealized Gains (Losses) on
Investments(2)
Deferred Policy Acquisition Costs and Other Costs(3) Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(4)
Deferred
Income Tax
(Liability)
Benefit
Accumulated Other Comprehensive
Income (Loss) Related To Net Unrealized Investment Gains (Losses)
(in thousands)
Balance, December 31, 2018 $ (17,764 ) $ 3,169
$ (2,472 ) $ 3,612
$ (13,455 )
Net investment gains (losses) on investments arising during the period 93,168
0
0
(19,564 ) 73,604
Reclassification adjustment for (gains) losses included in net income 4,375
0
0
(919 ) 3,456
Reclassification adjustment for OTTI (gains) losses excluded from net income(1) 207
0
0
(43 ) 164
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and other costs 0
4,552
0
(956 ) 3,596
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities 0
0
(8,676 ) 1,822
(6,854 )
Balance, June 30, 2019 $ 79,986
$ 7,721
$ (11,148 ) $ (16,048 ) $ 60,511



	Net Unrealized Gains (Losses) on Investments(1)			DAC and Other Costs(3)		Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(4)			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2019(2)	$	116,039		$	8,973	$	(15,373	)	$	(23,023	)	$	86,616
Net investment gains (losses) on investments arising during the period	(21,248		)	0		0			4,464			(16,784		)
Reclassification adjustment for (gains) losses included in net income	(908		)	0		0			191			(717		)
Reclassification due to allowance for credit losses recorded during the period	0			0		0			0			0
Impact of net unrealized investment (gains) losses on DAC and other costs	0			7,098		0			(1,492		)	5,606
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities	0			0		(6,036		)	1,268			(4,768		)
Balance, March 31, 2020	$	93,883		$	16,071	$	(21,409	)	$	(18,592	)	$	69,953


(1)	~~Represents "transfers out" related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.~~


~~(2)~~	Includes cash flow hedges. See Note 4 for information on cash flow hedges.


(2)	Includes net unrealized gains (losses) for which an OTTI loss had been previously recognized.


(3)	"Other costs" primarily includes reinsurance recoverables and deferred reinsurance losses.


(4)	"Other liabilities" primarily includes reinsurance payables.

9. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential Insurance and other affiliates. Although we seek to ensure that these transactions and relationships are fair and reasonable, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

Expense Charges and Allocations

~~Many~~The majority of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates. These expenses can be grouped into general and administrative expenses and agency distribution expenses.

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses include allocations of stock compensation expenses related to a stock-based awards program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock-based awards program was ~~$0.1~~$0.0 million for both the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. The expense charged to the Company for the deferred compensation program was ~~$0.1~~$0.3 million ~~and $0.2 million~~ for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, respectively, and $0.4 million and $0.5 million for the six months ended June 30, 2019 and 2018, respectively.~~2019.

The Company is charged for its share of employee benefit expenses. These expenses include costs for funded and non-funded, ~~contributory and~~ non-contributory defined benefit pension plans. Some of these benefits are based on final earnings and length of service while others are based on an account balance, which takes into consideration age, service and earnings during a career. The Company’s share of net expense for the pension plans was $0.6 million and ~~$0.7~~$0.5 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $1 million for both the six months ended June 30, 2019 and 2018.~~respectively.

4043

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

The Company is also charged for its share of the costs associated with welfare plans issued by Prudential Insurance. These expenses include costs related to medical, dental, life insurance and disability. The Company's share of net expense for the welfare plans was $0.7 million ~~and $0.9 million~~ for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, respectively, and $1 million and $2 million for the six months ended June 30, 2019 and 2018, respectively.~~2019.

Prudential Insurance sponsors voluntary savings plans for its employee 401(k) plans. The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company’s expense for its share of the voluntary savings plan was ~~$0.3~~$0.2 million for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, and $0.5 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively.~~2019.

The Company is charged distribution expenses from Prudential Insurance’s agency network for both its domestic life and annuity products through a transfer pricing agreement, which is intended to reflect a market-based pricing arrangement.

The Company pays commissions and certain other fees to Prudential Annuities Distributors, Inc. (“PAD”) in consideration for PAD’s marketing and underwriting of the Company’s annuity products. Commissions and fees are paid by PAD to broker-dealers who sell the Company’s annuity products. Commissions and fees paid by the Company to PAD were ~~$20~~$17 million and ~~$18~~$19 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $39 million and $35 million for the six months ended June 30, 2019 and 2018,~~ respectively.

The Company is charged for its share of corporate expenses incurred by Prudential Financial to benefit its businesses, such as advertising, executive oversight, external affairs and philanthropic activity. The Company’s share of corporate expenses was $2 million for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, and $4 million for both the six months ended June 30, 2019 and 2018.~~2019.

Corporate-Owned Life Insurance

The Company has sold ~~three~~3 Corporate-Owned Life Insurance ("COLI") policies to Prudential Insurance and ~~one~~1 to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was ~~$2,603~~$2,374 million at ~~June 30, 2019~~March 31, 2020 and ~~$2,239~~$2,743 million at December 31, ~~2018.~~2019. Fees related to these COLI policies were $6$8 million and $7 million for ~~both~~ the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and $13 million for both the six months ended June 30, 2019 and 2018.~~respectively. The Company retains 10% of the mortality risk associated with these COLI policies up to $0.1 million per individual policy.

Affiliated Investment Management Expenses

In accordance with an agreement with PGIM, Inc. (“PGIM”), the Company pays investment management expenses to PGIM who acts as investment manager to certain Company general account and separate account assets. Investment management expenses paid to PGIM related to this agreement were ~~0.6~~$0.6 million and $0.5 million for ~~both~~ the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and $1 million for both the six months ended June 30, 2019 and 2018,~~ respectively. These expenses are recorded as “Net investment income” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Derivative Trades

In its ordinary course of business, the Company enters into OTC derivative contracts with an affiliate, PGF. For these OTC derivative contracts, PGF has a substantially equal and offsetting position with an external counterparty. See Note 4 for additional information.

Joint Ventures

The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. "Other invested assets" includes $36 million and ~~$33~~$35 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. "Net investment income" related to these ventures includes a loss of $1.7 million and a gain of ~~$0.8 million and $0.4~~$1.4 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and $2 million and $1 million for the six months ended June 30, 2019 and 2018,~~ respectively.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Affiliated Asset Administration Fee Income

The Company has a revenue sharing agreement with AST Investment Services, Inc. ("ASTISI") and PGIM Investments LLC ("PGIM Investments") whereby the Company receives fee income based on policyholders' separate account balances invested in the Advanced Series Trust. Income received from ASTISI and PGIM Investments related to this agreement was $8 million for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, and $15 million for both the six months ended June 30, 2019 and 2018.~~2019. These revenues are recorded as “Asset administration fees” in the Company's Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

The Company has a revenue sharing agreement with PGIM Investments, whereby the Company receives fee income based on policyholders' separate account balances invested in The Prudential Series Fund. Income received from PGIM Investments related to this agreement was $1 million for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, and $3 million for both the six months ended June 30, 2019 and 2018.~~2019. These revenues are recorded as “Asset administration fees” in the Company’s Unaudited Interim Statements of Operations and Comprehensive Income (Loss).

Affiliated Notes Receivable

Affiliated notes receivable included in “Receivables from parent and affiliates” at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:


	Maturity Dates			Interest Rates				June 30, 2019		December 31, 2018		Maturity Dates			Interest Rates				March 31, 2020		December 31, 2019
								(in thousands)											(in thousands)
U.S. dollar floating rate notes	2028			3.74%	-	4.03	%	$	0	$	6,001
U.S. dollar fixed rate notes	2026	-	2027	0.00%	-	14.85	%	2,731		2,823		2026	-	2027	0.00%	-	14.85	%	2,277		2,433
Total notes receivable - affiliated(1)								$	2,731	$	8,824								$	2,277	$	2,433


(1)	All notes receivable may be called for prepayment prior to the respective maturity dates under specified circumstances.

The affiliated notes receivable shown above are classified as available-for-sale securities and other trading assets carried at fair value. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Insurance for loans due from affiliates.

Accrued interest receivable related to these loans was $0.0 million ~~and $0.1 million~~ at ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively,~~2019 and is included in “Other assets”. Revenues related to these assets were ~~$0.1~~$0 million for both the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, and $0.1 million for both the six months ended June 30, 2019 and 2018,~~ and are included in “Other income”.

Affiliated Asset Transfers

The Company participates in affiliated asset trades with parent and sister companies. Book and market value differences for trades with a parent and sister are recognized within "Additional paid-in capital" (“APIC”) and "Realized investment gains (losses), net", respectively. The table below shows affiliated asset trades for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and for the year ended December 31, ~~2018.~~2019.


Affiliate	Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)		Date	Transaction	Security Type	Fair Value		Book Value		APIC, Net of Tax Increase/(Decrease)		Realized Investment Gain (Loss)
				(in thousands)											(in thousands)
Gibraltar Universal Life Reinsurance Company	May 2018	Purchase	Fixed Maturities	$	17,904	$	17,904	$	0	$	0
Prudential Annuities Life Assurance Corporation	April 2019	Sale	Equity Securities	$	3,293	$	2,995	$	0	$	298	April 2019	Sale	Equity Securities	$	3,293	$	2,995	$	0	$	298

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Debt Agreements

The Company is authorized to borrow funds up to $200 million from affiliates to meet its capital and other funding needs. As of ~~June 30, 2019 and~~March 31, 2020 there was 0 debt outstanding. The short-term debt was $0.1 million as of December 31, ~~2018, there was no debt outstanding.~~2019.

The total interest expense to the Company related to loans payable to affiliates was $0.0 million for both the three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, and $0.0 million for both the six months ended June 30, 2019 and 2018.~~2019.

Contributed Capital and Dividends

~~Through June 2019,~~In March 2020, the Company ~~did not~~ receive ~~any~~a capital ~~contributions.~~contribution in the amount of $85 million from Pruco Life. In ~~March 2018,~~December 2019, the Company received a capital contribution in the amount of $1$60 million from Pruco Life.

Through ~~June~~March of 2020, the Company did 0t pay any dividends. In 2019, the Company did ~~not~~0t pay any ~~dividends. In 2018, the Company did not pay any dividends.~~dividends to Pruco Life.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Reinsurance with Affiliates

As discussed in Note 6, the Company participates in reinsurance transactions with certain affiliates.

10. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

The Company has made commitments to fund commercial mortgage loans. As of ~~June 30, 2019, there were $8 million outstanding commitments to fund commercial loans,~~March 31, 2020 and ~~none as of~~ December 31, ~~2018.~~2019, the outstanding balances on these commitments were $2 million and $4 million, respectively. The above amount includes unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was a reduction to the allowance for credit losses of $0.0 million for the three months ended March 31, 2020. The Company has made commitments to purchase or fund investments, mostly private fixed maturities. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, $44~~2019, $39 million and ~~$41~~$48 million, respectively, of these commitments were outstanding. The above amount includes unfunded commitments that are not unconditionally cancellable. There were 0 related charges for credit losses for the three months ended March 31, 2020.

Contingent Liabilities

On an ongoing basis, the Company and its regulators review its operations including, but not limited to, sales and other customer interface procedures and practices, and procedures for meeting obligations to ~~our~~its customers and other parties. These reviews may result in the modification or enhancement of processes or the imposition of other action plans, including concerning management oversight, sales and other customer interface procedures and practices, and the timing or computation of payments to customers and other parties. In certain cases, if appropriate, the Company may offer customers or other parties remediation and may incur charges, including the cost of such remediation, administrative costs and regulatory fines.

The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements.

For additional discussion of these matters, see “Litigation and Regulatory Matters” below.

It is possible that the results of operations or the cash flows of the Company in a particular quarterly or annual period could be materially affected as a result of payments in connection with the matters discussed above or other matters depending, in part, upon the results of operations or cash flows for such period. Management believes, however, that ultimate payments in connection with these matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on the Company’s financial position.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its business. Pending legal and regulatory actions include proceedings specific to the Company and proceedings generally applicable to business practices in the industry in which it operates. The Company is subject to class action lawsuits and other litigation involving a variety of issues and allegations involving sales practices, claims payments and procedures, premium charges, policy servicing and breach of fiduciary duty to customers. The Company is also subject to litigation arising out of its general business activities, such as its investments, contracts, leases and labor and employment relationships, including claims of discrimination and harassment, and could be exposed to claims or litigation concerning certain business or process patents. In addition, the Company, along with other participants in the businesses in which it engages, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of the Company’s pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of litigation or a regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

The Company establishes accruals for litigation and regulatory matters when it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated. For litigation and regulatory matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but the matter, if material, is disclosed. The Company estimates that as of ~~June 30, 2019,~~March 31, 2020, the aggregate range of reasonably possible losses in excess of accruals established for those litigation and regulatory matters for which such an estimate currently can be made is less than $10 million. This estimate is not an indication of expected loss, if any, or the Company's maximum possible loss exposure on such matters. The Company reviews relevant information with respect to its litigation and regulatory matters on a quarterly and annual basis and updates its accruals, disclosures and estimates of reasonably possible loss based on such reviews.

~~The following~~For a discussion of the Company's litigation and regulatory matters, ~~provides an update of those matters discussed in~~see Note 14 to the ~~Company’s~~Company's Financial Statements included in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2018, and should be read~~2019. There are no material developments in ~~conjunction with the complete descriptions provided in the Form 10-K.~~

~~Securities Lending and Foreign Tax Reclaim Matter~~

~~In 2016, Prudential Financial self-reported to the SEC and the U.S. Department~~previously reported matters disclosed as of Labor ("DOL"), and notified other regulators, that in some cases it failed to maximize securities lending income for the benefit of certain separate account investments due to a long-standing restriction benefiting Prudential Financial that limited the availability of loanable securities. Prudential Financial has removed the restriction and implemented a remediation plan for the benefit of customers. As part of Prudential Financial’s review of this matter, in 2018 it further self-reported to the SEC, and notified other regulators, that in some cases it failed to timely process foreign tax reclaims for the separate account investments. Prudential Financial has corrected the foreign tax reclaim process and has implemented a remediation plan for the benefit of customers.

The DOL’s review of the securities lending matter is closed. Prudential Financial is cooperating with the SEC in its review of the securities lending and foreign tax reclaim matters (which includes a review of the remediation plans) and has entered into discussions with the SEC staff regarding a possible settlement of both matters that would potentially involve charges under the Investment Advisers Act and financial remedies. Prudential Financial cannot predict the outcome of the discussions with the SEC regarding these matters.December 31, 2019.

Summary

The Company’s litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcome cannot be predicted. It is possible that the Company’s results of operations or cash flows in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flows for such period. In light of the unpredictability of the Company’s litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a material adverse effect on the Company’s financial position. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on the Company’s financial position.

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of Pruco Life Insurance Company of New Jersey, or the “Company,” as of ~~June 30, 2019,~~March 31, 2020, compared with December 31, ~~2018,~~2019, and its results of operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. You should read the following analysis of our financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section, and the audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as well as the statements under “Forward-Looking Statements”, the "Risk Factors" section and the Unaudited Interim Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

The Company ~~is licensed to sell~~sells variable ~~and fixed~~ annuities, universal life insurance, variable life insurance and term life insurance in New Jersey and New York only and sells such products primarily through affiliated and unaffiliated distributors.

~~Regulatory Developments~~COVID-19

During the first quarter of 2020, the outbreak of the 2019 novel coronavirus (“COVID-19”) created extreme stress and disruption in the global economy and financial markets and elevated mortality and morbidity experience for the global population. These events impacted our results of operations in the current period and are expected to drive future impacts to our results of operations. The Company has taken several measures to manage the impacts of this crisis. The actual and expected impacts of these events and other items are included in the following update:

•

Outlook. We expect COVID-19 to drive elevated levels of mortality, resulting in increased life insurance claims in the near-term. We have taken pricing and product actions to ensure we realize appropriate returns for the current economic environment, and to diversify our product mix to further limit our sensitivity to interest rates, while maintaining a solid value proposition for our customers. In addition, while our distribution platforms include a suite of digital, hybrid advisory, and in-person advisory options, mandated social distancing has limited in-person engagement between customers and advisors. Collectively, we expect the product actions we have taken and the constrained distribution environment to adversely impact our sales prospects in the near-term.

~~SEC Best Interest Regulation~~

Table of Contents


•	Results of Operations. For the three months ended March 31, 2020 we reported a net gain of $15 million, as unfavorable financial market conditions impacted our reported results. See “Results of Operations” for a discussion of first quarter results.

•

Liquidity. The impact of COVID-19 and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings or ratings outlooks. See “Liquidity and Capital Resources-Liquidity” for a discussion of our liquidity.

•

Capital Resources. Market conditions could negatively impact our statutory capital and constrain our overall capital flexibility. Continued adverse market conditions could require us to take additional management actions to maintain capital consistent with our ratings objectives, which may include redeploying financial resources from internal sources or, if markets continue to decline, using available affiliate sources of capital or seeking additional sources. See “Liquidity and Capital Resources-Capital” for a discussion of our capital resources.


•	Risk Factors. The COVID-19 pandemic has adversely impacted our results of operations, financial position, investment portfolio, new business opportunities and operations, and these impacts are expected to continue. For additional information on the risks to our business posed by the COVID-19 pandemic, see “Risk Factors.”


•	Business Continuity. One of the main impacts of the COVID-19 pandemic has been executing our business continuity protocols to ensure our employees are safe and able to serve our customers. This included effectively transitioning the vast majority of our employees to remote work arrangements.

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

•

CARES Act and Other Regulatory Developments. In March 2020 Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (" the CARES Act"), which provides $2 trillion in economic stimulus to taxpayers, small businesses, and corporations through various grant and loan programs, tax provisions and regulatory relief. We are analyzing the CARES Act and its potential impact on the Company, and implementing operational changes necessary to accommodate the CARES Act.

Other governments and regulators, including the NAIC and state insurance regulators, have implemented, or are considering, a number of actions in response to the crisis, including delaying implementation of certain regulatory changes, temporarily waiving certain regulatory requirements and requiring or requesting insurers to waive premium payments and policy provisions and exclusions for certain periods of time.

~~In June 2019,~~The Company is not aware of any new or proposed government mandates that could materially impact the SEC adopted a package of rulemakings and interpretative guidance that, among other things, requires broker-dealers to act in the best interest of retail customers when recommending securities transactionsCompany’s solvency or investment strategies to them. The guidance also clarifies the SEC’s views of the fiduciary duty that investment advisers owe to their clients. The new best interest standards will become effective on June 30, 2020. We are evaluating the impact of the new standards and believe that they will apply to recommendations to purchase certain of our products, and will result in increased compliance costs, in particular in our Prudential Advisors distribution system.

~~SECURE Act~~

In May 2019, the U.S. House of Representatives passed the Setting Every Community up for Retirement Enhancement (“SECURE”) Act. If enacted into law in its current form, the SECURE Act would help promote retirement plan coverage by expanding access to and use of Multiple Employer Plans; facilitate access to lifetime income disclosures for plan participants to better understand how their retirement savings translate into monthly lifetime income in retirement; improve upon the current annuity selection safe harbor; and provide lifetime income portability. We cannot predict whether the SECURE Act will ultimately be adopted, or its impact on our business.

For additional information on the potential impacts of regulation on the Company see “Business—Regulation” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.liquidity position.

Impact of a Low Interest Rate Environment

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

• investment-related activity, including: investment income returns, net interest margins, net investment spread results,

new money rates, mortgage loan prepayments and bond redemptions;

• insurance reserve levels, ~~market experience true-ups and~~ amortization of deferred policy acquisition costs (“DAC”); and market experience true-ups;

• customer account values, including their impact on fee income;

• product offerings, design features, crediting rates and sales mix; and

• policyholder behavior, including surrender or withdrawal activity.

Interest rates in the U.S. have experienced a period of historically low levels in large part due to Federal Reserve efforts to assist with the economic recovery subsequent to the financial crisis of 2008. While market conditions and events make uncertain the timing, amount and impact of any monetary policy decisions by the Federal Reserve, a trend of rising interest rates may enhance our reinvestment yields, primarily for our investments in fixed maturity securities and commercial mortgage loans. As interest rates rise, our reinvestment yield may approach or exceed the overall portfolio yield. Conversely, if interest rates were to decline, our reinvestment yield may fall below our overall portfolio yield, resulting in an unfavorable impact to earnings.

~~Table of Contents~~

For more information on interest rate risks, see the "Risk Factors" section and “Risk Factors—Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Table of Contents

Revenues and Expenses

The Company earns revenues principally from insurance premiums, mortality and expense fees, asset administration fees from insurance and investment products, and from net investment income on the investment of general account and other funds. The Company receives premiums primarily from the sale of individual life insurance and annuity products. The Company earns mortality and expense fees, and asset administration fees, primarily from the sale and servicing of universal life insurance and separate account products including variable life insurance and variable annuities. The Company’s operating expenses principally consist of insurance benefits provided and reserves established for anticipated future insurance benefits, general business expenses, reinsurance premiums, commissions and other costs of selling and servicing the various products sold and interest credited on general account liabilities.

~~Profitability~~

The Company’s profitability depends principally on its ability to price our insurance and annuity products at a level that enables us to earn a margin over the costs associated with providing benefits and administering those products. Profitability also depends on, among other items, our actuarial and policyholder behavior experience on insurance and annuity products, our ability to attract and retain customer assets, generate and maintain favorable investment results, and manage expenses.

See “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of risks that have materially affected and may affect in the future the Company’s business, results of operations or financial condition, or cause the Company’s actual results to differ materially from those expected or those expressed in any forward-looking statements made by or on behalf of the Company.

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

Management believes the accounting policies relating to the following areas are most dependent on the application of estimates and assumptions and require management’s most difficult, subjective, or complex judgments:

DAC and other costs, including deferred sales inducements (“DSI”);

Policyholder liabilities;

Valuation of investments, including derivatives, measurement of allowance for credit losses, and ~~the~~ recognition of other-than-temporary impairments ("OTTI");

Reinsurance recoverables;

Taxes on income; and

Reserves for contingencies, including reserves for losses in connection with unresolved legal matters.

~~Table of Contents~~

Market Performance - Equity and Interest Assumptions

DAC and other costs associated with the variable and universal life policies and the variable and fixed annuity contracts are generally amortized over the expected lives of these policies in proportion to total gross profits. Total gross profits include both actual gross profits and estimates of gross profits for future periods. The quarterly adjustments for market performance reflect the impact of changes to our estimate of total gross profits to reflect actual fund performance and market conditions. A significant portion of gross profits for our variable annuity contracts and, to a lesser degree, our variable life ~~policies~~contracts are dependent upon the total rate of return on assets held in separate account investment options. This rate of return influences the fees we earn on variable annuity and variable life contracts, costs we incur associated with the guaranteed minimum death and guaranteed minimum income benefit features related to our variable annuity contracts and expected claims to be paid on variable life contracts, as well as other sources of profit. Returns that are higher than our expectations for a given period produce higher than expected account balances, which increase the future fees we expect to earn on variable annuity and variable life contracts and decrease the future costs we expect to incur associated with the guaranteed minimum death and guaranteed minimum income benefit features related to our variable annuity contracts and expected claims to be paid on variable life contracts. The opposite occurs when returns are lower than our expectations. The changes in future expected gross profits are used to recognize a cumulative adjustment to all prior periods’ amortization.

Furthermore, the calculation of the estimated liability for future policy benefits related to certain insurance products includes an estimate of associated revenues and expenses that are dependent on both historical market performance as well as estimates of market performance in the future. Similar to DAC and other costs described above, these liabilities are subject to quarterly adjustments for experience including market performance, in addition to annual adjustments resulting from our annual reviews of assumptions.

Table of Contents

The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each ~~business,~~product type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, other costs and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and variable life insurance products, is generally updated each quarter and is derived using a reversion to the mean approach, a common industry practice. Under this approach, we consider historical equity returns and adjust projected equity returns over an initial future period of five years (the “near-term”) so that equity returns converge to the long-term expected rate of return. If the near-term projected future rate of return is greater than our near-term maximum future rate of return of 15.0%, we use our maximum future rate of return. As of ~~June 30, 2019,~~March 31, 2020, our variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a ~~4.3%~~9.7% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and liabilities for future policy benefits for certain of our products, we generally update the long-term and near-term future ~~interest~~ rates used to project fixed income returns ~~annually.~~annually and quarterly, respectively. As a result of our 2019 annual reviews and update of assumptions and other refinements, we kept our long-term expectation of the 10-year U.S. Treasury rate unchanged and continue to grade to a rate of 3.75% over ten years. As part of our quarterly market experience updates, ~~in the second quarter of 2019,~~ we ~~updated~~update our near-term projections of interest rates to reflect ~~a decrease~~changes in current rates.

For a discussion of the impact that could result from changes in certain key assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Accounting Policies and Pronouncements—Sensitivities for Insurance Assets and Liabilities” in our Annual Report on Form 10-K for the year ended December 31, 2019

Future Adoption of New Accounting Pronouncements

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the Financial Accounting Standards Board (“FASB”) on August 15, 2018 and is expected to have a significant impact on the Consolidated Financial Statements and Notes to the Consolidated Financial Statements. In October 2019, the FASB issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date to affirm its decision to defer the effective date of ASU 2018-12 to January 1, 2022 (with early adoption permitted), representing a one year extension from the original effective date of January 1, 2021. This ASU will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. In addition to the impacts to the balance sheet upon adoption, the Company also expects an impact to how earnings emerge thereafter. See Note 2 to our Unaudited Interim Financial Statements for a more detailed discussion of ~~newly adopted accounting pronouncements and~~ASU 2018-12, as well as other accounting pronouncements issued but not yet ~~adopted.~~

adopted and newly adopted accounting pronouncements.

4750

Table of Contents

Changes in Financial Position

~~June 30, 2019 versus December 31, 2018~~

Total assets ~~increased $2,284 million,~~decreased $1.0 billion from ~~$18,120 million~~$21.4 billion at December 31, ~~2018~~2019 to ~~$20,404 million~~$20.4 billion at ~~June 30, 2019.~~March 31, 2020. Significant components were:

Separate account assets ~~increased $1,750 million~~decreased $2.3 billion primarily driven by ~~favorable~~unfavorable equity market performance and ~~sales,~~policy charges partially offset by ~~outflows to policyholders and policy charges.~~net inflows;

Partially offset by:

Reinsurance recoverables increased ~~$376 million,~~$1.2 billion, primarily related to the variable annuity reinsured living benefit liabilities resulting from an increase in ~~future expected~~reserves related to our variable annuity living benefit ~~payments~~guarantees driven by ~~the decline in~~declining interest rates, credit spreads widening and ~~non-performance risk ("NPR") spread tightening,~~unfavorable equity market performance, partially offset by ~~favorable equity markets, as well as, continued universal~~non-performance risk spreads widening; and ~~term life business growth;~~

Total investments and ~~cash~~Cash and cash equivalents increased ~~$200 million~~$0.1 billion primarily driven by ~~universal,~~ term and variable life business ~~growth and unrealized investment gains due to declining interest rates;~~

growth.

Total liabilities ~~increased $2,190 million,~~decreased $1.1 billion from ~~$17,675 million~~$20.8 billion at December 31, ~~2018~~2019 to ~~$19,865 million~~$19.7 billion at ~~June 30, 2019.~~March 31, 2020. Significant components were:

Separate account liabilities ~~increased $1,750 million,~~decreased $2.3 billion, corresponding to the ~~increase~~decrease in ~~separate~~Separate account assets, described ~~above.~~above;

Partially offset by:

Future policy benefits increased ~~$407 million~~$1.2 billion primarily driven by an increase in reserves related to ~~the~~our variable annuity living benefit ~~liabilities and universal and term life business growth,~~guarantees, as discussed above.

~~Policyholders’ account balances~~Total equity increased ~~$37 million~~$0.1 billion from $0.6 billion at December 31, 2019 to $0.7 billion at March 31, 2020, primarily driven by ~~universal life business growth.~~

~~Total equity increased $93 million~~a capital contribution from ~~$445 million at December 31, 2018~~Pruco Life to ~~$539 million at June 30, 2019, primarily driven by unrealized investment gains due to the decline in interest rates and by after-tax income.~~fund additional reserve requirements.

Results of Operations

Income (loss) from Operations before Income Taxes

~~2019 to 2018~~ Three Months Comparison

Income (loss) from operations before income taxes increased $3$6 million from $7$11 million for the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$10~~$17 million for the three months ended ~~June 30, 2019. This was~~March 31, 2020, primarily driven by anTotal realized investment gains/(losses), net, reflecting embedded derivative realized gains on the index-linked universal life products of as a result of unfavorable equity market performance and declining interest rates. Also contributing to the increase inwere higher Policy charges and fee income as a result of business growth in the life business, ~~and by an increase in Net investment income primarily driven by higher income from non-coupon investments. This is~~ partially offset by the unfavorable comparative net impacts from our annual reviews and update of assumptions and other refinements. The impact of this annual review for the second quarter of 2019 was not significant, and for the second quarter of 2018 was a $2 million net benefit, mainly driven by favorable impacts related to mortality and investment assumption updates.

~~2019 to 2018 Six Months Comparison.~~

Income from operations before income taxes increased $3 million from $18 million in the first six months of 2018 to $21 million in the first six months of 2019. This was primarily driven by favorable impact from deferred reinsurance activity in the annuities business and decrease inhigher Policyholders' benefits, Amortization of deferred policy acquisition costs, primarily driven by the impact of the internal Corporate-Owned Life Insurance ("COLI") restructure in the life business in the first quarter of 2018. This is partially offset by the unfavorable comparative net impacts from our annual reviews and ~~update of assumptions~~General, administrative and other refinements. The impact of this annual review for the second quarter of 2019 was not significant, and for the second quarter of 2018 was a $2 million net benefit, mainly driven by favorable impacts related to mortality and investment assumption updates.

~~Table of Contents~~

expenses.

Revenues, Benefits and Expenses

~~2019 to 2018~~ Three Months Comparison

Revenues increased $2$21 million from ~~$41~~$38 million for the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$43~~$59 million for the three months ended ~~June 30, 2019. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased by $3 million. The increase is~~March 31, 2020, primarily driven by $3$19 million in Total realized investment gains / (losses), net, reflecting embedded derivative realized gains on the index-linked universal life products as a result of unfavorable equity market performance and declining interest rates and a $4 million increase in ~~policy~~Policy charges and fee income driven by business growth in the life business, $2partially offset by a $3 million ~~increase in Net investment income primarily driven by higher income from non-coupon investments and an increase of $1 million~~decrease in Other income ~~primarily~~ driven by ~~lower trading~~ losses on fixed maturities ~~and equities. This is partially offset by a decrease~~designated as trading.

Table of ~~$3 million in Realized investment gains (losses), net primarily driven by more fixed maturity losses.~~Contents

Benefits and expenses ~~remained flat with $34~~increased $16 million ~~in both~~from $27 million for the three months ended ~~June 30, 2018 and 2019. Excluding~~March 31, 2019 to $43 million for the ~~impact of our annual reviews and update of assumptions and other refinements, as discussed above,~~three months ended March 31, 2020, resulting from a $7 million increase in Policyholders’ benefits ~~and expenses remained relatively flat. This is~~ primarily driven by $1higher reserves on index-linked universal life products as a result of unfavorable equity market performance and declining interest rates, $4 million increase in Amortization of deferred policy acquisition costs ~~driven by higher term amortization, higher interest credited to policyholders' account balances~~ primarily driven by ~~business growth in the life business. These increases are partially offset by~~unfavorable equity market performance and declining interest rates and a decrease in General, administrative and other expenses mainly driven by favorable impact from deferred reinsurance activity in the annuities business, as well as, lower premium taxes in the life business.

~~2019 to 2018 Six Months Comparison~~

~~Revenues remained flat with $82~~$3 million in both six months ended June 30, 2018 and 2019. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues remained relatively flat as well. This is primarily driven by $4 million increase in Net investment income and an increase of $2 million in Other income, as discussed above. These increases were partially offset by a decrease of $2 million in Realized investment gains (losses), as discussed above, and lower policy charges and fee income primarily driven by lower amortization of unearned revenue reserve due to the internal COLI restructure in the life business in the first quarter of 2018.

Benefits and expenses decreased $4 million from $65 million for the six months ended June 30, 2018 to $61 million for the six months ended June 30, 2019. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased by $3 million. This is primarily driven by $4 million decrease in General, administrative and other expenses primarily driven by favorable impact from deferred reinsurance activity in the annuities business, as well as, lower premium taxes in the life business and $4 million decrease in Amortization of deferred policy acquisition costs driven by the impact of the internal COLI restructure in the life business in the first quarter of 2018. This was partially offset by $2 million increase in Policyholders’ benefits primarily driven by less unfavorable mortality and an increase of $2 million in Interest credited to policyholders' account primarily driven by business growth ~~in the life business.~~initiative implementation costs.

Variable Annuity Risks and Risk Mitigants

The following is a summary ~~of: (i)~~of certain risks associated with ~~individual annuity~~Individual Annuities' products, ~~and (ii)~~ certain strategies in mitigating those risks, including any updates to those strategies since the previous ~~year end.~~year-end, and the related financial results. For a more detailed description of these items and their related accounting treatment, refer to the complete descriptions provided in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The primary risk exposures of our variable annuity contracts relate to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including capital markets assumptions such as equity market returns, interest rates and market volatility, along with actuarial assumptions such as contractholder mortality, the timing and amount of annuitization and withdrawals, and contract lapses. For these risk exposures, achievement of our expected earnings ~~and profitability~~ is subject to the risk that actual experience will differ from the assumptions used in the original pricing of these products. Prudential Financial ~~currently~~ manages our exposure to certain risks driven by capital markets fluctuations primarily through a combination of ~~product design features~~Product Design Features and an Asset Liability Management Strategy ("ALM") ~~Strategy.~~

~~Table of Contents~~

, as discussed below.

Product Design Features

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

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

~~The current~~Prudential Insurance employs an ALM strategy ~~conducted within Prudential Insurance~~that utilizes a combination of both traditional fixed income instruments and derivatives to help defray potential claims associated with our variable annuity living benefit guarantees. The economic liability we manage with this ALM strategy consists of expected living benefit claims under less severe market conditions, which are managed using ~~a traditional~~an ALM strategy through the accumulation of fixed income and derivative instruments, and potential living benefit claims resulting from more severe market conditions, which are hedged using derivative instruments. For our Prudential Defined Income (“PDI”) variable annuity, we utilize fixed income instruments to help defray potential claims. For the portion of our ALM strategy executed with derivatives, Prudential Insurance enter into a range of exchange-traded ~~cleared,~~ and over-the-counter ~~(“OTC”)~~ equity and interest rate derivatives, including, but not limited to: equity and treasury futures; total return and interest rate swaps; and options including equity options, swaptions, and floors and caps. The intent of this strategy is to more efficiently manage the capital and liquidity associated with these products while continuing to mitigate fluctuations in net income due to movements in capital markets. Since the ALM strategy is conducted in Prudential Insurance, the results of the strategy do not directly impact the Company's results of operations or financial condition.

Income Taxes

For information regarding income taxes, see Note 7 to the Unaudited Interim Financial Statements.

Table of Contents

Liquidity and Capital Resources

This section supplements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Overview

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

Effective and prudent liquidity and capital management is a priority across the organization. Management monitors the liquidity of Prudential Financial, Prudential Insurance and the Company on a daily basis and projects borrowing and capital needs over a multi-year time horizon through our periodic planning process. We believe that cash flows from the sources of funds available to us are sufficient to satisfy the current liquidity requirements of Prudential Insurance, Prudential Financial and the Company, including under reasonably foreseeable stress scenarios. Prudential Financial has a capital management framework in place that governs the allocation of capital and approval of capital uses.

Our businesses are subject to comprehensive regulation and supervision by domestic and international regulators. These regulations currently include, or may include ~~in the future~~ requirements ~~and limitations~~ (many of which are the subject of ongoing rule-making) relating to capital, leverage, liquidity, stress-testing, overall risk management, credit exposure reporting and credit concentration. For information on these regulatory initiatives and their potential impact on us, see “Business—Regulation” and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

COVID-19 and Related Market Disruptions

During the first quarter of 2020 and continuing into the second quarter, broad market concerns over the impact of COVID-19 have led to significant volatility and disruptions in the global economy and financial markets. Given this macro environment and the global pandemic, as examined through our stress testing, in the first quarter we accelerated our product diversification strategy and repriced certain products, which are expected to support the capital position over time.

Liquidity. The Company continues to operate with significant liquid resources. Nevertheless, the impact of COVID-19 and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings or ratings outlooks.

Capital. As of March 31, 2020, the Company maintained capital levels consistent with its ratings targets. However, market conditions could negatively impact the statutory capital and constrain our overall capital flexibility. Continued adverse market conditions could require us to take additional management actions to maintain capital consistent with their ratings objectives, which may include redeploying financial resources from internal sources or, if markets continue to decline, using available external sources of capital or seeking additional sources.

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

5053

Table of Contents

Capital

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

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

~~Capital Protection Framework~~

Prudential Financial and the Company employ a Capital Protection Framework (the "Framework”) to ensure that sufficient capital resources are available to maintain adequate capitalization and competitive RBC ratio and solvency margins under various stress scenarios. The Framework incorporates the potential impacts from market related stresses, including equity markets, real estate, interest rates, credit losses and foreign currency exchange rates.

The Framework accommodates periodic volatility within ranges that we deem acceptable, while also providing for additional potential sources of capital, including on-balance sheet capital, capacity, and contingent sources of capital. We believe we currently have access to sufficient resources, either directly, or indirectly through Prudential Financial, to maintain adequate capitalization.

Affiliated Captive Reinsurance Companies

See ~~“Management��s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—Liquidity~~Operations-Liquidity and Capital ~~Resources—Capital—Affiliated~~Resources-Capital-Affiliated Captive Reinsurance Companies” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, for a discussion of our use of captive reinsurance companies.

Liquidity

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

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

~~Table of Contents~~

~~Cash Flow~~

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

Liquid Assets

Liquid assets include cash and cash equivalents, short-term investments, U.S. Treasury fixed maturities, and fixed maturities that are not designated as held-to-maturity and public equity securities. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had liquid assets of ~~$(7)~~$1,721 million and ~~$(13)~~$1,627 million, respectively. The portion of liquid assets comprised of cash and cash equivalents and short-term investments was ~~$(61)~~$85 million and ~~$(68)~~$56 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. As of ~~June 30, 2019, $1,370~~March 31, 2020, $1,551 million, or ~~95%~~96%, of the fixed maturity investments in ~~company~~the Company's general account portfolios, were rated high or highest quality based on NAIC or equivalent rating.

Table of Contents

Term and Universal Life Reserve Financing

The Company uses affiliated captive reinsurance companies to finance the portion of the statutory reserves required to be held under Regulation XXX and Guideline AXXX that is considered to be non-economic. The financing arrangements involve the reinsurance of term and universal life business to our affiliated captive reinsurers and the issuance of surplus notes by those affiliated captives that are treated as capital for statutory purposes. These surplus notes are subordinated to policyholder obligations, and the payment of principal and interest on the surplus notes can only be made with prior insurance regulatory approval.

As of ~~June 30, 2019,~~March 31, 2020, the affiliated captive reinsurance companies have entered into agreements with external counterparties providing for the issuance of up to an aggregate of ~~$13.7~~$13.6 billion of surplus notes by our affiliated captive reinsurers in return for the receipt of credit-linked notes (“Credit-Linked Note Structures”), of which ~~$11.5~~$12.0 billion of surplus notes was outstanding as of ~~June 30, 2019.~~March 31, 2020. Under the agreements, the affiliated captive receives in exchange for the surplus notes one or more credit-linked notes issued by a special-purpose affiliate of the Company with an aggregate principal amount equal to the surplus notes outstanding. The affiliated captive holds the credit-linked notes as assets supporting Regulation XXX or Guideline AXXX non-economic reserves, as applicable. For more information on ~~the~~our Credit-Linked Note Structures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Financing Activities” in ~~the~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

As of ~~June 30, 2019,~~March 31, 2020, our affiliated captive reinsurance companies had outstanding an aggregate of ~~$2.3~~$2.6 billion of debt issued for the purpose of financing Regulation XXX and Guideline AXXX non-economic reserves, of which approximately ~~$0.6~~$0.7 billion relates to Regulation XXX reserves and approximately ~~$1.7~~$1.9 billion relates to Guideline AXXX reserves. In addition, as of ~~June 30, 2019,~~March 31, 2020, for purposes of financing Guideline AXXX reserves, one of our affiliated captives had ~~outstanding~~ approximately $4.0 billion of surplus notes outstanding that were issued to affiliates.

The Company has introduced updated versions of ~~several products in~~ its individual life ~~product portfolio~~products in conjunction with the requirement to adopt principle-based reserving by January 1, 2020. ~~During 2017, the Company adopted principle-based reserving for its guaranteed universal life~~These updated products ~~and introduced updated versions of these products. The guaranteed universal life updated products~~are currently priced to support the principle-based statutory reserve level without the need for ~~captive~~ reserve financing. Certain elements of the implementation of principle-based reserving are yet to be finalized by the NAIC and may have a material impact on statutory reserves. The Company ~~is continuing~~continues to assess the impact of ~~current and proposed amendments to~~the implementation of principle-based reserving on projected statutory reserve levels, product pricing and ~~product pricing. The Company is on track to adopt principle-based reserving for its remaining portfolio~~the use of ~~individual life product offerings by January 1, 2020.~~financing.

Table of Contents

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Notes to Unaudited Interim Financial Statements—(Continued)

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, our products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and our strategies for managing this risk, vary by product. As of ~~June 30, 2019,~~March 31, 2020, there have been no material changes in our economic exposure to market risk from December 31, ~~2018,~~2019, a description of which may be found in our Annual Report on Form 10-K, for the year ended December 31, ~~2018,~~2019, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the ~~SEC.~~Securities and Exchange Commission. See the “Risk Factors” section and Item 1A, “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, for a discussion of how difficult conditions in the financial markets and the economy generally may materially adversely affect our business and results of our operations.

~~Table of Contents~~

~~PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY~~

~~Notes to Unaudited Interim Financial Statements—(Continued)~~

Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule 13a-15(e), as of ~~June 30, 2019.~~March 31, 2020. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~June 30, 2019,~~March 31, 2020, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), occurred during the quarter ended ~~June 30, 2019,~~March 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

5356

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10 to the Unaudited Interim Financial Statements under “—Litigation and Regulatory Matters” for a description of certain pending litigation and regulatory matters affecting us, and certain risks to our business presented by such matters, which is incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. These risks could materially affect our business, results of operations or financial condition or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our business described elsewhere in this Quarterly Report on Form 10-Q. The following should be read in conjunction with and supplements and amends the section titled “Risk Factors” in our Annual Report on Form 10-K.

The COVID-19 pandemic has resulted in extreme stress and disruption in the global economy and financial markets, and has adversely impacted, and may continue to adversely impact, our results of operations, financial condition and prospects.

During the first quarter of 2020 the COVID-19 crisis (i) caused unfavorable financial market conditions which had a substantial negative effect on reported results and market values in our investment portfolio, (ii) negatively impacted our statutory capital and constrained our overall capital flexibility primarily due to asset value declines and the need to strengthen reserves, and (iii) caused us to lower our outlook for the future, as described further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview-COVID-19.”

We cannot predict what impact the COVID-19 pandemic will ultimately have on the global economy, markets or our business. The pandemic could exacerbate existing areas of concern, such as the pace of economic growth, equity market performance, and continued low interest rates, among others. Changes in consumer spending, business investment, and government debt and spending as a result of the crisis may negatively impact our business.

These risks may have manifested, and may continue to manifest, in our business in the following areas, among others:

Investment Risk. The COVID-19 pandemic and its impact on the global economy has increased the risk of loss on our investments due to default or deterioration in credit quality or value.

Insurance Risk. We expect COVID-19 to drive elevated levels of mortality in the near-term. The COVID-19 pandemic may ultimately result in a mortality calamity, which is the risk that short-term mortality rates deviate adversely from what is expected as a result of pandemics or other disasters. Elevated losses will reduce our earnings and capital, and we may be forced to liquidate assets before maturity in order to pay the excess claims. The pandemic situation may worsen depending on the evolution of the virus’s transmissibility and virulence, effectiveness of public health measures and availability of potential vaccines and treatments. Ultimate losses would depend on several factors, including the rates of mortality and morbidity among various segments of the insured population, age distribution of associated deaths, collectability of reinsurance, performance of our investment portfolio, effect on lapses and surrenders of existing policies, as well as sales of new policies and other variables.

The pandemic may also result in a change in policyholder behavior, such as policyholders choosing to defer or stop paying insurance premiums. It may also result in a lapse calamity, which is the risk that lapse rates over the short-term deviate adversely from what is expected. For example, surrenders of cash surrender value products by customers in need of liquidity can impact our liquidity, and it may be necessary in certain market conditions to sell assets to meet surrender demands. Lapse calamity can also impact our earnings through its impact on estimated future profits.

Finally, we cannot predict whether COVID-19 will ultimately lead to longer-term deviations from the mortality, policyholder behavior or morbidity assumptions we used to price our products.

Market Risk. Continued market disruptions and volatility may further negatively impact the profitability of many of our insurance and annuity products, which depends in part on the value of the separate accounts supporting these products which can fluctuate substantially depending on market conditions. Market volatility and reduced liquidity may reduce our ability to implement asset-liability management and hedging strategies. The decline in interest rates, in particular, may result in lower investment income, higher reserve levels and other consequences.

Table of Contents

Liquidity Risk. The impact of the COVID-19 crisis and related market dislocations could strain our existing liquidity and cause us to increase the use of our alternative sources of liquidity, which could result in increased financial leverage on our balance sheet and negatively impact our credit and financial strength ratings. Furthermore, certain sources of liquidity might not be available during times of stress, or may only be available on unfavorable terms, which can result in a decrease in our profitability and a significant reduction in our financial flexibility.

In particular, abrupt changes to interest rate, equity, and/or currency markets could lead to increased collateral requirements to counterparties, and cash demands due to severe mortality calamity, customer withdrawals or lapse events.

Operational Risk. One of the main impacts of the COVID-19 crisis has been executing our business continuity protocols to ensure our employees are safe and able to serve our customers. This included transitioning the vast majority of our employees to remote work arrangements. We have also made a number of operational changes to accommodate our customers.

In this environment, there is an elevated risk that weaknesses or failures in our business continuation plans could lead to disruption of our operations, liability to clients, exposure to disciplinary action or harm to our reputation. Furthermore, weaknesses or failures within a vendor’s business continuation plan can materially disrupt our business operations. Our information systems and those of our vendors and service providers may be more vulnerable to cyber-attacks, computer viruses or other computer related attacks, programming errors and similar disruptive problems during a business continuation event.

Strategic Risk. The COVID-19 pandemic could ultimately generate an economic downturn; higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending. In such an environment, the demand for our products and our investment returns could be materially adversely affected. In addition, we expect near-term sales to be slowed by the impact of social distancing and financial hardship on our customers.

Finally, we cannot predict what actions governments will take in response to the COVID-19 pandemic, and how any new laws, regulations, or state-sponsored programs may impact our business.

5458

Table of Contents

Item 6. Exhibits

EXHIBIT INDEX

31.1 Section 302 Certification of the Chief Executive Officer

31.2 Section 302 Certification of the Chief Financial Officer

32.1 Section 906 Certification of the Chief Executive Officer

32.2 Section 906 Certification of the Chief Financial Officer

101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH - XBRL Taxonomy Extension Schema Document.

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

104.Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

5559

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Pruco Life Insurance Company of New Jersey

	By:		/s/ ~~John Chieffo~~Susan M. Mann
	Name:		~~John Chieffo~~Susan M. Mann
			Vice President and Chief Financial Officer
			(Authorized Signatory and Principal Financial Officer)

Date: ~~August 13, 2019~~May 14, 2020

5660



	Three Months Ended June 30, 2018(2)
	Realized Investment Gains (Losses)			Net Investment Income		Other Income		AOCI(1)
	(in thousands)
Derivatives Designated as Hedge Accounting Instruments:
Cash flow hedges
Currency/Interest Rate	$	60		$	333	$	651	$	6,042
Total cash flow hedges	60			333		651		6,042
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(264		)	0		0		0
Currency	105			0		0		0
Currency/Interest Rate	1,025			0		11		0
Credit	0			0		0		0
Equity	917			0		0		0
Embedded Derivatives	(3,561		)	0		0		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments:	(1,778		)	0		11		0
Total	$	(1,718	)	$	333	$	662	$	6,042



	Three Months Ended June 30, 2018(6)
	Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)			Purchases		Sales			Issuances			Settlements			Other		Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in thousands)
Fixed maturities, available-for-sale:
Corporate securities(3)	$	14,621		$	(876	)	$	86	$	(45	)	$	0		$	(3,779	)	$	0	$	0	$	0		$	10,007		$	0
Structured securities(4)	8,455			(8		)	0		(196		)	0			(576		)	0		0		(5,383		)	2,292			0
Other assets:
Equity securities	7,183			(217		)	0		0			0			0			0		0		0			6,966			(217		)
Reinsurance recoverables	358,391			(43,932		)	21,625		0			0			0			0		0		0			336,084			(40,898		)
Receivables from parent and affiliates	6,029			0			0		0			0			0			0		0		(6,029		)	0			0
Liabilities:
Future policy benefits	(358,391		)	43,932			0		0			(21,625		)	0			0		0		0			(336,084		)	40,898
Policyholders' account balances(5)	(4,910		)	(943		)	0		0			0			226			0		0		0			(5,627		)	(7,860		)



	Net Unrealized Gains (Losses) on Investments			Deferred Policy Acquisition Costs and Other Costs(1)			Future Policy Benefits, Policyholders' Account Balances and Other Liabilities(2)			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2018	$	143		$	(54	)	$	42		$	(54	)	$	77
Net investment gains (losses) on investments arising during the period	(525		)	0			0			110			(415		)
Reclassification adjustment for (gains) losses included in net income	(71		)	0			0			15			(56		)
Reclassification adjustment for OTTI (gains) losses excluded from net income	(207		)	0			0			43			(164		)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and other costs	0			64			0			(13		)	51
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders' account balances and other liabilities	0			0			(26		)	5			(21		)
Balance, June 30, 2019	$	(660	)	$	10		$	16		$	106		$	(528	)

~~Standard~~

~~Description~~

~~Effective date and method of adoption~~

~~Effect on the financial statements or other significant matters~~

~~ASU 2016-13~~,
Financial Instruments - Credit Losses (Topic 326):
Measurement of
Credit Losses on
Financial
Instruments

This ASU provides a new current expected credit loss model to account for credit losses on certain financial assets and off-balance sheet exposures (e.g., loans held for investment, debt securities held to maturity, reinsurance receivables, net investments in leases and loan commitments). The model requires an entity to estimate lifetime credit losses related to such financial assets and exposures based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The standard also modifies the current other-than-temporary impairment standard for available-for-sale debt securities to require the use of an allowance rather than a direct write down of the investment, and replaces existing standard for purchased credit deteriorated loans and debt securities.

~~January 1, 2020 using the modified retrospective method which will include a cumulative-effect adjustment on the balance sheet as of~~
the beginning of the fiscal year of adoption. However, prospective application is required for purchased credit deteriorated assets previously accounted for under ASU 310-30 and for debt securities for which an other-than-temporary-impairment was recognized prior to the date of adoption. Early adoption is permitted beginning January 1,
~~2019.~~

~~The Company is continuing to develop its expected credit loss models and related systems, processes and controls for assets held on the Statement of~~
Financial Position at amortized cost, the most significant of which are the commercial mortgage and other loans. The allowance for credit losses will likely increase when the ASU is adopted to cover expected credit losses over the lifetime of the commercial mortgage and other loans, incorporating reasonable and supportable forecasts and expected changes in future economic conditions. The extent of the impact of adoption of this ASU on the Company’s Financial Statements and Notes to the
~~Financial Statements will depend on various factors including the economic environment and the~~
~~size and type of the commercial mortgage and other loans held on the date of adoption.~~