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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~~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 001-16707

Prudential Financial, Inc.

(Exact Name of Registrant as Specified in its Charter)



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

751 Broad Street

Newark, NJ 07102

(973) 802-6000

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

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



Title of Each Class	Trading Symbols(s)	Name of Each Exchange on Which Registered
Common Stock, Par Value $.01	PRU	New York Stock Exchange
5.75% Junior Subordinated Notes	PJH	New York Stock Exchange
5.70% Junior Subordinated Notes	PRH	New York Stock Exchange
5.625% Junior Subordinated Notes	PRS	New York Stock Exchange

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

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

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



Large Accelerated Filer	x	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

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

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

As of July 31, ~~2019, 402~~2020, 395 million shares of the registrant’s Common Stock (par value $0.01) were outstanding.

TABLE OF CONTENTS



		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Interim Consolidated Statements of Financial Position as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019	1
	Unaudited Interim Consolidated Statements of Operations for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	2
	Unaudited Interim Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	3
	Unaudited Interim Consolidated Statements of Equity for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	4
	Unaudited Interim Consolidated Statements of Cash Flows for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019	5
	Notes to Unaudited Interim Consolidated Financial Statements	6
	1. Business and Basis of Presentation	6
	2. Significant Accounting Policies and Pronouncements	68
	3. Investments	1015
	4. Variable Interest Entities	2529
	5. Derivative Instruments	2630
	6. Fair Value of Assets and Liabilities	3540
	7. ~~Leases~~	50
	8. Closed Block	51
	~~9. Income Taxes~~	53
	~~10. Short-Term and Long-Term Debt~~	54
	~~11. Employee Benefit Plans~~	55
	~~12. Equity~~	56
	~~13. Earnings Per Share~~8. Income Taxes	6058
	~~14. Segment Information~~9. Short-Term and Long-Term Debt	59
	10. Employee Benefit Plans	61
	11. Equity	62
	~~15.~~12. Earnings Per Share	65
	13. Segment Information	68
	14. Commitments and Contingent Liabilities	6673
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7178
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~143~~155
Item 4.	Controls and Procedures	~~143~~155
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	~~144~~156
Item 1A.	Risk Factors	~~144~~156
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~144~~157
Item 6.	Exhibits	~~145~~159
GLOSSARY		~~146~~160
SIGNATURES		~~148~~162

Forward-Looking Statements

Certain of the statements included in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. There can be no assurance that future developments affecting Prudential Financial, Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) 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, morbidity experience or policyholder behavior experience that differs significantly from our expectations when we price our products; ~~(3)~~(4) changes in interest rates, equity prices and foreign currency exchange rates that may (a) adversely impact the profitability of our products, the value of separate accounts supporting these products or the value of assets we manage, (b) result in losses on derivatives we use to hedge risk or increase collateral posting requirements and (c) limit opportunities to invest at appropriate returns; ~~(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) U.S. state insurance laws and developments regarding group-wide supervision, capital and reserves, (e) insurer capital standards outside the U.S. and (f) privacy and cybersecurity regulation; ~~(8)~~(9) technological changes which may adversely impact companies in our investment portfolio or cause insurance experience to deviate from our assumptions; ~~(9)~~(10) an inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (11) ratings downgrades; ~~(10)~~(12) market conditions that may adversely affect the sales or persistency of our products; ~~(11)~~(13) competition; ~~(12)~~(14) reputational damage; ~~and (13)~~(15) the costs, effects, timing, or success of our plans to accelerate our ~~Financial Wellness~~strategy; and (16) costs associated with the acquisition of Assurance IQ, LLC and its integration into our strategy. Prudential Financial, Inc. does not undertake to update any particular forward-looking statement included in this document. See “Risk Factors” included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and the Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for discussion of certain risks relating to our businesses and investment in our securities.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

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


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost: 2019-$340,564; 2018-$331,745)(1)	$	383,390		$	353,656
Fixed maturities, held-to-maturity, at amortized cost (fair value: 2019-$2,410; 2018-$2,372)(1)	2,009			2,013
Fixed maturities, trading, at fair value (amortized cost: 2019-$3,807; 2018-$3,392)(1)	3,755			3,243
Fixed maturities, available-for-sale, at fair value (amortized cost: 2020-$353,812; 2019-$346,574; 2020-net of $238 allowance for credit losses)(1)(3)							$	407,944		$	391,096
Fixed maturities, held-to-maturity, at amortized cost (2020-net of $9 allowance for credit losses; fair value: 2020-$2,231; 2019-$2,302)(1)(2)							1,875			1,933
Fixed maturities, trading, at fair value (amortized cost: 2020-$4,089; 2019-$3,917)(1)							3,933			3,884
Assets supporting experience-rated contractholder liabilities, at fair value(1)	21,843			21,254			23,245			21,597
Equity securities, at fair value (cost: 2019-$5,205; 2018-$5,219)(1)	6,804			6,238
Commercial mortgage and other loans (includes $645 and $763 measured at fair value under the fair value option at June 30, 2019 and December 31, 2018, respectively)(1)	61,228			59,830
Equity securities, at fair value (cost: 2020-$5,704; 2019-$5,560)(1)(3)							7,010			7,522
Commercial mortgage and other loans (net of $245 and $121 allowance for credit losses; includes $682 and $228 of loans measured at fair value under the fair value option at June 30, 2020 and December 31, 2019, respectively)(1)(2)(3)							63,469			63,559
Policy loans(3)	12,030			12,016			12,283			12,096
Other invested assets (includes $5,567 and $5,524 measured at fair value at June 30, 2019 and December 31, 2018, respectively)(1)	15,081			14,526
Other invested assets (2020-net of $2 allowance for credit losses; includes $6,280 and $5,646 of assets measured at fair value at June 30, 2020 and December 31, 2019, respectively)(1)(2)(3)							16,757			15,606
Short-term investments(3)	5,872			6,469			11,416			5,467
Total investments	512,012			479,245			547,932			522,760
Cash and cash equivalents~~(1)~~(3)	15,421			15,353			21,149			16,327
Accrued investment income~~(1)~~(3)	3,355			3,318			3,296			3,330
Deferred policy acquisition costs(3)	19,540			20,058			19,667			19,912
Value of business acquired	1,227			1,850			1,040			1,110
Other assets(1)	18,690			16,118
Other assets (2020-net of $8 allowance for credit losses)(1)(2)(3)							21,301			20,832
Separate account assets(3)	303,580			279,136			301,002			312,281
TOTAL ASSETS	$	873,825		$	815,078		$	915,387		$	896,552
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits(3)	$	285,527		$	273,846		$	312,759		$	293,527
Policyholders’ account balances(3)	151,428			150,338			158,237			152,110
Policyholders’ dividends(3)	6,558			4,110			8,623			6,988
Securities sold under agreements to repurchase	9,741			9,950			10,488			9,681
Cash collateral for loaned securities	4,235			3,929			3,447			4,213
Income taxes(3)	11,485			7,936			13,261			11,378
Short-term debt	2,659			2,451			1,130			1,933
Long-term debt	17,841			17,378			20,162			18,646
Other liabilities(1)	17,372			16,018
Notes issued by consolidated variable interest entities (includes $816 and $595 measured at fair value under the fair value option at June 30, 2019 and December 31, 2018, respectively)(1)	1,246			955
Other liabilities (2020-net of $19 allowance for credit losses)(1)(2)(3)							18,573			20,802
Notes issued by consolidated variable interest entities (includes $741 and $800 measured at fair value under the fair value option at June 30, 2020 and December 31, 2019, respectively)(1)							1,197			1,274
Separate account liabilities(3)	303,580			279,136			301,002			312,281
Total liabilities	811,672			766,047			848,879			832,833
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 15)
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 14)
EQUITY
Preferred Stock ($.01 par value; 10,000,000 shares authorized; none issued)	0			0			0			0
Common Stock ($.01 par value; 1,500,000,000 shares authorized; 660,111,339 shares issued at both June 30, 2019 and December 31, 2018)	6			6
Common Stock ($.01 par value; 1,500,000,000 shares authorized; 666,305,189 shares issued as of both June 30, 2020 and December 31, 2019)							6			6
Additional paid-in capital	24,825			24,828			25,513			25,532
Common Stock held in treasury, at cost (257,129,965 and 249,398,887 shares at June 30, 2019 and December 31, 2018, respectively)	(18,416		)	(17,593		)
Common Stock held in treasury, at cost (271,694,260 and 267,472,781 shares at June 30, 2020 and December 31, 2019, respectively)							(19,785		)	(19,453		)
Accumulated other comprehensive income (loss)	23,982			10,906			30,837			24,039
Retained earnings	31,263			30,470			29,326			32,991
Total Prudential Financial, Inc. equity	61,660			48,617			65,897			63,115
Noncontrolling interests	493			414			611			604
Total equity	62,153			49,031			66,508			63,719
TOTAL LIABILITIES AND EQUITY	$	873,825		$	815,078		$	915,387		$	896,552

__________


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


(2)	June 30, 2020 amounts include the impacts of the January 1, 2020 adoption of ASU 2016-13. See Note 2 for details.


(3)	June 30, 2020 amounts include assets and liabilities held for sale which aggregate to $20,835 million and $17,141 million, respectively, related to the pending sale of The Prudential Life Insurance Company of Korea, Ltd. See Note 1 for details of these balances.

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (in millions, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
REVENUES
Premiums	$	8,135		$	7,438		$	16,035		$	14,749		$	7,693		$	8,135		$	15,357		$	16,035
Policy charges and fee income	1,473			1,480			2,944			2,984			1,523			1,473			3,012			2,944
Net investment income	4,390			4,096			8,606			8,094			4,186			4,390			8,388			8,606
Asset management and service fees	1,083			1,010			2,099			2,036			991			1,083			2,024			2,099
Other income (loss)	643			(54		)	1,897			(561		)	1,474			643			(1,117		)	1,897
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(77		)	(58		)	(112		)	(97		)
Other-than-temporary impairments on fixed maturity securities transferred to Other comprehensive income	25			0			13			0
Other realized investment gains (losses), net	(284		)	743			(1,003		)	1,207
Total realized investment gains (losses), net	(336		)	685			(1,102		)	1,110
Realized investment gains (losses), net													(3,752		)	(336		)	(2,085		)	(1,102		)
Total revenues	15,388			14,655			30,479			28,412			12,115			15,388			25,579			30,479
BENEFITS AND EXPENSES
Policyholders’ benefits	8,877			9,512			17,315			17,187			8,450			8,877			17,456			17,315
Interest credited to policyholders’ account balances	1,278			894			2,623			1,444			1,832			1,278			2,224			2,623
Dividends to policyholders	437			540			1,014			868			531			437			454			1,014
Amortization of deferred policy acquisition costs	782			613			1,217			1,201			287			782			1,244			1,217
General and administrative expenses	3,138			2,846			6,294			5,769			3,347			3,138			6,871			6,294
Total benefits and expenses	14,512			14,405			28,463			26,469			14,447			14,512			28,249			28,463
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	876			250			2,016			1,943			(2,332		)	876			(2,670		)	2,016
Total income tax expense (benefit)	162			68			394			420			115			162			57			394
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES	714			182			1,622			1,523			(2,447		)	714			(2,727		)	1,622
Equity in earnings of operating joint ventures, net of taxes	24			18			53			41			42			24			52			53
NET INCOME (LOSS)	738			200			1,675			1,564			(2,405		)	738			(2,675		)	1,675
Less: Income (loss) attributable to noncontrolling interests	30			3			35			4			4			30			5			35
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL FINANCIAL, INC.	$	708		$	197		$	1,640		$	1,560		$	(2,409	)	$	708		$	(2,680	)	$	1,640
EARNINGS PER SHARE
Basic earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	1.73		$	0.46		$	3.98		$	3.66		$	(6.12	)	$	1.73		$	(6.80	)	$	3.98
Diluted earnings per share-Common Stock:
Net income (loss) attributable to Prudential Financial, Inc.	$	1.71		$	0.46		$	3.93		$	3.62		$	(6.12	)	$	1.71		$	(6.80	)	$	3.93

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (in millions)


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018			2020			2019		2020			2019
NET INCOME (LOSS)	$	738	$	200		$	1,675	$	1,564		$	(2,405	)	$	738	$	(2,675	)	$	1,675
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments for the period	213		(703		)	108		(41		)	88			213		(207		)	108
Net unrealized investment gains (losses)	8,506		(3,326		)	16,795		(7,992		)	10,101			8,506		8,747			16,795
Defined benefit pension and postretirement unrecognized periodic benefit (cost)	17		75			81		129			72			17		144			81
Total	8,736		(3,954		)	16,984		(7,904		)	10,261			8,736		8,684			16,984
Less: Income tax expense (benefit) related to other comprehensive income (loss)	1,966		(838		)	3,910		(1,682		)	2,023			1,966		1,885			3,910
Other comprehensive income (loss), net of taxes	6,770		(3,116		)	13,074		(6,222		)	8,238			6,770		6,799			13,074
Comprehensive income (loss)	7,508		(2,916		)	14,749		(4,658		)	5,833			7,508		4,124			14,749
Less: Comprehensive income (loss) attributable to noncontrolling interests	36		(7		)	40		7			5			36		6			40
Comprehensive income (loss) attributable to Prudential Financial, Inc.	$	7,472	$	(2,909	)	$	14,709	$	(4,665	)	$	5,828		$	7,472	$	4,118		$	14,709

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Equity

Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (in millions)



	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)			Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2019	$	6	$	25,532		$	32,991		$	(19,453	)	$	24,039		$	63,115		$	604		$	63,719
Cumulative effect of adoption of accounting changes(1)						(99		)							(99		)				(99		)
Common Stock acquired									(500		)				(500		)				(500		)
Contributions from noncontrolling interests																		31			31
Distributions to noncontrolling interests																		(11		)	(11		)
Stock-based compensation programs			(26		)				112						86						86
Dividends declared on Common Stock						(445		)							(445		)				(445		)
Comprehensive income:
Net income (loss)						(271		)							(271		)	1			(270		)
Other comprehensive income (loss), net of tax												(1,439		)	(1,439		)	0			(1,439		)
Total comprehensive income (loss)															(1,710		)	1			(1,709		)
Balance, March 31, 2020	6		25,506			32,176			(19,841		)	22,600			60,447			625			61,072
Common Stock acquired
Contributions from noncontrolling interests																		4			4
Distributions to noncontrolling interests																		(23		)	(23		)
Stock-based compensation programs			7						56						63						63
Dividends declared on Common Stock						(441		)							(441		)				(441		)
Comprehensive income:
Net income (loss)						(2,409		)							(2,409		)	4			(2,405		)
Other comprehensive income (loss), net of tax												8,237			8,237			1			8,238
Total comprehensive income (loss)															5,828			5			5,833
Balance, June 30, 2020	$	6	$	25,513		$	29,326		$	(19,785	)	$	30,837		$	65,897		$	611		$	66,508


	Prudential Financial, Inc. Equity																							Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)			Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)		Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2018	$	6	$	24,828		$	30,470		$	(17,593	)	$	10,906		$	48,617		$	414		$	49,031		$	6	$	24,828		$	30,470		$	(17,593	)	$	10,906	$	48,617		$	414		$	49,031
Cumulative effect of adoption of accounting changes~~(1)~~(2)						(21		)				7			(14		)				(14		)						(21		)				7		(14		)				(14		)
Common Stock acquired									(500		)				(500		)				(500		)									(500		)			(500		)				(500		)
Contributions from noncontrolling interests																		26			26																			26			26
Distributions to noncontrolling interests																		(4		)	(4		)																	(4		)	(4		)
Stock-based compensation programs			(46		)				131						85						85					(46		)				131					85						85
Dividends declared on Common Stock						(415		)							(415		)				(415		)						(415		)						(415		)				(415		)
Comprehensive income:
Net income (loss)						932									932			5			937								932								932			5			937
Other comprehensive income (loss), net of tax												6,305			6,305			(1		)	6,304														6,305		6,305			(1		)	6,304
Total comprehensive income (loss)															7,237			4			7,241																7,237			4			7,241
Balance, March 31, 2019	6		24,782			30,966			(17,962		)	17,218			55,010			440			55,450			6		24,782			30,966			(17,962		)	17,218		55,010			440			55,450
Common Stock acquired									(500		)				(500		)				(500		)									(500		)			(500		)				(500		)
Contributions from noncontrolling interests																		25			25																			25			25
Distributions to noncontrolling interests																		(16		)	(16		)																	(16		)	(16		)
Consolidations (deconsolidations) of noncontrolling interests																		8			8																			8			8
Stock-based compensation programs			43						46						89						89					43						46					89						89
Dividends declared on Common Stock						(411		)							(411		)				(411		)						(411		)						(411		)				(411		)
Comprehensive income:
Net income (loss)						708									708			30			738								708								708			30			738
Other comprehensive income (loss), net of tax												6,764			6,764			6			6,770														6,764		6,764			6			6,770
Total comprehensive income (loss)															7,472			36			7,508																7,472			36			7,508
Balance, June 30, 2019	$	6	$	24,825		$	31,263		$	(18,416	)	$	23,982		$	61,660		$	493		$	62,153		$	6	$	24,825		$	31,263		$	(18,416	)	$	23,982	$	61,660		$	493		$	62,153

	Prudential Financial, Inc. Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)			Total Prudential Financial, Inc. Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2017	$	6	$	24,769		$	28,671		$	(16,284	)	$	17,074		$	54,236		$	275		$	54,511
Cumulative effect of adoption of ASU 2016-01						904						(847		)	57						57
Cumulative effect of adoption of ASU 2018-02						(1,653		)				1,653			0						0
Common Stock acquired									(375		)				(375		)				(375		)
Contributions from noncontrolling interests																		61			61
Distributions to noncontrolling interests																		(5		)	(5		)
Stock-based compensation programs			(47		)				102						55						55
Dividends declared on Common Stock						(387		)							(387		)				(387		)
Comprehensive income:
Net income (loss)						1,363									1,363			1			1,364
Other comprehensive income (loss), net of tax												(3,119		)	(3,119		)	13			(3,106		)
Total comprehensive income (loss)															(1,756		)	14			(1,742		)
Balance, March 31, 2018	6		24,722			28,898			(16,557		)	14,761			51,830			345			52,175
Common Stock acquired									(375		)				(375		)				(375		)
Contributions from noncontrolling interests																		38			38
Distributions to noncontrolling interests																		(16		)	(16		)
Stock-based compensation programs			41						27						68						68
Dividends declared on Common Stock						(382		)							(382		)				(382		)
Comprehensive income:
Net income (loss)						197									197			3			200
Other comprehensive income (loss), net of tax												(3,106		)	(3,106		)	(10		)	(3,116		)
Total comprehensive income (loss)															(2,909		)	(7		)	(2,916		)
Balance, June 30, 2018	$	6	$	24,763		$	28,713		$	(16,905	)	$	11,655		$	48,232		$	360		$	48,592

__________


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


(2)	Includes the impact from the adoption of ASU 2017-08 and 2017-12. See Note 2.2 to the Consolidated 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 Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 (in millions)


	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	1,675		$	1,564		$	(2,675	)	$	1,675
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses, net	1,102			(1,110		)	2,085			1,102
Policy charges and fee income	(1,483		)	(1,058		)	(1,366		)	(1,483		)
Interest credited to policyholders’ account balances	2,623			1,444			2,224			2,623
Depreciation and amortization	(89		)	48			383			(89		)
(Gains) losses on assets supporting experience-rated contractholder liabilities, net	(741		)	596			(142		)	(741		)
Change in:
Deferred policy acquisition costs	(258		)	(203		)	(120		)	(258		)
Future policy benefits and other insurance liabilities	5,603			5,762			5,186			5,603
Income taxes	(382		)	(96		)	(4		)	(382		)
Derivatives, net	2,010			(1,041		)	10,629			2,010
Other, net	(1,736		)	769			(2,721		)	(1,736		)
Cash flows from (used in) operating activities	8,324			6,675			13,479			8,324
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale	25,681			30,599			20,664			25,681
Fixed maturities, held-to-maturity	35			56			58			35
Fixed maturities, trading	187			410			276			187
Assets supporting experience-rated contractholder liabilities	9,014			9,650			14,015			9,014
Equity securities	1,377			1,965			1,274			1,377
Commercial mortgage and other loans	2,885			2,572			2,639			2,885
Policy loans	1,154			1,176			1,291			1,154
Other invested assets	724			908			939			724
Short-term investments	16,682			18,190			21,107			16,682
Payments for the purchase/origination of:
Fixed maturities, available-for-sale	(32,847		)	(34,922		)	(26,815		)	(32,847		)
Fixed maturities, trading	(570		)	(483		)	(446		)	(570		)
Assets supporting experience-rated contractholder liabilities	(8,813		)	(9,560		)	(15,453		)	(8,813		)
Equity securities	(1,376		)	(1,826		)	(1,370		)	(1,376		)
Commercial mortgage and other loans	(4,352		)	(5,525		)	(2,463		)	(4,352		)
Policy loans	(945		)	(1,002		)	(1,288		)	(945		)
Other invested assets	(1,011		)	(1,154		)	(1,435		)	(1,011		)
Short-term investments	(16,278		)	(17,138		)	(27,076		)	(16,278		)
Derivatives, net	638			(271		)	841			638
Other, net	(222		)	(134		)	(107		)	(222		)
Cash flows from (used in) investing activities	(8,037		)	(6,489		)	(13,349		)	(8,037		)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits	13,280			14,826			25,452			13,280
Policyholders’ account withdrawals	(13,045		)	(14,076		)	(20,306		)	(13,045		)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities	97			1,094			41			97
Cash dividends paid on Common Stock	(827		)	(769		)	(886		)	(827		)
Net change in financing arrangements (maturities 90 days or less)	166			(103		)	306			166
Common Stock acquired	(983		)	(739		)	(500		)	(983		)
Common Stock reissued for exercise of stock options	75			74			73			75
Proceeds from the issuance of debt (maturities longer than 90 days)	1,439			1,194			1,563			1,439
Repayments of debt (maturities longer than 90 days)	(924		)	(848		)	(791		)	(924		)
Proceeds from notes issued by consolidated VIEs	925			0			0			925
Repayments of notes issued by consolidated VIEs	(638		)	0			(18		)	(638		)
Other, net	196			(244		)	(247		)	196
Cash flows from (used in) financing activities	(239		)	409			4,687			(239		)
Effect of foreign exchange rate changes on cash balances	27			(71		)	6			27
NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS	75			524
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS							4,823			75
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF YEAR	15,495			14,536			16,474			15,495
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	15,570		$	15,060		$	21,297		$	15,570
NON-CASH TRANSACTIONS DURING THE PERIOD
Treasury Stock shares issued for stock-based compensation programs	$	168		$	132		$	144		$	168
Significant Pension Risk Transfer transactions:
Assets received, excluding cash and cash equivalents	$	445		$	0		$	238		$	445
Liabilities assumed	447			977			505			447
Net cash received	$	2		$	977		$	267		$	2
RECONCILIATION TO THE UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Cash and cash equivalents	$	15,421		$	14,918		$	21,149		$	15,421
Restricted cash and restricted cash equivalents (included in “Other assets”)	149			142			148			149
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	15,570		$	15,060		$	21,297		$	15,570

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

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

The Company’s principal operations are comprised of ~~five divisions, which together encompass seven segments,~~PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the U.S. Workplace Solutions, U.S. Individual Solutions, and ~~its~~Assurance IQ divisions), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. ~~The PGIM division is comprised of the PGIM segment, the global investment management businesses of the Company.~~ The U.S. Workplace Solutions division consists of the Retirement and Group Insurance ~~segments. The~~businesses, the U.S. Individual Solutions division consists of the Individual Annuities and Individual Life ~~segments. The Company also collectively refers to the U.S. Workplace Solutions division~~businesses, and the ~~U.S. Individual Solutions~~Assurance IQ division ~~as the U.S. Financial Wellness businesses. The International Insurance division is comprised~~consists of the ~~International Insurance segment, and~~Assurance IQ business. In October 2019, the ~~Closed Block division is comprised~~Company completed the acquisition of ~~the Closed Block segment.~~Assurance IQ, LLC (“Assurance IQ”), a leading consumer solutions platform that offers a range of solutions that help meet consumers’ financial needs. The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included in ~~the Company’s~~ Corporate and Other operations. Divested and Run-off Businesses are comprised of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind down status that do not qualify for “discontinued operations” accounting treatment under generally accepted accounting principles in the United States of America (“U.S. GAAP”).Other. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments and businesses that have been or will be divested or placed in run-off, excluding the Closed Block division.

Basis of Presentation

The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. ~~GAAP~~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.~~ The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner and variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. See Note 4 for ~~more~~additional information on the Company’s consolidated variable interest entities. 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 Consolidated 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; policyholders’ account balances related to the fair value of embedded derivative instruments associated with the index-linked features of certain universal life and fixed annuity products; value of business acquired (“VOBA”) and its amortization; amortization of deferred sales inducements (“DSI”); measurement of goodwill and any related impairment; 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; pension and other postretirement benefits; 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.

~~Reclassifications~~COVID-19

~~Certain amounts~~Beginning in ~~prior periods have been reclassified~~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 ~~conform~~adversely impact, our results of operations, financial condition and cash flows. Due to the ~~current period presentation.~~

~~2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS~~

~~Recent Accounting Pronouncements~~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

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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; 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, VOBA, etc.); and iii) goodwill: the macroeconomic environment may also result in the need to recognize an impairment of goodwill which could negatively impact our results of operations and financial condition. We cannot predict what impact the COVID-19 pandemic will ultimately have on the global economy, markets or our businesses.

Business Held for Sale

On April 10, 2020, Prudential International Insurance Holdings, Ltd. (“PIIH”), a subsidiary of Prudential Financial, entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with KB Financial Group Inc. (the “Buyer”), pursuant to which PIIH has agreed to sell to the Buyer all of the issued and outstanding capital stock of The Prudential Life Insurance Company of Korea, Ltd. (“POK”), the Company’s Korean insurance business, for cash consideration of approximately 2.3 trillion Korean Won, equal to approximately U.S. $1.9 billion at then current exchange rates, to be paid at closing.

The Share Purchase Agreement contains customary warranties and covenants of PIIH and the Buyer. The Company expects the transaction to close by the end of 2020, subject to regulatory approval and the satisfaction of customary closing conditions.

Beginning with the second quarter of 2020, the Company reported its investment in POK as “held for sale” and recognized an after-tax charge to earnings, primarily within “Other income”, of approximately $700 million to adjust the carrying value of POK to the fair market value as reflected in the purchase price. The after-tax charge excludes the impact of currency hedging transactions that the Company expects to settle at transaction closing, the fair value of which was approximately $40 million in assets at June 30, 2020. The ultimate after-tax loss, as well as the settlement value of the hedging transactions, will be based on balances at the closing date and could vary materially from the charge recorded in the second quarter. In addition, upon closing of the transaction, the Company expects to recognize an approximately $100 million tax expense, with an offsetting benefit to accumulated other comprehensive income (“AOCI”), related to the release of legacy tax balances resulting from prior year changes in tax law.

The Company intends to use the proceeds of the transaction for general corporate purposes.

The table below reflects the carrying amounts of assets and liabilities held for sale related to the pending sale of POK.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	June 30, 2020
	(in millions)(1)
Assets held for sale:
Fixed maturities, available-for-sale	$	14,402
Equity securities	264
Commercial mortgage and other loans	3
Policy loans	777
Other invested assets	109
Short-term investments	69
Cash and cash equivalents	218
Accrued investment income	134
Deferred policy acquisition costs	1,178
Other assets(2)	254
Separate account assets	3,427
Total assets held for sale	$	20,835
Liabilities held for sale:
Future policy benefits	$	10,527
Policyholders’ account balances	1,357
Policyholders’ dividends	26
Income taxes	989
Other liabilities(2)	815
Separate account liabilities	3,427
Total liabilities held for sale	$	17,141

_________


(1)	These amounts held for sale are included, where applicable, in the remaining Notes to the Unaudited Interim Consolidated Financial Statements and are presented within the line items noted in this table.


(2)	Includes POK’s lower of cost or fair market value adjustment.

Reclassifications

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

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 June 30, 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 ~~2016-02~~2016-13

~~Effective January 1, 2019, the~~The Company adopted ASU ~~2016-02, Leases (Topic 842),~~2016-13, and related ASUs, effective January 1, 2020 using the ~~optional transition~~modified retrospective method ~~with~~for certain financial assets carried at amortized cost and certain off-balance sheet exposures. The modified retrospective method results in a ~~cumulative-effect~~cumulative effect adjustment ~~recorded as~~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, fixed maturities held-to-maturity, 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 ~~beginning~~reported amounts. The standard also modifies the OTTI guidance for fixed maturities, available-for-sale requiring the use of an allowance rather than a direct write-down of the ~~period~~investment.

Table of ~~adoption.~~Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The impacts of this ASU on the Company’s Consolidated Financial Statements primarily include (1) A Cumulative Effect Adjustment Upon Adoption; (2) Changes to the Presentation of the Consolidated Statements of Financial Position and Consolidated 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 Consolidated 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



Summary of Transition Impact on the Consolidated Statements of Financial Position
Upon Adoption on January 1, 2020
	Increase/(Decrease)
	(in millions)
Fixed maturities, held-to-maturity	$	(9	)
Commercial mortgage and other loans	(115		)
Other invested assets	(1		)
Deferred policy acquisition costs	9
Other assets	(6		)
Total assets	$	(122	)

Policyholders' dividends	$	(14	)
Other liabilities	21
Income taxes	(30		)
Total liabilities	(23		)

Retained earnings	(99		)
Total equity	(99		)
Total liabilities and equity	$	(122	)

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 Consolidated Statements of Financial Position and Consolidated Statements of Operations

The allowance for credit losses is presented parenthetically on relevant line items in the Consolidated Statements of Financial Position. In the Consolidated 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 following changes in our accounting policies resulting from the adoption of ASU ~~substantially~~2016-13.

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 ~~a lessee’s accounting~~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

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

AA, the effective yield is adjusted prospectively for ~~leases~~any changes in the estimated timing and ~~requires~~amount of cash flows unless the ~~recording, on balance sheet, using a dual lease accounting model,~~investment is impaired or purchased with credit deterioration. 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 ~~a “right-of-use” asset~~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 ~~lease liability. Leases are~~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 ~~classified~~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 at the date of acquisition. The Company may use the estimated fair value of collateral, if any, as ~~either operating or finance leases. Under~~a proxy for the ~~standard,~~net present value if it believes that the security is dependent on the liquidation of collateral for ~~operating leases, lessees recognize total lease expenses using a straight-line method~~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 ~~finance leases are treated as~~ the ~~purchase of an asset on a financing basis. For lessors,~~net present value and is limited to the ~~standard modifies classification criteria~~difference between amortized cost and ~~accounting for sales-type and direct financing leases and requires a lessor to derecognize the carrying~~fair value of the ~~leased asset that~~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.

Fixed maturities, held-to-maturity

Fixed maturities, held-to-maturity are reported in the Statements of Financial Position at amortized cost net of the CECL allowance. The CECL allowance is ~~considered~~generally determined based on probability of default and loss given default assumptions according to ~~have been transferred~~sector, credit quality and remaining time to maturity. Additions to or releases of the allowance are reported in “Realized investment gains (losses), net.”

Prior to the adoption of this standard, fixed maturities, held-to-maturity deemed to be OTTI were written down to the net present value of expected cash flows. Any difference between the fair value and the net present value of the debt security at the impairment measurement date was recorded in “Other comprehensive income (loss).”

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 timing and amount of 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 regarding the underlying collateral, including default rates and changes in value. These assumptions can significantly impact income recognition and the amount of impairment 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 or purchased with credit deterioration. 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.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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 ~~lessee and record a lease receivable and residual asset (“receivable and residual” approach).~~ CECL allowance.

The ~~standard also eliminates~~CECL allowance represents the ~~leveraged lease accounting model for lessors and real estate specific provisions (i.e., those related to sale-leaseback transactions); it does allow, however, a grandfathering~~Company’s best estimate of expected credit losses over the remaining life of the ~~leveraged lease accounting model~~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 ~~those existing leases that are being accounted for using such model.~~commercial mortgage loans, agricultural mortgage loans, and other collateralized and uncollateralized loans.

~~In addition,~~

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

Key inputs to the CECL model include unpaid principal balances, internal credit ratings, annual expected loss factors, average lives of ~~practical expedients permitted under~~ the ~~transition guidance within~~loans adjusted for prepayment considerations, current and historical interest rate assumptions, and other factors influencing the ~~standard which eliminated~~Company’s view of the ~~need to reassess: (a)~~current stage of the economic cycle and future economic conditions. Subjective considerations include a review of whether ~~any existing contracts~~historical loss experience is representative of current market conditions and the Company’s view of the credit cycle. Model assumptions and factors are ~~or contain, leases; (b) the lease classification for any existing leases (i.e., all existing lessee arrangements that were classified~~reviewed and updated as operating leases before are now classified as operating leases, and all existing lessee arrangements that were classified as capital leases before are now classified as finance leases); and (c) initial direct costs for any existing leases. The Company did not elect the practical expedient, which may be applied separately, to use hindsightappropriate. Information about certain key inputs is detailed below.

Key factors in determining the ~~lease~~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 ~~assessing impairment~~calculating these ratios are developed as part of the Company’s ~~right-of-use assets.~~

~~Adoption~~periodic review of the ~~standard resulted~~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 ~~recording of right-of-use assets~~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 ~~lease liabilities related to existing operating leases of approximately $600 million as of January 1, 2019. Adoption~~a direct write-down of the ~~standard also resulted~~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 ~~additional required disclosures. See Note 7 for additional information.~~value.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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.

As further described in Note 14, the Company’s PGIM business provides commercial mortgage origination, underwriting and servicing for certain government sponsored entities (“GSEs”). The Company has agreed to indemnify the GSEs for a portion of the credit risk associated with certain of the mortgages it services. Management has established a CECL allowance that factors in historical loss information, current conditions and reasonable and supportable forecasts. The allowance also considers the remaining lives of the loans subject to the indemnification. The CECL allowance is included in “Other liabilities” and changes in the CECL allowance are reported in “Realized investment gains (losses), net.” Prior to the adoption of this standard, a credit loss allowance was not required.

Reinsurance

Reinsurance recoverables are reported on the Statements of Financial Position in “Other Assets” net of the CECL allowance. The CECL allowance considers the credit quality of the reinsurance counterparty and is generally determined based on the probability of default and loss given default assumptions, after considering any applicable collateral arrangements. Additions to or releases of the allowance are reported in “Policyholders’ benefits.”

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.

Trade Receivables

Trade receivables related to Assurance IQ are reported in the Statements of Financial Position in “Other assets” net of the CECL allowance. The CECL allowance considers the credit quality of the counterparties and is generally determined based on probability of default and loss given default assumptions. Additions to or releases of the allowance are reported in “General and administrative expenses.” Prior to the adoption of this standard, the reserve was limited to an allowance for doubtful accounts.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Other ~~ASU~~ASUs adopted during the six months ended June 30, ~~2019~~2020

ASU issued but not yet adopted as of June 30, ~~2019~~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~~ Consolidated Financial Statements and Notes to the Consolidated 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~~As a result of the COVID-19 pandemic, the FASB voted in June 2020 to tentatively defer for an additional one year the current effective date isof ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. Subsequently in July 2020, the FASB issued a proposed ASU with comment deadline of August 24, 2020 to obtain additional feedback on the tentative decisions, which are expected into be finalized during the third quarter of ~~2019. This~~2020. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would also apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. Outlined below are four key areas of change, although there are other less significant 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.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated 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 Consolidated 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 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”).~~ 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 deferred acquisition costs (DAC) and other balances	Requires DAC and other balances, such as unearned revenue reserves and ~~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 Consolidated 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”) which is 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~~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 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.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated 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, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	31,731	$	11,309	$	19	$	0	$	43,021
Obligations of U.S. states and their political subdivisions	10,387		2,012		1		0		12,398
Foreign government bonds	98,357		18,657		206		38		116,770
U.S. public corporate securities	91,777		15,518		627		51		106,617
U.S. private corporate securities(1)	35,145		3,281		215		52		38,159
Foreign public corporate securities	26,070		3,328		248		32		29,118
Foreign private corporate securities	28,167		1,145		925		64		28,323
Asset-backed securities(2)	13,989		152		205		0		13,936
Commercial mortgage-backed securities	15,089		1,181		7		1		16,262
Residential mortgage-backed securities(3)	3,100		241		1		0		3,340
Total fixed maturities, available-for-sale(1)	$	353,812	$	56,824	$	2,454	$	238	$	407,944



	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses		Amortized Cost, Net of Allowance
	(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	896	$	261	$	0	$	1,157	$	0	$	896
Foreign public corporate securities	625		61		0		686		9		616
Foreign private corporate securities	83		2		0		85		0		83
Residential mortgage-backed securities(3)	280		23		0		303		0		280
Total fixed maturities, held-to-maturity(4)	$	1,884	$	347	$	0	$	2,231	$	9	$	1,875

__________


(1)	Excludes notes with amortized cost of $6,466 million(fair value, $6,466 million), which have been offset with the associated debt under a netting agreement.


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


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


(4)	Excludes notes with amortized cost of $4,998 million (fair value, $5,603 million), which have been offset with the associated debt under a netting agreement.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2019											December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(4)			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI(4)
	(in millions)											(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	29,571	$	4,973	$	89	$	34,455	$	0		$	30,625	$	5,195	$	161	$	35,659	$	0
Obligations of U.S. states and their political subdivisions	9,889		1,314		1		11,202		0			10,068		1,437		8		11,497		0
Foreign government bonds	98,745		22,407		70		121,082		0			98,356		20,761		63		119,054		(34		)
U.S. public corporate securities	85,282		8,653		417		93,518		0			87,566		11,030		257		98,339		(6		)
U.S. private corporate securities(1)	33,043		2,121		186		34,978		0			34,410		2,243		120		36,533		0
Foreign public corporate securities	27,450		2,980		119		30,311		(3		)	26,841		3,054		70		29,825		(1		)
Foreign private corporate securities	26,383		1,057		672		26,768		0			27,619		1,201		580		28,240		0
Asset-backed securities(2)	12,602		174		41		12,735		(90		)	13,067		147		40		13,174		(77		)
Commercial mortgage-backed securities	14,556		607		9		15,154		0			14,978		610		14		15,574		0
Residential mortgage-backed securities(3)	3,043		148		4		3,187		(1		)	3,044		159		2		3,201		(1		)
Total fixed maturities, available-for-sale(1)	$	340,564	$	44,434	$	1,608	$	383,390	$	(94	)	$	346,574	$	45,837	$	1,315	$	391,096	$	(119	)


	June 30, 2019								December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)								(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds	$	900	$	303	$	0	$	1,203	$	891	$	282	$	0	$	1,173
Foreign public corporate securities	671		70		0		741		649		64		0		713
Foreign private corporate securities~~(5)~~	96		3		0		99		83		2		0		85
Residential mortgage-backed securities(3)	342		25		0		367		310		21		0		331
Total fixed maturities, held-to-maturity(5)	$	2,009	$	401	$	0	$	2,410	$	1,933	$	369	$	0	$	2,302

__________


(1)	Excludes notes with amortized cost of ~~$4,356~~$4,751 million (fair value, ~~$4,356~~$4,757 million), which have been offset with the associated ~~payables~~debt under a netting agreement.


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


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


(4)	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes ~~$372~~$362 million of net unrealized gains on impaired available-for-sale securities and $1 million of net unrealized gains on impaired held-to-maturity securities relating to changes in the value of such securities subsequent to the impairment measurement date.


(5)	Excludes notes with amortized cost of ~~$4,879~~$4,998 million (fair value, ~~$5,190~~$5,401 million), which have been offset with the associated ~~payables under a netting agreement.~~

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

December 31, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

OTTI
in AOCI(4)
(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 28,242
$ 2,994
$ 642
$ 30,594
$ 0
Obligations of U.S. states and their political subdivisions 9,880
676
63
10,493
0
Foreign government bonds 96,710
16,714
314
113,110
0
U.S. public corporate securities 82,257
3,912
2,754
83,415
(2 )
U.S. private corporate securities(1) 32,450
1,151
581
33,020
0
Foreign public corporate securities 27,671
2,061
531
29,201
(3 )
Foreign private corporate securities 25,314
434
1,217
24,531
0
Asset-backed securities(2) 12,888
162
77
12,973
(160 )
Commercial mortgage-backed securities 13,396
99
180
13,315
0
Residential mortgage-backed securities(3) 2,937
99
32
3,004
(1 )
Total fixed maturities, available-for-sale(1) $ 331,745
$ 28,302
$ 6,391
$ 353,656
$ (166 )

December 31, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
(in millions)
Fixed maturities, held-to-maturity:
Foreign government bonds $ 885
$ 269
$ 0
$ 1,154
Foreign public corporate securities 668
64
0
732
Foreign private corporate securities(5) 95
3
0
98
Residential mortgage-backed securities(3) 365
23
0
388
Total fixed maturities, held-to-maturity(5) $ 2,013
$ 359
$ 0
$ 2,372

~~__________~~


~~(1)~~	~~Excludes notes with amortized cost of $4,216 million (fair value, $4,216 million), which have been offset with the associated payables under a netting agreement.~~


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


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


~~(4)~~	Represents the amount of unrealized losses remaining in AOCI, from the impairment measurement date. Amount excludes $356 million of net unrealized gains on impaired available-for-sale securities and $1 million of net unrealized gains on impaired held-to-maturity securities relating to changes in the value of such securities subsequent to the impairment measurement date.


~~(5)~~	~~Excludes notes with amortized cost of $4,879 million (fair value, $4,879 million), which have been offset with the associated payables~~debt under a netting agreement.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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												June 30, 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 millions)												(in millions)
Fixed maturities(1):
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	370	$	0	$	2,153	$	89	$	2,523	$	89	$	950	$	22	$	0	$	0	$	950	$	22
Obligations of U.S. states and their political subdivisions	2		0		49		1		51		1		47		1		0		0		47		1
Foreign government bonds	393		56		503		14		896		70		4,589		192		31		3		4,620		195
U.S. public corporate securities	2,895		88		6,607		329		9,502		417		6,595		372		1,504		236		8,099		608
U.S. private corporate securities	1,124		67		2,816		119		3,940		186		2,393		118		1,017		97		3,410		215
Foreign public corporate securities	595		32		1,124		87		1,719		119		2,875		169		400		60		3,275		229
Foreign private corporate securities	1,663		28		7,243		644		8,906		672		5,775		245		5,223		675		10,998		920
Asset-backed securities	2,768		18		4,035		23		6,803		41		6,741		120		3,510		85		10,251		205
Commercial mortgage-backed securities	20		0		852		9		872		9		105		4		75		3		180		7
Residential mortgage-backed securities	137		0		336		4		473		4		24		0		2		0		26		0
Total	$	9,967	$	289	$	25,718	$	1,319	$	35,685	$	1,608
Total fixed maturities, available-for-sale													$	30,094	$	1,243	$	11,762	$	1,159	$	41,856	$	2,402

~~__________~~


~~(1)~~	~~As of June 30, 2019, there were no securities classified as held-to-maturity in a gross unrealized loss position.~~

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, 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 millions)
Fixed maturities(1):
U.S. Treasury securities and obligations of U.S. government authorities and agencies $ 3,007
$ 67
$ 6,986
$ 575
$ 9,993
$ 642
Obligations of U.S. states and their political subdivisions 1,725
25
999
38
2,724
63
Foreign government bonds 2,369
136
3,515
178
5,884
314
U.S. public corporate securities 34,064
1,570
13,245
1,184
47,309
2,754
U.S. private corporate securities 8,923
225
7,985
356
16,908
581
Foreign public corporate securities 7,363
308
2,928
223
10,291
531
Foreign private corporate securities 12,218
692
4,468
525
16,686
1,217
Asset-backed securities 8,255
70
669
7
8,924
77
Commercial mortgage-backed securities 1,781
14
4,733
166
6,514
180
Residential mortgage-backed securities 194
1
1,042
31
1,236
32
Total $ 79,899
$ 3,108
$ 46,570
$ 3,283
$ 126,469
$ 6,391

~~__________~~


~~(1)~~	~~As of December 31, 2018, there was $13 million of fair value and less than $1 million of gross unrealized losses, which are not reflected in AOCI, on securities classified as held-to-maturity.~~



	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 millions)
Fixed maturities(1):
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	4,950	$	161	$	267	$	0	$	5,217	$	161
Obligations of U.S. states and their political subdivisions	273		8		0		0		273		8
Foreign government bonds	2,332		60		126		3		2,458		63
U.S. public corporate securities	3,944		85		2,203		172		6,147		257
U.S. private corporate securities	2,283		44		1,563		76		3,846		120
Foreign public corporate securities	1,271		23		496		47		1,767		70
Foreign private corporate securities	1,466		33		5,666		547		7,132		580
Asset-backed securities	3,979		12		4,433		28		8,412		40
Commercial mortgage-backed securities	1,193		10		164		4		1,357		14
Residential mortgage-backed securities	207		1		88		1		295		2
Total	$	21,898	$	437	$	15,006	$	878	$	36,904	$	1,315

1317

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

__________


(1)	As of December 31, 2019, there were no securities classified as held-to-maturity in a gross unrealized loss position.

As of June 30, ~~2019 and December 31, 2018,~~2020, the gross unrealized losses on fixed maturity available-for-sale securities without an allowance were composed of ~~$1,096~~$1,450 million ~~and $5,391 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 ~~$512~~$952 million ~~and $1,000 million, respectively,~~ related to other than high or highest quality securities based on NAIC or equivalent rating. As of June 30, ~~2019,~~2020, the ~~$1,319~~$1,159 million of gross unrealized losses of twelve months or more were concentrated in the Company’s corporate securities within the energy, finance and consumer non-cyclical ~~energy and utility~~ sectors.

As of December 31, ~~2018,~~2019, the ~~$3,283~~gross unrealized losses on fixed maturity securities were composed of $973 million related to “1” highest quality or “2” high quality securities based on the NAIC or equivalent rating and $342 million related to other than high or highest quality securities based on NAIC or equivalent rating. As of December 31, 2019, the $878 million of gross unrealized losses of twelve months or more were concentrated in ~~U.S. government bonds and in~~ the Company’s corporate securities within the ~~utility,~~energy, consumer non-cyclical and finance sectors.

In accordance with its policy described in Note 2, ~~to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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 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,~~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.

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


	June 30, 2019								June 30, 2020
	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost, Net of Allowance		Fair Value
	(in millions)								(in millions)
Fixed maturities:
Due in one year or less	$	16,207	$	16,756	$	60	$	61	$	17,494	$	18,078	$	114	$	116
Due after one year through five years	50,780		54,131		114		117		51,138		54,309		0		0
Due after five years through ten years	66,712		72,924		596		666		67,575		75,812		588		659
Due after ten years(1)	176,664		208,503		897		1,199		185,427		226,207		893		1,153
Asset-backed securities	12,602		12,735		0		0		13,989		13,936		0		0
Commercial mortgage-backed securities	14,556		15,154		0		0		15,089		16,262		0		0
Residential mortgage-backed securities	3,043		3,187		342		367		3,100		3,340		280		303
Total	$	340,564	$	383,390	$	2,009	$	2,410	$	353,812	$	407,944	$	1,875	$	2,231

__________


(1)	Excludes available-for-sale notes with amortized cost of ~~$4,356~~$6,466 million ~~(fair~~(fair value, ~~$4,356~~$6,466 million) and held-to-maturity notes with amortized cost of ~~$4,879~~$4,998 million (fair value, ~~$5,190~~$5,603 million), which have been offset with the associated ~~payables~~debt under a netting agreement.

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

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

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1) $ 6,659
$ 9,489
$ 16,821
$ 19,074
Proceeds from maturities/prepayments 4,704
6,553
9,192
11,779
Gross investment gains from sales and maturities 228
410
711
784
Gross investment losses from sales and maturities (95 ) (187 ) (283 ) (444 )
OTTI recognized in earnings(2) (64 ) (58 ) (99 ) (97 )
Fixed maturities, held-to-maturity:
Proceeds from maturities/prepayments(3) $ 23
$ 23
$ 37
$ 59

1418

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Fixed maturities, available-for-sale:
Proceeds from sales(1)	$	5,217		$	6,659		$	10,370		$	16,821
Proceeds from maturities/prepayments	5,539			4,704			10,422			9,192
Gross investment gains from sales and maturities	405			228			873			711
Gross investment losses from sales and maturities	(149		)	(95		)	(210		)	(283		)
OTTI recognized in earnings(2)	N/A			(64		)	N/A			(99		)
Write-downs recognized in earnings(3)	(64		)	N/A			(155		)	N/A
(Addition to) release of allowance for credit losses(4)	(80		)	N/A			(238		)	N/A
Fixed maturities, held-to-maturity:
Proceeds from maturities/prepayments(5)	$	22		$	23		$	63		$	37
(Addition to) release of allowance for credit losses(4)	0			N/A			0			N/A

__________


(1)	Includes ~~$332~~$128 million and ~~$254~~$332 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.


(2)	~~Excludes~~For the three and six months ended June 30, 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 impairment.


(3)	For the three and six months ended June 30, 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 and held-to-maturity fixed maturity securities are recorded within the “allowance for credit losses.”


(5)	Includes $2$5 million and $3$2 million of non-cash related proceeds due to the timing of trade settlements for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

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

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in millions)
Credit loss impairments:
Balance, beginning of period $ 149
$ 203
$ 140
$ 319
New credit loss impairments 4
0
20
0
Additional credit loss impairments on securities previously impaired 8
0
8
0
Increases due to the passage of time on previously recorded credit losses 2
4
3
6
Reductions for securities which matured, paid down, prepaid or were sold during the period (20 ) (42 ) (27 ) (155 )
Reductions for securities impaired to fair value during the period(1) 0
0
0
(4 )
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected (1 ) (2 ) (2 ) (3 )
Balance, end of period $ 142
$ 163
$ 142
$ 163



	June 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities			Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, available-for-sale:
Balance, beginning of year	$	0	$	0	$	0		$	0	$	0	$	0	$	0
Additions to allowance for credit losses not previously recorded	0		38		205			0		1		0		244
Reductions for securities sold during the period	0		0		(28		)	0		0		0		(28		)
Additions/reductions on securities with previous allowance	0		0		22			0		0		0		22
Balance, end of period	$	0	$	38	$	199		$	0	$	1	$	0	$	238

~~__________~~


~~(1)~~	Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	June 30, 2020
	U.S. Treasury Securities and Obligations of U.S. States		Foreign Government Bonds		U.S. and Foreign Corporate Securities		Asset-Backed Securities		Commercial Mortgage-Backed Securities		Residential Mortgage-Backed Securities		Total
	(in millions)
Fixed maturities, held-to-maturity:
Balance, beginning of year	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Cumulative effect of adoption of ASU 2016-13	0		0		9		0		0		0		9
Balance, end of period	$	0	$	0	$	9	$	0	$	0	$	0	$	9

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

As of June 30, 2020, the allowance for credit losses on available-for-sale securities was primarily related to adverse projected cash flows on public and private corporate securities.

The Company did not have any fixed maturity securities purchased with credit deterioration, as of June 30, 2020.

Assets Supporting Experience-Rated Contractholder Liabilities

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


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value		Amortized Cost or Cost		Fair Value
	(in millions)								(in millions)
Short-term investments and cash equivalents	$	371	$	371	$	215	$	215	$	1,234	$	1,234	$	277	$	277
Fixed maturities:
Corporate securities	13,257		13,630		13,258		13,119		13,492		14,190		13,143		13,603
Commercial mortgage-backed securities	2,239		2,297		2,346		2,324		1,832		1,921		1,845		1,896
Residential mortgage-backed securities(1)	1,002		1,014		828		811		1,142		1,200		1,134		1,158
Asset-backed securities(2)	1,595		1,626		1,649		1,665		1,762		1,772		1,639		1,662
Foreign government bonds	852		870		1,087		1,083		803		808		802		814
U.S. government authorities and agencies and obligations of U.S. states	351		402		538		577		354		437		341		397
Total fixed maturities(3)	19,296		19,839		19,706		19,579		19,385		20,328		18,904		19,530
Equity securities	1,452		1,633		1,378		1,460		1,533		1,683		1,465		1,790
Total assets supporting experience-rated contractholder liabilities(4)	$	21,119	$	21,843	$	21,299	$	21,254	$	22,152	$	23,245	$	20,646	$	21,597

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

__________


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


(2)	Includes collateralized loan obligations, auto loans, education loans, ~~credit-tranched securities collateralized by sub-prime mortgages~~home equity and other asset types. Collateralized loan obligations at fair value were ~~$1,025~~$1,141 million and ~~$1,028~~$1,060 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, all of which were rated AAA.


(3)	As a percentage of amortized cost, 93% and 94% of the portfolio was considered high or highest quality based on NAIC or equivalent ratings, as of ~~both~~ June 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively.


(4)	As a percentage of amortized cost, 78% and 77% of the portfolio consisted of public securities as of ~~both~~ June 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively.

The net change in unrealized gains (losses) from assets supporting experience-rated contractholder liabilities still held at period end, recorded within “Other income (loss),” was ~~$300~~$984 million and ~~$(198)~~$300 million during the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$769~~$142 million and ~~$(596)~~$769 million during the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Equity Securities

The net change in unrealized gains (losses) from equity securities still held at period end, recorded within “Other income (loss),” was ~~$51~~$825 million and ~~$(80)~~$51 million during the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$581~~$(656) million and ~~$(271)~~$581 million during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Concentrations of Financial Instruments

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

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


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)								(in millions)
Investments in Japanese government and government agency securities:
Fixed maturities, available-for-sale	$	73,570	$	90,438	$	71,952	$	84,461	$	74,765	$	87,747	$	74,118	$	89,546
Fixed maturities, held-to-maturity	878		1,173		864		1,127		874		1,127		869		1,143
Fixed maturities, trading	23		23		22		22		23		22		23		23
Assets supporting experience-rated contractholder liabilities	664		682		691		697		647		652		653		664
Total	$	75,135	$	92,316	$	73,529	$	86,307	$	76,309	$	89,548	$	75,663	$	91,376


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)								(in millions)
Investments in South Korean government and government agency securities:
Fixed maturities, available-for-sale	$	10,364	$	13,098	$	10,339	$	12,586	$	10,783	$	13,402	$	10,823	$	13,322
Fixed maturities, held-to-maturity	0		0		0		0
Fixed maturities, trading	0		0		0		0
Assets supporting experience-rated contractholder liabilities	15		16		15		15		15		16		15		16
Total	$	10,379	$	13,114	$	10,354	$	12,601	$	10,798	$	13,418	$	10,838	$	13,338

1621

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Commercial Mortgage and Other Loans

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


	June 30, 2019					December 31, 2018					June 30, 2020					December 31, 2019
	Amount (in millions)			% of Total		Amount (in millions)			% of Total		Amount (in millions)			% of Total		Amount (in millions)			% of Total
Commercial mortgage and agricultural property loans by property type:
Office	$	12,984		21.4	%	$	13,280		22.4	%	$	12,642		20.2	%	$	13,462		21.4	%
Retail	8,411			13.9		8,639			14.6		7,739			12.3		8,379			13.3
Apartments/Multi-Family	16,752			27.7		16,538			28.0		18,031			28.8		17,348			27.6
Industrial	12,866			21.2		11,574			19.6		13,292			21.2		13,226			21.1
Hospitality	2,168			3.6		1,931			3.3		2,378			3.8		2,415			3.9
Other	3,913			6.5		3,846			6.5		4,617			7.4		4,533			7.2
Total commercial mortgage loans	57,094			94.3		55,808			94.4		58,699			93.7		59,363			94.5
Agricultural property loans	3,420			5.7		3,316			5.6		3,978			6.3		3,472			5.5
Total commercial mortgage and agricultural property loans by property type	60,514			100.0	%	59,124			100.0	%	62,677			100.0	%	62,835			100.0	%
Allowance for credit losses	(115		)			(123		)			(238		)			(117		)
Total net commercial mortgage and agricultural property loans by property type	60,399					59,001					62,439					62,718
Other loans:
Uncollateralized loans	664					660					680					656
Residential property loans	143					157					109					124
Other collateralized loans	27					17					248					65
Total other loans	834					834					1,037					845
Allowance for credit losses	(5		)			(5		)			(7		)			(4		)
Total net other loans	829					829					1,030					841
Total commercial mortgage and other loans(1)	$	61,228				$	59,830				$	63,469				$	63,559

__________


(1)	Includes loans held for sale which are carried at fair value and are collateralized primarily by apartment complexes. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the net carrying value of these loans was ~~$645~~$682 million and ~~$763~~$228 million, respectively.

As of June 30, ~~2019,~~2020, the commercial mortgage and agricultural property loans were secured by properties geographically dispersed throughout the United States (with the largest concentrations in California ~~(27%~~(28%), Texas ~~(10%~~(9%) and New York ~~(7%~~(8%)) and included loans secured by properties in Europe ~~(6%~~(7%), ~~Australia (1%~~Asia (2%) and ~~Asia~~Australia (1%).

1722

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated 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		Residential Property Loans			Other Collateralized Loans		Uncollateralized Loans		Total			Commercial Mortgage Loans			Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans			Total
	(in millions)															(in millions)
Balance at December 31, 2017	$	97		$	3	$	1		$	0	$	5	$	106
Addition to (release of) allowance for credit losses	23			0		(1		)	0		0		22
Charge-offs, net of recoveries	0			0		0			0		0		0
Change in foreign exchange	0			0		0			0		0		0
Balance at December 31, 2018	120			3		0			0		5		128			$	120		$	3	$	0	$	0	$	5		$	128
Addition to (release of) allowance for credit losses	(8		)	0		0			0		0		(8		)	(5		)	0		0		0		(1		)	(6		)
Charge-offs, net of recoveries	0			0		0			0		0		0			(1		)	0		0		0		0			(1		)
Change in foreign exchange	0			0		0			0		0		0			0			0		0		0		0			0
Balance at June 30, 2019	$	112		$	3	$	0		$	0	$	5	$	120
Balance at December 31, 2019																114			3		0		0		4			121
Cumulative effect of adoption of ASU 2016-13																110			5		0		0		0			115
Addition to (release of) allowance for expected losses																6			0		0		0		0			6
Other																0			0		0		3		0			3
Balance at June 30, 2020																$	230		$	8	$	0	$	3	$	4		$	245

~~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 June 30, 2020, the increase in the allowance for credit losses ~~and the recorded investment in~~on commercial mortgage and other loans aswas primarily related to the cumulative effect of ~~the dates indicated:~~

June 30, 2019

Commercial
Mortgage
Loans

Agricultural
Property
Loans

Residential
Property
Loans

Other
Collateralized
Loans

Uncollateralized
Loans
Total
(in millions)
Allowance for credit losses:
Individually evaluated for impairment $ 8
$ 0
$ 0
$ 0
$ 0
$ 8
Collectively evaluated for impairment 104
3
0
0
5
112
Total ending balance(1) $ 112
$ 3
$ 0
$ 0
$ 5
$ 120

Recorded investment(2):
Individually evaluated for impairment $ 42
$ 19
$ 0
$ 0
$ 0
$ 61
Collectively evaluated for impairment 57,052
3,401
143
27
664
61,287
Total ending balance(1) $ 57,094
$ 3,420
$ 143
$ 27
$ 664
$ 61,348

~~__________~~


~~(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

Residential
Property
Loans

Other
Collateralized
Loans

Uncollateralized
Loans
Total
(in millions)
Allowance for credit losses:
Individually evaluated for impairment $ 19
$ 0
$ 0
$ 0
$ 0
$ 19
Collectively evaluated for impairment 101
3
0
0
5
109
Total ending balance(1) $ 120
$ 3
$ 0
$ 0
$ 5
$ 128

Recorded investment(2):
Individually evaluated for impairment $ 67
$ 35
$ 0
$ 0
$ 2
$ 104
Collectively evaluated for impairment 55,741
3,281
157
17
658
59,854
Total ending balance(1) $ 55,808
$ 3,316
$ 157
$ 17
$ 660
$ 59,958

~~Table~~adoption of ~~Contents~~ASU 2016-13.

~~PRUDENTIAL FINANCIAL, INC.~~

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

~~__________~~


~~(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.~~

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

~~Commercial mortgage loans~~

June 30, 2019
Debt Service Coverage Ratio

>1.2X
1.0X to <1.2X < 1.0X Total
(in millions)
Loan-to-Value Ratio:
0%-59.99% $ 30,536
$ 653
$ 81
$ 31,270
60%-69.99% 17,370
596
0
17,966
70%-79.99% 6,638
690
9
7,337
80% or greater 309
92
120
521
Total commercial mortgage loans $ 54,853
$ 2,031
$ 210
$ 57,094

~~Agricultural property loans~~

June 30, 2019
Debt Service Coverage Ratio

>1.2X
1.0X to <1.2X < 1.0X Total
(in millions)
Loan-to-Value Ratio:
0%-59.99% $ 3,152
$ 168
$ 17
$ 3,337
60%-69.99% 83
0
0
83
70%-79.99% 0
0
0
0
80% or greater 0
0
0
0
Total agricultural property loans $ 3,235
$ 168
$ 17
$ 3,420

~~Total commercial mortgage and agricultural property loans~~

June 30, 2019
Debt Service Coverage Ratio

>1.2X
1.0X to <1.2X < 1.0X Total
(in millions)
Loan-to-Value Ratio:
0%-59.99% $ 33,688
$ 821
$ 98
$ 34,607
60%-69.99% 17,453
596
0
18,049
70%-79.99% 6,638
690
9
7,337
80% or greater 309
92
120
521
Total commercial mortgage and agricultural property loans $ 58,088
$ 2,199
$ 227
$ 60,514

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

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

~~Commercial mortgage loans~~Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	June 30, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
	(in millions)
Loan-to-Value Ratio:
Commercial mortgage loans
0%-59.99%	$	346	$	2,791	$	3,067	$	3,462	$	3,296	$	17,859	$	0	$	30,821
60%-69.99%	1,265		4,057		3,457		2,668		2,886		4,506		0		18,839
70%-79.99%	809		3,021		2,531		1,091		570		720		0		8,742
80% or greater	0		10		0		18		61		208		0		297
Subtotal	2,420		9,879		9,055		7,239		6,813		23,293		0		58,699
Agricultural property loans
0%-59.99%	534		483		376		555		400		1,410		0		3,758
60%-69.99%	112		71		34		3		0		0		0		220
70%-79.99%	0		0		0		0		0		0		0		0
80% or greater	0		0		0		0		0		0		0		0
Subtotal	646		554		410		558		400		1,410		0		3,978
Total commercial mortgage and agricultural property loans
0%-59.99%	880		3,274		3,443		4,017		3,696		19,269		0		34,579
60%-69.99%	1,377		4,128		3,491		2,671		2,886		4,506		0		19,059
70%-79.99%	809		3,021		2,531		1,091		570		720		0		8,742
80% or greater	0		10		0		18		61		208		0		297
Total commercial mortgage and agricultural property loans	$	3,066	$	10,433	$	9,465	$	7,797	$	7,213	$	24,703	$	0	$	62,677

December 31, 2018
Debt Service Coverage Ratio

>1.2X
1.0X to <1.2X < 1.0X Total
(in millions)
Loan-to-Value Ratio:
0%-59.99% $ 30,325
$ 538
$ 161
$ 31,024
60%-69.99% 16,538
621
0
17,159
70%-79.99% 6,324
754
41
7,119
80% or greater 332
142
32
506
Total commercial mortgage loans $ 53,519
$ 2,055
$ 234
$ 55,808

~~Agricultural property loans~~



	June 30, 2020				December 31, 2019
	Commercial Mortgage Loans		Agricultural Property Loans		Commercial Mortgage Loans		Agricultural Property Loans
	(in millions)
Debt Service Coverage Ratio:
Greater or Equal to 1.2x	$	55,921	$	3,870	$	56,346	$	3,401
1.0 - 1.2x	2,465		80		2,708		57
Less than 1.0x	313		28		309		14
Total	$	58,699	$	3,978	$	59,363	$	3,472

December 31, 2018
Debt Service Coverage Ratio

>1.2X
1.0X to <1.2X < 1.0X Total
(in millions)
Loan-to-Value Ratio:
0%-59.99% $ 2,997
$ 198
$ 57
$ 3,252
60%-69.99% 64
0
0
64
70%-79.99% 0
0
0
0
80% or greater 0
0
0
0
Total agricultural property loans $ 3,061
$ 198
$ 57
$ 3,316

~~Total~~See Note 2 for additional information about the Company’s commercial mortgage and ~~agricultural property~~other loans

December 31, 2018
Debt Service Coverage Ratio

>1.2X
1.0X to <1.2X < 1.0X Total
(in millions)
Loan-to-Value Ratio:
0%-59.99% $ 33,322
$ 736
$ 218
$ 34,276
60%-69.99% 16,602
621
0
17,223
70%-79.99% 6,324
754
41
7,119
80% or greater 332
142
32
506
Total commercial mortgage and agricultural property loans $ 56,580
$ 2,253
$ 291
$ 59,124

credit quality monitoring process.

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:

2024

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2019														June 30, 2020
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)		Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due(1)		Total Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)														(in millions)
Commercial mortgage loans	$	57,088	$	6	$	0	$	0	$	6	$	57,094	$	21	$	58,386	$	0	$	313	$	0	$	313	$	58,699	$	44
Agricultural property loans	3,402		0		0		18		18		3,420		22		3,971		0		1		6		7		3,978		15
Residential property loans	140		1		0		2		3		143		2		107		1		0		1		2		109		1
Other collateralized loans	27		0		0		0		0		27		0		248		0		0		0		0		248		0
Uncollateralized loans	664		0		0		0		0		664		0		680		0		0		0		0		680		4
Total	$	61,321	$	7	$	0	$	20	$	27	$	61,348	$	45	$	63,392	$	1	$	314	$	7	$	322	$	63,714	$	64

__________


(1)	As of June 30, ~~2019,~~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 Consolidated 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 Past Due		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 Past Due		Total Loans		Non-Accrual Status(2)
	(in millions)														(in millions)
Commercial mortgage loans	$	55,808	$	0	$	0	$	0	$	0	$	55,808	$	66	$	59,363	$	0	$	0	$	0	$	0	$	59,363	$	44
Agricultural property loans	3,301		0		0		15		15		3,316		18		3,458		1		0		13		14		3,472		13
Residential property loans	154		1		0		2		3		157		3		121		1		0		2		3		124		2
Other collateralized loans	17		0		0		0		0		17		0		65		0		0		0		0		65		0
Uncollateralized loans	660		0		0		0		0		660		0		656		0		0		0		0		656		0
Total	$	59,940	$	1	$	0	$	17	$	18	$	59,958	$	87	$	63,663	$	2	$	0	$	15	$	17	$	63,680	$	59

__________


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

Loans on non-accrual status recognized interest income of $2 million for both the three months and six months ended June 30, 2020, respectively, and $19 million of these loans did not have a related allowance for credit losses as of June 30, 2020.

The Company did not have any significant losses on commercial mortgage and other loans purchased with credit deterioration as of June 30, 2020.

2125

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Other Invested Assets

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


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
LPs/LLCs:
Equity method:
Private equity	$	3,305	$	3,182	$	3,830	$	3,625
Hedge funds	1,548		1,337		2,166		1,947
Real estate-related	1,240		1,207		1,381		1,372
Subtotal equity method	6,093		5,726		7,377		6,944
Fair value:
Private equity	1,637		1,684		1,548		1,705
Hedge funds	2,128		2,135		2,100		2,172
Real estate-related	324		296		331		336
Subtotal fair value	4,089		4,115		3,979		4,213
Total LPs/LLCs	10,182		9,841		11,356		11,157
Real estate held through direct ownership(1)	2,730		2,466		2,451		2,388
Derivative instruments	1,053		1,155		1,655		877
Other(2)	1,116		1,064		1,295		1,184
Total other invested assets	$	15,081	$	14,526	$	16,757	$	15,606

_________


(1)	As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, real estate held through direct ownership had mortgage debt of ~~$799~~$459 million and ~~$776~~$537 million, respectively.

(2)

Primarily includes strategic investments made by investment management operations, leveraged leases and member and activity stock held in the Federal Home Loan Banks of New York and Boston. For additional information regarding the Company’s holdings in the Federal Home Loan Banks of New York and Boston, see Note 1617 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Accrued Investment Income

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



	June 30, 2020
	(in millions)
Fixed maturities	$	2,739
Equity securities	9
Commercial mortgage and other loans	198
Policy loans	301
Other invested assets	36
Short-term investments and cash equivalents	13
Total accrued investment income	$	3,296

There were $9 million and $12 million of write-downs on accrued investment income for the three months and six months ended June 30, 2020, respectively.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net Investment Income

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Fixed maturities, available-for-sale(1)	$	3,150		$	3,001		$	6,238		$	5,955		$	3,067		$	3,150		$	6,179		$	6,238
Fixed maturities, held-to-maturity(1)	58			57			115			112			58			58			117			115
Fixed maturities, trading	38			30			72			61			34			38			68			72
Assets supporting experience-rated contractholder liabilities, at fair value	182			181			367			372
Equity securities, at fair value	51			59			81			94
Assets supporting experience-rated contractholder liabilities													164			182			348			367
Equity securities													55			51			83			81
Commercial mortgage and other loans	627			594			1,227			1,163			618			627			1,258			1,227
Policy loans	152			156			303			308			150			152			303			303
Other invested assets	271			163			476			304			147			271			278			476
Short-term investments and cash equivalents	115			82			233			154			65			115			152			233
Gross investment income	4,644			4,323			9,112			8,523			4,358			4,644			8,786			9,112
Less: investment expenses	(254		)	(227		)	(506		)	(429		)	(172		)	(254		)	(398		)	(506		)
Net investment income	$	4,390		$	4,096		$	8,606		$	8,094		$	4,186		$	4,390		$	8,388		$	8,606

__________


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

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 June 30,						Six Months Ended June 30,
	2019			2018		2019			2018			2020			2019			2020			2019
	(in millions)											(in millions)
Fixed maturities(1)	$	69		$	165	$	329		$	243		$	112		$	69		$	270		$	329
Commercial mortgage and other loans	4			5		14			17			2			4			24			14
Investment real estate	0			60		0			62			11			0			10			0
LPs/LLCs	2			10		(3		)	16			(3		)	2			(6		)	(3		)
Derivatives~~(2)~~	(411		)	445		(1,443		)	773			(3,881		)	(411		)	(2,389		)	(1,443		)
Other	0			0		1			(1		)	7			0			6			1
Realized investment gains (losses), net	$	(336	)	$	685	$	(1,102	)	$	1,110		$	(3,752	)	$	(336	)	$	(2,085	)	$	(1,102	)

__________


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


~~(2)~~	~~Includes the hedged items offset in qualifying fair value hedge accounting relationships.~~

Net Unrealized Gains (Losses) on Investments within AOCI

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

2327

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(in millions)						(in millions)
Fixed maturity securities, available-for-sale—with OTTI(1)	$	278		$	190		$ N/A			$	243
Fixed maturity securities, available-for-sale—all other(1)	42,548			21,721			N/A			44,279
Derivatives designated as cash flow hedges(1)	1,017			811
Other investments(2)	(23		)	(2		)
Fixed maturity securities, available-for-sale with an allowance							(40		)	N/A
Fixed maturity securities, available-for-sale without an allowance							54,410			N/A
Derivatives designated as cash flow hedges(2)							2,498			832
Other investments(3)							(2		)	(15		)
Net unrealized gains (losses) on investments	$	43,820		$	22,720		$	56,866		$	45,339

__________


(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~~additional information on cash flow hedges, see Note 5.


~~(2)~~(3)	As of June 30, ~~2019,~~2020, there were no0 net unrealized losses on held-to-maturity securities that were previously transferred from available-for-sale. Includes net unrealized gains on certain joint ventures that are strategic in nature and are included in “Other assets.”

Repurchase Agreements and Securities Lending

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

June 30, 2019 December 31, 2018
Remaining Contractual Maturities of the Agreements Remaining Contractual Maturities of the Agreements
Overnight & Continuous Up to 30 Days Total Overnight & Continuous Up to 30 Days Total
(in millions)
U.S. Treasury securities and obligations of U.S.
government authorities and agencies(1)
$ 9,412
$ 20
$ 9,432
$ 9,418
$ 171
$ 9,589
U.S. public corporate securities 0
0
0
19
0
19
Residential mortgage-backed securities(1) 309
0
309
342
0
342
Total securities sold under agreements to repurchase(1)(2) $ 9,721
$ 20
$ 9,741
$ 9,779
$ 171
$ 9,950



	June 30, 2020						December 31, 2019
	Remaining Contractual Maturities of the Agreements						Remaining Contractual Maturities of the Agreements
	Overnight & Continuous		Up to 30 Days		Total		Overnight & Continuous		Up to 30 Days		Total
	(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	9,516	$	558	$	10,074	$	9,431	$	0	$	9,431
Residential mortgage-backed securities	414		0		414		250		0		250
Total securities sold under agreements to repurchase(1)	$	9,930	$	558	$	10,488	$	9,681	$	0	$	9,681

__________


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


~~(2)~~	The Company did ~~not~~0t have any agreements with remaining contractual maturities ofgreater than thirty days, ~~or greater,~~ as of the dates indicated.

2428

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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						June 30, 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 millions)												(in millions)
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	80	$	0	$	80	$	105	$	0	$	105	$	0	$	0	$	0	$	9	$	0	$	9
Obligations of U.S. states and their political subdivisions	58		0		58		88		0		88		101		0		101		33		0		33
Foreign government bonds	499		0		499		325		0		325		381		0		381		244		0		244
U.S. public corporate securities	2,615		0		2,615		2,563		0		2,563		2,375		0		2,375		2,996		0		2,996
Foreign public corporate securities	773		0		773		693		0		693		536		0		536		762		0		762
Commercial mortgage-backed securities													2		0		2		2		0		2
Equity securities	210		0		210		155		0		155		52		0		52		167		0		167
Total cash collateral for loaned securities(1)	$	4,235	$	0	$	4,235	$	3,929	$	0	$	3,929	$	3,447	$	0	$	3,447	$	4,213	$	0	$	4,213

__________


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

4. VARIABLE INTEREST ENTITIES

In the normal course of its activities, the Company enters into relationships with various special-purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). For additional information, see Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Consolidated Variable Interest Entities

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

Consolidated VIEs for which the
Company is the Investment
Manager(1)
Other Consolidated VIEs(1)
June 30,
2019 December 31,
2018 June 30,
2019 December 31,
2018
(in millions)
Fixed maturities, available-for-sale $ 100
$ 73
$ 291
$ 282
Fixed maturities, held-to-maturity 97
95
846
831
Fixed maturities, trading 1,126
1,076
0
0
Assets supporting experience-rated contractholder liabilities 0
0
5
8
Equity securities 45
41
0
0
Commercial mortgage and other loans 763
730
0
0
Other invested assets 1,866
1,526
84
77
Cash and cash equivalents 166
131
0
0
Accrued investment income 5
5
4
4
Other assets 451
463
748
721
Total assets of consolidated VIEs $ 4,619
$ 4,140
$ 1,978
$ 1,923
Other liabilities $ 290
$ 295
$ 14
$ 17
Notes issued by consolidated VIEs(2) 1,246
955
0
0
Total liabilities of consolidated VIEs $ 1,536
$ 1,250
$ 14
$ 17

2529

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Consolidated VIEs for which the Company is the Investment Manager(1)				Other Consolidated VIEs(1)
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
	(in millions)
Fixed maturities, available-for-sale	$	99	$	104	$	284	$	285
Fixed maturities, held-to-maturity	83		83		843		839
Fixed maturities, trading	1,043		1,112		0		0
Assets supporting experience-rated contractholder liabilities	0		0		2		4
Equity securities	29		47		0		0
Commercial mortgage and other loans	943		883		0		0
Other invested assets	2,379		2,199		151		89
Cash and cash equivalents	153		166		0		0
Accrued investment income	5		4		4		4
Other assets	422		450		663		689
Total assets of consolidated VIEs	$	5,156	$	5,048	$	1,947	$	1,910
Other liabilities	$	386	$	304	$	15	$	13
Notes issued by consolidated VIEs(2)	1,197		1,274		0		0
Total liabilities of consolidated VIEs	$	1,583	$	1,578	$	15	$	13

__________


(1)	Total assets of consolidated VIEs reflect ~~$2,323~~$2,742 million and ~~$2,013~~$2,668 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, related to VIEs whose beneficial interests are wholly-owned by consolidated subsidiaries.


(2)	Recourse is limited to the assets of the respective VIE and does not extend to the general credit of the Company. As of June 30, ~~2019 and December 31, 2018,~~2020, the maturities of these obligations were ~~greater than five~~between 4 and 9 years.

Unconsolidated Variable Interest Entities

The Company has determined that it is not the primary beneficiary of certain VIEs for which it is the investment manager. The Company’s maximum exposure to loss resulting from its relationship with unconsolidated VIEs for which it is the investment manager is limited to its investment in the VIEs, which was ~~$929~~$1,015 million and ~~$836~~$1,021 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These investments are reflected in “Fixed maturities, available-for-sale,” “Fixed maturities, trading,” “Equity securities” and “Other invested assets.” There are no0 liabilities associated with these unconsolidated VIEs on the Company’s Unaudited Interim Consolidated Statements of Financial Position.

In the normal course of its activities, the Company will invest in limited partnerships and limited liability companies (“LPs/LLCs”), which include hedge funds, private equity funds and real estate-related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company classifies these investments as “Other invested assets” and its maximum exposure to loss associated with these entities was ~~$10,182~~$11,356 million and ~~$9,841~~$11,157 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

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

5. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

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

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

•Equity contracts: futures, options and total return swaps

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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

•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 are:

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

For detailed information on these contracts and the related strategies, see Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Primary Risks Managed by Derivatives

The table below provides a summary of the gross notional amount and fair value of derivatives 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 non-performance risk (“NPR”).~~collateral. This netting impact results in total derivative assets of ~~$1,043~~$1,644 million and ~~$1,148~~$867 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and total derivative liabilities of ~~$557~~$684 million and ~~$127~~$831 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, reflected in the Unaudited Interim Consolidated Statements of Financial Position.

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Primary Underlying Risk /Instrument Type	June 30, 2019							December 31, 2018							June 30, 2020							December 31, 2019
			Fair Value							Fair Value							Fair Value							Fair Value
	Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities			Gross Notional		Assets		Liabilities
	(in millions)														(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	3,315	$	596	$	(78	)	$	3,885	$	305	$	(67	)	$	3,227	$	1,220	$	(105	)	$	3,257	$	628	$	(73	)
Interest Rate Forwards	53		1		0			600		26		0			202		36		(1		)	205		4		(1		)
Foreign Currency
Foreign Currency Forwards	858		34		(2		)	722		26		(2		)	2,155		73		(12		)	1,461		22		(57		)
Currency/Interest Rate
Foreign Currency Swaps	21,245		1,670		(336		)	20,724		1,520		(358		)	23,372		3,049		(59		)	22,746		1,467		(302		)
Total Derivatives Designated as Hedge Accounting Instruments	$	25,471	$	2,301	$	(416	)	$	25,931	$	1,877	$	(427	)	$	28,956	$	4,378	$	(177	)	$	27,669	$	2,121	$	(433	)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate
Interest Rate Swaps	$	138,186	$	9,604	$	(4,641	)	$	140,963	$	5,792	$	(3,435	)	$	153,866	$	22,286	$	(11,151	)	$	141,162	$	10,249	$	(4,861	)
Interest Rate Futures	17,213		3		(7		)	13,991		23		(2		)	17,326		6		(44		)	17,095		4		(38		)
Interest Rate Options	20,798		327		(220		)	24,002		147		(314		)	14,518		1,813		(267		)	16,496		339		(238		)
Interest Rate Forwards	2,353		21		0			5,049		72		0			2,745		28		0			2,218		18		(3		)
Foreign Currency																			��
Foreign Currency Forwards	24,444		312		(120		)	19,849		246		(138		)	30,785		308		(235		)	26,604		208		(214		)
Foreign Currency Options	1		0		0			2		0		0			0		0		0			0		0		0
Currency/Interest Rate
Foreign Currency Swaps	14,066		827		(420		)	13,784		773		(421		)	12,819		1,243		(337		)	13,874		740		(345		)
Credit
Credit Default Swaps	3,165		103		(2		)	5,207		33		(23		)	2,529		20		(17		)	798		21		0
Equity
Equity Futures	1,329		0		(5		)	1,141		0		(8		)	7,243		2		(84		)	1,802		0		(3		)
Equity Options	68,244		570		(792		)	58,693		384		(554		)	45,519		494		(302		)	32,657		679		(765		)
Total Return Swaps	17,945		38		(302		)	17,309		1,131		(86		)	24,798		184		(1,071		)	18,218		6		(636		)
Other
Other(1)	1,258		0		0			508		0		0			1,260		0		0			1,258		0		0
Synthetic GICs	80,337		1		0			79,215		2		0			82,325		1		0			80,009		1		0
Total Derivatives Not Qualifying as Hedge Accounting Instruments	$	389,339	$	11,806	$	(6,509	)	$	379,713	$	8,603	$	(4,981	)	$	395,733	$	26,385	$	(13,508	)	$	352,191	$	12,265	$	(7,103	)
Total Derivatives(2)(3)	$	414,810	$	14,107	$	(6,925	)	$	405,644	$	10,480	$	(5,408	)	$	424,689	$	30,763	$	(13,685	)	$	379,860	$	14,386	$	(7,536	)

__________


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


(2)	Excludes embedded derivatives and associated reinsurance recoverables which contain multiple underlying risks. The fair value of these embedded derivatives was a net liability of ~~$13,672~~$27,110 million and ~~$8,959~~$14,035 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, primarily included in “Future policy benefits.”


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

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As of June 30, ~~2019,~~2020, the following amounts were recorded on the Unaudited Interim Consolidated Statements of Financial Position related to the carrying amount of the hedged assets (liabilities) and cumulative basis adjustments included in the carrying amount for fair value hedges.


							June 30, 2020						December 31, 2019
Balance Sheet Line Item in which Hedged Item is Recorded	Carrying Amount of the Hedged Assets (Liabilities)			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)			Carrying Amount of the Hedged Assets (Liabilities)			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)			Carrying Amount of the Hedged Assets (Liabilities)			Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets (Liabilities)(1)
	(in millions)						(in millions)
Fixed maturities, available-for-sale, at fair value	$	441		$	62		$	397		$	92		$	389		$	64
Commercial mortgage and other loans	$	24		$	2		$	22		$	2		$	23		$	2
Policyholders’ account balances	$	(1,327	)	$	(85	)	$	(1,721	)	$	(425	)	$	(1,376	)	$	(107	)
Future policy benefits	$	(642	)	$	(150	)	$	(1,277	)	$	(443	)	$	(676	)	$	(172	)

~~________~~__________


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

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

Offsetting Assets and Liabilities

The following 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 Consolidated Statements of Financial Position, and/or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Unaudited Interim Consolidated Statements of Financial Position.


	June 30, 2019												June 30, 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 millions)												(in millions)
Offsetting of Financial Assets:
Derivatives(1)	$	14,033	$	(13,063	)	$	970	$	(633	)	$	337	$	30,611	$	(29,119	)	$	1,492	$	(849	)	$	643
Securities purchased under agreement to resell	1,257		0			1,257		(1,257		)	0		2,355		0			2,355		(2,355		)	0
Total assets	$	15,290	$	(13,063	)	$	2,227	$	(1,890	)	$	337	$	32,966	$	(29,119	)	$	3,847	$	(3,204	)	$	643
Offsetting of Financial Liabilities:
Derivatives(1)	$	6,913	$	(6,368	)	$	545	$	(191	)	$	354	$	13,676	$	(13,001	)	$	675	$	(40	)	$	635
Securities sold under agreement to repurchase	9,741		0			9,741		(9,741		)	0		10,488		0			10,488		(10,488		)	0
Total liabilities	$	16,654	$	(6,368	)	$	10,286	$	(9,932	)	$	354	$	24,164	$	(13,001	)	$	11,163	$	(10,528	)	$	635

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	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 millions)												(in millions)
Offsetting of Financial Assets:
Derivatives(1)	$	10,407	$	(9,331	)	$	1,076	$	(614	)	$	462	$	14,303	$	(13,519	)	$	784	$	(607	)	$	177
Securities purchased under agreement to resell	986		0			986		(986		)	0		1,012		0			1,012		(1,012		)	0
Total assets	$	11,393	$	(9,331	)	$	2,062	$	(1,600	)	$	462	$	15,315	$	(13,519	)	$	1,796	$	(1,619	)	$	177
Offsetting of Financial Liabilities:
Derivatives(1)	$	5,387	$	(5,281	)	$	106	$	(45	)	$	61	$	7,528	$	(6,705	)	$	823	$	(244	)	$	579
Securities sold under agreement to repurchase	9,950		0			9,950		(9,950		)	0		9,681		0			9,681		(9,681		)	0
Total liabilities	$	15,337	$	(5,281	)	$	10,056	$	(9,995	)	$	61	$	17,209	$	(6,705	)	$	10,504	$	(9,925	)	$	579

__________


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

For information regarding the rights of offset associated with the derivative assets and liabilities in the table above, see “—Counterparty Credit Risk” below. For securities purchased under agreements to resell and securities sold under agreements to repurchase, the Company monitors the value of the securities and maintains collateral, as appropriate, to protect against credit exposure. Where the Company has entered into repurchase and resale agreements with the same counterparty, in the event of default, the Company would generally be permitted to exercise rights of offset. For additional information on the Company’s accounting policy for securities repurchase and resale agreements, see Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Cash Flow, Fair Value ~~Cash Flow~~ and Net Investment Hedges

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

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

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	Three Months Ended June 30, 2020
	Realized Investment Gains (Losses)			Net Investment Income			Other Income (Loss)			Interest Expense		Interest Credited to Policyholders’ Account Balances		Policyholders’ Benefits			AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	1		$	(2	)	$	0		$	0	$	6	$	(1	)	$	0
Currency	0			0			0			0		0		2			0
Total gains (losses) on derivatives designated as hedge instruments	1			(2		)	0			0		6		1			0
Gains (losses) on the hedged item:
Interest Rate	(1		)	4			0			0		5		9			0
Currency	0			0			0			0		0		(2		)	0
Total gains (losses) on hedged item	(1		)	4			0			0		5		7			0
Amortization for gains (losses) excluded from assessment of the effectiveness
Currency	0			0			0			0		0		0			(3		)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness	0			0			0			0		0		0			(3		)
Total gains (losses) on fair value hedges net of hedged item	0			2			0			0		11		8			(3		)
Cash flow hedges
Interest Rate	10			0			0			0		0		0			(8		)
Currency	2			0			0			0		0		0			(10		)
Currency/Interest Rate	49			82			(99		)	0		0		0			(669		)
Total gains (losses) on cash flow hedges	61			82			(99		)	0		0		0			(687		)
Net investment hedges
Currency	0			0			0			0		0		0			(4		)
Currency/Interest Rate	0			0			0			0		0		0			0
Total gains (losses) on net investment hedges	0			0			0			0		0		0			(4		)
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	(232		)	0			0			0		0		0			0
Currency	(103		)	0			0			0		0		0			0
Currency/Interest Rate	(86		)	0			0			0		0		0			0
Credit	(1		)	0			0			0		0		0			0
Equity	(5,221		)	0			0			0		0		0			0
Other	1			0			0			0		0		0			0
Embedded Derivatives	1,702			0			0			0		0		0			0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(3,940		)	0			0			0		0		0			0
Total	$	(3,879	)	$	84		$	(99	)	$	0	$	11	$	8		$	(694	)

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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Six Months Ended June 30, 2020
	Realized Investment Gains (Losses)			Net Investment Income			Other Income (Loss)			Interest Expense		Interest Credited to Policyholders’ Account Balances			Policyholders’ Benefits			AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	(29	)	$	(4	)	$	0		$	0	$	330		$	279		$	0
Currency	2			0			0			0		0			2			0
Total gains (losses) on derivatives designated as hedge instruments	(27		)	(4		)	0			0		330			281			0
Gains (losses) on the hedged item:
Interest Rate	29			9			0			0		(318		)	(270		)	0
Currency	(1		)	1			0			0		0			(2		)	0
Total gains (losses) on hedged item	28			10			0			0		(318		)	(272		)	0
Amortization for gains (losses) excluded from assessment of the effectiveness
Currency	0			0			0			0		0			0			(3		)
Total Amortization for Gain (Loss) Excluded from Assessment of the Effectiveness	0			0			0			0		0			0			(3		)
Total gains (losses) on fair value hedges net of hedged item	1			6			0			0		12			9			(3		)
Cash flow hedges
Interest Rate	8			0			0			0		0			0			44
Currency	4			0			0			0		0			0			91
Currency/Interest Rate	67			160			193			0		0			0			1,531
Total gains (losses) on cash flow hedges	79			160			193			0		0			0			1,666
Net investment hedges
Currency	0			0			0			0		0			0			10
Currency/Interest Rate	0			0			0			0		0			0			0
Total gains (losses) on net investment hedges	0			0			0			0		0			0			10
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	8,992			0			0			0		0			0			0
Currency	230			0			(7		)	0		0			0			0
Currency/Interest Rate	731			0			2			0		0			0			0
Credit	(42		)	0			0			0		0			0			0
Equity	216			0			0			0		0			0			0
Other	1			0			0			0		0			0			0
Embedded Derivatives	(12,593		)	0			0			0		0			0			0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(2,465		)	0			(5		)	0		0			0			0
Total	$	(2,385	)	$	166		$	188		$	0	$	12		$	9		$	1,673

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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended June 30, 2019
	Realized Investment Gains (Losses)			Net Investment Income			Other Income (Loss)			Interest Expense		Interest Credited to Policyholders’ Account Balances			Policyholders’ Benefits			AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	(9	)	$	(2	)	$	0		$	0	$	101		$	80		$	0
Currency	2			0			0			0		0			0			0
Total gains (losses) on derivatives designated as hedge instruments	(7		)	(2		)	0			0		101			80			0
Gains (losses) on the hedged item:
Interest Rate	9			5			0			0		(98		)	(73		)	0
Currency	(1		)	1			0			0		0			0			0
Total gains (losses) on hedged item	8			6			0			0		(98		)	(73		)	0
Total gains (losses) on fair value hedges net of hedged item	1			4			0			0		3			7			0
Cash flow hedges
Interest Rate	0			0			0			0		0			0			(1		)
Currency	1			0			0			0		0			0			14
Currency/Interest Rate	47			69			40			0		0			0			229
Total gains (losses) on cash flow hedges	48			69			40			0		0			0			242
Net investment hedges
Currency	0			0			0			0		0			0			1
Currency/Interest Rate	0			0			0			0		0			0			0
Total gains (losses) on net investment hedges	0			0			0			0		0			0			1
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	2,346			0			0			0		0			0			0
Currency	122			0			(5		)	0		0			0			0
Currency/Interest Rate	20			0			0			0		0			0			0
Credit	36			0			0			0		0			0			0
Equity	(617		)	0			0			0		0			0			0
Other	0			0			0			0		0			0			0
Embedded Derivatives	(2,368		)	0			0			0		0			0			0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(461		)	0			(5		)	0		0			0			0
Total	$	(412	)	$	73		$	35		$	0	$	3		$	7		$	243

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Six Months Ended June 30, 2019
	Realized Investment Gains (Losses)			Net Investment Income			Other Income (Loss)			Interest Expense		Interest Credited to Policyholders’ Account Balances			Policyholders’ Benefits			AOCI(1)
	(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate	$	(15	)	$	(4	)	$	0		$	0	$	168		$	131		$	0
Currency	1			0			0			0		0			0			0
Total gains (losses) on derivatives designated as hedge instruments	(14		)	(4		)	0			0		168			131			0
Gains (losses) on the hedged item:
Interest Rate	11			11			0			0		(164		)	(119		)	0
Currency	0			2			0			0		0			0			0
Total gains (losses) on hedged item	11			13			0			0		(164		)	(119		)	0
Total gains (losses) on fair value hedges net of hedged item	(3		)	9			0			0		4			12			0
Cash flow hedges
Interest Rate	(1		)	0			0			0		0			0			22
Currency	2			0			0			0		0			0			5
Currency/Interest Rate	40			137			(6		)	0		0			0			170
Total gains (losses) on cash flow hedges	41			137			(6		)	0		0			0			197
Net investment hedges
Currency	0			0			0			0		0			0			2
Currency/Interest Rate	0			0			0			0		0			0			0
Total gains (losses) on net investment hedges	0			0			0			0		0			0			2
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate	3,734			0			0			0		0			0			0
Currency	84			0			0			0		0			0			0
Currency/Interest Rate	204			0			0			0		0			0			0
Credit	104			0			0			0		0			0			0
Equity	(2,427		)	0			0			0		0			0			0
Other	0			0			0			0		0			0			0
Embedded Derivatives	(3,180		)	0			0			0		0			0			0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments	(1,481		)	0			0			0		0			0			0
Total	$	(1,443	)	$	146		$	(6	)	$	0	$	4		$	12		$	199

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Three Months Ended June 30, 2018(2)
Realized
Investment
Gains
(Losses) Net
Investment
Income Other
Income (Loss) Interest
Expense Interest
Credited to
Policyholders’
Account
Balances AOCI(1)
(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate $ 5
$ (2 ) $ 0
$ 0
$ (28 ) $ 0
Currency 1
0
0
0
0
0
Total gains (losses) on derivatives designated as hedge instruments 6
(2 ) 0
0
(28 ) 0
Gains (losses) on the hedged item:
Interest Rate (5 ) 5
0
0
29
0
Currency (1 ) 1
0
0
0
0
Total gains (losses) on hedged item (6 ) 6
0
0
29
0
Total gains (losses) on fair value hedges net of hedged item 0
4
0
0
1
0
Cash flow hedges
Interest Rate 2
0
0
0
0
(1 )
Currency 3
0
0
0
0
18
Currency/Interest Rate 33
52
209
0
0
704
Total gains (losses) on cash flow hedges 38
52
209
0
0
721
Net investment hedges
Currency 2
0
0
0
0
5
Currency/Interest Rate 0
0
0
0
0
0
Total gains (losses) on net investment hedges 2
0
0
0
0
5
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate (434 ) 0
0
0
0
0
Currency (133 ) 0
(1 ) 0
0
0
Currency/Interest Rate 573
0
2
0
0
0
Credit (1 ) 0
0
0
0
0
Equity (258 ) 0
0
0
0
0
Other (1 ) 0
0
0
0
0
Embedded Derivatives 658
0
0
0
0
0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments 404
0
1
0
0
0
Total $ 444
$ 56
$ 210
$ 0
$ 1
$ 726

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Six Months Ended June 30, 2018(2)
Realized
Investment
Gains
(Losses) Net
Investment
Income Other
Income (Loss) Interest
Expense Interest
Credited to
Policyholders’
Account
Balances AOCI(1)
(in millions)
Derivatives Designated as Hedge Accounting Instruments:
Fair value hedges
Gains (losses) on derivatives designated as hedge instruments:
Interest Rate $ 22
$ (6 ) $ 0
$ 0
$ (111 ) $ 0
Currency 3
0
0
0
0
0
Total gains (losses) on derivatives designated as hedge instruments 25
(6 ) 0
0
(111 ) 0
Gains (losses) on the hedged item:
Interest Rate (24 ) 19
0
0
115
0
Currency (3 ) 2
0
0
0
0
Total gains (losses) on hedged item (27 ) 21
0
0
115
0
Total gains (losses) on fair value hedges net of hedged item (2 ) 15
0
0
4
0
Cash flow hedges
Interest Rate 2
0
0
(1 ) 0
6
Currency 0
0
0
0
0
9
Currency/Interest Rate 27
100
118
0
0
123
Total gains (losses) on cash flow hedges 29
100
118
(1 ) 0
138
Net investment hedges
Currency 0
0
0
0
0
3
Currency/Interest Rate 0
0
0
0
0
0
Total gains (losses) on net investment hedges 0
0
0
0
0
3
Derivatives Not Qualifying as Hedge Accounting Instruments:
Interest Rate (1,949 ) 0
0
0
0
0
Currency 279
0
0
0
0
0
Currency/Interest Rate 25
0
1
0
0
0
Credit (5 ) 0
0
0
0
0
Equity (248 ) 0
0
0
0
0
Other (1 ) 0
0
0
0
0
Embedded Derivatives 2,637
0
0
0
0
0
Total gains (losses) on derivatives not qualifying as hedge accounting instruments 738
0
1
0
0
0
Total $ 765
$ 115
$ 119
$ (1 ) $ 4
$ 141

_________


(1)	Net change in AOCI.


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

3338

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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


	(in millions)			(in millions)
Balance, December 31, 2018	$	811
Cumulative-effect adjustment from the adoption of ASU 2017-12(1)	9
Balance, December 31, 2019				$	832
Amount recorded in AOCI
Interest Rate	21			52
Currency	7			95
Currency/Interest Rate	341			1,951
Total amount recorded in AOCI	369			2,098
Amount reclassified from AOCI to income
Interest Rate	1			(8		)
Currency	(2		)	(4		)
Currency/Interest Rate	(171		)	(420		)
Total amount reclassified from AOCI to income	(172		)	(432		)
Balance, June 30, 2019	$	1,017
Balance, June 30, 2020				$	2,498

~~_________~~


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

The changes in fair value of cash flow hedges are deferred in AOCI and are included in “Net unrealized investment gains (losses)” in the Unaudited Interim Consolidated Statements of Comprehensive Income; these amounts are then reclassified to earnings when the hedged item affects earnings. Using June 30, ~~2019~~2020 values, it is estimated that a pre-tax gain of approximately ~~$251~~$328 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.~~2021.

The exposures the Company is hedging with these qualifying cash flow hedges include the variability of future cash flows from forecasted transactions denominated in foreign currencies, the purchases of invested assets, and the receipt or payment of variable interest on existing financial instruments. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 510 years.

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. In addition, there were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.

For effective net investment hedges, the amounts, before applicable taxes, recorded in the cumulative translation adjustment within AOCI were ~~$534~~$546 million and ~~$532~~$536 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Credit Derivatives

~~Credit derivatives, where~~The following table provides a summary of the ~~Company has~~notional and fair value of written credit protection on a single name reference, had outstanding notional amounts of $100 million and $110 million as of June 30, 2019 and December 31, 2018, respectively. These credit derivatives are reported at fair value as an asset of $1 million as of both June 30, 2019 and December 31, 2018. As of June 30, 2019, the notional amount of these credit derivatives had the following NAIC ratings: $36 million in NAIC 1; $60 million in NAIC 2; and $4 million in NAIC 3. The Company has also written credit protection on certain index references with notional amounts of $2,984 million and $4,953 million as of June 30, 2019 and December 31, 2018, respectively. These credit derivatives are reported at fair value as an asset of $100 million and $10 million as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019, the notional amount of these credit derivatives had the following NAIC ratings: $51 million in NAIC 1; $1,908 million in NAIC 3; and $1,025 million NAIC 6. NAIC designations are based on the lowest rated single name reference included in the index.

protection. The Company’s maximum amount at risk under these credit derivatives, ~~equals the aforementioned notional amounts and assumes~~assuming the value of the underlying referenced securities become ~~worthless. The single name~~worthless, is equal to the notional amounts. These credit derivatives have maturities of less than 21 year and less than 27 years ~~while the~~for single name and index references, ~~have maturities~~respectively.



	June 30, 2020
	NAIC Rating Designation of Underlying Credit Obligation(1)
	NAIC 1				NAIC 2				NAIC 3				NAIC 4				NAIC 5				NAIC 6				Total
	Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value
	(in millions)
Single name reference(2)	$	48	$	0	$	48	$	0	$	4	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	100	$	0
Index reference(2)	50		1		0		0		0		0		1,940		13		0		0		0		0		1,990		14
Total	$	98	$	1	$	48	$	0	$	4	$	0	$	1,940	$	13	$	0	$	0	$	0	$	0	$	2,090	$	14

Table of ~~less than 43 years.~~Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	December 31, 2019
	NAIC Rating Designation of Underlying Credit Obligation(1)
	NAIC 1				NAIC 2				NAIC 3				NAIC 4				NAIC 5				NAIC 6				Total
	Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value		Gross Notional		Fair Value
	(in millions)
Single name reference(2)	$	36	$	0	$	60	$	1	$	4	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	100	$	1
Index reference(2)	50		0		0		0		570		13		0		0		0		0		72		7		692		20
Total	$	86	$	0	$	60	$	1	$	574	$	13	$	0	$	0	$	0	$	0	$	72	$	7	$	792	$	21

_________


(1)	The NAIC rating designations are based on availability and the lowest ratings among Moody's Investors Service, Inc. ("Moody's"), Standard & Poor’s Rating Services (“S&P”) and Fitch Ratings Inc. (“Fitch”). If no rating is available from a rating agency, a NAIC 6 rating is used.


(2)	Single name credit default swaps may reference to the credit of corporate debt, sovereign debt, and structured finance. Index references NAIC designations are based on the lowest rated single name reference included in the index.

In addition to writing credit protection, the Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~$82~~$440 million and ~~$145~~$6 million of outstanding notional amounts and reported at fair value as a liability of $0$10 million and $1$0 million, respectively.

Counterparty Credit Risk

The Company is exposed to ~~credit-related~~ losses in the event of non-performance by counterparties to financial derivative transactions with a positive fair value. The Company manages credit risk by: (i) entering into derivative transactions with highly rated major international financial institutions and other creditworthy counterparties governed by master netting agreements, as applicable; (ii) trading through central clearing and over-the-counter (“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. In addition, certain of the Company’s derivative agreements contain credit-risk related contingent features; if the credit rating of one of the parties to the derivative agreement is to fall below a certain level, the party with positive fair value could request termination at the then fair value or demand immediate full collateralization from the party whose credit rating fell and is in a net liability position.

As of June 30, ~~2019,~~2020, there were no net liability derivative positions with counterparties with credit risk-related contingent ~~features; as such, all~~features. All derivatives have been appropriately collateralized by the Company or the counterparty in accordance with the terms of the derivative agreements.

6. 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.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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 Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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.

3541

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	As of June 30, 2019											As of June 30, 2020
	Level 1		Level 2		Level 3		Netting(1)			Total		Level 1		Level 2		Level 3			Netting(1)			Total
	(in millions)											(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	34,361	$	94	$			$	34,455	$	0	$	42,899	$	122		$			$	43,021
Obligations of U.S. states and their political subdivisions	0		11,198		4					11,202		0		12,394		4						12,398
Foreign government bonds	0		121,058		24					121,082		0		116,749		21						116,770
U.S. corporate public securities	0		93,402		116					93,518		0		106,181		436						106,617
U.S. corporate private securities(2)	0		33,213		1,765					34,978		0		36,305		1,854						38,159
Foreign corporate public securities	0		30,240		71					30,311		0		29,033		85						29,118
Foreign corporate private securities	0		25,928		840					26,768		0		25,794		2,529						28,323
Asset-backed securities(3)	0		11,937		798					12,735		0		13,246		690						13,936
Commercial mortgage-backed securities	0		15,109		45					15,154		0		16,262		0						16,262
Residential mortgage-backed securities	0		3,169		18					3,187		0		3,229		111						3,340
Subtotal	0		379,615		3,775					383,390		0		402,092		5,852						407,944
Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	0		192		0					192		0		208		0						208
Obligations of U.S. states and their political subdivisions	0		210		0					210		0		229		0						229
Foreign government bonds	0		844		26					870		0		784		24						808
Corporate securities	0		13,077		553					13,630		0		13,566		624						14,190
Asset-backed securities(3)	0		1,569		57					1,626		0		1,673		99						1,772
Commercial mortgage-backed securities	0		2,297		0					2,297		0		1,921		0						1,921
Residential mortgage-backed securities	0		1,014		0					1,014		0		1,200		0						1,200
Equity securities	1,360		272		1					1,633		1,444		239		0						1,683
All other(4)	0		365		1					366		360		548		7						915
Subtotal	1,360		19,840		638					21,838		1,804		20,368		754		��				22,926
Fixed maturities, trading	0		3,459		296					3,755		0		3,697		236						3,933
Equity securities	5,212		831		624					6,667		5,249		1,030		594						6,873
Commercial mortgage and other loans	0		645		0					645		0		682		0						682
Other invested assets(5)	4		14,101		436		(13,063		)	1,478		69		30,693		658			(29,119		)	2,301
Short-term investments	1,888		2,450		288					4,626		2,685		6,247		44						8,976
Cash equivalents	778		7,138		1					7,917		4,653		5,439		1						10,093
Other assets	0		0		98					98		0		0		377						377
Separate account assets(6)(7)	44,622		232,742		1,708					279,072		47,429		228,772		1,684						277,885
Total assets	$	53,864	$	660,821	$	7,864	$	(13,063	)	$	709,486	$	61,889	$	699,020	$	10,200		$	(29,119	)	$	741,990
Future policy benefits(8)	$	0	$	0	$	12,723	$			$	12,723	$	0	$	0	$	26,439		$			$	26,439
Policyholders’ account balances	0		0		1,047					1,047		0		0		1,441						1,441
Other liabilities	13		6,912		0		(6,368		)	557		130		13,163		0			(13,001		)	292
Notes issued by consolidated VIEs	0		0		816					816		0		0		741						741
Total liabilities	$	13	$	6,912	$	14,586	$	(6,368	)	$	15,143	$	130	$	13,163	$	28,621		$	(13,001	)	$	28,913

3642

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated 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 millions)											(in millions)
Fixed maturities, available-for-sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	0	$	30,513	$	81	$			$	30,594	$	0	$	35,554	$	105	$			$	35,659
Obligations of U.S. states and their political subdivisions	0		10,488		5					10,493		0		11,493		4					11,497
Foreign government bonds	0		112,985		125					113,110		0		119,032		22					119,054
U.S. corporate public securities	0		83,282		133					83,415		0		97,959		380					98,339
U.S. corporate private securities(2)	0		31,265		1,755					33,020		0		34,749		1,784					36,533
Foreign corporate public securities	0		29,148		53					29,201		0		29,756		69					29,825
Foreign corporate private securities	0		23,787		744					24,531		0		27,237		1,003					28,240
Asset-backed securities(3)	0		11,726		1,247					12,973		0		12,238		936					13,174
Commercial mortgage-backed securities	0		13,302		13					13,315		0		15,574		0					15,574
Residential mortgage-backed securities	0		2,925		79					3,004		0		3,189		12					3,201
Subtotal	0		349,421		4,235					353,656		0		386,781		4,315					391,096
Assets supporting experience-rated contractholder liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	0		381		0					381		0		185		0					185
Obligations of U.S. states and their political subdivisions	0		196		0					196		0		212		0					212
Foreign government bonds	0		858		225					1,083		0		790		24					814
Corporate securities	0		12,675		444					13,119		0		12,966		637					13,603
Asset-backed securities(3)	0		1,516		149					1,665		0		1,593		69					1,662
Commercial mortgage-backed securities	0		2,324		0					2,324		0		1,896		0					1,896
Residential mortgage-backed securities	0		811		0					811		0		1,158		0					1,158
Equity securities	1,222		237		1					1,460		1,505		285		0					1,790
All other(4)	0		215		0					215		0		261		0					261
Subtotal	1,222		19,213		819					21,254		1,505		19,346		730					21,581
Fixed maturities, trading	0		3,037		206					3,243		0		3,597		287					3,884
Equity securities	4,819		610		671					6,100		5,813		939		633					7,385
Commercial mortgage and other loans	0		763		0					763		0		228		0					228
Other invested assets(5)	23		10,454		263		(9,331		)	1,409		6		14,379		567		(13,519		)	1,433
Short-term investments	2,713		2,691		89					5,493		1,806		1,975		155					3,936
Cash equivalents	2,848		6,553		77					9,478		2,079		6,796		131					9,006
Other assets	0		0		25					25		0		0		113					113
Separate account assets(6)(7)	39,534		212,998		1,534					254,066		46,574		240,433		1,717					288,724
Total assets	$	51,159	$	605,740	$	7,919	$	(9,331	)	$	655,487	$	57,783	$	674,474	$	8,648	$	(13,519	)	$	727,386
Future policy benefits(8)	$	0	$	0	$	8,926	$			$	8,926	$	0	$	0	$	12,831	$			$	12,831
Policyholders’ account balances	0		0		56					56		0		0		1,316					1,316
Other liabilities	18		5,398		0		(5,281		)	135		41		7,495		105		(6,705		)	936
Notes issued by consolidated VIEs	0		0		595					595		0		0		800					800
Total liabilities	$	18	$	5,398	$	9,577	$	(5,281	)	$	9,712	$	41	$	7,495	$	15,052	$	(6,705	)	$	15,883

__________


(1)	“Netting” amounts represent cash collateral of ~~$6,695~~$16,118 million and ~~$4,050~~$6,814 million as of June 30, ~~2019~~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)	Excludes notes with fair value of ~~$4,356~~$6,466 million (carrying amount of ~~$4,356~~$6,466 million) and ~~$4,216~~$4,757 million (carrying amount of ~~$4,216~~$4,751 million) as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which have been offset with the associated payables under a netting agreement.


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


(4)	All other represents cash equivalents and short-term investments.

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

(5)

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~~2020 and December 31, ~~2018,~~2019, the fair values of such investments were ~~$4,089~~$3,979 million and ~~$4,115~~$4,213 million respectively.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(6)

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 other invested assets. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of such investments was ~~$24,508~~$23,117 million and ~~$25,070~~$23,557 million, respectively.

(7)

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 Unaudited Interim Consolidated Statements of Financial Position.

(8)

As of June 30, ~~2019,~~2020, the net embedded derivative liability position of ~~$12.7~~$26.4 billion includes ~~$0.6~~$0.3 billion of embedded derivatives in an asset position and ~~$13.3~~$26.7 billion of embedded derivatives in a liability position. As of December 31, ~~2018,~~2019, the net embedded derivative liability position of ~~$8.9~~$12.8 billion includes $0.7 billion of embedded derivatives in an asset position and ~~$9.6~~$13.5 billion of embedded derivatives in a liability position.

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 June 30, 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 millions)									(in millions)
Assets:
Corporate securities(2)	$	1,441	Discounted cash flow	Discount rate	0.36%	-	20%	8.37%	Decrease	$	3,382	Discounted cash flow(4)	Discount rate	0.56%	30%	5.31%	Decrease
			Market comparables	EBITDA multiples(3)	4.5X	-	9.2X	7.0X	Increase			Market comparables	EBITDA multiples(3)	6.5X	15.0X	9.3X	Increase
			Liquidation	Liquidation value	3.98%	-	100%	58.42%	Increase			Liquidation	Liquidation value	14.98%	92.79%	67.50%	Increase
Separate account assets-commercial mortgage loans(4)	$	860	Discounted cash flow	Spread	1.06%	-	2.44%	1.21%	Decrease
Equity securities										$	185	Discounted cash flow(4)	Discount rate	10%	30%		Decrease
												Market comparables	EBITDA multiples(3)	1X	9.0X	1.7X	Increase
												Net Asset Value	Share price	$1	$1,414	$450	Increase
Separate account assets-commercial mortgage loans(5)										$	803	Discounted cash flow	Spread	1.83%	3.18%	2.05%	Decrease
Liabilities:
Future policy benefits(5)	$	12,723	Discounted cash flow	Lapse rate(7)	1%	-	18%		Decrease
Future policy benefits(6)										$	26,439	Discounted cash flow	Lapse rate(8)	1%	20%		Decrease
				Spread over LIBOR(8)	0.16%	-	1.24%		Decrease				Spread over LIBOR(9)	0.17%	1.69%		Decrease
				Utilization rate(9)	43%	-	97%		Increase				Utilization rate(10)	39%	96%		Increase
				Withdrawal rate	See table footnote (10) below.								Withdrawal rate	See table footnote (11) below.
				Mortality rate(11)	0%	-	15%		Decrease				Mortality rate(12)	0%	15%		Decrease
				Equity volatility curve	13%	-	23%		Increase				Equity volatility curve	18%	29%		Increase
Policyholders’ account balances(6)	$	1,047	Discounted cash flow	Lapse rate(7)	1%	-	42%		Decrease
Policyholders’ account balances(7)										$	1,441	Discounted cash flow	Lapse rate(8)	1%	42%		Decrease
				Spread over LIBOR(8)	0.16%	-	1.24%		Decrease				Spread over LIBOR(9)	0.17%	1.69%		Decrease
				Mortality rate(11)	0%	-	24%		Decrease				Mortality rate(12)	0%	24%		Decrease
				Equity volatility curve	10%	-	23%		Increase				Equity volatility curve	6%	38%		Increase

3844

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	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 millions)									(in millions)
Assets:
Corporate securities(2)	$	1,392	Discounted cash flow	Discount rate	0.57%	-	20%	8.58%	Decrease	$	1,424	Discounted cash flow(4)	Discount rate	0.49%	20%	7.41%	Decrease
			Market comparables	EBITDA multiples(3)	4.5X	-	8.5X	8.1X	Increase			Market comparables	EBITDA multiples(3)	5.7X	9.2X	7.3X	Increase
			Liquidation	Liquidation value	11.77%	-	94%	32.16%	Increase			Liquidation	Liquidation value	14.25%	83.61%	59.47%	Increase
Separate account assets-commercial mortgage loans(4)	$	785	Discounted cash flow	Spread	1.12%	-	2.55%	1.29%	Decrease
Equity securities										$	210	Discounted cash flow(4)	Discount rate	10%	30%		Decrease
												Market comparables	EBITDA multiples(3)	1X	10.1X	5.4X	Increase
												Net Asset Value	Share price	$5	$1,353	$451	Increase
Separate account assets-commercial mortgage loans(5)										$	796	Discounted cash flow	Spread	1.11%	1.85%	1.26%	Decrease
Liabilities:
Future policy benefits(5)	$	8,926	Discounted cash flow	Lapse rate(7)	1%	-	13%		Decrease
Future policy benefits(6)										$	12,831	Discounted cash flow	Lapse rate(8)	1%	18%		Decrease
				Spread over LIBOR(8)	0.36%	-	1.60%		Decrease				Spread over LIBOR(9)	0.10%	1.23%		Decrease
				Utilization rate(9)	50%	-	97%		Increase				Utilization rate(10)	43%	97%		Increase
				Withdrawal rate	See table footnote (10) below.								Withdrawal rate	See table footnote (11) below.
				Mortality rate(11)	0%	-	15%		Decrease				Mortality rate(12)	0%	15%		Decrease
				Equity volatility curve	18%	-	22%		Increase				Equity volatility curve	13%	23%		Increase
Policyholders’ account balances(7)										$	1,316	Discounted cash flow	Lapse rate(8)	1%	42%		Decrease
													Spread over LIBOR(9)	0.10%	1.23%		Decrease
													Mortality rate(12)	0%	24%		Decrease
													Equity volatility curve	6%	25%		Increase

__________


(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, assets supporting experience-rated contractholder liabilities and fixed maturities trading.


(3)	Represents multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and are amounts used when the Company has determined that market participants would use such multiples when valuing the investments.


(4)	These investments typically use a range of discount rates (10% to 20%), therefore presenting a range, rather than a weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.


(5)	Changes in the fair value of separate account assets are borne by customers and thus are offset by changes in separate account liabilities on the Company’s Unaudited Interim Consolidated Statements of Financial Position. As a result, changes in value associated with these investments are not reflected in the Company’s Unaudited Interim Consolidated Statements of Operations.

~~(5)~~(6)

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 weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

~~(6)~~(7)

Policyholders’ account balances primarily represent general account liabilities for the index-linked interest credited on certain of the Company’s life and annuity 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 weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

~~(7)~~(8)

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.

~~(8)~~(9)

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.

~~(9)~~(10)

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.

~~(10)~~(11)

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~~2020 and December 31, ~~2018,~~2019, the minimum withdrawal rate assumption is 76% and 78% respectively. As of June 30, 2020 and December 31, 2019, 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%.

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

~~(11)~~(12)

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 6~~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.

Asset-Backed Securities—Interrelationships may exist between the prepayment rate, the default rate and/or loss severity, depending on specific market conditions. In stronger economic cycles, prepayment rates are generally driven by overall market interest rates and accompanied by lower default rates and loss severity. During weaker economic cycles, prepayments may decline, as default rates and loss severity increase. Additionally, the impact of these factors on average life varies with the structure and subordination. Generally, a change in the assumption used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

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 that more efficient contractholder behavior results in greater in-the-moneyness at the contract level, lapse rates may decline for those contracts. Similarly, to the ~~Consolidated 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.

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.

4046

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended June 30, 2020
	Fair Value, beginning of period			Total realized and unrealized gains (losses)			Purchases		Sales			Issuances			Settlements			Other(1)			Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	115		$	0		$	7	$	0		$	0		$	0		$	0		$	0	$	0		$	122		$	0
U.S. states	4			0			0		0			0			0			0			0		0			4			0
Foreign government	21			0			0		0			0			0			0			1		(1		)	21			(1		)
Corporate securities(3)	4,496			318			125		(5		)	0			(95		)	0			196		(131		)	4,904			316
Structured securities(4)	948			4			73		0			0			(197		)	0			80		(107		)	801			11
Assets supporting experience-rated contractholder liabilities:
Foreign government	24			0			0		0			0			0			0			0		0			24			0
Corporate securities(3)	603			19			0		1			0			(20		)	0			29		(8		)	624			17
Structured securities(4)	177			2			39		0			0			(6		)	0			0		(113		)	99			2
Equity securities	0			0			0		0			0			0			0			0		0			0			0
All other activity	7			0			0		0			0			0			0			0		0			7			0
Other assets:
Fixed maturities, trading	249			(1		)	4		(26		)	0			0			10			0		0			236			(1		)
Equity securities	594			(14		)	19		(5		)	0			0			0			0		0			594			(16		)
Other invested assets	581			(4		)	54		0			4			(3		)	26			0		0			658			3
Short-term investments	53			0			1		0			0			0			(10		)	0		0			44			0
Cash equivalents	1			0			0		0			0			0			0			0		0			1			0
Other assets	382			(24		)	19		0			0			0			0			0		0			377			(22		)
Separate account assets(5)	1,528			114			48		(8		)	0			(15		)	0			26		(9		)	1,684			112
Liabilities:
Future policy benefits	(27,935		)	1,820			0		0			(322		)	0			(2		)	0		0			(26,439		)	1,565
Policyholders’ account balances(6)	(1,206		)	(134		)	0		0			(101		)	0			0			0		0			(1,441		)	(127		)
Other liabilities	(47		)	47			0		0			0			0			0			0		0			0			47
Notes issued by consolidated VIEs	(799		)	58			0		0			0			0			0			0		0			(741		)	59



	Three Months Ended June 30, 2020
	Total realized and unrealized gains (losses)												Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)(7)
	(in millions)
Fixed maturities, available-for-sale	$	(88	)	$	0		$	0	$	407	$	3	$	(80	)	$	0		$	0	406
Assets supporting experience-rated contractholder liabilities	0			18			0		0		3		0			19			0		0
Other assets:
Fixed maturities, trading	0			(2		)	0		0		1		0			(1		)	0		0
Equity securities	0			(14		)	0		0		0		0			(16		)	0		0
Other invested assets	0			(4		)	0		0		0		7			(4		)	0		0
Short-term investments	0			0			0		0		0		0			0			0		0
Cash equivalents	0			0			0		0		0		0			0			0		0
Other assets	(24		)	0			0		0		0		(22		)	0			0		0
Separate account assets(5)	0			0			114		0		0		0			0			112		0
Liabilities:
Future policy benefits	1,820			0			0		0		0		1,565			0			0		0
Policyholders’ account balances	(134		)	0			0		0		0		(127		)	0			0		0
Other liabilities	0			47			0		0		0		0			47			0		0
Notes issued by consolidated VIEs	(1		)	59			0		0		0		0			59			0		0

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Six Months Ended June 30, 2020
	Fair Value, beginning of period			Total realized and unrealized gains (losses)			Purchases		Sales			Issuances			Settlements			Other(1)			Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	105		$	0		$	17	$	0		$	0		$	0		$	0		$	0	$	0		$	122		$	0
U.S. states	4			0			0		0			0			0			0			0		0			4			0
Foreign government	22			(1		)	0		0			0			0			0			1		(1		)	21			(1		)
Corporate securities(3)	3,236			(182		)	419		(118		)	0			(330		)	1			2,023		(145		)	4,904			(175		)
Structured securities(4)	948			(3		)	388		(17		)	0			(297		)	155			92		(465		)	801			(4		)
Assets supporting experience-rated contractholder liabilities:
Foreign government	24			0			0		0			0			0			0			0		0			24			0
Corporate securities(3)	637			(27		)	4		(9		)	0			(65		)	0			92		(8		)	624			(27		)
Structured securities(4)	69			(2		)	155		0			0			(10		)	0			0		(113		)	99			2
Equity securities	0			0			0		0			0			0			0			0		0			0			0
All other activity	0			0			7		0			0			0			0			0		0			7			0
Other assets:
Fixed maturities, trading	287			(16		)	22		(32		)	0			0			8			15		(48		)	236			(16		)
Equity securities	633			(58		)	28		(10		)	0			0			1			0		0			594			(60		)
Other invested assets	567			4			81		0			4			(4		)	6			0		0			658			5
Short-term investments	155			2			44		0			0			(110		)	(47		)	0		0			44			0
Cash equivalents	131			0			0		0			0			0			(130		)	0		0			1			0
Other assets	113			228			36		0			0			0			0			0		0			377			229
Separate account assets(5)	1,717			(26		)	104		(21		)	0			(33		)	0			33		(90		)	1,684			(17		)
Liabilities:
Future policy benefits	(12,831		)	(12,969		)	0		0			(641		)	0			2			0		0			(26,439		)	(13,183		)
Policyholders’ account balances(6)	(1,316		)	72			0		0			(197		)	0			0			0		0			(1,441		)	63
Other liabilities	(105		)	105			0		0			0			0			0			0		0			0			104
Notes issued by consolidated VIEs	(800		)	59			0		0			0			0			0			0		0			(741		)	59



	Six Months Ended June 30, 2020
	Total realized and unrealized gains (losses)														Unrealized gains (losses) for assets still held(2)
	Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances			Included in other comprehensive income (loss)			Net investment income		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances			Included in other comprehensive income (loss)(7)
	(in millions)
Fixed maturities, available-for-sale	$	(115	)	$	0		$	0		$	(76	)	$	5	$	(106	)	$	0		$	0		$	(74	)
Assets supporting experience-rated contractholder liabilities	0			(29		)	0			0			0		0			(25		)	0			0
Other assets:
Fixed maturities, trading	0			(17		)	0			0			1		0			(16		)	0			0
Equity securities	0			(58		)	0			0			0		0			(60		)	0			0
Other invested assets	0			4			0			0			0		1			4			0			0
Short-term investments	2			0			0			0			0		0			0			0			0
Cash equivalents	0			0			0			0			0		0			0			0			0
Other assets	228			0			0			0			0		229			0			0			0
Separate account assets(5)	0			0			(26		)	0			0		0			0			(17		)	0
Liabilities:
Future policy benefits	(12,969		)	0			0			0			0		(13,183		)	0			0			0
Policyholders’ account balances	72			0			0			0			0		63			0			0			0
Other liabilities	0			105			0			0			0		0			104			0			0
Notes issued by consolidated VIEs	0			59			0			0			0		0			59			0			0

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended June 30, 2019
	Fair Value, beginning of period			Total realized and unrealized gains (losses)			Purchases		Sales			Issuances			Settlements			Other(1)			Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	88		$	0		$	6	$	0		$	0		$	0		$	0		$	0	$	0		$	94		$	0
U.S. states	4			0			0		0			0			0			0			0		0			4			0
Foreign government	138			(1		)	0		0			0			0			(2		)	0		(111		)	24			0
Corporate securities(3)	2,757			6			288		(17		)	0			(225		)	1			19		(37		)	2,792			(5		)
Structured securities(4)	1,915			8			113		(47		)	0			(101		)	9			17		(1,053		)	861			0
Assets supporting experience-rated contractholder liabilities:
Foreign government	29			0			0		0			0			(3		)	0			0		0			26			0
Corporate securities(3)	592			5			14		0			0			(67		)	0			10		(1		)	553			11
Structured securities(4)	60			1			0		0			0			(4		)	0			0		0			57			1
Equity securities	1			1			0		(1		)	0			0			0			0		0			1			0
All other activity	0			0			3		0			0			(2		)	0			0		0			1			0
Other assets:
Fixed maturities, trading	240			(7		)	36		(13		)	0			0			1			39		0			296			(7		)
Equity securities	674			16			23		(13		)	0			(59		)	6			1		(24		)	624			15
Other invested assets	373			0			61		0			0			0			2			0		0			436			0
Short-term investments	168			0			273		0			0			(153		)	0			0		0			288			0
Cash equivalents	1			0			0		0			0			0			0			0		0			1			0
Other assets	48			42			8		0			0			0			0			0		0			98			41
Separate account assets(5)	1,635			44			139		(6		)	0			(27		)	0			0		(77		)	1,708			41
Liabilities:
Future policy benefits	(10,025		)	(2,400		)	0		0			(298		)	0			0			0		0			(12,723		)	(2,503		)
Policyholders’ account balances(6)	(146		)	(828		)	0		0			(73		)	0			0			0		0			(1,047		)	(821		)
Other liabilities	0			0			0		0			0			0			0			0		0			0			0
Notes issued by consolidated VIEs	(817		)	1			0		0			0			0			0			0		0			(816		)	1


	Three Months Ended June 30, 2019																				Three Months Ended June 30, 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			Other income			Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)		Net investment income		Realized investment gains (losses), net			Other income			Interest credited to policyholders’ account balances		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances
	(in millions)																				(in millions)
Fixed maturities, available-for-sale	$	(11	)	$	0		$	0	$	18	$	6	$	(5	)	$	0		$	0	$	(11	)	$	0		$	0	$	18	$	6	$	(5	)	$	0		$	0
Assets supporting experience-rated contractholder liabilities	0			6			0		0		1		0			12			0		0			6			0		0		1		0			12			0
Other assets:
Fixed maturities, trading	0			(8		)	0		0		1		0			(7		)	0		0			(8		)	0		0		1		0			(7		)	0
Equity securities	0			16			0		0		0		0			15			0		0			16			0		0		0		0			15			0
Other invested assets	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Short-term investments	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Cash equivalents	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Other assets	42			0			0		0		0		41			0			0		42			0			0		0		0		41			0			0
Separate account assets(5)	0			0			43		0		1		0			0			41		0			0			43		0		1		0			0			41
Liabilities:
Future policy benefits	(2,400		)	0			0		0		0		(2,503		)	0			0		(2,400		)	0			0		0		0		(2,503		)	0			0
Policyholders’ account balances	(828		)	0			0		0		0		(821		)	0			0		(828		)	0			0		0		0		(821		)	0			0
Other liabilities	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Notes issued by consolidated VIEs	1			0			0		0		0		1			0			0		1			0			0		0		0		1			0			0

4149

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Six Months Ended June 30, 2019
	Fair Value, beginning of period			Total realized and unrealized gains (losses)			Purchases		Sales			Issuances			Settlements			Other(1)			Transfers into Level 3		Transfers out of Level 3			Fair Value, end of period			Unrealized gains (losses) for assets still held(2)
	(in millions)
Fixed maturities, available-for-sale:
U.S. government	$	81		$	0		$	13	$	0		$	0		$	0		$	0		$	0	$	0		$	94		$	0
U.S. states	5			0			0		0			0			(1		)	0			0		0			4			0
Foreign government	125			2			0		0			0			0			(1		)	9		(111		)	24			0
Corporate securities(3)	2,685			10			607		(29		)	0			(604		)	(1		)	183		(59		)	2,792			(26		)
Structured securities(4)	1,339			25			431		(47		)	0			(332		)	7			750		(1,312		)	861			0
Assets supporting experience-rated contractholder liabilities:
Foreign government	225			0			0		0			0			(3		)	(196		)	0		0			26			0
Corporate securities(3)	444			10			41		0			0			(143		)	196			10		(5		)	553			6
Structured securities(4)	149			1			6		0			0			(25		)	0			0		(74		)	57			1
Equity securities	1			1			0		(1		)	0			0			0			0		0			1			1
All other activity	0			0			3		0			0			(2		)	0			0		0			1			0
Other assets:
Fixed maturities, trading	206			(11		)	74		(14		)	0			0			3			39		(1		)	296			(7		)
Equity securities	671			24			46		(24		)	0			(74		)	4			1		(24		)	624			22
Other invested assets	263			(1		)	218		0			0			(42		)	(2		)	0		0			436			(1		)
Short-term investments	89			0			426		0			0			(227		)	0			0		0			288			0
Cash equivalents	77			0			1		0			0			(77		)	0			0		0			1			0
Other assets	25			56			17		0			0			0			0			0		0			98			55
Separate account assets(5)	1,534			125			228		(17		)	0			(50		)	0			0		(112		)	1,708			115
Liabilities:
Future policy benefits	(8,926		)	(3,210		)	0		0			(588		)	0			1			0		0			(12,723		)	(3,364		)
Policyholders’ account balances(6)	(56		)	(879		)	0		0			(109		)	0			(3		)	0		0			(1,047		)	(872		)
Other liabilities	0			0			0		0			0			0			0			0		0			0			0
Notes issued by consolidated VIEs	(595		)	(1		)	0		0			(858		)	638			0			0		0			(816		)	(1		)


	Six Months Ended June 30, 2019																				Six Months Ended June 30, 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			Other income (loss)			Interest credited to policyholders’ account balances		Included in other comprehensive income (losses)		Net investment income		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances		Included in other comprehensive income (loss)		Net investment income		Realized investment gains (losses), net			Other income (loss)			Interest credited to policyholders’ account balances
	(in millions)																				(in millions)
Fixed maturities, available-for-sale	$	(13	)	$	0		$	0	$	40	$	10	$	(26	)	$	0		$	0	$	(13	)	$	0		$	0	$	40	$	10	$	(26	)	$	0		$	0
Assets supporting experience-rated contractholder liabilities	0			9			0		0		3		0			8			0		0			9			0		0		3		0			8			0
Other assets:
Fixed maturities, trading	0			(12		)	0		0		1		0			(7		)	0		0			(12		)	0		0		1		0			(7		)	0
Equity securities	0			24			0		0		0		0			22			0		0			24			0		0		0		0			22			0
Other invested assets	(1		)	0			0		0		0		(1		)	0			0		(1		)	0			0		0		0		(1		)	0			0
Short-term investments	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Cash equivalents	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Other assets	56			0			0		0		0		55			0			0		56			0			0		0		0		55			0			0
Separate account assets(5)	0			0			123		0		2		0			0			115		0			0			123		0		2		0			0			115
Liabilities:
Future policy benefits	(3,210		)	0			0		0		0		(3,364		)	0			0		(3,210		)	0			0		0		0		(3,364		)	0			0
Policyholders’ account balances	(879		)	0			0		0		0		(872		)	0			0		(879		)	0			0		0		0		(872		)	0			0
Other liabilities	0			0			0		0		0		0			0			0		0			0			0		0		0		0			0			0
Notes issued by consolidated VIEs	(1		)	0			0		0		0		(1		)	0			0		(1		)	0			0		0		0		(1		)	0			0

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Three Months Ended June 30, 2018
Fair Value, beginning of period Total realized and unrealized gains (losses) Purchases Sales Issuances Settlements Other(1)
Transfers into
Level 3
Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in millions)
Fixed maturities, available-for-sale:
U.S. government $ 59
$ 0
$ 8
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 67
$ 0
U.S. states 5
0
0
0
0
0
0
0
0
5
0
Foreign government 128
(2 ) 0
0
0
0
(4 ) 15
0
137
0
Corporate securities(3) 2,735
(29 ) 257
(3 ) 0
(286 ) (31 ) 69
(21 ) 2,691
(21 )
Structured securities(4) 6,899
(9 ) 441
(278 ) 0
(668 ) (24 ) 62
(4,759 ) 1,664
0
Assets supporting experience-rated contractholder liabilities:
Foreign government 220
4
0
0
0
(3 ) 0
0
0
221
2
Corporate securities(3) 468
(10 ) 41
0
0
(51 ) 0
40
0
488
(10 )
Structured securities(4) 664
(2 ) 16
0
0
(129 ) 0
5
(447 ) 107
(1 )
Equity securities 5
0
0
(1 ) 0
0
0
0
0
4
0
All other activity 7
0
24
0
0
(26 ) 0
0
0
5
0
Other assets:
Fixed maturities, trading 204
5
9
(38 ) 0
(3 ) (2 ) 1
(3 ) 173
0
Equity securities 785
(12 ) 35
(15 ) 0
(2 ) (11 ) 3
0
783
(15 )
Other invested assets 144
(4 ) 0
(12 ) 0
0
(6 ) 0
0
122
(3 )
Short-term investments 10
0
8
0
0
(14 ) (3 ) 0
0
1
0
Cash equivalents 0
0
9
0
0
(7 ) 0
0
0
2
0
Other assets 0
0
0
0
0
0
0
0
0
0
0
Separate account assets(5) 2,360
22
253
(14 ) 0
(140 ) 0
29
(694 ) 1,816
21
Liabilities:
Future policy benefits (6,981 ) 683
0
0
(287 ) 0
0
0
0
(6,585 ) 612
Policyholders’ account balances(6) (40 ) (8 ) 0
0
0
6
0
0
0
(42 ) (8 )
Other liabilities (16 ) (10 ) 8
0
0
0
0
0
0
(18 ) (10 )
Notes issued by consolidated VIEs (612 ) 3
0
0
0
0
0
0
0
(609 ) 3

Three Months Ended June 30, 2018
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net Other income (loss) Interest credited to policyholders’ account balances Included in other comprehensive income (losses) Net investment income Realized investment gains (losses), net Other income (loss) Interest credited to policyholders’ account balances
(in millions)
Fixed maturities, available-for-sale $ (19 ) $ 0
$ 0
$ (25 ) $ 4
$ (21 ) $ 0
$ 0
Assets supporting experience-rated contractholder liabilities 0
(11 ) 0
0
3
0
(9 ) 0
Other assets:
Fixed maturities, trading 1
4
0
0
0
0
0
0
Equity securities 0
(12 ) 0
0
0
0
(15 ) 0
Other invested assets (4 ) 0
0
0
0
(3 ) 0
0
Short-term investments 0
0
0
0
0
0
0
0
Cash equivalents 0
0
0
0
0
0
0
0
Other assets 0
0
0
0
0
0
0
0
Separate account assets(5) 0
0
22
0
0
0
0
21
Liabilities:
Future policy benefits 683
0
0
0
0
612
0
0
Policyholders’ account balances (8 ) 0
0
0
0
(8 ) 0
0
Other liabilities (10 ) 0
0
0
0
(10 ) 0
0
Notes issued by consolidated VIEs 3
0
0
0
0
3
0
0

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Six Months Ended June 30, 2018
Fair Value, beginning of period Total realized and unrealized gains (losses) Purchases Sales Issuances Settlements Other(1) Transfers into Level 3 Transfers out of Level 3 Fair Value, end of period Unrealized gains (losses) for assets still held(2)
(in millions)
Fixed maturities, available-for-sale:
U.S. government $ 52
$ 0
$ 15
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 67
$ 0
U.S. states 5
0
0
0
0
0
0
0
0
5
0
Foreign government 148
(2 ) 0
0
0
0
(3 ) 20
(26 ) 137
0
Corporate securities(3) 2,776
(18 ) 375
(4 ) 0
(455 ) (19 ) 129
(93 ) 2,691
(30 )
Structured securities(4) 6,715
(24 ) 1,989
(344 ) 0
(1,317 ) 6
1,133
(6,494 ) 1,664
0
Assets supporting experience-rated contractholder liabilities:
Foreign government 223
1
0
0
0
(3 ) 0
0
0
221
(2 )
Corporate securities(3) 462
(9 ) 65
0
0
(69 ) 0
40
(1 ) 488
(9 )
Structured securities(4) 722
(2 ) 19
0
0
(142 ) 0
33
(523 ) 107
(1 )
Equity securities 4
1
0
(1 ) 0
0
0
0
0
4
1
All other activity 7
0
43
0
0
(45 ) 0
0
0
5
0
Other assets:
Fixed maturities, trading 156
3
49
(42 ) 0
(3 ) 3
12
(5 ) 173
4
Equity securities 795
2
42
(32 ) 0
(39 ) 15
3
(3 ) 783
(1 )
Other invested assets 137
4
1
(12 ) 0
0
(8 ) 0
0
122
2
Short-term investments 8
(1 ) 22
0
0
(26 ) (2 ) 0
0
1
(1 )
Cash equivalents 0
0
9
0
0
(7 ) 0
0
0
2
0
Other assets 13
(13 ) 0
0
0
0
0
0
0
0
(13 )
Separate account assets(5) 2,122
(11 ) 490
(22 ) 0
(261 ) 0
224
(726 ) 1,816
(5 )
Liabilities:
Future policy benefits (8,720 ) 2,709
0
0
(574 ) 0
0
0
0
(6,585 ) 2,529
Policyholders’ account balances(6) (47 ) (3 ) 0
0
0
8
0
0
0
(42 ) (3 )
Other liabilities (3 ) (34 ) 18
0
0
0
1
0
0
(18 ) (33 )
Notes issued by consolidated VIEs (1,196 ) 0
0
0
0
0
587
0
0
(609 ) 0

Six Months Ended June 30, 2018
Total realized and unrealized gains (losses) Unrealized gains (losses) for assets still held(2)
Realized investment gains (losses), net Other income (loss) Interest credited to policyholders’ account balances Included in other comprehensive income (losses) Net investment income Realized investment gains (losses), net Other income (loss) Interest credited to policyholders’ account balances
(in millions)
Fixed maturities, available-for-sale $ (13 ) $ 0
$ 0
$ (39 ) $ 8
$ (30 ) $ 0
$ 0
Assets supporting experience-rated contractholder liabilities 0
(13 ) 0
0
4
0
(11 ) 0
Other assets:
Fixed maturities, trading 1
2
0
0
0
0
4
0
Equity securities 0
2
0
0
0
0
(1 ) 0
Other invested assets 4
0
0
0
0
2
0
0
Short-term investments (1 ) 0
0
0
0
(1 ) 0
0
Cash equivalents 0
0
0
0
0
0
0
0
Other assets (13 ) 0
0
0
0
(13 ) 0
0
Separate account assets(5) 0
0
(11 ) 0
0
0
0
(5 )
Liabilities:
Future policy benefits 2,709
0
0
0
0
2,529
0
0
Policyholders’ account balances (3 ) 0
0
0
0
(3 ) 0
0
Other liabilities (34 ) 0
0
0
0
(33 ) 0
0
Notes issued by consolidated VIEs 0
0
0
0
0
0
0
0

4450

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

__________


(1)	“Other,” for the periods ended June 30, ~~2019~~2020 and June 30, ~~2018,~~2019, primarily represent deconsolidation of VIE, reclassifications of certain assets between reporting categories and foreign currency translation.


(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)


(6)	Issuances and settlements for Policyholders’ account balances are presented net in the rollforward. ~~Prior year amounts are restated~~

(7)

Effective January 1, 2020, the changes in unrealized gains and losses for the period 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 year presentation.~~the Disclosure Requirements for Fair Value Measurement.

Derivative Fair Value Information

The following tables present the balances of derivative assets and liabilities measured at fair value on a recurring basis, as of the date indicated, by primary underlying risk. These tables include NPR and exclude embedded derivatives and associated reinsurance recoverables. The derivative assets and liabilities shown below are included in “Other invested assets” or “Other liabilities” in the tables contained within the sections “—Assets and Liabilities by Hierarchy Level” and “—Changes in Level 3 Assets and Liabilities,” above.


	As of June 30, 2019												As of June 30, 2020
	Level 1		Level 2		Level 3		Netting(1)			Total			Level 1		Level 2		Level 3		Netting(1)			Total
	(in millions)												(in millions)
Derivative Assets:
Interest Rate	$	3	$	10,548	$	1	$			$	10,552		$	6	$	25,383	$	1	$			$	25,390
Currency	0		346		0					346			0		381		0					381
Credit	0		103		0					103			0		20		0					20
Currency/Interest Rate	0		2,497		0					2,497			0		4,292		0					4,292
Equity	1		607		0					608			63		617		0					680
Other	0		0		0					0			0		0		0					0
Netting(1)							(13,063		)	(13,063		)							(29,119		)	(29,119		)
Total derivative assets	$	4	$	14,101	$	1	$	(13,063	)	$	1,043		$	69	$	30,693	$	1	$	(29,119	)	$	1,644
Derivative Liabilities:
Interest Rate	$	8	$	4,938	$	0	$			$	4,946		$	44	$	11,524	$	0	$			$	11,568
Currency	0		122		0					122			0		247		0					247
Credit	0		2		0					2			0		17		0					17
Currency/Interest Rate	0		756		0					756			0		396		0					396
Equity	5		1,094		0					1,099			84		1,373		0					1,457
Other	0		0		0					0			0		0		0					0
Netting(1)							(6,368		)	(6,368		)							(13,001		)	(13,001		)
Total derivative liabilities	$	13	$	6,912	$	0	$	(6,368	)	$	557		$	128	$	13,557	$	0	$	(13,001	)	$	684

4551

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated 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 millions)												(in millions)
Derivative Assets:
Interest Rate	$	23	$	6,341	$	2	$			$	6,366		$	4	$	11,238	$	1	$			$	11,243
Currency	0		273		0					273			0		230		0					230
Credit	0		33		0					33			0		21		0					21
Currency/Interest Rate	0		2,292		0					2,292			0		2,207		0					2,207
Equity	0		1,515		0					1,515			2		683		0					685
Other	0		0		0					0			0		0		0					0
Netting(1)							(9,331		)	(9,331		)							(13,519		)	(13,519		)
Total derivative assets	$	23	$	10,454	$	2	$	(9,331	)	$	1,148		$	6	$	14,379	$	1	$	(13,519	)	$	867
Derivative Liabilities:
Interest Rate	$	2	$	3,818	$	0	$			$	3,820		$	38	$	5,176	$	0	$			$	5,214
Currency	0		140		0					140			0		271		0					271
Credit	0		23		0					23			0		0		0					0
Currency/Interest Rate	0		778		0					778			0		647		0					647
Equity	7		640		0					647			3		1,401		0					1,404
Other	0		0		0					0			0		0		0					0
Netting(1)							(5,281		)	(5,281		)							(6,705		)	(6,705		)
Total derivative liabilities	$	9	$	5,399	$	0	$	(5,281	)	$	127		$	41	$	7,495	$	0	$	(6,705	)	$	831

__________


(1)	“Netting” amounts represent cash collateral and the impact of offsetting asset and liability positions held with the same counterparty, subject to master netting agreement.

Changes in Level 3 derivative assets and liabilities—The following tables provide a summary of the changes in fair value of Level 3 derivative 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.


	Three Months Ended June 30, 2019																						Three Months Ended June 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)		Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)																						(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		0		0		1		0		1		0		0		0		0		0		0		0		0		1		0



	Six Months Ended June 30, 2020
	Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		0		0		1		0

Six Months Ended June 30, 2019
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other(3) Transfers into
Level 3(2) Transfers out of Level 3(2) Fair Value, end of period Unrealized gains (losses) for assets still held(1)
(in millions)
Net Derivative - Equity $ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
Net Derivative - Interest Rate 2
(1 ) 0
0
0
0
0
0
0
1
(1 )

4652

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Three Months Ended June 30, 2018
Fair Value, beginning of period Total realized and unrealized gains (losses)(1) Purchases Sales Issuances Settlements Other Transfers into
Level 3(2) Transfers out of Level 3(2) Fair Value, end of period Unrealized gains (losses) for assets still held(1)
(in millions)
Net Derivative - Equity $ 6
$ 0
$ 0
$ 0
$ 0
$ 0
$ (4 ) $ 0
$ 0
$ 2
$ 0
Net Derivative - Interest Rate 6
(4 ) 0
0
0
0
0
0
0
2
4



	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(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)
Net Derivative - Equity	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	1		0		0		0		0		0		0		0		0		1		0


	Six Months Ended June 30, 2018																								Six Months Ended June 30, 2019
	Fair Value, beginning of period			Total realized and unrealized gains (losses)(1)		Purchases		Sales		Issuances		Settlements		Other(3)			Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)		Fair Value, beginning of period		Total realized and unrealized gains (losses)(1)			Purchases		Sales		Issuances		Settlements		Other		Transfers into Level 3(2)		Transfers out of Level 3(2)		Fair Value, end of period		Unrealized gains (losses) for assets still held(1)
	(in millions)																								(in millions)
Net Derivative - Equity	$	10		$	1	$	0	$	0	$	0	$	0	$	(9	)	$	0	$	0	$	2	$	0	$	0	$	0		$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Net Derivative - Interest Rate	(3		)	5		0		0		0		0		0			0		0		2		5		2		(1		)	0		0		0		0		0		0		0		1		(1		)

______


(1)	Total realized and unrealized gains (losses) as well as unrealized gains (losses) for assets still held at the end of the period are recorded in “Realized investment gains (losses), net.”


(2)	Transfers into or out of Level 3 are generally reported at the value as of the beginning of the quarter in which the transfers occur for any such positions still held at the end of the quarter.


~~(3)~~	~~Represents conversion of warrants to equity shares.~~

Nonrecurring Fair Value Measurements—The following tables represent information for assets measured at fair value on a nonrecurring basis. The fair value measurement is nonrecurring as these assets are measured at fair value only when there is a triggering event (e.g., an evidence of impairment). Assets included in the table are those that were impaired during the respective reporting periods and that are still held as of the reporting date. The estimated fair values for these amounts were determined using significant unobservable inputs (Level 3).


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Realized investment gains (losses) net:
Commercial mortgage loans(1)	$	0		$	(13	)	$	0		$	(13	)	$	(3	)	$	0		$	(3	)	$	0
Mortgage servicing rights(2)	$	(1	)	$	2		$	(2	)	$	4		$	(26	)	$	(1	)	$	(29	)	$	(2	)


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Carrying value after measurement as of period end:
Commercial mortgage loans(1)	$	14	$	47	$	11	$	15
Mortgage servicing rights(2)	$	66	$	73	$	280	$	87

__________


(1)	Commercial mortgage loans are valued based on discounted cash flows utilizing market rates or the fair value of the underlying real estate collateral.

(2)

Mortgage servicing rights are valued using a discounted cash flow model. The model incorporates assumptions for servicing revenues, which are adjusted for expected prepayments, delinquency rates, escrow deposit income and estimated loan servicing expenses. The discount rates incorporated into the model are determined based on the estimated returns a market participant would require for this business including a liquidity and risk premium. This estimate includes available relevant data from any active market sales of mortgage servicing rights.

4753

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Fair Value Option

The fair value option allows the Company to elect fair value as an alternative measurement for selected financial assets and financial liabilities not otherwise reported at fair value. Such elections have been made by the Company to help mitigate volatility in earnings that result from different measurement attributes. Electing the fair value option also allows the Company to achieve consistent accounting for certain assets and liabilities. Changes in fair value are reflected in “Realized investment gains (losses), net” for commercial mortgage and other loans and “Other income (loss)” for other assets and notes issued by consolidated VIEs. Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and quality ratings for the period reported. Interest income on commercial mortgage and other loans is included in “Net investment income.” Interest income on these loans is recorded based on the effective interest ~~rates~~rate as determined at the closing of the loan.

The following tables present information regarding assets and liabilities where the fair value option has been elected.


	Three Months Ended June 30,						Six Months Ended June 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019		2018		2020			2019			2020			2019
	(in millions)										(in millions)
Liabilities:
Notes issued by consolidated VIEs:
Changes in fair value	$	(1	)	$	(3	)	$	1	$	0	$	(59	)	$	(1	)	$	(59	)	$	1


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(in millions)								(in millions)
Commercial mortgage and other loans:
Interest income	$	5	$	4	$	11	$	6	$	4	$	5	$	6	$	11
Notes issued by consolidated VIEs:
Interest expense	$	13	$	9	$	22	$	18	$	11	$	13	$	22	$	22


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Commercial mortgage and other loans(1):
Fair value as of period end	$	645	$	763	$	682	$	228
Aggregate contractual principal as of period end	$	639	$	754	$	670	$	224
Other assets:
Fair value as of period end	$	10	$	10	$	10	$	10
Notes issued by consolidated VIEs:
Fair value as of period end	$	816	$	595	$	741	$	800
Aggregate contractual principal as of period end	$	857	$	632	$	857	$	857

__________


(1)	As of June 30, ~~2019,~~2020, for loans for which the fair value option has been elected, there were no0 loans in non-accrual status and ~~none~~NaN of the loans were more than 90 days past due and still accruing.

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 Consolidated Statements of Financial Position. In some cases, as described below, the carrying amount equals or approximates fair value.

4854

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	June 30, 2019										June 30, 2020
	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 millions)										(in millions)
Assets:
Fixed maturities, held-to-maturity(2)	$	0	$	2,310	$	100	$	2,410	$	2,009	$	0	$	2,146	$	85	$	2,231	$	1,875
Assets supporting experience-rated contractholders liabilities	5		0		0		5		5
Assets supporting experience-rated contractholder liabilities											219		100		0		319		319
Commercial mortgage and other loans	0		111		62,873		62,984		60,583		0		108		65,666		65,774		62,787
Policy loans	0		0		12,030		12,030		12,030		0		0		12,283		12,283		12,283
Other invested assets	0		36		0		36		36		0		200		0		200		200
Short-term investments	1,065		181		0		1,246		1,246		2,351		89		0		2,440		2,440
Cash and cash equivalents	6,222		1,282		0		7,504		7,504		8,785		2,271		0		11,056		11,056
Accrued investment income	0		3,355		0		3,355		3,355		0		3,296		0		3,296		3,296
Other assets	149		2,707		546		3,402		3,400		148		2,548		276		2,972		2,971
Total assets	$	7,441	$	9,982	$	75,549	$	92,972	$	90,168	$	11,503	$	10,758	$	78,310	$	100,571	$	97,227
Liabilities:
Policyholders’ account balances—investment contracts	$	0	$	31,849	$	69,964	$	101,813	$	100,934	$	0	$	37,374	$	71,832	$	109,206	$	106,501
Securities sold under agreements to repurchase	0		9,741		0		9,741		9,741		0		10,488		0		10,488		10,488
Cash collateral for loaned securities	0		4,235		0		4,235		4,235		0		3,447		0		3,447		3,447
Short-term debt	0		1,870		926		2,796		2,659		0		1,036		102		1,138		1,130
Long-term debt(3)	1,909		16,780		1,334		20,023		17,841		1,900		19,884		1,206		22,990		20,162
Notes issued by consolidated VIEs	0		0		430		430		430		0		0		456		456		456
Other liabilities	0		6,431		545		6,976		6,976		0		7,546		48		7,594		7,594
Separate account liabilities—investment contracts	0		74,167		24,792		98,959		98,959		0		77,492		23,687		101,179		101,179
Total liabilities	$	1,909	$	145,073	$	97,991	$	244,973	$	241,775	$	1,900	$	157,267	$	97,331	$	256,498	$	250,957

4955

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	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 millions)										(in millions)
Assets:
Fixed maturities, held-to-maturity(2)	$	0	$	1,468	$	904	$	2,372	$	2,013	$	0	$	2,217	$	85	$	2,302	$	1,933
Assets supporting experience-rated contractholders liabilities	0		0		0		0		0
Assets supporting experience-rated contractholder liabilities											16		0		0		16		16
Commercial mortgage and other loans	0		109		59,106		59,215		59,067		0		107		65,558		65,665		63,331
Policy loans	0		0		12,016		12,016		12,016		0		0		12,096		12,096		12,096
Other invested assets	0		40		0		40		40		0		36		0		36		36
Short-term investments	951		25		0		976		976		1,492		39		0		1,531		1,531
Cash and cash equivalents	4,871		1,004		0		5,875		5,875		6,278		1,043		0		7,321		7,321
Accrued investment income	0		3,318		0		3,318		3,318		0		3,330		0		3,330		3,330
Other assets	141		2,189		483		2,813		2,813		147		2,526		643		3,316		3,315
Total assets	$	5,963	$	8,153	$	72,509	$	86,625	$	86,118	$	7,933	$	9,298	$	78,382	$	95,613	$	92,909
Liabilities:
Policyholders’ account balances—investment contracts	$	0	$	31,422	$	67,006	$	98,428	$	99,829	$	0	$	32,940	$	69,216	$	102,156	$	101,241
Securities sold under agreements to repurchase	0		9,950		0		9,950		9,950		0		9,681		0		9,681		9,681
Cash collateral for loaned securities	0		3,929		0		3,929		3,929		0		4,213		0		4,213		4,213
Short-term debt	0		1,854		658		2,512		2,451		0		1,748		205		1,953		1,933
Long-term debt(3)	1,734		15,057		1,181		17,972		17,378		1,950		18,188		1,186		21,324		18,646
Notes issued by consolidated VIEs	0		0		360		360		360		0		0		474		474		474
Other liabilities	0		6,338		510		6,848		6,848		0		6,403		579		6,982		6,982
Separate account liabilities—investment contracts	0		66,914		26,022		92,936		92,936		0		77,134		24,407		101,541		101,541
Total liabilities	$	1,734	$	135,464	$	95,737	$	232,935	$	233,681	$	1,950	$	150,307	$	96,067	$	248,324	$	244,711

__________


(1)	Carrying values presented herein differ from those in the Company’s Unaudited Interim Consolidated 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.


(2)	Excludes notes with fair value of ~~$5,190~~$5,603 million (carrying amount of ~~$4,879~~$4,998 million) and ~~$4,879~~$5,401 million (carrying amount of ~~$4,879~~$4,998 million) as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which have been offset with the associated payables under a netting agreement.


(3)	Includes notes with fair value of ~~$9,546~~$12,069 million (carrying amount of ~~$9,235~~$11,464 million) and ~~$9,095~~$10,158 million (carrying amount of ~~$9,095~~$9,749 million) as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which have been offset with the associated receivables under a netting agreement.


7.	~~LEASES~~

The Company occupies leased office space and other facilities in many locations under various long-term leases and has entered into numerous leases covering the long-term use of computers and other equipment. The leases, depending on their specific terms, are classified as either operating or finance with the vast majority of leases falling under the operating classification. The leases in the Company’s portfolio have remaining lease terms from less than one year to 30 years, some of which include options to extend the leases for up to 18 years, and some of which include options to terminate the leases within 8 years. An analysis of all economic and non-economic factors associated with leases containing certain options, including factors such as the existence of cancellation penalties, leasehold improvements made to the underlying assets and location of the underlying assets, is conducted to determine whether those leases are reasonably certain to renew, and, hence, should be included in the lease term that is used to establish the right-of-use assets and lease liabilities for those arrangements.

~~The Company does not have residual guarantees associated with its lessee arrangements, nor are there any restrictions or covenants associated with its lease arrangements.~~

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

~~Lessee~~

Supplemental balance sheet information related to leases where the Company is the lessee is included below. Right-of-use assets and lease liabilities are included within “Other assets” and “Other liabilities” respectively.

June 30, 2019
(in millions)
Operating Leases:

Right-of-use assets $ 561
Lease liabilities $ 589

Weighted average remaining lease term 6 years
Weighted average discount rate 2.62 %

~~Maturities of operating lease liabilities are as follows:~~

June 30, 2019
(in millions)
2019 (July — December) $ 85
2020 141
2021 122
2022 88
2023 65
Thereafter 144
Total lease payments 645
Less imputed interest (56 )
Total $ 589

Lease expense is included in “General and administrative expenses.” The expense was comprised of operating lease costs and short-term lease costs of $35 million and $26 million, respectively, for the three months ended June 30, 2019, and $69 million and $50 million, respectively, for the six months ended June 30, 2019. Short-term lease costs relate to those leases with terms of twelve months or less that do not include an option to purchase the underlying asset that is reasonably certain of exercise.

~~Lessor~~

The Company directly owns real estate properties within its investment portfolio. Such real estate is leased to third-parties, with the Company serving as the lessor. The terms of the leases vary depending on property type (e.g., commercial or residential). In most cases, the lessee has an option to renew the lease contract based on market rates but does not have an option to purchase the property. The terms of the leases may also include provisions for the use of common areas. Such non-lease components are not separately accounted for by the Company, as a result of applying the practical expedient discussed in Note 2. Lease income included in “Net investment income” was $50 million and $100 million for the three and six months ended June 30, 2019, respectively.

8.7. CLOSED BLOCK

On December 18, 2001, the date of demutualization, The Prudential Insurance Company of America (“PICA”) established a closed block for certain in-force participating insurance policies and annuity products, along with corresponding assets used for the payment of benefits and policyholders’ dividends on these products, (collectively the “Closed Block”), and ceased offering these participating products. The recorded assets and liabilities were allocated to the Closed Block at their historical carrying amounts. The Closed Block forms the principal component of the Closed Block division. For ~~more~~additional information on the Closed Block, see Note 1415 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company recognized a policyholder dividend obligation of ~~$2,359~~$2,450 million and ~~$2,252~~$2,816 million, respectively, to Closed Block policyholders for the excess of actual cumulative earnings over expected cumulative earnings. Additionally, accumulated net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block have been reflected as a policyholder dividend obligation of ~~$3,201~~$5,305 million and ~~$899~~$3,332 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, to be paid to Closed Block policyholders unless offset by future experience, with a corresponding amount reported in AOCI.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Closed Block liabilities and assets designated to the Closed Block, as well as maximum future earnings to be recognized from these liabilities and assets, are as follows:


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(in millions)						(in millions)
Closed Block liabilities
Future policy benefits	$	47,940		$	48,282		$	47,142		$	47,613
Policyholders’ dividends payable	810			812			728			717
Policyholders’ dividend obligation	5,560			3,150			7,755			6,149
Policyholders’ account balances	5,011			5,061			4,914			4,973
Other Closed Block liabilities	4,282			3,955			3,322			4,049
Total Closed Block liabilities	63,603			61,260			63,861			63,501
Closed Block assets
Fixed maturities, available-for-sale, at fair value	40,602			38,538			42,058			41,146
Fixed maturities, trading, at fair value	236			195			239			256
Equity securities, at fair value	2,055			1,784			2,047			2,245
Commercial mortgage and other loans	8,451			8,782			8,388			8,629
Policy loans	4,328			4,410			4,158			4,264
Other invested assets	3,291			3,316			3,259			3,333
Short-term investments	659			477			95			227
Total investments	59,622			57,502			60,244			60,100
Cash and cash equivalents	633			467			462			191
Accrued investment income	460			466			436			456
Other Closed Block assets	199			105			86			93
Total Closed Block assets	60,914			58,540			61,228			60,840
Excess of reported Closed Block liabilities over Closed Block assets	2,689			2,720			2,633			2,661
Portion of above representing accumulated other comprehensive income (loss):
Net unrealized investment gains (losses)	3,156			857			5,250			3,280
Allocated to policyholder dividend obligation	(3,201		)	(899		)	(5,305		)	(3,332		)
Future earnings to be recognized from Closed Block assets and Closed Block liabilities	$	2,644		$	2,678		$	2,578		$	2,609

Information regarding the policyholder dividend obligation is as follows:


	Six Months Ended June 30, 2019		Six Months Ended June 30, 2020
	(in millions)		(in millions)
Balance, December 31, 2018	$	3,150
Balance, December 31, 2019			$	6,149
Cumulative effect adjustment from the adoption of ASU 2016-13(1)			(13		)
Impact from earnings allocable to policyholder dividend obligation	107		(353		)
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation	2,303		1,972
Balance, June 30, 2019	$	5,560
Balance, June 30, 2020			$	7,755

__________


(1)	See Note 2 for more information.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Closed Block revenues and benefits and expenses are as follows for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Revenues
Premiums	$	581		$	602		$	1,108		$	1,152		$	519		$	581		$	999		$	1,108
Net investment income	576			593			1,141			1,190			515			576			1,063			1,141
Realized investment gains (losses), net	49			110			105			108			(8		)	49			248			105
Other income (loss)	97			85			325			107			318			97			(285		)	325
Total Closed Block revenues	1,303			1,390			2,679			2,557			1,344			1,303			2,025			2,679
Benefits and Expenses
Policyholders’ benefits	780			778			1,489			1,506			725			780			1,372			1,489
Interest credited to policyholders’ account balances	32			33			64			66			32			32			64			64
Dividends to policyholders	415			508			968			816			517			415			423			968
General and administrative expenses	89			92			178			184			82			89			167			178
Total Closed Block benefits and expenses	1,316			1,411			2,699			2,572			1,356			1,316			2,026			2,699
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes	(13		)	(21		)	(20		)	(15		)	(12		)	(13		)	(1		)	(20		)
Income tax expense (benefit)	(29		)	(36		)	(53		)	(45		)	(28		)	(29		)	(34		)	(53		)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes	$	16		$	15		$	33		$	30		$	16		$	16		$	33		$	33

9.8. 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 “Total income tax expense” divided by projected “Income before income taxes and equity in earnings of operating joint ventures.” Taxes attributable to operating joint ventures are recorded within “Equity in earnings of operating joint ventures, net of 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, on a consolidated basis, amounted to an income tax expense of ~~$394~~$57 million, or ~~19.5%~~(2.1)% of income (loss) before income taxes and equity in earnings of operating joint ventures, in the first six months of ~~2019,~~2020, compared to ~~$420~~an income tax expense of $394 million, or ~~21.6%~~19.5%, in the first six months of ~~2018.~~2019. The Company’s current and prior effective tax rates ~~differed~~differ from the U.S. statutory rate of 21% primarily due to non-taxable investment income, tax credits and foreign earnings taxed at higher rates than the U.S. statutory rate. ~~In addition,~~

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law. One provision of the CARES Act amends the Tax Cuts and Jobs Act (“TCJA”) and allows companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. The Company has incorporated into the full year projected effective tax rate an income tax benefit of $512 million that would result from carrying the estimated 2020 NOL back to tax years that have a 35% tax rate. The projected tax benefit related to the NOL carryback was partially offset by an incremental Global Intangible Low-Taxed Income (“GILTI”) tax expense of $140 million driven by projected overall domestic losses (“ODLs”) which resulted in a reduced GILTI foreign tax credit. These amounts are estimates and will change if the amount of, and sources of, 2020 net taxable income are different from forecast. The inclusion of these two amounts in the full year projected effective tax rate results in a projected negative effective tax rate for the year, which when applied to the year-to-date pre-tax loss resulted in a $781 million increase to our income tax expense for the first six months of ~~2018~~2020. The first six months of 2020 also ~~includes~~include a ~~$27~~$47 million reduction in income tax expense ~~primarily~~recorded as a discrete item from the carryback of 2018 NOL and related ODL.

On July 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations which will allow an annual election to ~~refinements~~exclude from the U.S. tax return certain GILTI amounts when the taxes paid by a foreign affiliate exceeds 18.9% (90% of U.S. statutory rate of 21%) of the ~~Company’s provisional estimates related~~GILTI amount for that foreign affiliate (the “high-tax exception”). These regulations are effective for the 2021 taxable year with an election to apply to any taxable year beginning after 2017. In many of the countries in which we operate, including Japan, there are differences between local tax rules used to determine the tax base and the U.S. ~~Tax Cuts and Jobs Act of 2017.~~

tax principles used to determine GILTI. Also, our Japan affiliates have a different tax year than the U.S. calendar tax year used to

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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

~~10.~~determine GILTI. Therefore, while many of the countries, including Japan, have a statutory tax rate above the 18.9% threshold, separate affiliates may not meet the 18.9% threshold each year and, as such, may not qualify for this exclusion. The Company is in the process of reviewing and estimating the impacts of the regulations and will record any such impacts in the third quarter of 2020.

The Treasury Department and the IRS also issued Proposed Regulations on July 20th which would require that, if a high-tax exception election is made with respect to GILTI in any year, an election having the same effect must also be made with regard to income taxed under Subpart F of the Tax Code. Such an election under Subpart F of the Tax Code would apply to the Full Inclusion election made by the Company for its insurance operations in Brazil, thereby increasing the tax rate applied to our Brazil insurance operations. The Proposed Regulations will be effective for taxable years beginning after they are issued in final form.

9. SHORT-TERM AND LONG-TERM DEBT

Short-term Debt

The table below presents the Company’s short-term debt as of the dates indicated:


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	($ in millions)						($ in millions)
Commercial paper:
Prudential Financial	$	25		$	15		$	25		$	25
Prudential Funding, LLC	820			727			475			524
Subtotal commercial paper	845			742			500			549
Mortgage Debt(1)	52			53
Current portion of long-term debt(2)	1,756			1,656
Other(3)	6			0
Total short-term debt(4)	$	2,659		$	2,451
Current portion of long-term debt:
Senior Notes							528			1,179
Mortgage Debt							95			192
Surplus notes subject to set-off arrangements (1)							250			0
Subtotal current portion of long-term debt							873			1,371
Other(2)							7			13
Subtotal							1,380			1,933
Less: assets under set-off arrangements(1)							250			0
Total short-term debt(3)							$	1,130		$	1,933
Supplemental short-term debt information:
Portion of commercial paper borrowings due overnight	$	220		$	301		$	240		$	224
Daily average commercial paper outstanding	$	1,676		$	1,554
Daily average commercial paper outstanding for the quarter ended							$	1,869		$	1,702
Weighted average maturity of outstanding commercial paper, in days	11			12			14			6
Weighted average interest rate on outstanding commercial paper	2.42		%	1.90		%	0.13		%	1.61		%

~~__________~~_________


(1)	The surplus notes have corresponding assets where rights to set-off exist, thereby reducing the amount of surplus notes.


(2)	Includes $7 million drawn on a revolving line of credit held by a subsidiary at June 30, 2020.

~~(1) Includes $52 million and $53 million of mortgage debt denominated in foreign currency at June 30, 2019 and December 31, 2018, respectively.~~

(2) Includes $1,003 million and $1,100 million of senior notes at June 30, 2019 and December 31, 2018, respectively, and $253 million and $57 million of mortgage debt that has recourse only to real estate investment property at June 30, 2019 and December 31, 2018, respectively.

(3) ~~Includes $6 million drawn on a revolving line of credit held by a subsidiary at June 30, 2019.~~

~~(4)~~ Includes Prudential Financial debt of ~~$1,027~~$553 million and ~~$1,115~~$1,204 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Prudential Financial and certain subsidiaries have access to external sources of liquidity, including membership in the Federal Home Loan Banks, commercial paper programs and a contingent financing ~~facility~~facilities in the form of a put option agreement and facility agreement. The Company also maintains syndicated, unsecured committed credit facilities as an alternative source of liquidity. At June 30, ~~2019, no~~2020, 0 amounts were drawn on these credit facilities. For additional information on these sources of liquidity, see Note 1617 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Federal Home Loan Bank of New York (“FHLBNY”)

In the first quarter of 2020, PICA issued $3.6 billion in funding agreements under the FHLBNY facility. As of June 30, 2020, $3.6 billion of funding agreements remain outstanding under this facility with maturities ranging from five months to seven years

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

and rates from 0.430% to 1.925%. These funding agreements are reflected as “Policyholders’ account balances” on the Consolidated Statements of Financial Position and as such are not included in the foregoing table. For additional information on this facility, see Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Facility Agreement for Senior Debt Issuance

In May 2020, Prudential Financial entered into a ten-year facility agreement with a Delaware trust upon the completion of the sale of $1.5 billion of trust securities by that Delaware trust in a Rule 144A private placement. The trust invested the proceeds from the sale of the trust securities in a portfolio of principal and/or interest strips of U.S. Treasury securities. The facility agreement provides Prudential Financial the right to issue and sell to the trust from time to time up to $1.5 billion of 2.850% senior notes due May 15, 2030 and receive in exchange a corresponding amount of the U.S. Treasury securities held by the trust. In return, the Company agreed to pay a semi-annual facility fee to the trust at a rate of 2.175% per annum applied to the maximum amount of senior notes that the Company could issue and sell to the trust. The facility agreement with the trust provides Prudential Financial with a source of liquid assets in exchange for notes and is similar to the Company’s existing put option agreement in respect of $1.5 billion of senior notes that expires in 2023.

The right to issue senior notes described above will be exercised automatically in full upon the Company’s failure to make certain payments to the trust, such as paying the facility fee or reimbursing the trust for its expenses, if the Company’s failure to pay is not cured within 30 days, and upon an event involving its bankruptcy. The Company is also required to exercise this issuance right if its consolidated stockholders’ equity, calculated in accordance with U.S. GAAP but excluding AOCI, falls below $9.0 billion, subject to adjustment in certain cases. Prior to any involuntary exercise of the issuance right, the Company has the right to repurchase any of its senior notes then held by the trust in exchange for U.S. Treasury securities. Finally, Prudential Financial may redeem any outstanding senior notes, in whole or in part, prior to February 15, 2030, at a redemption price equal to the greater of par or a make-whole price, or thereafter, redeem the senior notes, in whole or in part, at par.

Long-term Debt

The table below presents the Company’s long-term debt as of the dates indicated:

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

June 30, 2019 December 31, 2018

(in millions)
Fixed-rate obligations:
Surplus notes $ 342
$ 341
Surplus notes subject to set-off arrangements(1) 7,035
6,895
Senior notes 9,106
8,774
Mortgage debt(2) 160
237
Floating-rate obligations:
Line of credit 299
0
Surplus notes subject to set-off arrangements(1) 2,200
2,200
Senior notes 29
29
Mortgage debt(3) 333
429
Junior subordinated notes(4) 7,572
7,568
Subtotal 27,076
26,473
Less: assets under set-off arrangements(1) 9,235
9,095
Total long-term debt(5) $ 17,841
$ 17,378



	June 30, 2020		December 31, 2019
	(in millions)
Fixed-rate obligations:
Surplus notes	$	343	$	342
Surplus notes subject to set-off arrangements(1)	8,884		7,484
Senior notes	11,575		10,084
Mortgage debt(2)	100		104
Floating-rate obligations:
Line of credit	300		300
Surplus notes subject to set-off arrangements(1)	2,330		2,265
Mortgage debt(3)	264		241
Junior subordinated notes(4)	7,580		7,575
Subtotal	31,376		28,395
Less: assets under set-off arrangements(1)	11,214		9,749
Total long-term debt(5)	$	20,162	$	18,646

__________


(1)	The surplus notes have corresponding assets where rights to set-off exist, thereby reducing the amount of surplus notes included in long-term debt.


(2)	Includes ~~$99~~$40 million and ~~$101~~$43 million of debt denominated in foreign currency at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.


(3)	Includes ~~$166~~$50 million and ~~$206~~$53 million of debt denominated in foreign currency at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.


(4)	Includes Prudential Financial debt of ~~$7,514~~$7,522 million and $7,518 million at June 30, ~~2019.~~2020 and December 31, 2019, respectively. Also includes subsidiary debt of $58 million and $57 million denominated in foreign currency at June 30, ~~2019.~~2020 and December 31, 2019, respectively.


(5)	Includes Prudential Financial debt of ~~$16,475~~$18,925 million and ~~$16,141~~$17,430 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company was in compliance with all debt covenants related to the borrowings in the table above.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

~~Line~~Surplus Notes. In March 2020, Prudential Legacy Insurance Company of ~~Credit.~~ ~~PGIM entered into a $300~~New Jersey issued $800 million ~~syndicated credit facility in April 2019 that is secured by certain~~ of PGIM’s fund investments. The facility has a three-year term and extends for additional one-year periods unless terminated. The lenders on the facility have recourse only to the collateral pledged by PGIM. The facility was fully drawn assurplus notes under its $4 billion reserve financing facility. As of June 30, 2020, an aggregate of $900 million of surplus notes was outstanding under the facility and no credit-linked note payments have been required. For additional information on this facility, see Note 17 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In June 2020, the Company established a new $1.2 billion captive financing facility to finance non-economic reserves required under Guideline AXXX. Similar to the Company’s other captive financing facilities, a captive reinsurance subsidiary may issue surplus notes under the facility in exchange for credit-linked notes issued by a special-purpose affiliate that are held to support non-economic reserves. The credit-linked notes are redeemable for cash upon the occurrence of a liquidity stress event affecting the captive and external counterparties have agreed to fund these payments. Prudential Arizona Reinsurance Universal Company issued $700 million of surplus notes under this facility in June 2020. As of June 30, 2020, an aggregate of $700 million of surplus notes was outstanding under the facility and no credit-linked note payments have been required.

Senior Notes. As of June 30, ~~2019,~~2020, the outstanding balance of the Company’s senior notes was ~~$10.14~~$12.1 billion, an increase of ~~$0.2~~$0.8 billion from December 31, ~~2018.~~2019. The increase ~~was~~is due to the issuance ~~in the first quarter~~ of $1$1.5 billion of medium-term notes in March 2020: $500 million with an interest rate of ~~4.350%~~1.5% maturing in ~~February 2050,~~March 2026, $500 million with an interest rate of 2.1% maturing in March 2030, and $500 million with an interest rate of 3.0% maturing in March 2040, offset by ~~$0.8 billion in~~$651 million of debt maturities in ~~the second quarter.~~

~~Mortgage Debt.~~ ~~As of~~ June 30, 2019, the Company’s subsidiaries had mortgage debt of $799 million that has recourse only to real estate property held for investment by those subsidiaries. This represents an increase of $23 million from December 31, 2018, due to a $28 million increase from new borrowings, offset by a $5 million decrease from foreign currency exchange rate fluctuations.2020.

~~11.~~10. EMPLOYEE BENEFIT PLANS

Pension and Other Postretirement Plans

The Company has funded and non-funded non-contributory defined benefit pension plans (“Pension Benefits”), which cover substantially all of its employees. For some employees, benefits are based on final average earnings and length of service, while benefits for other employees are based on an account balance that takes into consideration age, service and earnings during their career.

The Company provides certain health care and life insurance benefits for its retired employees, their beneficiaries and covered dependents (“Other Postretirement Benefits”). The health care plan is contributory; the life insurance plan is non-contributory. Substantially all of the Company’s U.S. employees may become eligible to receive Other Postretirement Benefits if they retire after age 55 with at least 10 years of service or under certain circumstances after age 50 with at least 20 years of continuous service.

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Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net periodic (benefit) cost included in “General and administrative expenses” includes the following components:


	Three Months Ended June 30,												Three Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Components of net periodic (benefit) cost:
Service cost	$	72		$	79		$	5		$	6		$	81		$	72		$	6		$	5
Interest cost	123			112			20			17			107			123			16			20
Expected return on plan assets	(204		)	(205		)	(23		)	(27		)	(202		)	(204		)	(25		)	(23		)
Amortization of prior service cost	(1		)	(1		)	1			0			(1		)	(1		)	1			1
Amortization of actuarial (gain) loss, net	54			54			6			5			66			54			4			6
Settlements	48			0			0			0			4			48			0			0
Special termination benefits	1			1			0			0
Special termination benefits(1)(2)													0			1			0			0
Net periodic (benefit) cost	$	93		$	40		$	9		$	1		$	55		$	93		$	2		$	9

	Six Months Ended June 30,												Six Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Components of net periodic (benefit) cost:
Service cost	$	145		$	158		$	11		$	12		$	161		$	145		$	12		$	11
Interest cost	246			224			39			35			215			246			32			39
Expected return on plan assets	(408		)	(409		)	(47		)	(54		)	(403		)	(408		)	(50		)	(47		)
Amortization of prior service cost	(2		)	(2		)	2			0			(2		)	(2		)	3			2
Amortization of actuarial (gain) loss, net	108			107			12			9			131			108			8			12
Settlements	48			0			0			0			4			48			0			0
Special termination benefits	1			1			0			0
Special termination benefits(1)(2)													2			1			0			0
Net periodic (benefit) cost	$	138		$	79		$	17		$	2		$	108		$	138		$	5		$	17

__________


(1)	For 2020 certain employees were provided special termination benefits under non-qualified plans in the form of unreduced early retirement benefits as a result of their involuntary termination or participation in the Voluntary Separation Program that was offered to eligible U.S.-based employees in 2019.


(2)	For 2019 certain employees were provided special termination benefits under non-qualified plans in the form of unreduced early retirement benefits as a result of their involuntary termination.

~~12.~~11. EQUITY

The changes in the number of shares of Common Stock issued, held in treasury and outstanding, are as follows for the periods indicated:


	Common Stock					Common Stock
	Issued	Held In Treasury		Outstanding		Issued	Held In Treasury		Outstanding
	(in millions)					(in millions)
Balance, December 31, 2018	660.1	249.4		410.7
Balance, December 31, 2019						666.3	267.5		398.8
Common Stock issued	0.0	0.0		0.0		0.0	0.0		0.0
Common Stock acquired	0.0	10.4		(10.4	)	0.0	6.7		(6.7	)
Stock-based compensation programs(1)	0.0	(2.7	)	2.7		0.0	(2.5	)	2.5
Balance, June 30, 2019	660.1	257.1		403.0
Balance, June 30, 2020						666.3	271.7		394.6

__________


(1)	Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.

In December ~~2018,~~2019, Prudential Financial’s Board of Directors (the “Board”) authorized the Company to repurchase at management’s discretion up to $2.0 billion of its outstanding Common Stock during the period from January 1, ~~2019~~2020 through ~~December 31, 2019. As of June 30, 2019, 10.4 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $1.0 billion.~~

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

December 31, 2020. As of June 30, 2020, 6.7 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $500 million. The Company temporarily suspended Common Stock repurchases under the existing repurchase authorization beginning April 1, 2020; however, the Company continues to evaluate the resumption of share repurchases under the existing Board authorization.

The timing and amount of share repurchases are determined by management based upon market conditions and other considerations, and repurchases may be effected in the open market, through derivative, accelerated repurchase and other negotiated transactions and through prearranged trading plans complying with Rule 10b5-1(c) under the Securities Exchange Act of 1934 (the “Exchange Act”). Numerous factors could affect the timing and amount of any future repurchases under the share repurchase authorization, including increased capital needs of the Company due to changes in regulatory capital requirements, opportunities for growth and acquisitions, and the effect of adverse market conditions on the segments.

Dividends declared per share of Common Stock are as follows for the periods indicated:

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Dividends declared per share of Common Stock $ 1.00
$ 0.90
$ 2.00
$ 1.80



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Dividends declared per share of Common Stock	$	1.10	$	1.00	$	2.20	$	2.00

Accumulated Other Comprehensive Income (Loss)

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


	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.												Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)			Total Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)			Total Accumulated Other Comprehensive Income (Loss)
	(in millions)												(in millions)
Balance, December 31, 2018	$	(564	)	$	14,745		$	(3,275	)	$	10,906
Balance, December 31, 2019													$	(536	)	$	28,112		$	(3,537	)	$	24,039
Change in OCI before reclassifications	98			17,296			(39		)	17,355			(213		)	9,449			4			9,240
Amounts reclassified from AOCI	5			(501		)	120			(376		)	5			(702		)	140			(557		)
Income tax benefit (expense)	8			(3,899		)	(19		)	(3,910		)	28			(1,881		)	(32		)	(1,885		)
Cumulative effect of adoption of ASU 2017-12	0			7			0			7
Balance, June 30, 2019	$	(453	)	$	27,648		$	(3,213	)	$	23,982
Balance, June 30, 2020													$	(716	)	$	34,978		$	(3,425	)	$	30,837

Accumulated Other Comprehensive Income (Loss) Attributable to
Prudential Financial, Inc.

Foreign Currency
Translation
Adjustment

Net Unrealized
Investment Gains
(Losses)(1)

Pension and
Postretirement
Unrecognized Net
Periodic Benefit
(Cost)

Total
Accumulated
Other
Comprehensive
Income (Loss)
(in millions)
Balance, December 31, 2017 $ (269 ) $ 19,968
$ (2,625 ) $ 17,074
Change in OCI before reclassifications (44 ) (7,502 ) 15
(7,531 )
Amounts reclassified from AOCI 0
(490 ) 114
(376 )
Income tax benefit (expense) 6
1,704
(28 ) 1,682
Cumulative effect of adoption of ASU 2016-01 0
(847 ) 0
(847 )
Cumulative effect of adoption of ASU 2018-02 (231 ) 2,282
(398 ) 1,653
Balance, June 30, 2018 $ (538 ) $ 15,115
$ (2,922 ) $ 11,655



	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)			Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2018	$	(564	)	$	14,745		$	(3,275	)	$	10,906
Change in OCI before reclassifications	98			17,296			(39		)	17,355
Amounts reclassified from AOCI	5			(501		)	120			(376		)
Income tax benefit (expense)	8			(3,899		)	(19		)	(3,910		)
Cumulative effect of adoption of ASU 2017-12	0			7			0			7
Balance, June 30, 2019	$	(453	)	$	27,648		$	(3,213	)	$	23,982

__________


(1)	Includes cash flow hedges of $2,498 million and $832 million as of June 30, 2020 and December 31, 2019, respectively, and $1,017 million and $811 million as of June 30, 2019 and December 31, 2018, respectively, and ~~$99~~fair value hedges of $(3) million and ~~$(39)~~$0 million as of June 30, ~~2018~~2020 and December 31, ~~2017,~~2019, respectively.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reclassifications out of Accumulated Other Comprehensive Income (Loss)


	Three Months Ended June 30,						Six Months Ended June 30,						Affected line item in Consolidated Statements of Operations	Three Months Ended June 30,						Six Months Ended June 30,						Affected line item in Consolidated Statements of Operations
	2019			2018			2019			2018				2020			2019			2020			2019
	(in millions)													(in millions)
Amounts reclassified from AOCI(1)(2):
Foreign currency translation adjustment:
Foreign currency translation adjustments	$	0		$	0		$	(5	)	$	0		Realized investment gains (losses), net	$	(2	)	$	0		$	(5	)	$	(5	)	Realized investment gains (losses), net
Foreign currency translation adjustments	0			0			0			0			Other income (loss)	0			0			0			0			Other income (loss)
Total foreign currency translation adjustment	0			0			(5		)	0				(2		)	0			(5		)	(5		)
Net unrealized investment gains (losses):
Cash flow hedges—Interest rate	0			2			(1		)	2			(3)	9			0			8			(1		)	(3)
Cash flow hedges—Currency	1			3			2			0			(3)	3			1			4			2			(3)
Cash flow hedges—Currency/Interest rate	156			294			171			245			(3)	32			156			420			171			(3)
Net unrealized investment gains (losses) on available-for-sale securities	69			165			329			243				112			69			270			329
Total net unrealized investment gains (losses)	226			464			501			490			(4)	156			226			702			501			(4)
Amortization of defined benefit pension items:
Prior service cost	0			1			0			2			(5)	0			0			(1		)	0			(5)
Actuarial gain (loss)	(60		)	(59		)	(120		)	(116		)	(5)	(70		)	(60		)	(139		)	(120		)	(5)
Total amortization of defined benefit pension items	(60		)	(58		)	(120		)	(114		)		(70		)	(60		)	(140		)	(120		)
Total reclassifications for the period	$	166		$	406		$	376		$	376			$	84		$	166		$	557		$	376

__________


(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 5 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 and other costs, future policy benefits and policyholders’ dividends.


(5)	See Note 1110 for information on employee benefit plans.

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 Consolidated Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from “Other comprehensive income (loss)” those items that are included as part of “Net income (loss)” for a period that had been part of “Other comprehensive income (loss)” 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:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

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			DAC, DSI, VOBA and Reinsurance Recoverables			Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables			Policyholders’ Dividends			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)			Net Unrealized Gains (Losses) on Investments			DAC, DSI, VOBA and Reinsurance Recoverables		Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables		Policyholders’ Dividends			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
	(in millions)																		(in millions)
Balance, December 31, 2018	$	189		$	(1	)	$	4		$	(23	)	$	(61	)	$	108
Balance, December 31, 2019(1)																			$	0		$	0	$	0	$	0		$	0		$	0
Net investment gains (losses) on investments arising during the period	118												(27		)	91			34										(7		)	27
Reclassification adjustment for (gains) losses included in net income	(29		)										7			(22		)	13										(3		)	10
Reclassification adjustment for OTTI losses excluded from net income(1)	0												0			0
Increase (Decrease) due to non-credit related losses recognized in AOCI during the period																			(87		)								19			(68		)
Impact of net unrealized investment (gains) losses on DAC, DSI, VOBA and reinsurance recoverables				0									0			0						2							0			2
Impact of net unrealized investment (gains) losses on future policy benefits and policyholders’ account balances and reinsurance payables							(4		)				1			(3		)
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders’ account balances and reinsurance payables																								0					0			0
Impact of net unrealized investment (gains) losses on policyholders’ dividends										(4		)	1			(3		)								(5		)	1			(4		)
Balance, June 30, 2019	$	278		$	(1	)	$	0		$	(27	)	$	(79	)	$	171
Balance, June 30, 2020																			$	(40	)	$	2	$	0	$	(5	)	$	10		$	(33	)

__________


(1)	~~Represents “transfers in” related to the portion of OTTI~~Allowance for credit losses ~~recognized during the period that were not recognized in earnings for~~on available-for-sale fixed maturity securities ~~with no prior OTTI loss.~~effective January 1, 2020.

All Other Net Unrealized Investment Gains (Losses) in AOCI

Net Unrealized
Gains (Losses)
on Investments(1)
DAC, DSI, VOBA and Reinsurance Recoverables
Future Policy
Benefits,
Policyholders’
Account
Balances and
Reinsurance Payables

Policyholders’
Dividends

Deferred
Income
Tax
(Liability)
Benefit
Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
(in millions)
Balance, December 31, 2018 $ 22,531
$ (738 ) $ (791 ) $ (894 ) $ (5,471 ) $ 14,637
Net investment gains (losses) on investments arising during the period 21,474
(4,925 ) 16,549
Reclassification adjustment for (gains) losses included in net income (472 ) 108
(364 )
Reclassification adjustment for OTTI losses excluded from net income(2) 0
0
0
Impact of net unrealized investment (gains) losses on DAC, DSI, VOBA and reinsurance recoverables (1,180 ) 251
(929 )
Impact of net unrealized investment (gains) losses on future policy benefits and policyholders’ account balances and reinsurance payables (798 ) 201
(597 )
Impact of net unrealized investment (gains) losses on policyholders’ dividends (2,312 ) 486
(1,826 )
Cumulative effect of adoption of ASU 2017-12 9
(2 ) 7
Balance, June 30, 2019 $ 43,542
$ (1,918 ) $ (1,589 ) $ (3,206 ) $ (9,352 ) $ 27,477



	Net Unrealized Gains (Losses) on Investments(1)			DAC, DSI, VOBA and Reinsurance Recoverables			Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables			Policyholders’ Dividends			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2019(2)	$	45,339		$	(1,585	)	$	(2,909	)	$	(3,366	)	$	(9,367	)	$	28,112
Net investment gains (losses) on investments arising during the period	12,195												(2,599		)	9,596
Reclassification adjustment for (gains) losses included in net income	(715		)										152			(563		)
Reclassification due to allowance for credit losses recorded during the period	87												(19		)	68
Impact of net unrealized investment (gains) losses on DAC, DSI, VOBA and reinsurance recoverables				226									(40		)	186
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders’ account balances and reinsurance payables							(1,036		)				202			(834		)
Impact of net unrealized investment (gains) losses on policyholders’ dividends										(1,967		)	413			(1,554		)
Balance, June 30, 2020	$	56,906		$	(1,359	)	$	(3,945	)	$	(5,333	)	$	(11,258	)	$	35,011

__________


(1)	Includes cash flow and fair value hedges. See Note 5 for information on cash flow and fair value hedges.


(2)	~~Represents “transfers out” related to the portion of~~Includes net unrealized gains (losses) for which an OTTI ~~losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.~~loss had been previously recognized.

12. EARNINGS PER SHARE

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

~~13. EARNINGS PER SHARE~~

A reconciliation of the numerators and denominators of the basic and diluted per share computations of Common Stock based on the consolidated earnings of Prudential Financial for the periods indicated is as follows:



	Three Months Ended June 30,
	2020							2019
	Income			Weighted Average Shares	Per Share Amount			Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)
Basic earnings per share
Net income (loss)	$	(2,405	)					$	738
Less: Income (loss) attributable to noncontrolling interests	4							30
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	6							8
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	(2,415	)	394.6	$	(6.12	)	$	700	405.3	$	1.73
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	6						$	8
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	6							8
Stock options				0.0						1.3
Deferred and long-term compensation programs				0.0						1.1
Exchangeable Surplus Notes	0			0.0				6		6.2
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	(2,415	)	394.6	$	(6.12	)	$	706	413.9	$	1.71

__________

Three Months Ended June 30,
2019 2018
Income
Weighted
Average
Shares

Per Share
Amount
Income
Weighted
Average
Shares

Per Share
Amount
(in millions, except per share amounts)
Basic earnings per share
Net income (loss) $ 738
$ 200

Less: Income (loss) attributable to noncontrolling interests 30
3

Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards 8
4

Net income (loss) attributable to Prudential Financial available to holders of Common Stock $ 700
405.3
$ 1.73
$ 193
419.5
$ 0.46
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic $ 8
$ 4

Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted 8
4

Stock options 1.3
1.5

Deferred and long-term compensation programs 1.1
1.1

Exchangeable Surplus Notes 6
6.2
6
5.9

Diluted earnings per share
Net income (loss) attributable to Prudential Financial available to holders of Common Stock $ 706
413.9
$ 1.71
$ 199
428.0
$ 0.46

(1)

For the three months ended June 30, 2020, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share because dilutive shares and dilutive earnings per share are not applicable when a net loss is reported. As a result of the net loss attributable to Prudential Financial available to holders of Common Stock for the three months ended June 30, 2020, all potential stock options and compensation programs were considered antidilutive.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Six Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2020							2019
	Income		Weighted Average Shares	Per Share Amount		Income		Weighted Average Shares	Per Share Amount		Income			Weighted Average Shares	Per Share Amount			Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)										(in millions, except per share amounts)
Basic earnings per share
Net income (loss)	$	1,675				$	1,564				$	(2,675	)					$	1,675
Less: Income (loss) attributable to noncontrolling interests	35					4					5							35
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards	18					18					11							18
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	1,622	407.3	$	3.98	$	1,542	420.8	$	3.66	$	(2,691	)	395.8	$	(6.80	)	$	1,622	407.3	$	3.98
Effect of dilutive securities and compensation programs
Add: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Basic	$	18				$	18				$	11						$	18
Less: Dividends and undistributed earnings allocated to participating unvested share-based payment awards—Diluted	18					18					11							18
Stock options			1.2					1.7						0.0						1.2
Deferred and long-term compensation programs			1.1					1.1						0.0						1.1
Exchangeable Surplus Notes	11		6.2			11		5.9			0			0.0				11		6.2
Diluted earnings per share(1)
Net income (loss) attributable to Prudential Financial available to holders of Common Stock	$	1,633	415.8	$	3.93	$	1,553	429.5	$	3.62	$	(2,691	)	395.8	$	(6.80	)	$	1,633	415.8	$	3.93

__________

(1)

For the six months ended June 30, 2020, weighted average shares for basic earnings per share is also used for calculating diluted earnings per share because dilutive shares and dilutive earnings per share are not applicable when a net loss is reported. As a result of the net loss attributable to Prudential Financial available to holders of Common Stock for the six months ended June 30, 2020, all potential stock options and compensation programs were considered antidilutive.

Unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and included in the computation of earnings per share pursuant to the two-class method. Under this method, earnings attributable to Prudential Financial are allocated between Common Stock and the participating awards, as if the awards were a second class of stock. During periods of net income available to holders of Common Stock, the calculation of earnings per share excludes the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. In the event of a net loss available to holders of Common Stock, undistributed earnings are not allocated to participating securities and the denominator excludes the dilutive impact of these securities as they do not share in the losses of the Company. Undistributed earnings allocated to participating unvested share-based payment awards for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, as applicable, were based on ~~4.5~~5.0 million and ~~4.9~~4.5 million of such awards, respectively, and for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, as applicable, were based on ~~4.6~~5.0 million and ~~4.9~~4.6 million of such awards, respectively, weighted for the period they were outstanding.

Stock options and shares related to deferred and long-term compensation programs that are considered antidilutive are excluded from the computation of diluted earnings per share. Stock options are considered antidilutive based on application of the treasury stock method or in the event of a net loss available to holders of Common Stock. Shares related to deferred and long-term compensation programs are considered antidilutive in the event of a net loss available to holders of Common Stock. For the periods indicated, the number of stock options and shares related to deferred and long-term compensation programs that were considered antidilutive and were excluded from the computation of diluted earnings per share, weighted for the portion of the period they were outstanding, are as follows:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Three Months Ended June 30,
2019 2018
Shares
Exercise Price
Per Share
Shares
Exercise Price
Per Share
(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method 0.9
$ 105.95
0.8
$ 108.61
Antidilutive stock options due to net loss available to holders of Common Stock 0.0
0.0

Antidilutive shares based on application of the treasury stock method 0.0
0.0

Antidilutive shares due to net loss available to holders of Common Stock 0.0
0.0

Total antidilutive stock options and shares 0.9
0.8



	Three Months Ended June 30,
	2020			2019
	Shares	Exercise Price Per Share		Shares	Exercise Price Per Share
	(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method	4.7	$	74.92	0.9	$	105.95
Antidilutive stock options due to net loss available to holders of Common Stock	0.2			0.0
Antidilutive shares based on application of the treasury stock method	0.2			0.0
Antidilutive shares due to net loss available to holders of Common Stock	1.3			0.0
Total antidilutive stock options and shares	6.4			0.9


	Six Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2020			2019
	Shares	Exercise Price Per Share		Shares	Exercise Price Per Share		Shares	Exercise Price Per Share		Shares	Exercise Price Per Share
	(in millions, except per share amounts, based on weighted average)						(in millions, except per share amounts, based on weighted average)
Antidilutive stock options based on application of the treasury stock method	1.0	$	104.57	0.5	$	108.35	3.5	$	79.06	1.0	$	104.57
Antidilutive stock options due to net loss available to holders of Common Stock	0.0			0.0			0.5			0.0
Antidilutive shares based on application of the treasury stock method	0.0			0.0			0.2			0.0
Antidilutive shares due to net loss available to holders of Common Stock	0.0			0.0			1.5			0.0
Total antidilutive stock options and shares	1.0			0.5			5.7			1.0

In September 2009, the Company issued $500 million of surplus notes with an interest rate of 5.36% per annum which were exchangeable at the option of the note holders for shares of Common Stock. As of June 30, 2019, the exchange rate for the notes was 12.3877 shares of Common Stock per each $1,000 principal amount of surplus notes, which is equivalent to approximately 6.2 million shares and an exchange price per share of Common Stock of $80.73. In calculating diluted earnings per share under the if-converted method, the potential shares that would be issued assuming a hypothetical exchange, weighted for the period the notes are outstanding, are added to the denominator, and the related interest expense, net of tax, is excluded from the numerator, if the overall effect is dilutive. In July 2019, the note holders delivered notice to the Company indicating their intention to exercise the exchange option. In August 2019, as a result of the note holders’ exercise of the exchange option, the Company issued approximately 6.2 million shares of Common Stock at an exchange rate equal to 12.3877 shares of Common Stock per each $1,000 principal amount of surplus notes. The Company’s obligations under the surplus notes are now satisfied. In calculating diluted earnings per share under the if-converted method, for the three and six months ended June 30, 2019, the potential shares that would be issued assuming a hypothetical exchange, weighted for the period the notes were outstanding, are added to the denominator, and the related interest expense, net of tax, is excluded from the numerator, if the overall effect is dilutive.

~~14.~~13. SEGMENT INFORMATION

Segments

The Company’s principal operations are comprised of ~~five divisions, which together encompass seven segments,~~PGIM (the Company’s global investment management business), the U.S. Businesses (consisting of the U.S. Workplace Solutions, U.S. Individual Solutions, and ~~its~~Assurance IQ divisions), the International Businesses, the Closed Block division, and the Company’s Corporate and Other operations. ~~The PGIM division consists of the PGIM segment.~~ The U.S. Workplace Solutions division consists of the Retirement and Group Insurance ~~segments. The~~businesses, the U.S. Individual Solutions division consists of the Individual Annuities and Individual Life ~~segments. The Company also collectively refers to the U.S. Workplace Solutions division~~businesses, and the ~~U.S. Individual Solutions division as the U.S. Financial Wellness businesses. The International Insurance~~Assurance IQ division consists of the ~~International Insurance segment. The Closed Block division consists~~Assurance IQ business. In October 2019, the Company completed the acquisition of ~~the Closed Block segment.~~Assurance IQ, LLC (“Assurance IQ”), a leading consumer solutions platform that offers a range of solutions that help meet consumers’ financial needs. The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included in Corporate and ~~Other operations.~~Other. Divested and Run-off Businesses are comprised of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The Company’s Corporate and Other operations include corporate items and initiatives that are not allocated to business segments and businesses that have been or will be divested or placed in run-off, excluding the Closed ~~Black~~Block division.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Adjusted Operating Income

The Company analyzes the operating performance of each segment using “adjusted operating income.” Adjusted operating income does not equate to “Income (loss) before income taxes and equity in earnings of operating joint ventures” or “Net income (loss)” as determined in accordance with U.S. GAAP but is the measure of segment profit or loss used by the Company’s chief operating decision maker to evaluate segment performance and allocate resources, and consistent with authoritative guidance, is the measure of segment performance presented below. Adjusted operating income is calculated by adjusting each segment’s “Income (loss) before income taxes and equity in earnings of operating joint ventures” for the following items:

~~realized~~Realized investment gains (losses), net, and related adjustments;

~~charges~~Charges related to realized investment gains (losses), net;

~~market~~Market experience updates;

~~net investment gains (losses) on assets supporting experience-rated contractholder liabilities~~Divested and ~~changes in experience-rated contractholder liabilities due to asset value changes;~~Run-off Businesses;

~~divested and run-off businesses;~~Other adjustments; and

~~equity~~Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests.

These items are important to an understanding of overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and the Company’s definition of adjusted operating income may differ from that used by other companies. The Company, however, believes that the presentation of adjusted operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of its businesses. For ~~more~~additional information on these reconciling items, see Note 2122 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The Company has historically ~~recognized~~reflected the ~~immediate impacts from changes~~results of its variable annuities hedging programs in ~~current market conditions on estimates of profitability in current period~~ adjusted operating ~~income.~~income over time. Beginning with the second quarter of ~~2019,~~2020, these impacts are excluded from ~~adjusted~~adjusted operating income which the Company believes enhances the understanding of underlying performance trends. ~~These amounts represent the impact of those changes on DAC and other costs and reserves, primarily resulting from variable annuity and variable and universal life products.~~

Reconciliation of adjusted operating income to net income (loss)

The table below reconciles “Adjusted operating income before income taxes” to “Income (loss) before income taxes and equity in earnings of operating joint ventures”:

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			Three Months Ended June 30,						Six Months Ended June 30,
	(in millions)												2020			2019			2020			2019
Adjusted operating income before income taxes by segment:													(in millions)
PGIM	$	264		$	254		$	478		$	486		$	324		$	264		$	488		$	478
Total PGIM division	264			254			478			486
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	467			277			718			594			281			467			526			718
Group Insurance	81			82			134			137			5			81			49			134
Total U.S. Workplace Solutions division	548			359			852			731			286			548			575			852
U.S. Individual Solutions division:
Individual Annuities(1)	462			507			934			1,026			249			462			622			934
Individual Life	(135		)	43			(30		)	79			(64		)	(135		)	(84		)	(30		)
Total U.S. Individual Solutions division	327			550			904			1,105			185			327			538			904
International Insurance	849			784			1,771			1,640
Total International Insurance division	849			784			1,771			1,640
Corporate and Other operations	(335		)	(286		)	(747		)	(580		)
Total Corporate and Other	(335		)	(286		)	(747		)	(580		)
Assurance IQ division(2):
Assurance IQ													(16		)	0			(39		)	0
Total Assurance IQ division													(16		)	0			(39		)	0
Total U.S. Businesses													455			875			1,074			1,756
International Businesses(3)													693			790			1,391			1,649
Corporate and Other													(541		)	(335		)	(883		)	(747		)
Total segment adjusted operating income before income taxes	1,653			1,661			3,258			3,382			931			1,594			2,070			3,136
Reconciling items:
Realized investment gains (losses), net, and related adjustments	(548		)	393			(1,211		)	480
Realized investment gains (losses), net, and related adjustments(4)													(3,191		)	(572		)	(2,982		)	(1,194		)
Charges related to realized investment gains (losses), net	(82		)	(116		)	(57		)	(139		)	519			(82		)	(283		)	(57		)
Market experience updates(2)	(208		)	0			(208		)	0
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net	287			(193		)	741			(596		)
Change in experience-rated contractholder liabilities due to asset value changes	(313		)	85			(716		)	503
Divested and Run-off businesses:
Market experience updates(5)													55			(207		)	(886		)	(207		)
Divested and Run-off Businesses:
Closed Block division	(21		)	(31		)	(40		)	(40		)	(22		)	(21		)	(23		)	(40		)
Other Divested and Run-off businesses	112			(1,526		)	286			(1,598		)
Other Divested and Run-off Businesses(3)													(602		)	168			(580		)	415
Other adjustments(6)													32			0			77			0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(4		)	(23		)	(37		)	(49		)	(54		)	(4		)	(63		)	(37		)
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures	$	876		$	250		$	2,016		$	1,943
Income (loss) before income taxes and equity in earnings of operating joint ventures per Unaudited Interim Consolidated Financial Statements													$	(2,332	)	$	876		$	(2,670	)	$	2,016

~~__________~~________


(1)	Individual Annuities segment results reflect DAC as if the ~~individual annuity~~Individual Annuities business is a stand-alone operation. The elimination of intersegment costs capitalized in accordance with this policy is included in consolidating adjustments within Corporate and Other operations.

(2)

~~Represents~~Assurance IQ was acquired by the ~~immediate impacts~~Company in ~~current period results from changes~~October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in ~~current market conditions~~the Company’s Annual Report on ~~estimates of profitability, which are excluded from adjusted operating income beginning with~~Form 10-K for the ~~second quarter of~~year ended December 31, 2019. ~~The Company has historically recognized these impacts in adjusted operating income.~~

~~Reconciliation of selected financial information~~

~~The table below presents total revenues and assets for the Company’s reportable segments and its Corporate and Other operations for the periods and as of the dates indicated:~~

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Revenues Total Assets
Three Months Ended
June 30, Six Months Ended
June 30, June 30,
2019 December 31,
2018
2019 2018 2019 2018
(in millions)
PGIM $ 926
$ 816
$ 1,796
$ 1,642
$ 47,681
$ 47,690
Total PGIM division 926
816
1,796
1,642
47,681
47,690
Retirement 3,586
2,988
6,225
5,077
187,907
175,525
Group Insurance 1,461
1,424
2,902
2,840
43,699
41,727
Total U.S. Workplace Solutions division 5,047
4,412
9,127
7,917
231,606
217,252
Individual Annuities 1,288
1,266
2,523
2,518
184,220
167,899
Individual Life 1,508
1,451
2,990
2,876
91,245
83,739
Total U.S. Individual Solutions division 2,796
2,717
5,513
5,394
275,465
251,638
International Insurance 5,501
5,288
11,653
11,328
238,608
222,633
Total International Insurance division 5,501
5,288
11,653

11,328

238,608

222,633
Corporate and Other operations (164 ) (190 ) (335 ) (363 ) 19,053
16,826
Total Corporate and Other (164 ) (190 ) (335 ) (363 ) 19,053
16,826
Total 14,106
13,043
27,754

25,918

812,413

756,039
Reconciling items:
Realized investment gains (losses), net, and related adjustments (548 ) 393
(1,211 ) 480

Charges related to realized investment gains (losses), net (54 ) (92 ) (126 ) (163 )
Market experience updates(1) (7 ) 0 (7 ) 0
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net 287
(193 ) 741
(596 )
Divested and Run-off businesses:
Closed Block division 1,301
1,388
2,675
2,551
61,412
59,039
Other Divested and Run-off businesses 336
143
724
275

Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests (33 ) (27 ) (71 ) (53 )
Total per Unaudited Interim Consolidated Financial Statements $ 15,388
$ 14,655
$ 30,479
$ 28,412
$ 873,825
$ 815,078

~~__________~~


~~(1)~~(3)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 for additional information.


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


(5)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019.


(6)	Represents adjustments not included in the above reconciling items. “Other adjustments” include certain components of the consideration for the Assurance IQ acquisition, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of contingent consideration.

Reconciliation of select financial information

The tables below present certain financial information for the Company’s segments and its Corporate and Other operations, including assets by segment and revenues by segment on an adjusted operating income basis, and the reconciliation of the segment totals to amounts reported in the Consolidated Financial Statements.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	June 30, 2020		December 31, 2019
Assets by segment:	(in millions)
PGIM	$	47,722	$	47,655
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	203,191		198,153
Group Insurance	43,900		43,712
Total U.S. Workplace Solutions division	247,091		241,865
U.S. Individual Solutions division:
Individual Annuities	191,259		189,040
Individual Life	100,429		96,072
Total U.S. Individual Solutions division	291,688		285,112
Assurance IQ division(1):
Assurance IQ	2,599		2,639
Total Assurance IQ division	2,599		2,639
Total U.S. Businesses	541,378		529,616
International Businesses(2)	226,611		220,381
Corporate and Other(2)	37,927		37,573
Closed Block division	61,749		61,327
Total assets per Unaudited Interim Consolidated Financial Statements	$	915,387	$	896,552

__________


(1)	Assurance IQ was acquired by the Company ~~has historically recognized these~~in October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.


(2)	Effective second quarter of 2020, the carrying amounts of assets of POK are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 for additional information.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues on an adjusted operating income basis:	(in millions)
PGIM	$	957		$	926		$	1,735		$	1,796
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	2,992			3,586			5,429			6,225
Group Insurance	1,471			1,461			2,895			2,902
Total U.S. Workplace Solutions division	4,463			5,047			8,324			9,127
U.S. Individual Solutions division:
Individual Annuities	953			1,288			2,101			2,523
Individual Life	1,563			1,508			3,093			2,990
Total U.S. Individual Solutions division	2,516			2,796			5,194			5,513
Assurance IQ division(1):
Assurance IQ	59			0			119			0
Total Assurance IQ division	59			0			119			0
Total U.S. Businesses	7,038			7,843			13,637			14,640
International Businesses(2)	5,233			5,058			11,010			10,782
Corporate and Other	(150		)	(164		)	(355		)	(335		)
Total revenues on an adjusted operating income basis	13,078			13,663			26,027			26,883
Reconciling items:
Realized investment gains (losses), net, and related adjustments(3)	(2,241		)	(259		)	(2,695		)	(478		)
Charges related to realized investment gains (losses), net	(20		)	(54		)	(81		)	(125		)
Market experience updates(4)	(14		)	(7		)	(348		)	(7		)
Divested and Run-off Businesses:
Closed Block division	1,340			1,301			2,017			2,675
Other Divested and Run-off Businesses(2)	(18		)	777			623			1,602
Other adjustments(5)	47			0			105			0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(57		)	(33		)	(69		)	(71		)
Total revenues per Unaudited Interim Consolidated Financial Statements	$	12,115		$	15,388		$	25,579		$	30,479

__________


(1)	Assurance IQ was acquired by the Company in October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.


(2)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 for additional information.


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


(4)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating ~~income.~~income beginning with the second quarter of 2019.


(5)	Represents adjustments not included in the above reconciling items. “Other adjustments” include certain components of the consideration for the Assurance IQ acquisition, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of contingent consideration.

Intersegment revenues

Management has determined the intersegment revenues with reference to market rates. Intersegment revenues are eliminated in consolidation in Corporate and Other operations. The PGIM segment revenues include intersegment revenues, primarily consisting of asset-based management and administration fees, as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in millions)
PGIM segment intersegment revenues $ 194
$ 185
$ 374
$ 369



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
PGIM segment intersegment revenues	$	208	$	194	$	425	$	374

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Segments may also enter into internal derivative contracts with other segments. For adjusted operating income, each segment accounts for the internal derivative results consistent with the manner in which that segment accounts for other similar external derivatives.

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Asset management and service fees

The table below presents asset management and service fees, predominantly related to investment management activities, for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		Three Months Ended June 30,				Six Months Ended June 30,
	(in millions)								2020		2019		2020		2019
									(in millions)
Asset-based management fees	$	872	$	856	$	1,715	$	1,717	$	840	$	872	$	1,715	$	1,715
Performance-based incentive fees	62		6		98		11		16		62		30		98
Other fees	149		148		286		308		135		149		279		286
Total asset management and service fees	$	1,083	$	1,010	$	2,099	$	2,036	$	991	$	1,083	$	2,024	$	2,099

~~15.~~14. COMMITMENTS AND CONTINGENT LIABILITIES

Commitments and Guarantees

Commercial Mortgage Loan Commitments


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Total outstanding mortgage loan commitments	$	2,293	$	3,299	$	1,754	$	2,129
Portion of commitment where prearrangement to sell to investor exists	$	538	$	1,490	$	787	$	751

In connection with the Company’s commercial mortgage operations, it originates commercial mortgage loans. Commitments for loans that will be held for sale are recognized as derivatives and recorded at fair value. In certain of these transactions, the Company pre-arranges that it will sell the loan to an investor, including to government sponsored entities as discussed below, after the Company funds the loan. The above amount includes unfunded commitments that are not unconditionally cancellable. For related credit exposure, there was an allowance for credit losses of $2 million as of June 30, 2020, which is a change of $0 million and $(1) million for the three and six months ended June 30, 2020, respectively.

Commitments to Purchase Investments (excluding Commercial Mortgage Loans)


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Expected to be funded from the general account and other operations outside the separate accounts	$	7,133	$	6,941	$	8,394	$	7,372
Expected to be funded from separate accounts	$	402	$	147	$	53	$	49

The Company has other commitments to purchase or fund investments, some of which are contingent upon events or circumstances not under the Company’s control, including those at the discretion of the Company’s counterparties. The Company anticipates a portion of these commitments will ultimately be funded from its separate accounts. The above amount includes unfunded commitments that are not unconditionally cancellable. There were 0 related charges for credit losses for the three and six ended June 30, 2020.

~~Indemnification of Securities Lending and Securities Repurchase Transactions~~

June 30,
2019 December 31,
2018
(in millions)
Indemnification provided to certain clients for securities lending and securities repurchase transactions(1) $ 6,520
$ 5,399
Fair value of related collateral associated with above indemnifications(1) $ 6,650
$ 5,503
Accrued liability associated with guarantee $ 0
$ 0

~~__________~~


~~(1)~~	~~As of~~ ~~June 30, 2019~~, indemnification provided to certain clients and fair value of related collateral associated with such indemnification include $64 million and $63 million, respectively, related to securities repurchase transactions.

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Indemnification of Securities Lending and Securities Repurchase Transactions



	June 30, 2020		December 31, 2019
	(in millions)
Indemnification provided to certain clients for securities lending and securities repurchase transactions(1)	$	7,167	$	5,071
Fair value of related collateral associated with above indemnifications(2)	$	7,317	$	5,204
Accrued liability associated with guarantee	$	0	$	0

__________


(1)	Includes $34 million and $38 million related to securities repurchase transactions as of June 30, 2020 and December 31, 2019, respectively.


(2)	Includes $34 million and $37 million related to securities repurchase transactions as of June 30, 2020 and December 31, 2019, respectively.

In the normal course of business, the Company may facilitate securities lending or securities repurchase transactions on behalf of certain client accounts (collectively, “the accounts”). In certain of these arrangements, the Company has provided an indemnification to the accounts to hold them harmless against losses caused by counterparty (i.e., borrower) defaults associated with such transactions facilitated by the Company. In securities lending transactions, collateral is provided by the counterparty to the accounts at the inception of the transaction in an amount at least equal to 102% of the fair value of the loaned securities and the collateral is maintained daily to equal at least 102% of the fair value of the loaned securities. In securities repurchase transactions, collateral is provided by the counterparty to the accounts at the inception of the transaction in an amount at least equal to 95% of the fair value of the securities subject to repurchase and the collateral is maintained daily to equal at least 95% of the fair value of the securities subject to repurchase. The Company is only at risk if the counterparty to the transaction defaults and the value of the collateral held is less than the value of the securities loaned to, or subject to repurchase from, such counterparty. The Company believes the possibility of any payments under these indemnities is remote.

Credit Derivatives Written

As discussed further in Note 5, the Company writes credit derivatives under which the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the defaulted security or similar security.

Guarantees of Asset Values


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Guaranteed value of third-parties’ assets	$	80,337	$	79,215	$	82,325	$	80,009
Fair value of collateral supporting these assets	$	81,338	$	77,897	$	86,247	$	81,604
Asset (liability) associated with guarantee, carried at fair value	$	1	$	2	$	1	$	1

Certain contracts underwritten by the Retirement segment include guarantees related to financial assets owned by the guaranteed party. These contracts are accounted for as derivatives and carried at fair value. The collateral supporting these guarantees is not reflected on the Unaudited Interim Consolidated Statements of Financial Position.

Indemnification of Serviced Mortgage Loans


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Maximum exposure under indemnification agreements for mortgage loans serviced by the Company	$	1,980	$	1,828	$	2,278	$	2,113
First-loss exposure portion of above	$	584	$	543	$	668	$	622
Accrued liability associated with guarantees(1)	$	18	$	17	$	37	$	19

__________


(1)	As of June 30, 2020, the accrued liability associated with guarantees includes an allowance for credit losses of $17 million, which is a change of $0 million and $(1) million for the three and six months ended June 30, 2020, respectively.

As part of the commercial mortgage activities of the Company’s PGIM segment, the Company provides commercial mortgage origination, underwriting and servicing for certain government sponsored entities, such as Fannie Mae and Freddie Mac. The Company has agreed to indemnify the government sponsored entities for a portion of the credit risk associated with certain of the mortgages it services through a delegated authority arrangement. Under these arrangements, the Company originates multi-family

Table of Contents

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

mortgages for sale to the government sponsored entities based on underwriting standards they specify, and makes payments to them for a specified percentage share of losses they incur on certain loans serviced by the Company. The Company’s percentage share of losses incurred generally varies from 2%4% to 20% of the loan balance, and is typically based on a first-loss exposure for a stated percentage of the loan balance, plus a shared exposure with the government sponsored entity for any losses in excess of the stated first-loss percentage, subject to a contractually specified maximum percentage. The Company determines the liability related to this exposure using historical loss experience, and the size and remaining life of the asset. The Company serviced ~~$15,560~~$18,154 million and ~~$14,335~~$16,878 million of mortgages subject to these loss-sharing arrangements as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, all of which are collateralized by first priority liens on the underlying multi-family residential properties. As of June 30, ~~2019,~~2020, these mortgages had a weighted-average debt service coverage ratio of ~~1.89~~1.96 times and a weighted-average loan-to-value ratio of ~~61%~~62%. As of December 31, ~~2018,~~2019, these mortgages had a weighted average debt service coverage ratio of ~~1.83~~1.88 times and a weighted-average loan-to-value ratio of ~~62%~~61%. The Company had no0 losses related to indemnifications that were settled for both the six months ended June 30, ~~2019~~2020 and ~~2018.~~2019.

~~Table of Contents~~

~~PRUDENTIAL FINANCIAL, INC.~~

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

Other Guarantees


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Other guarantees where amount can be determined	$	55	$	77	$	51	$	55
Accrued liability for other guarantees and indemnifications	$	0	$	0	$	0	$	0

The Company is also subject to other financial guarantees and indemnity arrangements. The Company has provided indemnities and guarantees related to acquisitions, dispositions, investments and other transactions that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable. Included above ~~are $12~~reflects $9 million and ~~$13~~$12 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, of yield maintenance guarantees related to certain investments the Company sold. The Company does not expect to make any payments on these guarantees and is not carrying any liabilities associated with these guarantees.

Since certain of these obligations are not subject to limitations, it is not possible to determine the maximum potential amount due under these guarantees. The accrued liabilities identified above do not include retained liabilities associated with sold businesses.

Assurance IQ Contingent Consideration Liability

On October 10, 2019, the Company completed its acquisition of Assurance IQ, a leading consumer solutions platform that offers a range of solutions that help meet consumers’ financial needs. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Pursuant to the merger agreement, contingent consideration as well as additional compensation awards are payable in 2023 in a mix of approximately 25% cash and 75% Prudential Financial Common Stock, contingent upon Assurance IQ’s achievement of certain targets for gross revenues net of associated selling expenses (“Variable Profits”) over the period from January 1, 2020 through December 31, 2022 as follows:

If Variable Profits are less than $900 million, 0 additional amount is payable.

If Variable Profits are greater than $1,300 million, an additional amount of $1,150 million is payable.

If Variable Profits are greater than $900 million but less than or equal to $1,300 million, an additional amount is payable equal to the product of (i) the quotient of (A) an amount equal to (1) Variable Profits achieved minus (2) $900 million divided by (B) $400 million and (ii) $1,150 million.

Payment of the additional amount may be accelerated if the Company violates certain provisions of the merger agreement requiring it to take or refrain from taking certain actions, including with respect to the management and operation of Assurance IQ.

The contingent consideration liability referred to above is reported at fair value. Fair value is determined based on the present value of expected payments under the arrangement described above, using an internally developed option pricing model based on a number of assumptions, including certain unobservable assumptions for future Variable Profits and the future price of Prudential Financial Common Stock. The fair value of the liability is updated each reporting period, with changes in fair value reported within

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

“Other income.” The fair value of the contingent consideration liability was less than $1 million as of June 30, 2020 and $105 million as of December 31, 2019 (see Note 6 for additional information). The stock-based component of contingent consideration impacts the share count for purposes of calculating the Company’s diluted earnings per share when Assurance IQ’s actual Variable Profits achieved as of the end of the reporting period is in excess of $900 million, as if the contingent consideration performance period ended on the applicable reporting date. The number of shares issued as part of the contingent consideration payable in 2023 will be based on a $83.71 price per share.

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 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 flow 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 flow 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.

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions include proceedings relating to aspects of the Company’s businesses and operations that are specific to it and proceedings that are typical of the businesses in which it operates, including in both cases businesses that have been either divested or placed in wind down status. Some of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these matters, the plaintiffs 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.

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 potentially material, is disclosed, including matters discussed below. The Company estimates that as of June 30, ~~2019,~~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 $250 million. Any 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.

6876

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PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The following discussion of litigation and regulatory matters provides an update of those matters discussed in Note 2223 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and should be read in conjunction with the complete descriptions provided in the Form 10-K.

Individual Annuities, Individual Life, and Group Insurance

Behfarin v. Pruco Life

~~Huffman~~In June 2020, the court issued an order: (i) granting plaintiffs’ motion for certification of the settlement class; (ii) approving the proposed nationwide class settlement agreement; (iii) approving the class notice; (iv) awarding attorneys’ fees and costs to plaintiffs and a reduced incentive award to Behfarin; and (v) dismissing the action with prejudice, but maintaining jurisdiction over the settlement.

Securities Litigation

City of Warren v. ~~The Prudential Insurance Company of America~~PFI, et al

In ~~April 2019,~~March 2020, the court ~~entered a Final Judgment~~issued an order consolidating this action with Donald P. Crawford v. PFI, et al. under the caption In re Prudential Financial, Inc. Securities Litigation. In June 2020, plaintiffs filed an amended complaint and ~~Order of Dismissal. This matter is now closed.~~added Robert M. Falzon, PFI’s vice chairman, as an individual defendant.

~~Escheatment Litigation~~

~~Total Asset Recovery Services, LLC~~Donald P. Crawford v. ~~MetLife, Inc., et al., Prudential Financial, Inc., The Prudential Insurance Company of America, and Prudential Insurance Agency, LLC~~

~~In April 2019, defendants’ motion to dismiss the Second Amended Complaint was granted and plaintiff subsequently filed a Notice of Appeal with the New York State Supreme Court, First Department.~~

~~Residential Mortgage-Backed Securities (“RMBS”) Trustee Litigation~~

~~PICA et al. v. HSBC,~~PFI, et al.

In ~~May 2019,~~March 2020, the court ~~dismissed~~issued an order consolidating this action with City of Warren v. PFI, et al. under the ~~case~~caption In re Prudential Financial, Inc. Securities Litigation. Case updates are consolidated with ~~prejudice. This matter is now closed.~~the City of Warren action.

~~PICA et al. v. U.S. Bank N.A.~~Shareholder Demands

In January 2020, the Board of Directors received a shareholder demand letter containing allegations: (i) of wrongdoing similar to those alleged in the City of Warren and Crawford complaints; and (ii) that certain of the Company’s current and former directors and executive officers breached their fiduciary duties of loyalty, due care and candor. The demand letter requests that the Board of Directors investigate and commence legal proceedings against the named individuals to recover for the Company’s benefit the damages purportedly sustained by the Company as a result of the alleged breaches. In February 2020, the Board of Directors authorized the creation of a special committee to investigate the allegations set forth in the shareholder demand letter. In April ~~2019, a decision~~2020, the Company received additional shareholder demands raising allegations similar to those contained in the January 2020 demand, and ~~order was issued dismissing plaintiffs’ state court action with prejudice.~~

~~PICA et al. v.~~ ~~Wells Fargo Bank, et al.~~

~~In May 2019, the state court entered an Order and Final Judgment approving the class action settlement and dismissing the case with prejudice.~~may be subject prospectively to additional activity relating to these matters.

LIBOR Litigation

Prudential Investment Portfolios 2, f/k/a Dryden Core Investment Fund, o/b/o Prudential Core Short-Term Bond Fund and Prudential Core Taxable Money Market Fund v. Bank of America Corporation, et al.

In ~~June 2019,~~May 2020, the court issued two orders approving stipulations dismissing with prejudice Prudential’s claims against ~~Citigroup Inc., Citibank, N.A., Citigroup Funding~~Barclays Bank PLC, Barclays Capital Inc., and ~~Citigroup Global Markets Inc.~~Barclays PLC.

~~Regulatory Matters~~

~~Securities Lending and Foreign Tax Reclaim Matter~~

In 2016, the Company self-reported to the SEC and the U.S. Department 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 the Company that limited the availability of loanable securities. The Company has removed the restriction and implemented a remediation plan for the benefit of customers. As part of the Company’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. The Company 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. The Company 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. The Company cannot predict the outcome of the discussions with the SEC regarding these matters.

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~~PRUDENTIAL FINANCIAL, INC.~~

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

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 flow 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 flow 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TABLE OF CONTENTS



	Page
Overview	7379
COVID-19	79
Regulatory Developments	7382
Impact of a Low Interest Rate Environment	7382
Results of Operations	7785
Consolidated Results of Operations	7785
Segment Results of Operations	7886
Segment Measures	8190
Impact of Foreign Currency Exchange Rates	8290
Accounting Policies & Pronouncements	8593
Results of Operations by Segment	8694
PGIM	8694
U.S. Businesses	99
Retirement	91100
Group Insurance	93102
Individual Annuities	96104
Individual Life	~~101~~109
Assurance IQ	111
International ~~Insurance~~Businesses	~~103~~112
Corporate and Other	~~108~~117
Divested and Run-off Businesses	~~108~~118
Closed Block Division	~~109~~118
Income Taxes	~~110~~120
Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments	~~111~~120
Valuation of Assets and Liabilities	~~112~~121
General Account Investments	~~115~~123
Liquidity and Capital Resources	~~132~~144
Ratings	~~142~~154
Off-Balance Sheet Arrangements	~~142~~155

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the consolidated financial condition of Prudential Financial, Inc. (“Prudential,” “Prudential Financial,” “PFI,” or “the Company”) as of June 30, ~~2019,~~2020, compared with December 31, ~~2018,~~2019, and its consolidated results of operations for the three and six months ended June 30, ~~2019~~2020 and ~~2018.~~2019. You should read the following analysis of our consolidated financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section, and the audited Consolidated 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”~~Statements,” the “Risk Factors” section, and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

Prudential Financial, a financial services leader with approximately ~~$1.497~~$1.605 trillion of assets under management as of June 30, ~~2019,~~2020, has operations primarily in the United States of America (“U.S.”), Asia, Europe and Latin America. Through our subsidiaries and affiliates, we offer a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. We offer these products and services to individual and institutional customers through one of the largest distribution networks in the financial services industry.

Our principal operations are comprised of ~~five divisions, which together encompass seven segments,~~PGIM (our global investment management business), our U.S. Businesses (consisting of our U.S. Workplace Solutions, U.S. Individual Solutions, and Assurance IQ divisions), our International Businesses, the Closed Block division, and our Corporate and Other operations. ~~The PGIM division is comprised of the PGIM segment, our global investment management businesses.~~ The U.S. Workplace Solutions division consists of our Retirement and Group Insurance ~~segments, and~~businesses, the U.S. Individual Solutions division consists of our Individual Annuities and Individual Life ~~segments. We also collectively refer to the U.S. Workplace Solutions division~~businesses, and the ~~U.S. Individual Solutions division as our U.S. Financial Wellness businesses, as described further below. The International Insurance~~Assurance IQ division consists of our ~~International Insurance segment. The Closed Block division consists~~Assurance IQ business. In October 2019, we completed the acquisition of ~~our Closed Block segment.~~Assurance IQ, LLC (“Assurance IQ”), a leading consumer solutions platform that offers a range of solutions that help meet consumers’ financial needs (see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information). The Closed Block division is accounted for as a divested business that is reported separately from the Divested and Run-off Businesses that are included in Corporate and ~~Other operations.~~Other. Divested and Run-off Businesses are comprised of businesses that have been, or will be, sold or exited, including businesses that have been placed in wind down status that do not qualify for “discontinued operations” accounting treatment under generally accepted accounting principles in the United States of America (“U.S. GAAP”). Our Corporate and Other operations include corporate items and initiatives that are not allocated to business segments and businesses that have been or will be divested or placed in run-off, excluding the Closed Block division.

Our strategy centers on our mix of high-quality protection, retirement and investment management businesses which creates growth potential due to earnings diversification and the opportunity to provide customers with integrated cross-business solutions, as well as capital benefits from a balanced risk profile. We are well positioned to meet the needs of customers and tap into significant market opportunities through our U.S. ~~Financial Wellness businesses (represented by our U.S. Workplace Solutions and U.S. Individual Solutions Divisions),~~Businesses, PGIM (our investment management business) and our International ~~Insurance business.~~Businesses.

We attribute financing costs to each segment based on the amount of financing used by each segment, excluding financing costs associated with corporate debt which are reflected in our Corporate and Other operations. The net investment income of each segment includes earnings on the amount of capital that management believes is necessary to support the risks of that segment.

~~U.S. Financial Wellness~~

COVID-19

~~Each component~~Beginning in 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 ~~U.S. Financial Wellness businesses operates at scale,~~results of operations in the current period and ~~together, they leverage~~are expected to drive future impacts to our ~~broad set~~results of ~~capabilities~~operations. The Company has taken several measures to ~~meet~~manage the ~~evolving needs~~impacts of ~~customers.~~this crisis. The actual and expected impacts of these events and other items are included in the following update:

~~We see~~Outlook

PGIM. Our global investment management business, PGIM, is focused on maintaining strong investment performance while leveraging the scale of its approximately $1.4 trillion of assets under management through its distinctive multi-manager model. Although equity markets have largely recovered and credit spreads have compressed from their highs, there remain risks to earnings across the asset management industry, including PGIM, if economic conditions remain unstable and markets decline or credit spreads widen further. The economic downturn is also having an impact on real estate prices as well as transaction volume in certain private asset classes. These factors could lead to lower fee-based revenues, incentive fees taking longer to be realized and losses emerging in our strategic investing portfolio. While the impacts of COVID-19 are a net negative for PGIM, and the overall asset management industry, we believe there is an opportunity for earnings growth as markets recover, potentially leading to ~~address~~higher asset management fees, incentive fees and transaction activity. We believe PGIM’s uniquely diversified global platform is well positioned to be resilient in the ~~evolving needs~~face of market and industry headwinds. Underpinning our growth strategy is our ability to continue to deliver robust investment performance, and to attract and retain high-caliber investment talent.

U.S. Businesses:

U.S. Workplace Solutions. In our Retirement business, we expect that account values in our full-service business will be impacted by market volatility and by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides qualified individuals the ability to withdraw from defined contribution plans and individual ~~customers, workplace clients, and society at large through~~retirement accounts up to $100,000 penalty-free, with the withdrawal taxed over a three-year period (unless otherwise elected by the individual). Market conditions are also likely to have an impact on Retirement sales volume. We continue to maintain pricing discipline to ensure we are achieving appropriate returns in the current market, including in our ~~financial wellness solutions. We possess~~funded pension risk transfer business, where we have seen a slowdown in the ~~key components to execute~~pipeline as a result of the impact of these market conditions on ~~this strategy, including workplace solutions covering approximately twenty million individuals; solutions that cover protection, retirement, savings, income, and~~pension plan funding levels. Given many of the products in our institutional investment ~~needs; and a customer-centric approach with different ways to engage with our clients through multiple channels such as meeting with one~~products business assume longevity risk, elevated levels of ~~our financial advisors, calling or video-conferencing with an advisor, or interacting with us~~mortality resulting from COVID-19 may continue, resulting in a ~~purely digital manner. Our goal is~~higher level of underwriting gains in this business. In our Group Insurance business, we expect COVID-19 to ~~meet our customers’ needs when, where and how they want. By leveraging technology and our scale, we aim to significantly expand our presence~~drive elevated levels of mortality resulting in increased life insurance claims in the ~~market, build deeper~~near-term. In both Retirement and ~~longer-lasting relationships with customers and clients, and make a meaningful difference~~Group Insurance, we believe over time COVID-19 may contribute to heightened interest in the solutions we offer to help improve the financial wellness of ~~their lives.~~individuals at the workplace; however, we expect near-term revenue growth prospects to be slowed by the impact of social distancing on new business sales and the impact of employee financial hardships on utilization of workplace benefits.

We are uniquely positioned to capture this opportunity, helping more customers and clients and driving long-term sustainable growth. We are thus accelerating the transformation of this strategy, to increaseU.S. Individual Solutions. In our competitive advantage by enhancing the experience of our customers and enabling the capabilities of our businesses, to more rapidly realize the benefits of our margins and growth rate. The catalyst for this transformation is our financial wellness initiative, and at the center of it, is improving the customer experience by re-imagining our end-to-end operations, leveraging state-of-the-art technology, and investing in our talent.

In 2019, we began implementing a multi-year plan of programs that span across our U.S. Financial Wellness businesses and the functional areas that support those businesses. In order to implement these programs on an accelerated basis,Individual Life insurance business, we expect COVID-19 to ~~incur significant expenses related to technology, systems, severance, reskilling~~drive elevated levels of mortality, resulting in increased life insurance claims in the near-term. In our Individual Annuities business, we expect account values and related charges. Over the next several years, we also expect to see significant expense efficiencies including from our streamlined technology-enabled processes. In the longer-term, the higher quality customer experience should accelerate revenue growth, resulting from increased revenues in our Workplace Solutions businesses due to the competitiveness of our financial wellness platform and the increased utilization of the existing employer-offered benefitsfee income will be impacted by ~~our clients’ employees, and increased revenues in~~market volatility. Across our Individual Solutions businesses, we have taken pricing and product actions, including the suspension of our single life guaranteed universal life product in July 2020, 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. Sales to employees of our Workplace Solutions clients may also be delayed as a result of current economic conditions, as we encourage employees to prioritize workplace benefits to regain or retain their financial wellness. We continue to expect to offer our Individual Solutions products on the Assurance IQ platform over time, beginning with an Individual Life product offering added in the second quarter.

Assurance IQ. We expect the impacts of COVID-19 on our Assurance IQ business to be limited, as this business does not have direct exposure to capital markets conditions or mortality, and its distribution is not dependent on in-person engagement with consumers; however, consumer financial hardships created by the current economic conditions could negatively impact persistency and expected sales levels.

International Businesses. Our International Businesses remain focused on meeting customers’ protection and financial needs and maintaining the underlying strength of our distribution channels. With the implementation of social distancing protocols globally, in-person engagement between customers and advisors has been reduced within both our captive agent and third-party distribution channels. Reflective of the disruptions in the global financial markets and the low interest rate environment, certain pricing and product actions have been implemented and we expect we will take additional actions as needed as we move forward to ensure we maintain appropriate returns, while maintaining a solid value proposition for our customers. Collectively, we expect the constrained distribution environment and potential product actions may adversely impact our sales prospects in the near-term. However, we expect the adverse impacts to be mitigated over time and we have seen a degree of relaxation of social distancing protocols in some markets and increased usage of virtual tools to connect with customers. We also expect an increased level of claims in the near-term and temporary higher expenses mostly related to supporting our captive agents. We believe over time COVID-19 may contribute to heightened interest in protection products, particularly the death protection products that are at the core of our needs-based selling approach.

Corporate and Other Operations. In our Corporate and Other operations, if equity markets and interest rates decline through December 31, 2020, it will potentially result in higher expenses in the future associated with the Company’s pension and post retirement plans due to ~~our ability to provide additional solutions to our clients’ employees~~lower than expected returns on plan assets and ~~to other retail customers.~~increases in plan obligations.

•

Results of Operations. For the three months and six months ended June 30, 2020 we reported a net loss of $(2,409) million and $(2,680) million, respectively, as unfavorable financial market conditions had a substantial negative effect on the reported results of our businesses. See “Results of Operations” and “Results of Operations by Segment” for a discussion of results for second quarter and first half of the year.


•	Liquidity. As of June 30, 2020, we had $4,517 million in highly liquid assets at Prudential Financial. During the first half of the year, we took several steps to proactively manage liquidity, including entering into a $1.5 billion facility agreement with a Delaware trust to increase our alternative sources of liquidity and issuing $1.5 billion in senior debt in part to pre-

~~Business Update~~fund 2020 and 2021 maturities. We temporarily suspended Common Stock repurchases beginning April 1, 2020 under our existing repurchase authorization, after repurchasing $500 million of shares of Prudential Financial’s Common Stock in the first quarter of 2020. We continue to evaluate the resumption of share repurchases under our existing Board authorization for 2020. 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. As of June 30, 2020, all of our significant insurance subsidiaries maintained capital levels consistent with their ratings targets. However, market conditions could negatively impact the statutory capital of our insurance companies and constrain our overall capital flexibility, including as a result of credit migration and losses in our investment portfolio as discussed below. Adverse market conditions could require us to take additional management actions for our insurance subsidiaries to maintain capital consistent with their ratings objectives, which may include redeploying financial resources from internal sources, or using available external sources of capital or seeking additional sources. See “Liquidity and Capital Resources—Capital” for a discussion of our capital resources.

•

Investment Portfolio. Net unrealized gains (losses) on fixed maturity investments (excluding securities classified as trading) were a net unrealized gain of $54,717 million as of June 30, 2020, compared to a net unrealized gain of $44,891 million as of December 31, 2019. Gross unrealized gains increased from $46,206 million as of December 31, 2019 to $57,171 million as of June 30, 2020 and gross unrealized losses increased from $1,315 million to $2,454 million for the same period. The increase in gross unrealized gains was primarily due to a decrease in U.S. interest rates, while the increase in gross unrealized losses was primarily due to credit spread widening and liquidity concerns. The continued impact of COVID-19 on the global economy and corporate credit may continue to result in negative credit migration and possible losses in our investment portfolio. Due to the highly uncertain nature of these conditions, it is not possible to estimate the overall impacts at this time. The sectors most impacted by the COVID-19 crisis include energy, consumer cyclical and retail related investments (see “—General Account Investments” for additional information). During 2020, approximately 1% of total invested assets were modified to allow for limited forbearance. Under the terms of forbearance, the borrower is allowed to defer a portion of current year principal and/or interest payments for a short period (e.g., 6 months). These deferrals accrue additional interest and do not have a material impact on our investment value.


•	Sales and Flows. See “Segment Results of Operations” for a discussion of sales and flows in each of our segments.


•	Underwriting Results. See “Segment Results of Operations” for a discussion of mortality experience in each of our segments.

In the second quarter of 2020, we estimate that COVID-19 had a net positive impact on our underwriting results reflecting the complementary risk profile of our mortality and longevity exposures. Going forward, we estimate that our net underwriting results will be adversely impacted by approximately $70 million for every incremental 100,000 fatalities in the U.S. However, the ultimate impact on our underwriting results will depend on factors such as age, geographic location, and insured versus uninsured populations among the fatalities.

•

Expenses. We expect higher expenses in 2020 from costs associated with COVID-19, including approximately $80 million incurred in the second quarter of 2020 and approximately $60 million expected in the second half of 2020. These higher expenses are primarily related to agent compensation, as well as technology and third-party vendor capabilities related to remote work functionality and protecting our employees’ health. However, we also expect cost savings associated with COVID-19 of approximately $60 million in 2020, including approximately $30 million of cost savings expected to be realized in aggregate over the third and fourth quarters of 2020. These cost savings are from lower employee health and welfare claims, and lower travel, meeting, meal and entertainment costs.

We ~~regularly review~~have initiated a number of customer accommodations in response to the COVID-19 pandemic, including in some cases extending grace periods for premium payments, expediting claim payments and withdrawal requests, waiving certain claims payment requirements, waiving certain transaction fees, waiving interest on policy loans and wiring funds at the Company’s expense.


•	Risk Management. Prudential has a robust risk management framework that seeks to ensure we can fulfill our customer, regulatory, and other stakeholder obligations under a range of stress scenarios by maintaining the appropriate balance between the Company’s resources and risks. We evaluate the Company’s exposure to stress under four lenses (economic, STAT, GAAP, and liquidity).

Our risk management framework incorporates severe to very severe stresses across equities, interest rates, credit migration and defaults, currencies and pandemics. This framework includes a specific “pandemic and sell-off” scenario with a mortality calamity (1.5 extra deaths per 1,000 lives in the first year) based on a modern-day interpretation of the 1918 Spanish Flu experience that is aligned with most regulatory frameworks. The stress scenario assumes an even distribution of increased mortality across the population, while current COVID-19 mortality is sharply skewed toward older ages. As the COVID-19 event continues to unfold, we continue to update our ~~existing businesses~~analysis and ~~may seek~~take management actions in response to ~~deploy capital~~this specific event. As of June 30, 2020 the COVID-19 pandemic has not reached the most severe levels included in ~~support~~the Company’s stress testing.

In addition, we expect the impact of COVID-19-related claims to be moderated by the balance between our mortality exposure (such as in our individual and group life businesses) and our longevity exposure (such as in our retirement business).


•	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 all of our ~~strategy~~businesses 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 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. One provision of the CARES Act amends the Tax Cuts and Jobs Act (“TCJA”) and allows companies with net operating losses (“NOLs”) originating in 2018, 2019 or 2020 to carry back those losses for five years. See Note 8 to the Unaudited Interim Financial Statements for more information. We are continuing to analyze the CARES Act and its potential impact on Prudential, and implementing operational changes necessary in our Retirement, Annuities and PGIM businesses to accommodate the CARES Act.

Other governments and regulators, including the Japan FSA, the NAIC and state insurance regulators, have implemented, or are considering, a number of actions in response to ~~exit an operation if it~~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.

The Company is ~~determined~~not aware of any new or proposed government mandates that ~~it no longer aligns with our broader strategy. We continue to invest in our businesses and assess acquisition opportunities to build scale~~could materially impact the Company’s solvency or ~~complement our businesses. For additional information on our strategic acquisitions and dispositions, see “—Results of Operations by Segment” below.~~liquidity position.

Regulatory Developments

~~Japan Corporate Product Tax~~DOL Fiduciary Rules

In ~~July 2019,~~June 2020, the ~~Japan National Tax Authority issued rules limiting policyholders’ tax deductions for premiums paid on~~DOL announced that it is proposing a new exemption to replace the previously vacated “best interest contract exemption.” This proposed exemption would allow fiduciaries meeting the requirements of the exemption to receive compensation, including as a result of advice to roll over assets from a qualified plan to an Individual Retirement Account (“IRA”), and to purchase from or sell certain ~~corporate insurance products.~~investments to qualified plans and IRAs. The ~~Company~~DOL also reinstated the prior investment advice regulation and other ~~life insurers in Japan suspended sales of these products earlier in 2019 in anticipation~~existing exemptions and provided its current interpretation of the new rules. The Company is currently evaluating the rules’ impact on the covered products. For additional information on sales within our international insurance operations, see “—Results of Operations by Segment—International Insurance Division—International Insurance” below.

~~SEC Best Interest Regulation~~

In June 2019, 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 transactions orpre-2016 fiduciary 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 products offered by our PGIM, Retirement, Individual Annuities and Individual Life segments, and will result in increased compliance costs, in particular in our Prudential Advisors distribution system, which we include in the results of our Individual Life segment.

~~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.advice regulation. We cannot predict ~~whether~~what impact the ~~SECURE Act~~newly proposed exemption or interpretative guidance will ~~ultimately be adopted, or its impact on our businesses.~~

~~For additional information~~have 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.~~Company.

Impact of a Low Interest Rate Environment

As a global 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 both deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”);

customer account values, including their impact on fee income;

fair value of, and possible impairments on, intangible assets such as goodwill;

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

policyholder behavior, including surrender or withdrawal activity.

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

See below for discussions related to the current interest rate environments in our two largest markets, the U.S. and Japan; the composition of our insurance liabilities and policyholder account balances; and the hypothetical impacts to our investment results if these interest rate environments are sustained.

U.S. Operations excluding the Closed Block Division

Interest rates in the U.S. have experienced a sustained period of historically low levels with certain benchmarks reaching significant lows in ~~large part due to Federal Reserve efforts to assist with~~ the ~~economic recovery subsequent to the financial crisis~~first quarter of ~~2008.~~2020. While market conditions and events make uncertain the timing, amount and impact of any monetary policy decisions by the Federal Reserve, changes in interest rates may impact our reinvestment yields, primarily for our investments in fixed maturity securities and commercial mortgage loans. As interest rates ~~rise, our reinvestment yield may exceed the overall portfolio yield resulting in a favorable impact to earnings. Conversely, if interest rates were to~~ decline, our reinvestment yield may be below our overall portfolio yield, resulting in an unfavorable impact to earnings. Conversely, as interest rates rise, our reinvestment yield may exceed the overall portfolio yield resulting in a favorable impact to earnings.

For the general account supporting our U.S. Individual Solutions division, U.S. Workplace Solutions ~~division, PGIM~~ division and our Corporate and Other operations, we estimate annual principal payments and prepayments that we would be required to reinvest to be approximately ~~6.1%~~5.5% of the fixed maturity security and commercial mortgage loan portfolios through ~~2020.~~2021. The portion of the general account attributable to these operations has approximately ~~$214~~$248 billion of such assets (based on net carrying value) as of June 30, ~~2019.~~2020. The average portfolio yield for fixed maturity securities and commercial mortgage loans is approximately ~~4.3%~~4.1% as of June 30, ~~2019.~~2020.

Included in the ~~$214~~$248 billion of fixed maturity securities and commercial mortgage loans are approximately ~~$136~~$155 billion that are subject to call or redemption features at the issuer’s option and have a weighted average interest rate of approximately 4%. Of this ~~$136~~$155 billion, approximately ~~58%~~55% contain provisions for prepayment premiums. If we reinvest scheduled payments or prepayments (not subject to a prepayment fee) at rates below the current portfolio yield, including in some cases at rates below those guaranteed under our insurance contracts, future operating results will be impacted to the extent we do not, or are unable to, reduce crediting rates on in-force blocks of business, or effectively utilize other asset/liability management strategies described below, in order to maintain current net interest margins.

The following table sets forth the insurance liabilities and policyholder account balances of our U.S. Operations excluding the Closed Block Division, by type, for the date indicated:


	As of June 30, 2019		As of June 30, 2020
	(in billions)		(in billions)
Long-duration insurance products with fixed and guaranteed terms	$	129	$	157
Contracts with adjustable crediting rates subject to guaranteed minimums	57		60
Participating contracts where investment income risk ultimately accrues to contractholders	16		14
Total	$	202	$	231

The ~~$129~~$157 billion above relates to long-duration products such as group annuities, structured settlements and other insurance products that have fixed and guaranteed terms, for which underlying assets may have to be reinvested at interest rates that are lower than portfolio rates. We seek to mitigate the impact of a prolonged low interest rate environment on these contracts through asset/liability management, as discussed further below.

The ~~$57~~$60 billion above relates to contracts with crediting rates that may be adjusted over the life of the contract, subject to guaranteed minimums. Although we may have the ability to lower crediting rates for those contracts above guaranteed minimums,

our willingness to do so may be limited by competitive pressures. The following table sets forth the related account values by range of guaranteed minimum crediting rates and the related range of the difference, in basis points (“bps”), between rates being credited to contractholders as of June 30, ~~2019,~~2020, and the respective guaranteed minimums.


	Account Values with Adjustable Crediting Rates Subject to Guaranteed Minimums:																		Account Values with Adjustable Crediting Rates Subject to Guaranteed Minimums:
	At guaranteed minimum			1-49 bps above guaranteed minimum			50-99 bps above guaranteed minimum			100-150 bps above guaranteed minimum			Greater than 150 bps above guaranteed minimum			Total			At guaranteed minimum			1-49 bps above guaranteed minimum			50-99 bps above guaranteed minimum			100-150 bps above guaranteed minimum			Greater than 150 bps above guaranteed minimum			Total
	($ in billions)																		($ in billions)
Range of Guaranteed Minimum Crediting Rates:
Less than 1.00%	$	0.6		$	1.3		$	0.4		$	0.1		$	0.0		$	2.4		$	0.6		$	1.3		$	0.4		$	0.1		$	0.0		$	2.4
1.00% - 1.99%	1.0			3.9			11.8			1.6			0.8			19.1			1.1			5.0			11.5			2.6			1.1			21.3
2.00% - 2.99%	1.3			0.8			1.9			1.1			0.9			6.0			1.3			0.9			0.5			2.6			1.2			6.5
3.00% - 4.00%	26.4			2.0			0.1			0.2			0.0			28.7			24.8			3.8			0.2			0.2			0.0			29.0
Greater than 4.00%	0.9			0.0			0.0			0.0			0.0			0.9			0.9			0.0			0.0			0.0			0.0			0.9
Total(1)	$	30.2		$	8.0		$	14.2		$	3.0		$	1.7		$	57.1		$	28.7		$	11.0		$	12.6		$	5.5		$	2.3		$	60.1
Percentage of total	53		%	14		%	25		%	5		%	3		%	100		%	48		%	18		%	21		%	9		%	4		%	100		%

__________


(1)	Includes approximately ~~$0.74~~$0.68 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity.

The remaining ~~$16~~$14 billion of insurance liabilities and policyholder account balances in these operations relates to participating contracts for which the investment income risk is expected to ultimately accrue to contractholders. The crediting rates for these contracts are periodically adjusted based on the return earned on the related assets.

Assuming a hypothetical scenario where the average 10-year U.S. Treasury rate is ~~2.05%, which~~0.65% (which is reasonably consistent with ~~the current rate,~~recent rates) for the period from July 1, ~~2019~~2020 through ~~December 31, 2020, and~~June 30, 2021 (and credit spreads remain unchanged from levels as of June 30, ~~2019,~~2020), we estimate that the unfavorable impact to ~~pre-tax adjusted operating~~net investment income of reinvesting ~~in such an environment, compared to the yields on~~activities, including scheduled maturities and ~~expected~~estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts) would ~~not~~ be ~~significant~~between $40 million and $80 million for the period from July 1, ~~2019~~2020 through ~~December 31, 2020.~~June 30, 2021.

In order to mitigate the unfavorable impact that a low interest rate environment has on our net interest margins, we employ a proactive asset/liability management program, which includes strategic asset allocation and hedging strategies within a disciplined risk management framework. These strategies seek to match the characteristics of our products, and to closely approximate the interest rate sensitivity of the assets with the estimated interest rate sensitivity of the product liabilities. Our asset/liability management program also helps manage duration gaps, currency and other risks between assets and liabilities through the use of derivatives. We adjust this dynamic process as products change, as customer behavior changes and as changes in the market environment occur. As a result, our asset/liability management process has permitted us to manage the interest rate risk associated with our products through several market cycles. Our interest rate exposure is also mitigated by our business mix, which includes lines of business for which fee-based and insurance underwriting earnings play a more prominent role in product profitability.

Closed Block Division

Substantially all of the ~~$60~~$61 billion of general account assets in the Closed Block division support obligations and liabilities relating to the Closed Block policies only. See Note 87 to the Unaudited Interim Consolidated Financial Statements for ~~further~~additional information on the Closed Block.

International Insurance Operations

While our international insurance operations have experienced a low interest rate environment for many years, the current reinvestment yields for certain blocks of business in our international insurance operations are generally lower than the current portfolio yield supporting these blocks of business. In recent years, the Bank of Japan’s monetary policy has resulted in even lower and, at times, negative yields for certain tenors of government bonds. Our international insurance operations employ a proactive asset/liability management program in order to mitigate, to the extent possible, the unfavorable impact that the current interest rate environment has on our net interest margins. In conjunction with this program, we have not purchased negative yielding assets to support the portfolio and we continue to purchase long-term bonds with tenors of 30 years or greater. Additionally, our diverse product portfolio in terms of currency mix and premium payment structure allows us to further mitigate the negative impact from

this low interest rate environment. We regularly examine our product offerings and their profitability. As a result, we have repriced certain products, adjusted commissions for certain products and have discontinued sales of other products that do not meet our profit expectations. The impact of these actions ~~coupled with~~and the ~~strengthening of the yen against the U.S. dollar and~~ introduction of certain new products, has resulted in an increase in sales of U.S. dollar-denominated products relative to products denominated in other currencies. For additional information on sales within our international insurance operations, see “—International ~~Insurance Division—International Insurance—~~Businesses—Sales Results,” below.

The following table sets forth the insurance liabilities and policyholder account balances of our Japanese operations, by type, for the date indicated:


	As of June 30, 2019		As of June 30, 2020
	(in billions)		(in billions)
Long-duration insurance products with fixed and guaranteed terms	$	125
Insurance products with fixed and guaranteed terms			$	132
Contracts with a market value adjustment if invested amount is not held to maturity	26		25
Contracts with adjustable crediting rates subject to guaranteed minimums	11		11
Total	$	162	$	168

The ~~$125~~$132 billion above is ~~predominantly~~primarily comprised of long-duration insurance products that have fixed and guaranteed terms, for which underlying assets may have to be reinvested at interest rates that are lower than current portfolio yields. The remaining insurance liabilities and policyholder account balances include ~~$26~~$25 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity and $11 billion related to contracts with crediting rates that may be adjusted over the life of the contract, subject to guaranteed minimums. Most of the current crediting rates on these contracts, however, are at or near contractual minimums. Although we have the ability in some cases to lower crediting rates for those contracts that are above guaranteed minimum crediting rates, the majority of this business has interest crediting rates that are determined by formula.

Assuming a hypothetical scenario ~~within our~~where the average 30-year Japanese ~~operations where new money yields would be 25 bps lower than projected,~~Government Bond yield is 0.60% and ~~applying these lower new money yields to annualized investment of renewal premiums, proceeds~~the 10-year U.S. Treasury rate is 0.65% (which is reasonably consistent with recent rates) for the period from ~~investment disposition and reinvestment of investment income, we estimate that~~July 1, 2020 through June 30, 2021 (and credit spreads remain unchanged from levels as of June 30, ~~2019~~2020), we estimate that the unfavorable impact to net investment income of reinvesting activities, including scheduled maturities and estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts) would ~~reduce adjusted operating income over~~be between $40 million and $80 million for the ~~next twelve months by approximately $15 million. This hypothetical scenario excludes first-year premium, single pay premium, multi-currency fixed annuity cash flows, any potential benefit~~period from repricing products and any impact from other factors, including but not limited to new business, contractholder behavior, changes in competitive conditions, changes in capital markets and the effect of derivative instruments.July 1, 2020 through June 30, 2021.

Results of Operations

Consolidated Results of Operations

The following table summarizes net income (loss) for the periods presented.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018		2019		2018		2020			2019		2020			2019
	(in millions)								(in millions)
Revenues	$	15,388	$	14,655	$	30,479	$	28,412	$	12,115		$	15,388	$	25,579		$	30,479
Benefits and expenses	14,512		14,405		28,463		26,469		14,447			14,512		28,249			28,463
Income (loss) before income taxes and equity in earnings of operating joint ventures	876		250		2,016		1,943		(2,332		)	876		(2,670		)	2,016
Income tax expense (benefit)	162		68		394		420		115			162		57			394
Income (loss) before equity in earnings of operating joint ventures	714		182		1,622		1,523		(2,447		)	714		(2,727		)	1,622
Equity in earnings of operating joint ventures, net of taxes	24		18		53		41		42			24		52			53
Net income (loss)	738		200		1,675		1,564		(2,405		)	738		(2,675		)	1,675
Less: Income attributable to noncontrolling interests	30		3		35		4		4			30		5			35
Net income (loss) attributable to Prudential Financial, Inc.	$	708	$	197	$	1,640	$	1,560	$	(2,409	)	$	708	$	(2,680	)	$	1,640

Three Month Comparison. The ~~$511~~$3,117 million ~~increase~~decrease in “Net income (loss) attributable to Prudential Financial, Inc.” for the second quarter of ~~2019~~2020 compared to the second quarter of ~~2018~~2019 reflected the following notable items:

$~~1,624~~2,136 million ~~favorable~~unfavorable variance, on a pre-tax basis, from adjustments to reserves as well as DAC and other costs, reflecting the impact of our annual reviews and update of assumptions and other refinements. This excludes the impact associated with the variable annuity hedging program discussed below (see “—Results of Operations by Segment—U.S. Financial Wellness Businesses - U.S. Individual Solutions Division—Individual Annuities” for additional information); and

$205 million net favorable variance, on a pre-tax basis, primarily from income in the current period from our Divested and Run-off Businesses compared to a loss in the prior period, excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above.

~~Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” were the following items:~~

~~$463 million unfavorable variance from net pre-tax~~ realized investment gains and losses for PFI excluding the ~~Closed Block division,~~Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities discussed below (see ~~“—General~~“General Account Investments” for additional information);

$771 million unfavorable variance, on a pre-tax basis, from a loss in the current period from our Divested and Run-off Businesses compared to a gain in the prior period (see “Results of Operations by Segment—Divested and Run-off Businesses” for additional information);

$~~382~~663 million unfavorable variance, on a pre-tax basis, from lower adjusted operating income from our business segments (see “—Segment Results of Operations” for additional information); and

$491 million unfavorable variance, on a pre-tax basis, reflecting the net impact from changes in the value of our embedded derivatives and related hedge positions associated with certain variable annuities (see ~~“—Results~~“Results of Operations by Segment—U.S. ~~Financial Wellness Businesses -~~ Businesses—U.S. Individual Solutions Division—Individual Annuities—Variable Annuity Risks and Risk Mitigants” for additional information)~~; and~~.

Partially offsetting these decreases in “Net income (loss) attributable to Prudential Financial, Inc.” were the following items:

$~~208~~446 million ~~unfavorable~~favorable variance, on a pre-tax basis, from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses. These favorable impacts were primarily driven by unrealized gains (losses) from equity securities as well as fixed maturity securities designated as trading; and

$258 million favorable variance, on a pre-tax basis, driven by market experience ~~updates.~~updates excluding those impacts related to the hedging program associated with certain variable annuities discussed above.

Six Month Comparison. The ~~$80~~$4,320 million ~~increase~~decrease in “Net income (loss) attributable to Prudential Financial, Inc.” for the first six months of ~~2019~~2020 compared to the first six months of ~~2018~~2019 reflected the following notable items:

$1,624 million favorable variance, on a pre-tax basis, from adjustments to reserves as well as DAC and other costs, reflecting the impact of our annual reviews and update of assumptions and other refinements. This excludes the impact associated with the variable annuity hedging program discussed below (see “—Results of Operations by Segment—U.S. Financial Wellness Businesses - U.S. Individual Solutions Division—Individual Annuities” for additional information); and

$425 million net favorable variance, on a pre-tax basis, primarily from income in the current period from our Divested and Run-off Businesses compared to a loss in the prior period, excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above.

~~Partially offsetting these increases in “Net income (loss) attributable to Prudential Financial, Inc.” were the following items:~~

~~$1,317~~1,300 million unfavorable variance, on a pre-tax basis, reflecting the net impact from changes in the value of our embedded derivatives and related hedge positions associated with certain variable annuities (see ~~“—Results~~“Results of Operations by Segment—U.S. ~~Financial Wellness Businesses -~~ Businesses—U.S. Individual Solutions Division—Individual Annuities—Variable Annuity Risks and Risk Mitigants” for additional information);

$1,066 million unfavorable variance, on a pre-tax basis, from lower adjusted operating income from our business segments (see “Segment Results of Operations” for additional information);

$978 million unfavorable variance, on a pre-tax basis, from a loss in the current period from our Divested and Run-off Businesses compared to a gain in the prior period (see “Results of Operations by Segment—Divested and Run-off Businesses” for additional information);

$859 million unfavorable variance, on a pre-tax basis, from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses. These unfavorable impacts were primarily driven by unrealized gains (losses) from equity securities as well as fixed maturity securities designated as trading; and

$326 million unfavorable variance, on a pre-tax basis, driven by market experience updates excluding those impacts related to the hedging program associated with certain variable annuities discussed above.

Partially offsetting these decreases in “Net income (loss) attributable to Prudential Financial, Inc.” was the following item:

$~~510~~114 million ~~unfavorable~~favorable variance, on a pre-tax basis, from ~~net pre-tax~~ realized investment gains and losses for PFI excluding ~~the Closed Block division,~~Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities discussed above (see ~~“—General~~“General Account Investments” for additional information).

Segment Results of Operations

We analyze the performance of our segments and Corporate and Other operations using a measure of segment profitability called adjusted operating income. See “—Segment Measures” for a discussion of adjusted operating income and its use as a measure of segment operating performance.

Annual Reviews and Update of Assumptions and Other Refinements

Annually during the second quarter of each year, we perform a comprehensive review of actuarial assumptions utilized in measuring insurance liabilities and expected gross profits used in amortizing deferred acquisition costs, sales inducement costs, unearned revenue reserves and value of business acquired. The assumptions reviewed include, but are not necessarily limited to, inputs such as mortality, morbidity, contractholder behavior and expected future rates of returns on investments. As part of this review, we may update these assumptions and make refinements to our models based upon emerging experience, future expectations and other data, including any observable market data. These assumptions are generally updated annually during the second quarter of each year, unless a material change in experience that we feel is indicative of a long-term trend is observed during an interim period.

Shown below are the impacts on our adjusted operating income from ~~our annual reviews and update~~updates of actuarial assumptions and other ~~refinements.~~refinements as discussed above. The information below is presented by each segment and Corporate and Other operations and includes a reconciliation of these impacts to the impacts within income (loss) before income taxes and equity in earnings of operating joint ventures.


	Three and Six Months Ended June 30,						Three and Six Months Ended June 30,
	2019			2018			2020			2019
	(in millions)						(in millions)
Favorable (unfavorable) impact to adjusted operating income before income taxes by segment:
U.S. Businesses:
U.S Workplace Solutions division:
Retirement	$	154		$	(68	)	$	(22	)	$	154
Group Insurance	9			31			11			9
Total U.S. Workplace Solutions division	163			(37		)	(11		)	163
U.S. Individual Solutions division:
Individual Annuities	(12		)	10			(136		)	(12		)
Individual Life	(208		)	(65		)	(92		)	(208		)
Total U.S. Individual Solutions division	(220		)	(55		)	(228		)	(220		)
International Insurance	8			(81		)
Total International Insurance division	8			(81		)
Corporate and Other operations	0			3
Total Corporate and Other	0			3
Total U.S. Businesses							(239		)	(57		)
International Businesses(1)							(95		)	11
Corporate and Other							0			0
Total segment favorable (unfavorable) impact to adjusted operating income before income taxes	(49		)	(170		)	(334		)	(46		)
Reconciling items:
Realized investment gains (losses), net, and related adjustments	9			(229		)	302			9
Charges related to realized investment gains (losses), net	16			4			(41		)	16
Divested businesses:
Divested and Run-off Businesses:
Closed Block division	(7		)	(1		)	0			(7		)
Other divested businesses	(9		)	(1,458		)
Other Divested and Run-off Businesses(1)							(33		)	(12		)
Favorable (unfavorable) impact to consolidated income (loss) before income taxes and equity in earnings of operating joint ventures	$	(40	)	$	(1,854	)	$	(106	)	$	(40	)

__________


(1)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

See “—Results of Operations by Segment” for a discussion of the impacts of our annual reviews and update of assumptions and other refinements.

Summary of Results of Operations by Segment

Shown below are the adjusted operating income contributions of each segment and Corporate and Other operations for the periods indicated and a reconciliation of this segment measure of performance to “Income (loss) before income taxes and equity in earnings of operating joint ventures” as presented in ~~our~~the Unaudited Interim Consolidated Statements of Operations.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Adjusted operating income before income taxes by segment:
PGIM	$	264		$	254		$	478		$	486		$	324		$	264		$	488		$	478
Total PGIM division	264			254			478			486
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	467			277			718			594			281			467			526			718
Group Insurance	81			82			134			137			5			81			49			134
Total U.S. Workplace Solutions division	548			359			852			731			286			548			575			852
U.S. Individual Solutions division:
Individual Annuities	462			507			934			1,026			249			462			622			934
Individual Life	(135		)	43			(30		)	79			(64		)	(135		)	(84		)	(30		)
Total U.S. Individual Solutions division	327			550			904			1,105			185			327			538			904
International Insurance	849			784			1,771			1,640
Total International Insurance division	849			784			1,771			1,640
Corporate and Other operations	(335		)	(286		)	(747		)	(580		)
Total Corporate and Other	(335		)	(286		)	(747		)	(580		)
Assurance IQ division(1):
Assurance IQ													(16		)	0			(39		)	0
Total Assurance IQ division													(16		)	0			(39		)	0
Total U.S. Businesses													455			875			1,074			1,756
International Businesses(2)													693			790			1,391			1,649
Corporate and Other													(541		)	(335		)	(883		)	(747		)
Total segment adjusted operating income before income taxes	1,653			1,661			3,258			3,382			931			1,594			2,070			3,136
Reconciling items:
Realized investment gains (losses), net, and related adjustments(1)	(548		)	393			(1,211		)	480
Charges related to realized investment gains (losses), net(2)	(82		)	(116		)	(57		)	(139		)
Market experience updates(3)	(208		)	0			(208		)	0
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net(4)	287			(193		)	741			(596		)
Change in experience-rated contractholder liabilities due to asset value changes(5)	(313		)	85			(716		)	503
Realized investment gains (losses), net, and related adjustments(3)													(3,191		)	(572		)	(2,982		)	(1,194		)
Charges related to realized investment gains (losses), net(4)													519			(82		)	(283		)	(57		)
Market experience updates(5)													55			(207		)	(886		)	(207		)
Divested and Run-off Businesses(6):
Closed Block division	(21		)	(31		)	(40		)	(40		)	(22		)	(21		)	(23		)	(40		)
Other Divested and Run-off Businesses	112			(1,526		)	286			(1,598		)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(7)	(4		)	(23		)	(37		)	(49		)
Other Divested and Run-off Businesses(2)													(602		)	168			(580		)	415
Other adjustments(7)													32			0			77			0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(8)													(54		)	(4		)	(63		)	(37		)
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures	$	876		$	250		$	2,016		$	1,943		$	(2,332	)	$	876		$	(2,670	)	$	2,016

__________


(1)	~~Represents “Realized investment gains (losses), net,”~~Assurance IQ was acquired by the Company in October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

(2)

Effective second quarter of 2020, the results of POK and ~~related adjustments.~~the impact of its anticipated sale are excluded from the International Businesses and included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See ~~“—General Account Investments” and~~ Note 141 to ~~our~~the Unaudited Interim Consolidated Financial Statements for additional information.


~~(2)~~(3)	Represents “Realized investment gains (losses), net,” and related adjustments. See “—General Account Investments” and Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information. Prior period amounts have been updated to conform to current period presentation.


(4)	Includes charges that represent the impact of realized investment gains (losses), net, on the amortization of DAC and other costs, and on changes in reserves. Also includes charges resulting from payments related to market value adjustment features of certain of our annuity products and the impact of realized investment gains (losses), net, on the amortization of unearned revenue reserves.

~~(3)~~(5)

Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019. ~~The Company has historically recognized these impacts in adjusted operating income.~~ See Note 1413 to ~~our~~the Unaudited Interim Consolidated Financial Statements for additional information.


~~(4)~~	Represents net investment gains (losses) on assets supporting experience-rated contractholder liabilities. See “—Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments.”


~~(5)~~	Represents changes in contractholder liabilities due to asset value changes in the pool of investments supporting these experience-rated contracts. See “—Experience-Rated Contractholder Liabilities, Assets Supporting Experience-Rated Contractholder Liabilities and Other Related Investments.”


(6)	Represents the contribution to income (loss) of Divested and Run-off Businesses that have been or will be sold or exited, including businesses that have been placed in wind down, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP. See “—Divested and Run-off Businesses.”

(7)

Represents adjustments not included in the above reconciling items. “Other adjustments” include certain components of the consideration for the Assurance IQ acquisition, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of contingent consideration. See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.

(8)

Equity in earnings of operating joint ventures are included in adjusted operating income but excluded from “Income (loss) before income taxes and equity in earnings of operating joint ventures” as they are reflected on an after-tax U.S. GAAP basis as a separate line in ~~our~~the Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests are excluded from adjusted operating income but included in “Income (loss) before income taxes and equity in earnings of operating joint ventures” as they are reflected on a U.S. GAAP basis as a separate line in ~~our~~the Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests represent the portion of earnings from consolidated entities that relates to the equity interests of minority investors.

~~Results~~Segment results for the ~~periods~~period presented above reflect the following:

PGIM. ~~Segment results~~Results for the second quarter of ~~2019~~2020 increased ~~in comparison to the prior year period, reflecting higher asset management fees and other related revenues, partially offset by higher expenses. Results for the first six months of 2019 decreased~~ in comparison to the prior year period, reflecting increases in asset management fees and other related revenues, ~~that were more than~~and decreases in expenses. Results for the first six months of 2020 increased in comparison to the prior year period, reflecting increases in asset management fees and decreases in expenses, partially offset by ~~higher expenses.~~decreases in other related revenues.

Retirement. ~~Segment results~~Results for both the second quarter and the first six months of 2019 increased in comparison to the prior year periods, primarily reflecting a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for the second quarter of 2019 decreased driven by less favorable reserve experience, partially offset by higher net investment spread results, while results for the first six months of 2019 decreased driven by less favorable reserve experience, lower net investment spread results and higher expenses.

~~Group Insurance.~~ Segment results for both the second quarter and first six months of 2019 decreased modestly in comparison to the prior year periods, primarily reflecting a less favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, segment results for both periods increased in comparison to the prior year period, reflecting a higher contribution from net investment spread results and lower expenses. Underwriting results remained flat in comparison to the prior year periods.

~~Individual Annuities.~~ Segment results for both the second quarter and the first six months of 2019 decreased in comparison to the prior year periods, inclusive of an unfavorable comparative net impact from our annual reviews and update of assumptions and other reserve refinements. Excluding this item, segment results for both periods decreased in comparison to the prior year periods, driven by lower net fee income and higher expenses, partially offset by higher net investment income.

~~Individual Life.~~ ~~Segment results for both the second quarter and the first six months of 2019~~2020 decreased in comparison to the prior year periods, primarily reflecting an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, ~~segment~~ results for ~~the second quarter of 2019~~both periods decreased primarily driven by lower underwriting results and higher expenses, partially offset by a higher contribution from net investment spread results. Results for the first six months of 2019 increased driven by a favorable net impact in the first quarter of 2019 from changes in the estimated profitability of the business driven by equity market performance on policyholder accounts, and a higher contribution from net investment spread results, partially offset by ~~lower underwriting results and~~ higher ~~expenses.~~reserve gains.

~~International Insurance~~Group Insurance.~~. Segment results~~ Results for both the second quarter and the first six months of ~~2019 increased~~2020 decreased in comparison to the prior year periods, ~~inclusive of a favorable net impact from foreign currency exchange rates and~~including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding ~~these items, segment~~this item, results for both periods decreased primarily reflecting lower underwriting results and lower net investment spread results.

Individual Annuities. Results for both the second quarter and the first six months of 2020 decreased in comparison to the prior year periods, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods decreased primarily driven by lower fee income, net of distribution expenses and other associated costs. The results for the second quarter ~~of 2019 decreased primarily driven by higher expenses,~~were partially offset by ~~business growth.~~higher net investment spread results.

Individual Life. Results for the second quarter of 2020 reflected a decrease in losses in comparison to the prior year period, and results for the first six months of ~~2019 increased~~2020 reflected an increase in losses in comparison to the prior year period. Both periods include a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased for both periods, primarily reflecting lower net investment spread results and lower underwriting results driven by ~~business growth and more favorable underwriting results,~~an unfavorable impact from mortality experience, net of reinsurance, partially offset by ~~higher~~lower expenses.

~~Corporate~~Assurance IQ. The acquisition of Assurance IQ was completed in October 2019. Results for both the second quarter and ~~Other operations~~the first six months of 2020 include revenues, net of marketing and distribution expenses, operating expenses and amortization expenses related to intangible assets recognized as part of purchase accounting (see Note 1 and Note 10 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information).

International Businesses. Results for both the second quarter and the first six months of ~~2019~~2020 decreased in comparison to the prior year periods, inclusive of an unfavorable net impact from foreign currency exchange rates and an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding these items, results for the second

quarter of 2020 increased driven by favorable underwriting results and higher earnings from our joint venture investments, partially offset by lower net investment spread results and higher expenses, while results for the first six months of 2020 decreased driven by lower net investment spread results, higher expenses and lower earnings from our joint venture investments, partially offset by favorable underwriting results.

Corporate and Other. Results for both the second quarter of 2020 and the first six months of 2020 reflected increased losses in comparison to the prior year periods, reflecting higher net charges from other corporate activities driven by increases to legal reserves, lower investment income and higher ~~levels of corporate expenses, higher capital debt~~ interest expense ~~and lower income from our qualified pension plan,~~on debt, partially offset by ~~higher net investment income.~~favorable pension and employee benefit results.

Closed Block Division. ~~The Closed Block division results~~Results for the second quarter of ~~2019~~2020 reflected ~~decreased~~an increase in losses in comparison to the prior year period, primarily reflecting an increase in the policyholder dividend obligation as a result of higher net investment activity results. Results for the first six months of 2020 reflected a decrease in losses in comparison to the prior year period, primarily reflecting a decrease in the policyholder dividend obligation as a result of lower net ~~realized~~ investment ~~gains and related~~ activity ~~lower net insurance activity and lower net investment income. Results for the first six months of 2019 remained flat when compared to the prior year period.~~results.

Segment Measures

Adjusted Operating Income. In managing our business, we analyze our segments’ operating performance using “adjusted operating income.” Adjusted operating income does not equate to “Income (loss) before income taxes and equity in earnings of operating joint ventures” or “Net income (loss)” as determined in accordance with U.S. GAAP, but is the measure of segment profit or loss we use to evaluate segment performance and allocate resources, and consistent with authoritative guidance, is our measure of segment performance. The adjustments to derive adjusted operating income are important to an understanding of our overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and our definition of adjusted operating income may differ from that used by other companies. However, we believe that the presentation of adjusted operating income as we measure it for management purposes enhances the understanding of our results of operations by highlighting the results from ongoing operations and the underlying profitability of our businesses.

See Note 1413 to the Unaudited Interim Consolidated Financial Statements for ~~further~~additional information on the presentation of segment results and our definition of adjusted operating income.

Annualized New Business Premiums. In managing our Individual Life, Group Insurance and International ~~Insurance businesses,~~Businesses, we analyze annualized new business premiums, which do not correspond to revenues under U.S. GAAP. Annualized new business premiums measure the current sales performance of the business, while revenues primarily reflect the renewal persistency of policies written in prior years and net investment income, in addition to current sales. Annualized new business premiums include 10% of first year premiums or deposits from single pay products. No other adjustments are made for limited pay contracts.

The amount of annualized new business premiums for any given period can be significantly impacted by several factors, including but not limited to: addition of new products, discontinuation of existing products, changes in credited interest rates for certain products and other product modifications, changes in premium rates, changes in tax laws, changes in regulations or changes in the competitive environment. Sales volume may increase or decrease prior to certain of these changes becoming effective, and then fluctuate in the other direction following such changes.

Assets Under Management. In managing our PGIM business, we analyze assets under management (which do not correspond directly to U.S. GAAP assets) because the principal source of revenues is fees based on assets under management. Assets under management represent the fair market value or account value of assets which we manage directly for institutional clients, retail clients, and for our general account, as well as assets invested in our products that are managed by third-party managers.

Account Values. In managing our Individual Annuities and Retirement businesses, we analyze account values, which do not correspond to U.S. GAAP assets. Net sales (redemptions) in our Individual Annuities business and net additions (withdrawals) in our Retirement business do not correspond to revenues under U.S. GAAP, but are used as a relevant measure of business activity.

Impact of Foreign Currency Exchange Rates

Foreign currency exchange rate movements and related hedging strategies

As a U.S.-based company with significant business operations outside the U.S., particularly in Japan, we are subject to foreign currency exchange rate movements that could impact our U.S. dollar (“USD”)-equivalent earnings and shareholder return on equity. Our USD-equivalent earnings could be materially affected by currency fluctuations from period to period, even if earnings on a local currency basis are relatively constant. Our USD-equivalent equity is impacted as the value of our investment in international operations may also fluctuate based on changes in foreign currency exchange rates. We seek to mitigate these impacts through various hedging strategies, including the use of derivative contracts and by holding USD-denominated assets in certain of our foreign subsidiaries.

In order to reduce earnings volatility from foreign currency exchange rate movements, we enter into forward currency derivative contracts to effectively fix the currency exchange rates for a portion of our prospective non-USD-denominated earnings streams. This forward currency hedging program is primarily associated with our insurance operations in Japan and Korea.

In order to reduce equity volatility from foreign currency exchange rate movements, we primarily utilize a yen hedging strategy that calibrates the hedge level to preserve the relative contribution of our yen-based business to the Company’s overall return on equity on a leverage neutral basis. We implement this hedging strategy utilizing a variety of instruments, including ~~USD-denominated~~USD-

denominated assets, foreign currency derivative contracts, and dual currency and synthetic dual currency investments held locally in our Japanese insurance subsidiaries. The total hedge level may vary based on our periodic assessment of the relative contribution of our yen-based business to the Company’s overall return on equity.

The table below presents the aggregate amount of instruments that serve to hedge the impact of foreign currency exchange movements on our USD-equivalent shareholder return on equity from our Japanese insurance subsidiaries as of the dates indicated.


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in billions)				(in billions)
Foreign currency hedging instruments:
Hedging USD-equivalent earnings:
Forward currency contracts (notional amount outstanding)	$	1.2	$	1.3	$	0.4	$	0.6
Hedging USD-equivalent equity:
USD-denominated assets held in yen-based entities(1)	12.9		13.5		10.9		13.1
Dual currency and synthetic dual currency investments(2)	0.6		0.6		0.6		0.6
Total USD-equivalent equity foreign currency hedging instruments	13.5		14.1		11.5		13.7
Total foreign currency hedges	$	14.7	$	15.4	$	11.9	$	14.3

__________

(1)

Includes USD-denominated fixed maturities at amortized cost plus any related accrued investment income, as well as USD notional amount of foreign currency derivative contracts outstanding. Note this amount represents only those USD assets serving to hedge the impact of foreign currency volatility on equity. Separate from this program, our Japanese operations also have ~~$55.5~~$62.2 billion and ~~$48.9~~$57.8 billion as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, of USD-denominated assets supporting USD-denominated liabilities related to USD-denominated products.


(2)	Dual currency and synthetic dual currency investments are held by our yen-based entities in the form of fixed maturities and loans with a yen-denominated principal component and USD-denominated interest income. The amounts shown represent the present value of future USD-denominated cash flows.

The USD-denominated investments that hedge the impact of foreign currency exchange rate movements on USD-equivalent earnings and shareholder return on equity from our Japanese insurance operations are reported within yen-based entities and, as a result, foreign currency exchange rate movements will impact their value reported within our yen-based Japanese insurance entities. We seek to mitigate the risk that future unfavorable foreign currency exchange rate movements will decrease the value of these USD-denominated investments reported within our yen-based Japanese insurance entities, and therefore negatively impact their equity and regulatory solvency margins, by having our Japanese insurance operations enter into currency hedging transactions. Those hedges are with a subsidiary of Prudential Financial. These hedging strategies have the economic effect of moving the change in value of these USD-denominated investments due to foreign currency exchange rate movements from our Japanese yen-based entities to our USD-based entities.

These USD-denominated investments also pay a coupon which is generally higher than what a similar yen-denominated investment would pay. The incremental impact of this higher yield on our USD-denominated investments, as well as our dual currency and synthetic dual currency investments, will vary over time, and is dependent on the duration of the underlying investments as well as interest rate environments in both the U.S. and Japan at the time of the investments.

Impact of intercompany foreign currency exchange rate arrangements on segment results of operations

The financial results of our International ~~Insurance~~Businesses and PGIM ~~segments~~ reflect the impact of intercompany arrangements with our Corporate and Other operations pursuant to which ~~certain of~~ these segments’ non-USD-denominated earnings are translated at fixed currency exchange rates. Results of our Corporate and Other operations include ~~any~~ differences between the translation adjustments recorded by the segments at the fixed currency exchange rate versus the actual average rate during the period. In addition, specific to our International ~~Insurance segment~~Businesses where we hedge certain currencies, the results of our Corporate and Other operations also include the impact of any gains or losses recorded from the forward currency contracts that settled during the period, which include the impact of any over or under hedging of actual earnings that differ from projected earnings.

For International ~~Insurance,~~Businesses, the fixed currency exchange rates are generally determined in connection with a foreign currency income hedging program designed to mitigate the impact of exchange rate changes on the segment’s expected USD-equivalent earnings. Pursuant to this program, our Corporate and Other operations execute forward currency contracts with third-parties to sell the net exposure of projected earnings for certain currencies in exchange for USD at specified exchange rates. The maturities of these contracts correspond with the future periods (typically on a three-year rolling basis) in which the identified non-USD-denominated earnings are expected to be generated. In establishing the level of non-USD-denominated earnings that will be hedged through this program, we exclude the anticipated level of USD-denominated earnings that will be generated by USD-denominated products and investments. For the six months ended June 30, ~~2019,~~2020, approximately ~~15%~~4% of the segment’s earnings were yen-based and, as of June 30, ~~2019,~~2020, we have hedged 100% ~~of expected yen-based earnings for 2019, and~~, 92% and 50% of expected yen-based earnings for 2020, 2021 and ~~2021,~~2022, respectively. To the extent currently unhedged, our International ~~Insurance segment’s~~Businesses’ future expected USD-equivalent of yen-based earnings will be impacted by yen exchange rate movements.

As a result of these arrangements, our International ~~Insurance segment’s~~Businesses’ results for ~~2019~~2020 and ~~2018~~2019 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 104 and 105 ~~and 111~~ yen ~~per USD, respectively, and Korean won-denominated earnings at fixed currency exchange rates of 1110 and 1150 Korean won~~ per USD, respectively. Since determination of the fixed currency exchange rates for a given year is impacted by changes in foreign currency exchange rates over time, the segment’s future earnings will ultimately be impacted by these changes in exchange rates.

~~As a result of these arrangements, for~~For PGIM and certain other currencies within our International ~~Insurance,~~Businesses, the fixed currency exchange rates for the current year are predetermined during the third quarter of the prior year using forward currency exchange rates.

The table below presents, for the periods indicated, the increase (decrease) to revenues and adjusted operating income for the International ~~Insurance~~Businesses, PGIM and ~~PGIM segments and for~~ Corporate and Other operations, reflecting the impact of these intercompany arrangements.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Segment impacts of intercompany arrangements:
International Insurance	$	14		$	(6	)	$	29		$	(21	)
International Businesses(3)													$	19		$	11		$	31		$	26
PGIM	2			0			3			(1		)	2			2			2			3
Impact of intercompany arrangements(1)	16			(6		)	32			(22		)	21			13			33			29
Corporate and Other operations:
Corporate and Other:
Impact of intercompany arrangements~~(1)~~(3)	(16		)	6			(32		)	22			(21		)	(13		)	(33		)	(29		)
Settlement gains (losses) on forward currency contracts~~(2)~~(3)	20			(7		)	32			(30		)	20			16			42			29
Net benefit (detriment) to Corporate and Other operations	4			(1		)	0			(8		)
Net benefit (detriment) to Corporate and Other													(1		)	3			9			0
Net impact on consolidated revenues and adjusted operating income	$	20		$	(7	)	$	32		$	(30	)	$	20		$	16		$	42		$	29

__________


(1)	Represents the difference between non-USD-denominated earnings translated on the basis of weighted average monthly currency exchange rates versus fixed currency exchange rates determined in connection with the foreign currency income hedging program.

(2)

As of June 30, 2020 and 2019, ~~and 2018,~~ the total notional amounts of these forward currency contracts within our Corporate and Other operations were ~~$2.5~~$1.1 billion and ~~$2.8~~$2.0 billion, respectively, of which ~~$1.2~~$0.4 billion and ~~$1.5~~$1.2 billion, respectively, were related to our Japanese insurance operations. Prior period total notional amount of these forward currency contracts has been updated to conform to current period presentation.

(3)

Excludes impacts related to POK. Prior period amounts have been updated to conform to current period presentation. Effective second quarter of 2020, the intercompany arrangement for the Korean won between our International Businesses and Corporate and Other operations was terminated and the related hedges were repurposed in relation to the anticipated sale of POK. Effective second quarter of 2020, Korean won-denominated earnings for 2020 and 2019 that were translated at fixed currency exchange rates of 1,090 and 1,110 Korean won per USD, respectively, are excluded from the International Businesses and are included in the Divested and Run-off Businesses included in Corporate and Other. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

Impact of products denominated in non-local currencies on U.S. GAAP earnings

While our international insurance operations offer products denominated in local currency, several also offer products denominated in non-local currencies, most notably our Japanese operations, which offer USD- and Australian dollar (“AUD”)-denominated products. The non-local currency-denominated insurance liabilities related to these products are supported by investments denominated in corresponding currencies, including a significant portion designated as available-for-sale. While the impact from foreign currency exchange rate movements on these non-local currency-denominated assets and liabilities is economically matched, differences in the accounting for changes in the value of these assets and liabilities due to changes in foreign currency exchange rate movements have historically resulted in volatility in U.S. GAAP earnings.

In ~~the first quarter of~~ 2015, we implemented a structure in Gibraltar Life’s operations that disaggregated the USD- and AUD-denominated businesses into separate divisions, each with its own functional currency that aligns with the underlying products and investments. The result of this alignment was to reduce differences in the accounting for changes in the value of these assets and liabilities that arise due to changes in foreign currency exchange rate movements. For the USD- and AUD-denominated assets that were transferred under this structure, the net cumulative unrealized investment gains associated with foreign exchange remeasurement that were recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) totaled ~~$3.0~~$2.5 billion and ~~$3.2~~$2.7 billion as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and will be recognized in earnings within “Realized investment gains (losses), net” over time as these assets mature or are sold. Absent the sale of any of these assets prior to their stated maturity, approximately 6%7% of the ~~$3.0~~$2.5 billion balance as of June 30, ~~2019~~2020 will be recognized throughout the remainder of ~~2019,~~2020, approximately 13% will be recognized in ~~2020,~~2021, and ~~a majority of~~ the remaining balance will be recognized from ~~2021~~2022 through ~~2024.~~2051.

Highly inflationary economy in Argentina

Our insurance operations in Argentina, Prudential of Argentina (“POA”), have historically utilized the Argentine peso as the functional currency given it is the currency of the primary economic environment in which the entity operates. During 2018, Argentina experienced a cumulative inflation rate that exceeded 100% over a 3-year period. As a result, Argentina’s economy was deemed to be highly inflationary resulting in reporting changes effective July 1, 2018. Under U.S. GAAP, the financial statements of a foreign entity in a highly inflationary economy are to be remeasured as if its functional currency (formerly the Argentine peso) is the reporting currency of its parent reporting entity (the USD) on a prospective basis. While this changed how the results of POA are remeasured and/or translated into USD, the impact to our financial statements was not material nor is it expected to be material in future periods given the relative size of our POA operations. It should also be noted that due to the macroeconomic environment in Argentina, ~~POA’s sales are predominantly denominated in USD and therefore~~ substantially all of POA’s balance sheet consists of USD-denominated product liabilities supported by USD-denominated assets. As a result, this accounting change serves to reduce the remeasurement impact reflected in net income given that the functional currency and currency in which the assets and liabilities are denominated will be more closely aligned.

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 Consolidated 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, deferred sales inducements (“DSI”) and VOBA;

Policyholder liabilities;

Goodwill;

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

Pension and other postretirement benefits;

Taxes on income; and

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

Market Performance - Equity and Interest Rate Assumptions

DAC, DSI and VOBA associated with the variable and universal life policies of our Individual Life and International ~~Insurance~~Businesses segments and the variable and fixed annuity contracts of our Individual Annuities and International ~~Insurance~~Businesses segments 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, DSI and VOBA 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.

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, DSI and VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and domestic and international 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,~~2020, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a ~~4.3%~~5.1% near-term mean reversion equity expected rate of return, and our international variable life insurance business assumes a 4.8% long-term equity expected rate of return and a 5.0% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and VOBA 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~~2020 annual reviews and update of assumptions and other refinements, we ~~kept~~reduced our long-term expectation of the (i) 10-year U.S. Treasury rate by 50 basis points and now grade to a rate of 3.25% over ten years, and (ii) 10-year Japanese Government Bond ~~yields unchanged~~yield by 30 basis points and ~~continue to~~now grade to ~~rates~~a rate of ~~3.75% and 1.30%, respectively,~~1.00% 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 ~~FASB~~Financial Accounting Standards Board (“FASB”) on August 15, 2018 and is expected to have a significant impact on the ~~Company’s~~ Consolidated Financial Statements and Notes to the Consolidated 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~~As a result of the COVID-19 pandemic, the FASB voted in June 2020 to tentatively defer for an additional one year the current effective date isof ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. Subsequently in July 2020, the FASB issued a proposed ASU with comment deadline of August 24, 2020 to obtain additional feedback on the tentative decisions, which are expected into be finalized during the third quarter of ~~2019.~~2020. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would also apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. 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~~the Unaudited Interim Consolidated Financial Statements for a more detailed discussion of ASU 2018-12, as well as other accounting pronouncements issued but not yet adopted and newly adopted accounting ~~pronouncement.~~pronouncements.

Results of Operations by Segment

PGIM ~~Division~~

~~PGIM~~

~~Business Update~~

In the first quarter of 2019, we completed the acquisition of Wadhwani Asset Management LLP, a London-based quantitative macro-focused investment management firm, and renamed the firm QMA Wadhwani LLP, which now operates as part of our QMA business.

In July 2019, we completed the acquisition of our joint venture partner’s shares of our India-based asset management joint venture, DHFL Pramerica Asset Managers, and re-named the business PGIM India Asset Management.

Operating Results

The following table sets forth ~~the PGIM segment’s~~PGIM’s operating results for the periods indicated.


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018			2020			2019		2020			2019
	(in millions)										(in millions)
Operating results(1):
Revenues	$	926	$	816		$	1,796	$	1,642		$	957		$	926	$	1,735		$	1,796
Expenses	662		562			1,318		1,156			633			662		1,247			1,318
Adjusted operating income	264		254			478		486			324			264		488			478
Realized investment gains (losses), net, and related adjustments	1		0			1		(12		)	(1		)	1		3			1
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	30		(11		)	35		(19		)	(6		)	30		(42		)	35
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	295	$	243		$	514	$	455		$	317		$	295	$	449		$	514

__________

(1)

Certain of ~~our PGIM segment’s~~PGIM’s investment activities are based in currencies other than the U.S. dollar and are therefore subject to foreign currency exchange rate risk. The financial results of ~~our~~ PGIM ~~segment~~ include the impact of an intercompany arrangement with our Corporate and Other operations designed to mitigate the impact of exchange rate changes on ~~the segment’s~~PGIM’s U.S. dollar-equivalent earnings. For more information related to this intercompany arrangement, see “—Results of Operations—Impact of Foreign Currency Exchange Rates,” above.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased ~~$10~~$60 million. The increase primarily reflected ~~higher~~an increase in asset management fees due to ~~an increase in~~higher average assets under management as a result of market appreciation and ~~net flows, partially offset by higher related~~fixed income inflows, as well as a decrease in expenses driven by ~~the higher asset management fees and certain~~lower costs of long-term employee compensation plans tied to ~~Company stock~~performance factors and ~~equity market performance. Also contributing~~a temporary pause in travel and entertainment due to ~~the~~COVID-19. The increase ~~were higher~~also reflected an increase in other related revenues, net of ~~associated~~related expenses, primarily due to higher strategic investing results driven by ~~higher~~spread tightening impacting fixed income investment strategies and strong equity investment performance, partially offset by lower net performance-based incentive ~~fees.~~fees driven by the absence of a significant fee earned in the prior year period. These increases were partially offset by a decrease in service, distribution and other revenues primarily reflecting the absence of fees in the current year period related to the Wells Fargo agreement (see “—Revenue and Expenses,” below).

Six Month Comparison. Adjusted operating income ~~decreased $8~~increased $10 million. ~~Higher~~This increase primarily reflected an increase in asset management fees, ~~reflecting an increase in~~net of related expenses, due to higher average assets under management ~~driven by~~as a result of market appreciation and net flows, were more than offset by higher related expenses driven by the higher asset management fees and certain long-term employee compensation plans tied to Company stock and equity market performance.fixed income inflows. The ~~decrease also reflected charges associated with a joint venture and higher non-compensation expenses, including those supporting business growth initiatives. These decreases were~~increase was partially offset by ~~higher~~a decrease in other related revenues, net of ~~associated~~related expenses, primarily ~~driven by higher~~due to lower net performance-based incentive ~~fees.~~fees driven by the absence of significant fees earned in the prior year, and lower strategic investing results driven by spread widening impacting fixed income investment strategies. The increase was also partially offset by a decrease in service, distribution and other revenues primarily due to the absence of fees in the current year period related to the Wells Fargo agreement.

Revenues and Expenses

The following table sets forth ~~the PGIM segment’s~~PGIM’s revenues, presented on a basis consistent with the table above under “—Operating Results,” by type.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(in millions)								(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers	$	319	$	295	$	631	$	591	$	325	$	319	$	653	$	631
Retail customers(1)	220		219		429		436		227		220		456		429
General account	132		115		255		235		138		132		274		255
Total asset management fees	671		629		1,315		1,262		690		671		1,383		1,315
Other related revenues by source:
Incentive fees	62		6		98		11		17		62		35		98
Transaction fees	10		4		12		18		4		10		8		12
Strategic investing	18		19		54		53		64		18		37		54
Commercial mortgage(2)	25		36		51		56		32		25		59		51
Total other related revenues(3)	115		65		215		138		117		115		139		215
Service, distribution and other revenues(4)	140		122		266		242		150		140		213		266
Total revenues	$	926	$	816	$	1,796	$	1,642	$	957	$	926	$	1,735	$	1,796

__________

(1)

Consists of fees from: individual mutual funds and variable annuities and variable life insurance separate account assets; funds invested in proprietary mutual funds through our defined contribution plan products; and third-party sub-advisory relationships. Revenues from fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance are included in the general account.


(2)	Includes mortgage origination ~~and spread lending~~ revenues from our commercial mortgage origination and servicing business.


(3)	Future revenues will be impacted by the level and diversification of our strategic investments, the commercial real estate market, and other domestic and international markets.

(4)

~~Includes~~Prior period amount includes payments from Wells Fargo under an agreement dated as of July 30, 2004, implementing arrangements with respect to money market mutual funds in connection with the combination of our retail securities brokerage and clearing operations with those of Wells Fargo. The agreement ~~extends~~extended for ten years ~~after termination of~~from the Wachovia Securities joint venture ~~which occurred on~~termination date of December 31, ~~2009.~~2009 to December 31, 2019. The revenue from Wells Fargo under this agreement was $15 million ~~and $18 million~~ for the three months ended June 30, 2019 and ~~2018, respectively, and~~ $31 ~~million and $37~~ million for the six months ended June 30, ~~2019 and 2018, respectively.~~2019.

Three Month Comparison. Revenues ~~as shown in the table above under “—Operating Results,”~~ increased ~~$110~~$31 million. Asset management fees increased ~~$42 million driven by~~primarily reflecting an increase in average assets under management as a result of market appreciation and fixed income ~~flows.~~inflows. Other related revenues increased ~~$50 million~~ primarily ~~due to~~reflecting higher ~~gross performance-based incentive fees,~~strategic investing results driven by spread tightening impacting fixed income investment strategies and strong equity investment performance, partially offset by lower ~~commercial mortgage results.~~performance-based incentive fees driven by the absence of a significant fee earned in the prior year period. Service, distribution and other revenues increased primarily reflecting higher revenues from certain consolidated funds (which were fully offset by higher expenses related to noncontrolling interests in these funds), partially offset by the absence of fees in the current year period related to the Wells Fargo agreement.

Expenses ~~as shown in the table above under “—Operating Results,” increased $100 million,~~decreased $29 million. Expenses decreased, primarily ~~reflecting higher compensation expenses attributable to growth in incentive fees and higher earnings, and~~driven by lower costs for certain long-term employee compensation plans tied to performance factors and a temporary pause in travel and entertainment due to COVID-19. Also contributing to the decrease were lower expenses associated with lower performance-based incentive fee revenues. These decreases were partially offset by an increase in expenses for service, distribution and other revenues primarily driven by higher revenues associated with certain consolidated funds as discussed above.

Six Month Comparison. Revenues ~~increased $154~~decreased $61 million. Asset management fees increased ~~$53 million driven by~~primarily reflecting an increase in average assets under management as a result of market appreciation and fixed income ~~flows, partially offset by equity outflows.~~inflows. Other related revenues ~~increased $77 million~~decreased primarily reflecting lower performance-based incentive fees due to ~~higher gross performance-based incentive fees. These increases~~the absence of a significant fee earned in the prior year period, and lower strategic investing results driven by spread widening impacting fixed income investment strategies. Service, distribution and other revenues decreased primarily reflecting lower revenues from certain consolidated funds, which were ~~partially~~fully offset by ~~charges associated with a joint venture.~~lower expenses related to noncontrolling interests in these funds, and the absence of fees in the current year related to the Wells Fargo agreement.

Expenses ~~increased $162 million,~~decreased $71 million. Expenses for service, distribution and other revenues decreased primarily ~~reflecting higher compensation expenses attributable to growth in incentive fees and higher earnings, and costs for~~driven by lower revenues associated with certain ~~long-term employee compensation plans,~~consolidated funds as discussed above. Also contributing to the ~~increase~~decrease were ~~higher non-compensation~~lower expenses ~~including those supporting business growth initiatives.~~associated with lower performance-based incentive fee revenues and a temporary pause in travel and entertainment due to COVID-19.

Assets Under Management

The following table sets forth assets under management by asset class and source as of the dates indicated.

June 30, 2019 December 31, 2018 June 30, 2018
(in billions)
Assets Under Management (at fair value):
Institutional customers:
Equity $ 60.4
$ 54.7
$ 62.2
Fixed income 431.4
395.1
386.1
Real estate 43.1
43.7
42.5
Institutional customers(1) 534.9
493.5
490.8
Retail customers:
Equity 130.3
112.9
133.4
Fixed income 132.7
125.2
117.1
Real estate 1.9
2.0
1.5
Retail customers(2) 264.9
240.1
252.0
General account:
Equity 5.5
5.1
5.5
Fixed income 452.3
420.8
405.9
Real estate 2.0
1.9
1.9
General account 459.8
427.8
413.3
Total assets under management $ 1,259.6
$ 1,161.4
$ 1,156.1

Assets under management within other operating segments(3) $ 237.8
$ 215.9
$ 232.1
Total PFI assets under management $ 1,497.4
$ 1,377.3
$ 1,388.2



	June 30, 2020		December 31, 2019		June 30, 2019
	(in billions)
Assets Under Management(1) (at fair value):
Institutional customers:
Public equity	$	48.9	$	57.1	$	54.9
Public fixed income	443.9		418.6		404.7
Real estate	48.9		49.1		48.3
Private credit and other alternatives	24.7		23.5		23.0
Multi-asset	4.8		4.5		4.0
Institutional customers(2)	571.2		552.8		534.9
Retail customers:
Public equity	109.7		104.2		105.2
Public fixed income	152.0		138.7		119.7
Real estate	1.8		2.0		1.9
Private credit and other alternatives	0.5		0.5		0.3
Multi-asset	56.2		60.2		60.8
Retail customers(3)	320.2		305.6		287.9
General account:
Public equity	4.0		4.4		4.0
Public fixed income	354.8		328.6		321.9
Real estate	67.2		66.0		63.5
Private credit and other alternatives	77.1		73.5		70.3
Multi-asset	0.0		0.1		0.1
General account	503.1		472.6		459.8
Total PGIM assets under management(4)	$	1,394.5	$	1,331.0	$	1,282.6

Assets under management within other reporting segments(4)(5)	$	210.8	$	219.9	$	214.8
Total PFI assets under management	$	1,605.3	$	1,550.9	$	1,497.4

__________

(1)

Prior period amounts have been updated to conform to current period presentation. “Public equity” represents stock ownership interest in a corporation or partnership (excluding hedge funds) or real estate investment trust. “Public fixed income” represents debt instruments that pay interest and usually have a maturity (excluding mortgages). “Real estate” includes direct real estate equity and real estate mortgages. “Private credit and other alternatives” includes private credit, private equity, hedge funds, agricultural debt and equity and other alternative strategies. “Multi-asset” includes funds or products that invest in more than one asset class balancing equity and fixed income funds and target date funds.


(2)	Consists of third-party institutional assets and group insurance contracts.


~~(2)~~(3)	Consists of individual mutual funds and variable annuities and variable life insurance separate account assets; funds invested in proprietary mutual funds through our defined contribution plan products; and third-party sub-advisory relationships. Fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance are included in the general account.


~~(3)~~(4)	~~These amounts primarily~~Effective first quarter of 2020, certain assets have been reclassified from the U.S. Individual Solutions division to PGIM.

(5)

Primarily include certain assets related to annuity and variable life products in our U.S. Individual Solutions division, retirement and group life products in our U.S. Workplace Solutions division and certain general account assets of our International ~~Insurance division.~~Businesses. These assets are not directly managed by PGIM, but rather are invested in non-proprietary funds or are managed by either the divisions themselves or our Chief Investment Officer Organization.

PGIM’s assets under management increased $112 billion in comparison to the prior year quarter primarily reflecting market appreciation and public fixed income inflows, partially offset by public equity outflows. PGIM’s assets under management increased $64 billion in comparison to the prior year-end primarily reflecting market appreciation and public fixed income inflows, partially offset by public equity outflows.

The following table sets forth the component changes in PGIM’s assets under management by asset source for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,			Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2019			2018			2019			2018			2019			2020			2019			2020			2019			2020
	(in billions)															(in billions)
Institutional Customers:
Beginning assets under management	$	524.0		$	489.6		$	493.5		$	489.5		$	490.8		$	524.8		$	524.0		$	552.8		$	493.5		$	534.9
Net additions (withdrawals), excluding money market activity:
Third-party	(6.0		)	5.5			(5.0		)	5.3			3.8			(5.7		)	(6.0		)	(1.5		)	(5.0		)	(3.0		)
Third-party via affiliates(1)	0.8			0.3			0.5			(0.4		)	0.4			(0.3		)	0.8			(1.1		)	0.5			(1.4		)
Total	(5.2		)	5.8			(4.5		)	4.9			4.2			(6.0		)	(5.2		)	(2.6		)	(4.5		)	(4.4		)
Market appreciation (depreciation)(3)	16.6			(4.0		)	40.9			(5.2		)	35.8
Other increases (decreases)(2)	(0.5		)	(0.6		)	5.0			1.6			4.1
Market appreciation (depreciation)(2)																43.3			16.6			12.8			40.9			34.2
Other increases (decreases)(3)																9.1			(0.5		)	8.2			5.0			6.5
Ending assets under management	$	534.9		$	490.8		$	534.9		$	490.8		$	534.9		571.2			534.9			571.2			534.9			571.2
Retail Customers:
Retail Customers(4):
Beginning assets under management	$	256.4		$	246.2		$	240.1		$	245.6		$	252.0		282.4			279.1			305.6			260.2			287.9
Net additions (withdrawals), excluding money market activity:
Third-party	1.1			1.8			1.5			2.8			(1.7		)	9.4			1.1			8.1			1.5			12.3
Third-party via affiliates(1)	0.2			(1.0		)	(6.7		)	(1.2		)	(3.2		)	(14.0		)	(0.3		)	(3.1		)	(6.8		)	(6.5		)
Total	1.3			0.8			(5.2		)	1.6			(4.9		)	(4.6		)	0.8			5.0			(5.3		)	5.8
Market appreciation (depreciation)~~(3)~~(2)	7.1			4.8			30.0			5.0			17.8			42.0			7.8			9.4			32.9			25.9
Other increases (decreases)~~(2)~~(3)	0.1			0.2			0.0			(0.2		)	0.0			0.4			0.2			0.2			0.1			0.6
Ending assets under management	$	264.9		$	252.0		$	264.9		$	252.0		$	264.9		320.2			287.9			320.2			287.9			320.2
General Account:
Beginning assets under management	$	441.0		$	420.0		$	427.8		$	420.2		$	413.3		488.5			441.0			472.6			427.8			459.8
Net additions (withdrawals), excluding money market activity:
Third-party	0.0			0.0			0.0			0.0			0.0			0.0			0.0			0.0			0.0			0.0
Affiliated	1.0			(0.6		)	1.6			1.4			9.4			0.1			1.0			0.8			1.6			5.3
Total	1.0			(0.6		)	1.6			1.4			9.4			0.1			1.0			0.8			1.6			5.3
Market appreciation (depreciation)(3)	14.2			(1.6		)	28.4			(6.7		)	30.9
Other increases (decreases)(2)	3.6			(4.5		)	2.0			(1.6		)	6.2
Market appreciation (depreciation)(2)																18.0			14.2			17.4			28.4			25.9
Other increases (decreases)(3)																(3.5		)	3.6			12.3			2.0			12.1
Ending assets under management	$	459.8		$	413.3		$	459.8		$	413.3		$	459.8		503.1			459.8			503.1			459.8			503.1
Total assets under management(4)	$	1,259.6		$	1,156.1		$	1,259.6		$	1,156.1		$	1,259.6		$	1,394.5		$	1,282.6		$	1,394.5		$	1,282.6		$	1,394.5

__________


(1)	Represents assets that ~~our~~ PGIM ~~segment~~ manages for the benefit of other reporting segments within the Company. Additions and withdrawals of these assets are attributable to third-party product inflows and outflows in other reporting segments.


(2)	Includes income reinvestment, where applicable.

(3)

Includes the effect of foreign exchange rate changes, net money market activity and the impact of acquired business. The impact from foreign currency fluctuations, which primarily impact the general account, resulted in a gain of ~~$1.9~~$1.1 billion and ~~a loss of $4.9~~$1.9 billion for the three months ended June 30, 2020 and 2019, respectively, and ~~2018, respectively;~~ a ~~gain~~loss of $0.7 billion and a gain of ~~$0.5~~$0.7 billion for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively; and a ~~gain~~loss of ~~$1.4~~$0.9 billion for the twelve months ended June 30, ~~2019.~~2020.


~~(3)~~(4)	~~Includes income reinvestment, where applicable.~~Prior period amounts have been updated to conform to current period presentation.

Strategic Investments

The following table sets forth ~~the~~PGIM’s strategic investments ~~of the PGIM segment~~ at carrying value (including the value of derivative instruments used to mitigate equity market and currency risk) by asset class and source as of the dates indicated.


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(in millions)				(in millions)
Co-Investments:
Co-Investments(1):
Public fixed income					$	441	$	462
Real estate	$	190	$	207	210		228
Fixed income	441		438
Seed Investments:
Private credit and other alternatives					22		19
Seed Investments(1):
Public equity					635		671
Public fixed income					343		325
Real estate	58		50		31		34
Public equity	731		738
Fixed income	312		272
Private credit and other alternatives					61		59
Multi-asset					63		74
Total	$	1,732	$	1,705	$	1,806	$	1,872

__________


(1)	Prior period amounts have been updated to conform to current period presentation. For more information, see the “Assets Under Management” table above.

The ~~increase~~decrease of ~~$27~~$66 million in strategic investments was primarily driven by ~~favorable investment performance across all asset classes.~~PGIM’s redemptions of invested seed capital and unfavorable market conditions impacting public fixed income and real estate co-investments.

U.S. Businesses

Operating Results

The following table sets forth the operating results for our U.S. Businesses for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30, 2020
	2020			2019			2020			2019
	(in millions)
Adjusted operating income before income taxes:
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	$	281		$	467		$	526		$	718
Group Insurance	5			81			49			134
Total U.S. Workplace Solutions division	286			548			575			852
U.S. Individual Solutions division:
Individual Annuities	249			462			622			934
Individual Life	(64		)	(135		)	(84		)	(30		)
Total U.S. Individual Solutions division	185			327			538			904
Assurance IQ division(1):
Assurance IQ	(16		)	0			(39		)	0
Total Assurance IQ division	(16		)	0			(39		)	0
Total U.S. Businesses	455			875			1,074			1,756
Reconciling Items:
Realized investment gains (losses), net, and related adjustments(2)	(2,188		)	(677		)	(2,428		)	(1,771		)
Charges related to realized investment gains (losses), net	551			2			(265		)	33
Market experience updates(3)	96			(170		)	(844		)	(170		)
Other adjustments(4)	32			0			77			0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	0			1			1			1
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(1,054	)	$	31		$	(2,385	)	$	(151	)

________


(1)	Assurance IQ was acquired by the Company in October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.


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


(3)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019. See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.

(4)

Three Month Comparison. Adjusted operating income for our U.S. Businesses decreased by $420 million primarily due to:

Lower net investment spread results driven by lower income on non-coupon investments;

An unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements; and

Lower fee income, net of distribution expenses and other associated costs, in our Individual Annuities business.

Partially offsetting these decreases were the following items:

Higher underwriting results primarily driven by our Retirement business due to higher reserve gains driven by COVID-19 related mortality gains; and

Lower expenses, including costs associated with strategic initiatives.

Six Month Comparison. Adjusted operating income for our U.S. Businesses decreased by $682 million primarily due to:

Lower net investment spread results driven by lower income on non-coupon investments;

An unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements;

Lower fee income, net of distribution expenses and other associated costs, in our Individual Annuities business; and

A favorable impact from changes in market conditions on estimates of profitability in the prior year period, which beginning with the second quarter of 2019 is excluded from adjusted operating income (see Note 13 to the Unaudited Interim Consolidated Financial ~~Wellness~~Statements for additional information).

Partially offsetting these decreases was the following item:

Lower expenses, including costs associated with strategic initiatives.

U.S. Businesses - —U.S. Workplace Solutions Division

Retirement

Operating Results

The following table sets forth ~~the Retirement segment’s~~Retirement’s operating results for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,				Six Months Ended June 30,
	2019			2018			2019			2018			2020		2019		2020			2019
	(in millions)												(in millions)
Operating results:
Revenues	$	3,586		$	2,988		$	6,225		$	5,077		$	2,992	$	3,586	$	5,429		$	6,225
Benefits and expenses	3,119			2,711			5,507			4,483			2,711		3,119		4,903			5,507
Adjusted operating income	467			277			718			594			281		467		526			718
Realized investment gains (losses), net, and related adjustments(1)	64			122			143			(33		)	16		38		(5		)	168
Related charges	8			(15		)	11			(16		)
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net	305			(219		)	635			(508		)
Change in experience-rated contractholder liabilities due to asset value changes	(331		)	111			(610		)	415
Charges related to realized investment gains (losses), net													12		8		(11		)	11
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests													0		1		1			1
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	513		$	276		$	897		$	452		$	309	$	514	$	511		$	898

__________


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

Adjusted Operating Income

Three Month ~~Comparison.~~ Comparison. Adjusted operating income ~~increased $190~~decreased $186 million, primarily reflecting ~~a favorable~~an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2020 included a net charge of $22 million from these updates primarily driven by an increase in expected benefit payments, while results for the second quarter of 2019 included a net benefit of $154 million from ~~this annual review~~these updates, primarily driven by a reduction in expected benefit payments. ~~Results for the second quarter of 2018 included a net charge of $68 million from these updates, primarily driven by updates to our assumptions for benefit payments.~~ Excluding this item, adjusted operating income decreased ~~$32~~$10 million, primarily driven by ~~less favorable reserve experience,~~lower net investment spread results, partially offset by higher ~~net investment spread results.~~reserve gains. The ~~lower contribution from reserve experience primarily reflected lower mortality gains on a comparative basis within our pension risk transfer business. The increase~~decrease in net investment spread results primarily reflected ~~higher~~lower income on non-coupon ~~investments and~~investments. The higher ~~asset balances, including growth within our pension risk transfer business, partially offset~~contribution from reserve experience was primarily driven by ~~the impact of~~ higher ~~crediting rates on full service account values.~~COVID-19 related mortality gains.

Six Month ~~Comparison.~~ Comparison. Adjusted operating income ~~increased $124~~decreased $192 million, primarily reflecting ~~a favorable~~an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements, as discussed above. Excluding this item, adjusted operating income decreased ~~$98~~$16 million, primarily driven by ~~less favorable reserve experience,~~ lower net investment

spread results, ~~and~~partially offset by higher ~~expenses. The lower contribution from~~ reserve ~~experience primarily reflected lower mortality gains on a comparative basis within our pension risk transfer business.~~gains. The decrease in net investment spread results primarily reflected ~~the impact of higher crediting rates on full service account values, partially offset by higher~~lower income on non-coupon ~~investments and~~investments. The higher ~~asset balances, including growth within our pension risk transfer business. The increase in expenses~~contribution from reserve experience was primarily driven by higher ~~costs supporting business growth initiatives.~~COVID-19 related mortality gains.

Revenues, Benefits and Expenses

Three Month ~~Comparison.~~ Comparison. Revenues ~~as shown in the table above under “—Operating Results,” increased $598~~decreased $594 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues ~~increased $604~~decreased $600 million. ~~Premiums increased $507 million,~~This decrease primarily ~~driven by~~reflected lower pension risk transfer ~~transactions. This increase in~~ premiums ~~resulted in a~~with corresponding ~~increase~~offsets in policyholders’ benefits, as discussed below. ~~Investment~~This decrease also reflected lower net investment income, ~~increased $88 million,~~ primarily reflecting ~~higher~~lower income on non-coupon ~~investments and higher asset balances, including growth within our pension risk transfer business.~~investments.

Benefits and expenses ~~as shown in the table above under “—Operating Results,” increased~~decreased $408 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses ~~increased $636~~decreased $590 million. Policyholders’ benefits, including the change in policy reserves, ~~increased $613 million,~~decreased primarily related to the ~~increase in premiums discussed above, driven by growth~~decrease in pension risk transfer ~~transactions including interest on~~premiums discussed above, as well as a higher contribution from reserve experience primarily driven by higher COVID-19 related ~~reserves.~~mortality gains.

Six Month ~~Comparison.~~ Comparison. Revenues ~~increased $1,148~~decreased $796 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues ~~increased $1,154~~decreased $802 million. ~~Premiums increased $1,015 million,~~This decrease primarily ~~driven by~~reflected lower pension risk transfer ~~transactions. This increase in~~ premiums ~~resulted in a~~with corresponding ~~increase~~offsets in policyholders’ benefits, as discussed below. ~~Investment~~This decrease also reflected lower net investment income, ~~increased $146 million,~~ primarily reflecting ~~higher asset balances, including growth within our pension risk transfer business, and higher~~lower income on non-coupon investments.

Benefits and expenses ~~increased $1,024~~decreased $604 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses ~~increased $1,252~~decreased $786 million. Policyholders’ benefits, including the change in policy reserves, ~~increased $1,168 million,~~decreased primarily related to the ~~increase in premiums discussed above, driven by growth~~decrease in pension risk transfer ~~transactions including interest on~~premiums discussed above, as well as a higher contribution from reserve experience primarily driven by higher COVID-19 related ~~reserves. Interest credited to policyholders’ account balances increased $47 million, including the impact of higher crediting rates on experience-rated account balances.~~mortality gains.

Account Values

Account values are a significant driver of our operating results, and are primarily driven by net additions (withdrawals) and the impact of market changes. The income we earn on most of our fee-based products varies with the level of fee-based account values, since many policy fees are determined by these values. The investment income and interest we credit to policyholders on our spread-based products varies with the level of general account values. To a lesser extent, changes in account values impact our pattern of amortization of DAC and VOBA and general and administrative expenses. The following table shows the changes in the account values and net additions (withdrawals) of ~~Retirement segment~~Retirement’s products for the periods indicated. Net additions (withdrawals) are plan sales and participant deposits or additions, as applicable, minus plan and participant withdrawals and benefits. Account values include both internally- and externally-managed client balances as the total balances drive revenue for the Retirement ~~segment.~~business. For more information on internally-managed balances, see “—PGIM.”


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,			Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2019			2018			2019			2018			2019			2020			2019			2020			2019			2020
	(in millions)															(in millions)
Full Service:
Beginning total account value	$	251,071		$	236,120		$	231,669		$	234,616		$	240,922		$	238,435		$	251,071		$	272,448		$	231,669		$	262,133
Deposits and sales	11,047			7,712			20,614			17,634			36,096			5,455			11,047			14,407			20,614			30,187
Withdrawals and benefits	(7,259		)	(6,470		)	(16,364		)	(14,624		)	(28,169		)	(7,040		)	(7,259		)	(15,708		)	(16,364		)	(35,050		)
Change in market value, interest credited and interest income and other activity	7,274			3,560			26,214			3,296			13,284			29,583			7,274			(4,714		)	26,214			9,163
Ending total account value	$	262,133		$	240,922		$	262,133		$	240,922		$	262,133		$	266,433		$	262,133		$	266,433		$	262,133		$	266,433
Institutional Investment Products:
Beginning total account value	$	203,101		$	191,518		$	200,759		$	194,492		$	191,722		$	227,346		$	203,101		$	227,596		$	200,759		$	215,978
Additions(1)	15,044			5,461			17,291			6,149			32,452			4,545			15,044			11,438			17,291			25,248
Withdrawals and benefits	(4,161		)	(3,851		)	(7,810		)	(8,740		)	(14,479		)	(3,527		)	(4,161		)	(9,037		)	(7,810		)	(17,970		)
Change in market value, interest credited and interest income	2,826			1,198			5,470			984			7,789			3,000			2,826			5,435			5,470			9,054
Other(2)	(832		)	(2,604		)	268			(1,163		)	(1,506		)	(222		)	(832		)	(4,290		)	268			(1,168		)
Ending total account value	$	215,978		$	191,722		$	215,978		$	191,722		$	215,978		$	231,142		$	215,978		$	231,142		$	215,978		$	231,142

__________


(1)	Additions primarily include: group annuities calculated based on premiums received; funding agreements issued; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; and investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust.

(2)

“Other” activity includes the effect of foreign exchange rate changes associated with our British pounds sterling denominated longevity reinsurance business and changes in asset balances for externally-managed accounts. For the three months ended June 30, 2020 and 2019, ~~and 2018, “other”~~“Other” activity also includes $2,614 million in receipts offset by $2,740 million in payments and $792 million in receipts offset by $577 ~~million in payments and $1,031 million in receipts offset by $1,024~~ million in payments, respectively, and for the six months ended June 30, 2020 and 2019, includes $5,366 million in receipts offset by $5,276 million in payments and ~~2018, includes~~ $1,403 million in receipts offset by $1,194 ~~million in payments and $2,231 million in receipts offset by $2,189~~ million in payments, respectively, related to funding agreements backed by commercial paper which typically have maturities of less than 90 days.

The increase in full service account values for the three months ~~ended June 30, 2019, the six months ended June 30, 2019,~~ and ~~the~~ twelve months ended June 30, ~~2019,~~2020 primarily reflected ~~the~~ favorable changes in the market value of customer funds, partially offset by net withdrawals and ~~positive net plan sales, including a large defined contribution transaction~~benefits. The decrease in full service account values for the six months ended June 30, 2020 primarily reflected unfavorable changes in the ~~second quarter~~market value of ~~2019.~~customer funds and net withdrawals and benefits.

The increase in institutional investment products account values for the three months, ~~ended June 30, 2019, the~~ six months ~~ended June 30, 2019~~ and ~~the~~ twelve months ended June 30, ~~2019, primarily~~2020 reflected ~~net additions from pension risk transfer transactions and the~~ favorable changes in the market value of account assets. Account values for the three months ended June 30, 2020 also reflected net additions from pension risk transfer activity and investment-only stable value accounts. Account values for the six months ended June 30, 2020 also reflected net additions from collateralized funding agreements and investment-only stable value accounts, which were partially offset by pension risk transfer activity, and a decrease in other activity primarily driven by the negative impacts of foreign exchange rate changes. Account values for the twelve months ended June 30, 2020 also reflected net additions from pension risk transfer activity and collateralized funding agreements.

Group Insurance

Operating Results

The following table sets forth ~~the~~ Group ~~Insurance segment’s~~Insurance’s operating results and benefits and administrative operating expense ratios for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	($ in millions)												($ in millions)
Operating results:
Revenues	$	1,461		$	1,424		$	2,902		$	2,840		$	1,471		$	1,461		$	2,895		$	2,902
Benefits and expenses	1,380			1,342			2,768			2,703			1,466			1,380			2,846			2,768
Adjusted operating income	81			82			134			137			5			81			49			134
Realized investment gains (losses), net, and related adjustments	8			21			9			(9		)	(10		)	8			71			9
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	89		$	103		$	143		$	128		$	(5	)	$	89		$	120		$	143
Benefits ratio(1):
Benefits ratio(1)(4):
Group life(2)	90.2		%	87.5		%	89.6		%	87.3		%	93.0		%	90.2		%	90.7		%	89.6		%
Group disability(2)	65.3		%	64.0		%	69.9		%	71.4		%	74.0		%	65.3		%	75.0		%	69.9		%
Total Group Insurance(2)	84.7		%	82.8		%	85.3		%	84.2		%	89.0		%	84.7		%	87.3		%	85.3		%
Administrative operating expense ratio(3):
Administrative operating expense ratio(3)(4):
Group life	12.2		%	12.6		%	11.9		%	12.1		%	11.8		%	12.2		%	12.1		%	11.9		%
Group disability	24.2		%	26.4		%	25.5		%	26.7		%	26.1		%	24.2		%	25.4		%	25.5		%
Total Group Insurance	14.8		%	15.3		%	14.8		%	14.9		%	14.9		%	14.8		%	15.0		%	14.8		%

__________


(1)	Ratio of policyholder benefits to earned premiums plus policy charges and fee income.

(2)

~~Benefits~~Benefit ratios reflect the ~~impacts~~impact of our annual reviews and ~~updates~~update of assumptions and other refinements. Excluding these impacts, the group life, group disability and total Group Insurance ~~benefits~~benefit ratios were 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively, 88.5%, 74.5% and 85.5% for the three months ended June 30, 2019, respectively, and 88.7%, 74.6% and 85.7% for the six months ended June 30, 2019, ~~respectively, 88.6%, 71.6% and 85.3% for the three months ended June 30, 2018, respectively, and 87.9%, 75.3% and 85.4% for the six months ended June 30, 2018,~~ respectively.


(3)	Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.


(4)	The benefit and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $1$76 million, including ~~an unfavorable~~a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of ~~2019~~2020 and ~~2018~~2019 included a net benefit from this update of $11 million and $9 million, ~~and $31 million,~~ respectively. ~~The net benefit in both periods was primarily driven by favorable experience related to our group disability business.~~ Excluding this item, adjusted operating income ~~increased $21~~decreased $78 million, primarily reflecting ~~a higher contribution from~~lower underwriting results in our group life business driven by unfavorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts. The decrease also reflected lower net investment spread results driven by ~~higher~~lower income on non-coupon investments, and lower expenses driven by the absence of costs related to the termination of a third-party underwriting service provider contract in the prior year period. The underwriting results for both our group life and group disability businesses remained flat compared to the prior year period.investments.

Six Month Comparison. Adjusted operating income decreased $3$85 million, including ~~an unfavorable~~a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income ~~increased $19~~decreased $87 million, primarily ~~driven by more favorable underwriting results in our group disability business, a higher contribution from net investment spread results driven by higher income on non-coupon investments, and~~reflecting lower expenses driven by the absence of costs related to the termination of a third-party underwriting service provider contract in the prior year period. The underwriting results in our group disability business were driven by growth in the business and a favorable impact from claim experience on long-term contracts. These increases were partially offset by less favorable underwriting results in our group life business driven by an unfavorable ~~impact from~~ claim ~~experience.~~experience mostly due to COVID-19 impacts on non-experience-rated contracts. The decrease also reflected lower net investment spread results driven by lower income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues ~~as shown in the table above under “—Operating Results,”~~ increased ~~$37~~$10 million. Excluding ~~an unfavorable comparative~~the impact of ~~$10 million resulting~~our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $21 million. The decrease primarily reflected lower net investment income driven by lower income on non-coupon investments, with partial offsets in interest credited to policyholder account balances, as discussed below, partially offset by higher premiums and policy charges and fee income driven by growth in our group life business.

Benefits and expenses increased $86 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $57 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, which reflected increases in our group life business mostly due to COVID-19 impacts. The increase was partially offset by lower interest credited to policyholder account balances, with partial offsets in net investment income, as discussed above.

Six Month Comparison. Revenues decreased $7 million. Excluding the impact from our annual reviews and update of assumptions and other refinements, as discussed above, revenues ~~increased $47~~decreased $38 million. The ~~increase~~decrease primarily reflected lower net investment income driven by lower income on non-coupon investments, with partial offsets in interest credited to policyholder account balances, as discussed below, partially offset by higher premiums and policy charges and fee income driven by growth in our group life and disability ~~business, and higher net investment income driven by higher income on non-coupon investments.~~businesses.

Benefits and expenses ~~as shown in the table above under “—Operating Results,”~~ increased ~~$38~~$78 million. Excluding ~~an unfavorable comparative~~the impact ~~of $12 million resulting~~ from our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased ~~$26~~$49 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, which reflected increases in our group ~~disability~~life business ~~driven by claim experience,~~mostly due to COVID-19 impacts. The increase was partially offset by ~~a decrease~~lower interest credited to policyholder account balances, with partial offsets in ~~general and administrative expenses driven by the absence of costs related to the termination of a third-party underwriting service provider contract in the prior year period.~~

~~Six Month Comparison~~. Revenues increased $62 million. Excluding an unfavorable comparative impact of $10 million resulting from our annual reviews and updates of assumptions and other refinements, as discussed above, revenues increased $72 million. The increase primarily reflected higher premiums and policy charges and fee income driven by growth in our group disability business, and higher net investment income, ~~driven by higher income on non-coupon investments.~~

~~Benefits and expenses increased $65 million. Excluding an unfavorable comparative impact of $12 million resulting from our annual reviews and update of assumptions and other refinements,~~ as discussed above, benefits and expenses increased $53 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves in both our group disability and group life businesses driven by claim experience, partially offset by a decrease in general and administrative expenses driven by the absence of costs related to the termination of a third-party underwriting service provider contract in the prior year period.above.

Sales Results

The following table sets forth ~~the~~ Group ~~Insurance segment’s~~Insurance’s annualized new business premiums, as defined under “—Segment Measures” above, for the periods indicated.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
	(in millions)								(in millions)
Annualized new business premiums(1):
Group life	$	17	$	46	$	191	$	289	$	8	$	17	$	181	$	191
Group disability	16		14		135		154		18		16		126		135
Total	$	33	$	60	$	326	$	443	$	26	$	33	$	307	$	326

__________


(1)	Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts.

Total annualized new business premiums for the three months ended June 30, ~~2019~~2020 decreased ~~$27~~$7 million compared to the prior year period, ~~reflecting~~driven by lower sales in our group life ~~business, partially offset by higher sales in our group disability~~ business. Total annualized new business premiums for the six months ended June 30, ~~2019~~2020 decreased ~~$117~~$19 million compared to the prior year period, ~~primarily~~ driven by ~~large client~~lower sales in our group life and group disability businesses. Sales levels reflect pricing competitiveness and reduced levels of client case movement within the ~~prior year period.~~large market.

U.S. ~~Financial Wellness~~ Businesses - —U.S. Individual Solutions Division

~~Individual Annuities~~Account Values

Account values are a significant driver of our operating results, and are primarily driven by net additions (withdrawals) and the impact of market changes. The income we earn on most of our fee-based products varies with the level of fee-based account values, since many policy fees are determined by these values. The investment income and interest we credit to policyholders on our spread-based products varies with the level of general account values. To a lesser extent, changes in account values impact our pattern of amortization of DAC and VOBA and general and administrative expenses. The following table shows the changes in the account values and net additions (withdrawals) of Retirement’s products for the periods indicated. Net additions (withdrawals) are plan sales and participant deposits or additions, as applicable, minus plan and participant withdrawals and benefits. Account values include both internally- and externally-managed client balances as the total balances drive revenue for the Retirement business. For more information on internally-managed balances, see “—PGIM.”



	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020			2019			2020			2019			2020
	(in millions)
Full Service:
Beginning total account value	$	238,435		$	251,071		$	272,448		$	231,669		$	262,133
Deposits and sales	5,455			11,047			14,407			20,614			30,187
Withdrawals and benefits	(7,040		)	(7,259		)	(15,708		)	(16,364		)	(35,050		)
Change in market value, interest credited and interest income and other activity	29,583			7,274			(4,714		)	26,214			9,163
Ending total account value	$	266,433		$	262,133		$	266,433		$	262,133		$	266,433
Institutional Investment Products:
Beginning total account value	$	227,346		$	203,101		$	227,596		$	200,759		$	215,978
Additions(1)	4,545			15,044			11,438			17,291			25,248
Withdrawals and benefits	(3,527		)	(4,161		)	(9,037		)	(7,810		)	(17,970		)
Change in market value, interest credited and interest income	3,000			2,826			5,435			5,470			9,054
Other(2)	(222		)	(832		)	(4,290		)	268			(1,168		)
Ending total account value	$	231,142		$	215,978		$	231,142		$	215,978		$	231,142

__________


(1)	Additions primarily include: group annuities calculated based on premiums received; funding agreements issued; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; and investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust.

(2)

“Other” activity includes the effect of foreign exchange rate changes associated with our British pounds sterling denominated longevity reinsurance business and changes in asset balances for externally-managed accounts. For the three months ended June 30, 2020 and 2019, “Other” activity also includes $2,614 million in receipts offset by $2,740 million in payments and $792 million in receipts offset by $577 million in payments, respectively, and for the six months ended June 30, 2020 and 2019, includes $5,366 million in receipts offset by $5,276 million in payments and $1,403 million in receipts offset by $1,194 million in payments, respectively, related to funding agreements backed by commercial paper which typically have maturities of less than 90 days.

The increase in full service account values for the three months and twelve months ended June 30, 2020 primarily reflected favorable changes in the market value of customer funds, partially offset by net withdrawals and benefits. The decrease in full service account values for the six months ended June 30, 2020 primarily reflected unfavorable changes in the market value of customer funds and net withdrawals and benefits.

The increase in institutional investment products account values for the three months, six months and twelve months ended June 30, 2020 reflected favorable changes in the market value of account assets. Account values for the three months ended June 30, 2020 also reflected net additions from pension risk transfer activity and investment-only stable value accounts. Account values for the six months ended June 30, 2020 also reflected net additions from collateralized funding agreements and investment-only stable value accounts, which were partially offset by pension risk transfer activity, and a decrease in other activity primarily driven by the negative impacts of foreign exchange rate changes. Account values for the twelve months ended June 30, 2020 also reflected net additions from pension risk transfer activity and collateralized funding agreements.

Group Insurance

Operating Results

The following table sets forth ~~the Individual Annuities segment’s~~Group Insurance’s operating results and benefits and administrative operating expense ratios for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												($ in millions)
Operating results:
Revenues	$	1,288		$	1,266		$	2,523		$	2,518		$	1,471		$	1,461		$	2,895		$	2,902
Benefits and expenses	826			759			1,589			1,492			1,466			1,380			2,846			2,768
Adjusted operating income	462			507			934			1,026			5			81			49			134
Realized investment gains (losses), net, and related adjustments	(881		)	(70		)	(2,225		)	528			(10		)	8			71			9
Related charges	56			(95		)	190			(221		)
Market experience updates(1)	(10		)	0			(10		)	0
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(373	)	$	342		$	(1,111	)	$	1,333		$	(5	)	$	89		$	120		$	143
Benefits ratio(1)(4):
Group life(2)													93.0		%	90.2		%	90.7		%	89.6		%
Group disability(2)													74.0		%	65.3		%	75.0		%	69.9		%
Total Group Insurance(2)													89.0		%	84.7		%	87.3		%	85.3		%
Administrative operating expense ratio(3)(4):
Group life													11.8		%	12.2		%	12.1		%	11.9		%
Group disability													26.1		%	24.2		%	25.4		%	25.5		%
Total Group Insurance													14.9		%	14.8		%	15.0		%	14.8		%

~~________~~__________


(1)	~~Represents~~Ratio of policyholder benefits to earned premiums plus policy charges and fee income.

(2)

Benefit ratios reflect the ~~immediate impacts in current period results from changes in current market conditions on estimates~~impact of ~~profitability, which are excluded from adjusted operating income beginning with the second quarter~~our annual reviews and update of ~~2019. The Company has historically recognized~~assumptions and other refinements. Excluding these impacts, ~~in adjusted operating~~the group life, group disability and total Group Insurance benefit ratios were 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively, 88.5%, 74.5% and 85.5% for the three months ended June 30, 2019, respectively, and 88.7%, 74.6% and 85.7% for the six months ended June 30, 2019, respectively.


(3)	Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income. ~~See Note 14~~


(4)	The benefit and administrative ratios are measures used to ~~our Unaudited Interim Consolidated Financial Statements for additional information.~~evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased ~~$45~~$76 million, including ~~an unfavorable~~a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results ~~from this annual review included a net charge of $12 million and a net benefit of $10 million in~~for both the second quarter of 2020 and 2019 included a net benefit from this update of $11 million and ~~2018,~~$9 million, respectively. Excluding this item, adjusted operating income decreased ~~$23~~$78 million, primarily ~~driven by~~reflecting lower net fee income and higher expenses, partially offset by higher net investment income. Asset-based fee income, net of distribution expenses and other associated costs, declined due to lower average account values largely resulting from negative net flows, partially offset by market appreciation. Also contributing to this decrease were lower average fee ratesunderwriting results in our group life business driven by unfavorable claim experience mostly due to COVID-19 impacts ~~from our living benefit guarantees, and certain products reaching contractual milestones for fee tier reduction.~~on non-experience-rated contracts. The ~~increase in expenses was primarily~~decrease also reflected lower net investment spread results driven by ~~business growth. The increase in net investment income reflected a higher level of invested assets and higher~~lower income on non-coupon investments.

Six Month Comparison. Adjusted operating income decreased ~~$92~~$85 million, including ~~an unfavorable~~a favorable comparative net impact from our annual reviews and update of assumptions and other ~~refinements, as discussed above.~~refinements. Excluding this item, adjusted operating income decreased ~~$70~~$87 million, primarily reflecting lower underwriting results in our group life business driven by unfavorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts. The decrease also reflected lower net investment spread results driven by lower ~~net fee income, higher expenses, and unfavorable changes in the estimated profitability of the business, partially offset by higher net investment income.~~

Asset-based fee income, net of distribution expenses and other associated costs, declined due to lower average account values largely resulting from negative net flows, partially offset by market appreciation. Also contributing to this decrease were lower average fee rates driven by unfavorable impacts from our living benefit guarantees, and certain products reaching contractual milestones for fee tier reduction. The increase in expenses was primarily driven by business growth. The unfavorable impact of changes in the estimated profitability of the business was driven by changes in the first quarter of 2019 compared to the first quarter of 2018 due to impacts of equity market performance on policyholder accounts. Beginning in the second quarter of 2019, this activity is excluded from adjusted operating income (see Note 14 to the Unaudited Interim Consolidated Financial Statements for further information). The increase in net investment income reflected a higher level of invested assets and higher income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month ~~Comparison.~~ Comparison. Revenues ~~as shown in the table above under “—Operating Results,”~~ increased ~~$22~~$10 million. Excluding ~~an $18 million net decrease related to~~ the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues ~~increased $40~~decreased $21 million. The ~~increase was~~decrease primarily reflected lower net investment income driven by lower income on non-coupon investments, with partial offsets in interest credited to policyholder account balances, as discussed below, partially offset by higher premiums ~~primarily reflecting an increase in single premium immediate annuity sales, with offsets in policyholders’ benefits as discussed below,~~ and ~~higher net investment income reflecting a higher level of invested assets and higher income on non-coupon investments. These increases were partially offset by lower~~ policy charges and fee income as well as lower asset management and service fees and other income reflecting, lower average account values largely resulting from negative net flows, partially offset by market appreciation. Also contributing to this decrease were lower average fee rates driven by ~~unfavorable impacts from~~growth in our ~~living benefit guarantees, and certain products reaching contractual milestones for fee tier reduction.~~group life business.

Benefits and expenses ~~as shown in the table above under “—Operating Results,”~~ increased ~~$67~~$86 million. Excluding ~~a $4 million net increase related to~~the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased ~~$63 million~~$57 million. The increase primarily ~~driven by~~reflected higher policyholders’ benefits ~~including~~and changes in reserves, which reflected increases in our group life business mostly due to ~~higher reserve provisions resulting from an~~COVID-19 impacts. The increase ~~in single premium immediate annuity sales,~~was partially offset by lower interest credited to policyholder account balances, with partial offsets in ~~premiums,~~net investment income, as discussed above.

Six Month Comparison. Revenues ~~increased $5~~decreased $7 million. Excluding the impact from our annual reviews and update of assumptions and other refinements, as discussed above, revenues ~~increased $23~~decreased $38 million. The ~~increase was~~decrease primarily reflected lower net investment income driven by lower income on non-coupon investments, with partial offsets in interest credited to policyholder account balances, as discussed below, partially offset by higher premiums ~~primarily reflecting an increase in single premium immediate annuity sales, with offsets in policyholders’ benefits as discussed below,~~ and ~~higher net investment income reflecting a higher level of invested assets and higher income on non-coupon investments. These increases were partially offset by lower~~ policy charges and fee income as well as lower asset management and service fees and other income reflecting, lower average account values largely resulting from negative net flows, partially offset by market appreciation. Also contributing to this decrease were lower average fee rates driven by ~~unfavorable impacts from~~growth in our ~~living benefit guarantees,~~group life and ~~certain products reaching contractual milestones for fee tier reduction.~~disability businesses.

Benefits and expenses increased ~~$97~~$78 million. Excluding the impact from our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased ~~$93 million~~$49 million. The increase primarily ~~driven by~~reflected higher policyholders’ benefits ~~including~~and changes in reserves, which reflected increases in our group life business mostly due to ~~higher reserve provisions resulting from an~~COVID-19 impacts. The increase ~~in single premium immediate annuity sales,~~was partially offset by lower interest credited to policyholder account balances, with partial offsets in ~~premiums,~~net investment income, as discussed above.

Sales Results

The following table sets forth Group Insurance’s annualized new business premiums, as defined under “—Segment Measures” above, for the periods indicated.



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Annualized new business premiums(1):
Group life	$	8	$	17	$	181	$	191
Group disability	18		16		126		135
Total	$	26	$	33	$	307	$	326

__________


(1)	Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts.

Total annualized new business premiums for the three months ended June 30, 2020 decreased $7 million compared to the prior year period, driven by lower sales in our group life business. Total annualized new business premiums for the six months ended June 30, 2020 decreased $19 million compared to the prior year period, driven by lower sales in our group life and group disability businesses. Sales levels reflect pricing competitiveness and reduced levels of client case movement within the large market.

U.S. Businesses—U.S. Individual Solutions Division

Account Values

Account values are a significant driver of our operating results, and are primarily driven by net additions (withdrawals) and the impact of market changes. The income we earn on most of our fee-based products varies with the level of fee-based account values, since many policy fees are determined by these values. The investment income and interest we credit to policyholders on our spread-based products varies with the level of general account values. To a lesser extent, changes in account values impact our pattern of amortization of DAC and VOBA and general and administrative expenses. The following table shows the changes in the account values and net additions (withdrawals) of Retirement’s products for the periods indicated. Net additions (withdrawals) are plan sales and participant deposits or additions, as applicable, minus plan and participant withdrawals and benefits. Account values include both internally- and externally-managed client balances as the total balances drive revenue for the Retirement business. For more information on internally-managed balances, see “—PGIM.”



	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020			2019			2020			2019			2020
	(in millions)
Full Service:
Beginning total account value	$	238,435		$	251,071		$	272,448		$	231,669		$	262,133
Deposits and sales	5,455			11,047			14,407			20,614			30,187
Withdrawals and benefits	(7,040		)	(7,259		)	(15,708		)	(16,364		)	(35,050		)
Change in market value, interest credited and interest income and other activity	29,583			7,274			(4,714		)	26,214			9,163
Ending total account value	$	266,433		$	262,133		$	266,433		$	262,133		$	266,433
Institutional Investment Products:
Beginning total account value	$	227,346		$	203,101		$	227,596		$	200,759		$	215,978
Additions(1)	4,545			15,044			11,438			17,291			25,248
Withdrawals and benefits	(3,527		)	(4,161		)	(9,037		)	(7,810		)	(17,970		)
Change in market value, interest credited and interest income	3,000			2,826			5,435			5,470			9,054
Other(2)	(222		)	(832		)	(4,290		)	268			(1,168		)
Ending total account value	$	231,142		$	215,978		$	231,142		$	215,978		$	231,142

__________


(1)	Additions primarily include: group annuities calculated based on premiums received; funding agreements issued; unfunded longevity reinsurance contracts calculated as the present value of future projected benefits; and investment-only stable value contracts calculated as the fair value of customers’ funds held in a client-owned trust.

(2)

“Other” activity includes the effect of foreign exchange rate changes associated with our British pounds sterling denominated longevity reinsurance business and changes in asset balances for externally-managed accounts. For the three months ended June 30, 2020 and 2019, “Other” activity also includes $2,614 million in receipts offset by $2,740 million in payments and $792 million in receipts offset by $577 million in payments, respectively, and for the six months ended June 30, 2020 and 2019, includes $5,366 million in receipts offset by $5,276 million in payments and $1,403 million in receipts offset by $1,194 million in payments, respectively, related to funding agreements backed by commercial paper which typically have maturities of less than 90 days.

Group Insurance

Operating Results

The following table sets forth Group Insurance’s operating results and benefits and administrative operating expense ratios for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	($ in millions)
Operating results:
Revenues	$	1,471		$	1,461		$	2,895		$	2,902
Benefits and expenses	1,466			1,380			2,846			2,768
Adjusted operating income	5			81			49			134
Realized investment gains (losses), net, and related adjustments	(10		)	8			71			9
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(5	)	$	89		$	120		$	143
Benefits ratio(1)(4):
Group life(2)	93.0		%	90.2		%	90.7		%	89.6		%
Group disability(2)	74.0		%	65.3		%	75.0		%	69.9		%
Total Group Insurance(2)	89.0		%	84.7		%	87.3		%	85.3		%
Administrative operating expense ratio(3)(4):
Group life	11.8		%	12.2		%	12.1		%	11.9		%
Group disability	26.1		%	24.2		%	25.4		%	25.5		%
Total Group Insurance	14.9		%	14.8		%	15.0		%	14.8		%

__________


(1)	Ratio of policyholder benefits to earned premiums plus policy charges and fee income.

(2)

Benefit ratios reflect the impact of our annual reviews and update of assumptions and other refinements. Excluding these impacts, the group life, group disability and total Group Insurance benefit ratios were 93.4%, 75.7% and 89.6% for the three months ended June 30, 2020, respectively, 90.9%, 75.8% and 87.6% for the six months ended June 30, 2020, respectively, 88.5%, 74.5% and 85.5% for the three months ended June 30, 2019, respectively, and 88.7%, 74.6% and 85.7% for the six months ended June 30, 2019, respectively.


(3)	Ratio of general and administrative expenses (excluding commissions) to gross premiums plus policy charges and fee income.


(4)	The benefit and administrative ratios are measures used to evaluate profitability and efficiency.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $76 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for both the second quarter of 2020 and 2019 included a net benefit from this update of $11 million and $9 million, respectively. Excluding this item, adjusted operating income decreased $78 million, primarily reflecting lower underwriting results in our group life business driven by unfavorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts. The decrease also reflected lower net investment spread results driven by lower income on non-coupon investments.

Six Month Comparison. Adjusted operating income decreased $85 million, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased $87 million, primarily reflecting lower underwriting results in our group life business driven by unfavorable claim experience mostly due to COVID-19 impacts on non-experience-rated contracts. The decrease also reflected lower net investment spread results driven by lower income on non-coupon investments.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues increased $10 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $21 million. The decrease primarily reflected lower net investment income driven by lower income on non-coupon investments, with partial offsets in interest credited to policyholder account balances, as discussed below, partially offset by higher premiums and policy charges and fee income driven by growth in our group life business.

Six Month Comparison. Revenues decreased $7 million. Excluding the impact from our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $38 million. The decrease primarily reflected lower net investment income driven by lower income on non-coupon investments, with partial offsets in interest credited to policyholder account balances, as discussed below, partially offset by higher premiums and policy charges and fee income driven by growth in our group life and disability businesses.

Benefits and expenses increased $78 million. Excluding the impact from our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased $49 million. The increase primarily reflected higher policyholders’ benefits and changes in reserves, which reflected increases in our group life business mostly due to COVID-19 impacts. The increase was partially offset by lower interest credited to policyholder account balances, with partial offsets in net investment income, as discussed above.

Sales Results

The following table sets forth Group Insurance’s annualized new business premiums, as defined under “—Segment Measures” above, for the periods indicated.



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Annualized new business premiums(1):
Group life	$	8	$	17	$	181	$	191
Group disability	18		16		126		135
Total	$	26	$	33	$	307	$	326

__________


(1)	Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts.

U.S. Businesses—U.S. Individual Solutions Division

Individual Annuities

Operating Results

The following table sets forth Individual Annuities’ operating results for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Operating results:
Revenues	$	953		$	1,288		$	2,101		$	2,523
Benefits and expenses	704			826			1,479			1,589
Adjusted operating income	249			462			622			934
Realized investment gains (losses), net, and related adjustments	(2,178		)	(881		)	(3,043		)	(2,225		)
Charges related to realized investment gains (losses), net	474			56			99			190
Market experience updates(1)	18			(10		)	(628		)	(10		)
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(1,437	)	$	(373	)	$	(2,950	)	$	(1,111	)

________


(1)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019. See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income decreased $213 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2020 included a $136 million net charge from these updates primarily driven by unfavorable impacts related to a decrease in long-term interest rate assumptions. Results for the second quarter of 2019 included a $12 million net charge from these updates. Excluding this item, adjusted operating income decreased $89 million primarily driven by lower fee income, net of distribution expenses and other associated costs, due to lower average account values, unfavorable impacts from our living benefit guarantees, and certain products reaching contractual milestones for fee tier reduction. This decrease was partially offset by higher net investment spread results due to a higher level of invested assets.

Six Month Comparison. Adjusted operating income decreased $312 million, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements, as discussed above. Excluding this item, adjusted operating income decreased $188 million. The decrease was primarily driven by lower fee income, net of distribution expenses and other associated costs, due to unfavorable impacts from our living benefit guarantees, certain products reaching contractual milestones for fee tier reduction, and lower average account values.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues decreased $335 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $203 million. The decrease was primarily driven by lower policy charges and fee income, as well as a decrease in asset management and service fees and other income, reflecting lower average account values resulting from net outflows, unfavorable impacts from our living benefit guarantees resulting from declining interest rates and certain products reaching contractual milestones for fee tier reductions. Also contributing to the decrease were lower premiums resulting from a decrease in single premium immediate annuity sales, with offsets in policyholders’ benefits as discussed below. These decreases were partially offset by higher net investment income reflecting a higher level of invested assets.

Benefits and expenses decreased $122 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $114 million primarily driven by policyholders’ benefits, including changes in reserves, due to lower reserve provisions resulting from a decrease in single premium immediate annuity sales, with offsets in premiums, as discussed above. Also contributing to the decrease were lower general and administrative expenses, net of capitalization, driven by lower distribution expenses reflecting lower average account values.

Six Month Comparison. Revenues decreased $422 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues decreased $290 million. The decrease was primarily driven by lower policy charges and fee income, as well as a decrease in asset management and service fees and other income, reflecting unfavorable impacts from our living benefit guarantees resulting from declining interest rates, certain products reaching contractual milestones for fee tier reductions, and lower average account values resulting from net outflows. Also contributing to the decrease were lower premiums resulting from a decrease in single premium immediate annuity sales, with offsets in policyholders’ benefits as discussed below.

Benefits and expenses decreased $110 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses decreased $102 million primarily driven by policyholders’ benefits, including changes in reserves, due to lower reserve provisions resulting from a decrease in single premium immediate annuity sales, with offsets in premiums, as discussed above. Also contributing to the decrease were lower general and administrative expenses, net of capitalization, driven by lower distribution expenses reflecting lower average account values.

Account Values

Account values are a significant driver of our operating results. Since most fees are determined by the level of separate account assets, fee income varies ~~according to~~primarily based on the level of account values. Additionally, our fee income generally drives other items such as the pattern of amortization of DAC and other costs. Account values are driven by net flows from new business sales, surrenders, withdrawals and benefit payments, policy charges and the impact of positive or negative market value changes.

The annuity industry’s competitive and regulatory landscapes, which have been dynamic over the last few years, may impact our net flows, including new business sales. The following table sets forth account value information for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,			Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2019			2018			2019			2018			2019			2020			2019			2020			2019			2020
	(in millions)															(in millions)
Total Individual Annuities(1):
Beginning total account value	$	161,890		$	164,651		$	151,080		$	168,626		$	163,645		$	143,976		$	161,890		$	169,681		$	151,080		$	165,313
Sales	2,675			2,067			4,982			3,791			9,461			1,346			2,675			3,273			4,982			8,011
Full surrenders and death benefits~~(2)~~	(2,397		)	(2,368		)	(4,337		)	(4,605		)	(8,690		)	(1,410		)	(2,397		)	(3,929		)	(4,337		)	(8,966		)
Sales, net of full surrenders and death benefits~~(2)~~	278			(301		)	645			(814		)	771			(64		)	278			(656		)	645			(955		)
Partial withdrawals and other benefit payments~~(2)~~	(1,229		)	(1,145		)	(2,465		)	(2,340		)	(4,939		)	(1,146		)	(1,229		)	(2,545		)	(2,465		)	(5,243		)
Net flows	(951		)	(1,446		)	(1,820		)	(3,154		)	(4,168		)	(1,210		)	(951		)	(3,201		)	(1,820		)	(6,198		)
Change in market value, interest credited and other activity	5,289			1,369			17,862			40			9,481			17,358			5,289			(5,464		)	17,862			3,747
Policy charges	(915		)	(929		)	(1,809		)	(1,867		)	(3,645		)	(848		)	(915		)	(1,740		)	(1,809		)	(3,586		)
Ending total account value	$	165,313		$	163,645		$	165,313		$	163,645		$	165,313		$	159,276		$	165,313		$	159,276		$	165,313		$	159,276

__________

(1)

Includes gross variable and fixed annuities sold as retail investment products. Investments sold through defined contribution plan products are included with such products within ~~the~~our Retirement ~~segment.~~business. Variable annuity account values were ~~$161.0~~$154.1 billion and ~~$160.1~~$161.0 billion as of June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Fixed annuity account values were ~~$4.3~~$5.2 billion and ~~$3.5~~$4.3 billion as of June 30, 2020 and 2019, ~~and 2018,~~ respectively.


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

The increase in account values for ~~both~~ the three months ended June 30, 2020 and the decrease for the six months ended June 30, ~~2019 primarily reflected~~2020 were largely driven by market value ~~appreciation. Gross sales for~~appreciation and depreciation, respectively. For both ~~the three and six months ended June 30, 2019, increased~~periods, in comparison to the prior year ~~periods,~~period, the decrease in net flows primarily ~~attributable to certain distribution, product design~~reflected a decline in gross sales largely driven by benefit rate reductions and pricing actions ~~implemented~~in response to ~~enhance product competitiveness. The introduction of a new fixed index annuity product in 2018 also contributed to the increase in gross sales.~~capital market pressures.

The ~~increase~~decrease in account values for the twelve months ended June 30, ~~2019~~2020 was largely driven ~~by favorable changes in the market value of contractholder funds, partially offset~~ by partial withdrawals and other benefit payments on contracts as well as policy charges on contractholder ~~accounts.~~accounts, partially offset by market value appreciation.

~~Variable Annuity~~ Risks and Risk Mitigants

The following is a summary ~~of: (i)~~of certain risks associated with Individual Annuities’ ~~products; (ii)~~products, certain strategies in mitigating those risks including any updates to those strategies since the previous ~~year-end;~~year-end, and ~~(iii)~~ 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.

Fixed Annuity Risks and Risk Mitigants. The primary risk exposures of our fixed annuity products relate to investment risks we bear for providing customers a minimum guaranteed interest rate or an index-linked interest rate required to be credited to the customer’s account value, including interest rate fluctuations and/or sustained periods of low interest rates, and credit risk related to the underlying investments. We manage these risk exposures primarily through our investment strategies and product design features which include credit rate resetting subject to the minimum guaranteed interest rate as well as surrender charges applied during the early years of the contract that help to provide protection for premature withdrawals. In addition, a portion of our fixed products has a market value adjustment provision that provides protection of lapse in the case of rising interest rates. We also manage these risk exposures through external reinsurance for certain of our fixed annuity products.

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

i.Product Design ~~Features~~Features:

A portion of the variable annuity contracts that we offer include an automatic rebalancing feature, also referred to as 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 accounts. The objective of the automatic rebalancing feature is to reduce our exposure to equity market risk and market volatility. 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,~~purchase payments, as well as a required minimum allocation to our general account for certain of our products. We continue to introduce products that diversify our risk profile and have incorporated provisions in product design allowing frequent revisions of key pricing elements for certain of our products. In addition, there is diversity in our fee arrangements, as certain fees are primarily based on the benefit guarantee amount, the contractholder account value and/or premiums, which helps preserve certain revenue streams when market fluctuations cause account values to decline.

~~ALM~~ii.Asset Liability Management (“ALM”) Strategy (including fixed income instruments and derivatives):

~~Our current~~We employ an ALM strategy that utilizes a combination of both traditional fixed income instruments and derivatives to help defray potential claims associated with our variable annuity living benefit guarantees. The economic liability we manage with this ALM strategy consists of expected living benefit claims under less severe market conditions, which are managed using ~~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, we 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.

Under our ALM strategy, the difference between the change in value of our hedging instruments and the change in value of the portion of the economic liability that is being hedged, has historically been reflected in adjusted operating income over time. Beginning with the second quarter of 2020, this impact is excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

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


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(in millions)						(in millions)
U.S. GAAP liability (including NPR)	$	12,606		$	8,860
NPR adjustment	3,673			4,619
U.S. GAAP liability, including NPR, net of reinsurance recoverables(1)							$	25,777		$	12,612
NPR adjustment, net of reinsurance recoverables(1)							6,539			3,522
Subtotal	16,279			13,479			32,316			16,134
Adjustments including risk margins and valuation methodology differences	(4,618		)	(4,084		)	(8,907		)	(4,385		)
Economic liability managed through the ALM strategy	$	11,661		$	9,395		$	23,409		$	11,749

________


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

As of June 30, ~~2019,~~2020, the fair value of our fixed income instruments and derivative assets exceed the economic liability within the entities in which the risks reside.

The following table illustrates the net impact to our Unaudited Interim Consolidated Statements of Operations from changes in the U.S. GAAP embedded derivative liability and hedge positions under the ALM strategy, and the related amortization of DAC and other costs, that are excluded from adjusted operating income.

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in millions)(1)
Excluding impact of assumption updates and other refinements:
Net hedging impact(2) $ (35 ) $ 10
$ (90 ) $ (140 )
Change in portions of U.S. GAAP liability, before NPR(3) (831 ) 127
(511 ) 497
Change in the NPR adjustment 229
(53 ) (834 ) 131
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions (637 ) 84
(1,435 ) 488
Related benefit (charge) to amortization of DAC and other costs 88
(61 ) 249
(167 )
Net impact of assumption updates and other refinements 17
(173 ) 17
(173 )
Net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs—reported in Individual Annuities $ (532 ) $ (150 ) $ (1,169 ) $ 148

~~__________~~


~~(1)~~	~~Positive amount represents income; negative amount represents a loss.~~


~~(2)~~	Net hedging impact represents the difference between the change in fair value of the risk we seek to hedge using derivatives and the change in fair value of the derivatives utilized with respect to that risk.


~~(3)~~	~~Represents risk margins and valuation methodology differences between the economic liability managed by the ALM strategy and the U.S. GAAP liability.~~

For the three and six months ended June 30, 2019, the net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs, was a net charge of $532 million and $1,169 million, respectively. The net impact from changes in the U.S. GAAP embedded derivative and hedge positions resulted in a net charge of $637 million in the second quarter of 2019 primarily reflecting declining interest rates, and a net charge of $1,435 million in the first six months of 2019 driven by tightening credit spreads used in measuring our living benefit contracts and declining interest rates.iii.Capital Hedge Program:

For the three months ended June 30, 2018, the net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs was a net charge of $150 million which primarily reflected the impact of a $173 million net charge from our annual reviews and update of assumptions and other refinements, including updates to expected withdrawal rates, as well as economic assumptions. For the six months ended June 30, 2018, the net impact from changes in the U.S. GAAP embedded derivative and hedge positions, after the impact of NPR, DAC and other costs was a benefit of $148 million which primarily reflected a $488 million net impact from changes in the U.S. GAAP embedded derivative and hedge positions as a result of a widening of credit spreads used in measuring our living benefit contracts. This benefit was partially offset by the impact of a $173 million net charge from our annual reviews and update of assumptions and other refinements, including updates to expected withdrawal rates, as well as economic assumptions; and by the impact of $167 million of related charges to amortization of DAC and other costs.

~~For information regarding the Capital Protection Framework (the “Framework”) we use to evaluate and support the risks of the ALM strategy, see “—Liquidity and Capital Resources—Capital.”~~

~~Capital Hedge Program~~

We employ a capital hedge program ~~within the Individual Annuities segment to hedge equity market impacts. The program is intended~~ to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets. The capital hedge program is conducted using equity derivatives which include equity call and put options, total return swaps and futures contracts. The changes in value of these derivatives ~~are~~have historically been recognized in adjusted operating income over the expected duration of the capital hedge program. Beginning with the second quarter of 2020, these impacts are excluded from adjusted operating income which the Company believes enhances the understanding of underlying performance trends.

~~External Reinsurance~~Results excluded from adjusted operating income

AsThe following table provides the net impact to the Unaudited Interim Consolidated Statements of Operations from the results excluded from adjusted operating income, which is primarily driven by the changes in the U.S. GAAP embedded derivative liability and hedge positions under the ALM strategy, and the related amortization of DAC and other costs.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Results excluded from adjusted operating income(2)	(in millions)(1)
Change in value of U.S. GAAP liability, pre-NPR(3)	$	5,467		$	(2,545	)	$	(15,071	)	$	(2,265	)
Change in the NPR adjustment	(3,582		)	190			3,017			(873		)
Change in fair value of hedge assets, excluding capital hedges(4)	(3,349		)	1,410			8,605			1,265
Change in fair value of capital hedges(5)	(704		)	(159		)	248			(631		)
Other	(10		)	223			158			279
Realized investment gains (losses), net, and related adjustments	(2,178		)	(881		)	(3,043		)	(2,225		)
Market experience updates(6)	18			(10		)	(628		)	(10		)
Charges related to realized investment gains (losses), net	474			56			99			190
Total results excluded from adjusted operating income(7)	$	(1,686	)	$	(835	)	$	(3,572	)	$	(2,045	)

__________


(1)	Positive amount represents income; negative amount represents a loss.


(2)	Includes the impact of annual reviews and update of assumptions and other refinements.


(3)	Represents the change in the liability (excluding NPR) for our variable annuities living benefit guarantees which is measured utilizing a valuation methodology that is required under U.S. GAAP. This liability includes such items as risk margins which are required by U.S. GAAP but not included in our best estimate of the liability.


(4)	Represents the change in fair value of the derivatives utilized to hedge potential claims associated with our variable annuity living benefit guarantees.


(5)	Represents the changes in fair value of equity derivatives of the capital hedge program intended to protect a portion of the overall capital position of the variable annuities business against its exposure to the equity markets.


(6)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019.


(7)	Excludes amounts from the changes in fair value of fixed income instruments recorded in OCI (versus net income): a loss of $4 million and gain of $391 million for the three months ended June 30, 2020 and 2019, respectively; and a gain of $1,702 million and $651 million for the six months ended June 30, 2020 and 2019, respectively.

For the three months ended June 30, 2020, the loss of $1,686 million primarily reflected unfavorable living benefit results. These results were driven by an unfavorable NPR adjustment, unfavorable hedge breakage driven by credit spreads tightening, and losses associated with our capital hedge program, partially offset by a favorable impact related to the portions of the U.S. GAAP liability before NPR (excluded from our hedge target) driven by tightening of credit spreads. These net losses were partially offset by a benefit related to the amortization of DAC and other costs.

For the six months ended June 30, 2020, the loss of $3,572 million primarily reflected unfavorable living benefit results. These results were driven by an unfavorable impact related to the portions of the U.S. GAAP liability before NPR (excluded from our hedge target) driven by declining interest rates, widening of credit spreads, and unfavorable equity market performance. Also contributing to the results were unfavorable hedge breakage driven by credit spreads tightening and losses from duration management swaps associated with the living benefit results, partially offset by a favorable NPR adjustment. These net losses were partially offset by a benefit related to the amortization of DAC and other costs.

For the three months ended June 30, 2019, the loss of $835 million primarily reflected unfavorable living benefit ~~guarantees~~results. These results were driven by an unfavorable impact related to the portions of the U.S. GAAP liability before NPR (excluded from our hedge target) driven by declining interest rates with partial offsets driven by favorable equity market performance, losses associated with ~~$3.1 billion~~our capital hedge program, and losses from duration management swaps associated with the living benefit results. Partially offsetting these losses was a favorable NPR adjustment. These net losses were partially offset by a benefit related to the amortization of ~~Highest Daily Lifetime Income (“HDI”) v.3.0 account values are reinsured~~DAC and other costs.

For the six months ended June 30, 2019, the loss of $2,045 million primarily reflected unfavorable living benefit results. These results were driven by an unfavorable NPR adjustment, an unfavorable impact related to ~~Union Hamilton Reinsurance Ltd., an external counterparty, pursuant to a quota share agreement that covered approximately 50%~~the portions of ~~new business between April 1, 2015 and December 31, 2016. HDI v.3.0 is~~ the ~~current version of~~U.S. GAAP liability before NPR (excluded from our ~~“highest daily” living benefits guarantee that is available~~hedge target) driven by declining interest rates with partial offsets driven by favorable equity market performance, losses associated with our ~~Prudential Premier~~® ~~Retirement Variable Annuity. New sales~~capital hedge program, and losses from duration management swaps associated with the living benefit results. These net losses were partially offset by a benefit related to the amortization of ~~HDI v.3.0 subsequent to December 31, 2016 are not covered by this external reinsurance agreement.~~DAC and other costs.

Product Specific Risks and Risk Mitigants

As noted above, the risks associated with our products are mitigated through product design features, including automatic rebalancing, as well as through our ALM strategy and external reinsurance. The following table sets forth the risk management profile of our living benefit guarantees and guaranteed minimum death benefit (“GMDB”) features as of the periods indicated.


	June 30, 2019				December 31, 2018				June 30, 2018				June 30, 2020				December 31, 2019				June 30, 2019
	Account Value		% of Total		Account Value		% of Total		Account Value		% of Total		Account Value		% of Total		Account Value		% of Total		Account Value		% of Total
	($ in millions)												($ in millions)
Living benefit/GMDB features(1):
Both ALM strategy and automatic rebalancing~~(2)~~(3)	$	109,819	68	%	$	101,496	69	%	$	111,146	69	%	$	102,137	66	%	$	111,535	68	%	$	109,819	68	%
ALM strategy only(3)	7,855		5	%	7,520		5	%	8,676		5	%	6,836		4	%	7,703		5	%	7,855		5	%
Automatic rebalancing only	778		1	%	804		1	%	909		1	%	646		1	%	732		1	%	778		1	%
External reinsurance~~(3)~~(4)	3,096		2	%	2,873		2	%	3,146		2	%	2,855		2	%	3,150		2	%	3,096		2	%
Prudential Defined Income Variable Annuity	14,248		9	%	11,237		7	%	10,142		6	%
PDI													17,646		12	%	16,296		9	%	14,248		9	%
Other products	2,475		1	%	2,306		2	%	2,651		2	%	2,225		1	%	2,457		1	%	2,475		1	%
Total living benefit/GMDB features	$	138,271			$	126,236			$	136,670			$	132,345			$	141,873			$	138,271
GMDB features and other~~(4)~~(5)	22,746		14	%	21,103		14	%	23,473		15	%	21,734		14	%	23,055		14	%	22,746		14	%
Total variable annuity account value	$	161,017			$	147,339			$	160,143			$	154,079			$	164,928			$	161,017

__________


(1)	All contracts with living benefit guarantees also contain GMDB features, which cover the same insured contract.


(2)	Contracts with living benefits that are included in ~~the~~our ALM strategy and that have an automatic rebalancing feature.


(3)	Excludes PDI which is presented separately within this table.


(4)	Represents contracts subject to a reinsurance transaction with an external counterparty ~~that covered~~covering certain new ~~HDI~~Highest Daily Lifetime Income (“HDI”) v.3.0 business ~~from~~for the period April 1, 2015 through December 31, 2016. These contracts with living benefits also have an automatic rebalancing feature.


~~(4)~~(5)	Includes contracts that have a GMDB feature and do not have an automatic rebalancing feature.

Individual Life

Operating Results

The following table sets forth ~~the~~ Individual ~~Life segment’s~~Life’s operating results for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Operating results:
Revenues	$	1,508		$	1,451		$	2,990		$	2,876		$	1,563		$	1,508		$	3,093		$	2,990
Benefits and expenses	1,643			1,408			3,020			2,797			1,627			1,643			3,177			3,020
Adjusted operating income	(135		)	43			(30		)	79			(64		)	(135		)	(84		)	(30		)
Realized investment gains (losses), net, and related adjustments	158			(84		)	277			(272		)	(16		)	158			549			277
Related charges	(62		)	(8		)	(168		)	93
Charges related to realized investment gains (losses), net													65			(62		)	(353		)	(168		)
Market experience updates(1)	(160		)	0			(160		)	0			78			(160		)	(216		)	(160		)
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(199	)	$	(49	)	$	(81	)	$	(100	)	$	63		$	(199	)	$	(104	)	$	(81	)

__________

(1)

Adjusted Operating Income

Three Month Comparison. Adjusted operating income ~~decreased $178~~reflected a decrease in losses of $71 million, primarily reflecting ~~an unfavorable~~a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Results for the second quarter of 2020 included a $92 million net charge from these updates, mainly driven by unfavorable impacts related to a decrease in long-term interest rate assumptions. Results for the second quarter of 2019 included a $208 million net charge from ~~this annual review,~~these updates, mainly driven by unfavorable impacts related to mortality ~~rate assumptions. Results for the second quarter of 2018 included a $65 million net charge from this annual review, mainly driven by unfavorable impacts related to lapse and mortality rate~~ assumptions. Excluding this item, adjusted operating income decreased ~~$35~~$45 million, primarily reflecting lower net investment spread results driven by lower income on non-coupon investments and lower investment yields, partially offset by business growth. Also contributing to the decrease were lower underwriting results driven by ~~the unfavorable ongoing impact from our second quarter 2019 assumption update on current quarter results and a more~~an unfavorable impact from mortality experience, net of reinsurance, ~~and higher expenses.~~primarily attributable to COVID-19 related claims. These decreases were partially offset by ~~a higher contribution~~lower expenses from ~~net investment spread results driven by continued business growth and higher income on non-coupon investments.~~cost savings initiatives, as well as the absence of certain expenses incurred in the prior year period.

Six Month Comparison. Adjusted operating income ~~decreased $109~~reflected an increase in losses of $54 million, ~~primarily reflecting an unfavorable~~including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements, as discussed above. Excluding this item, adjusted operating income ~~increased $34~~decreased $170 million, primarily reflecting ~~a favorable net impact in the first quarter of 2019 from changes in our estimated profitability of the business~~lower underwriting results, driven by ~~equity market performance on policyholder accounts. Beginning in the second quarter~~an unfavorable impact from mortality experience, net of ~~2019, this activity is excluded from adjusted operating income (see Note 14~~reinsurance, primarily attributable to ~~the Unaudited Interim Consolidated Financial Statements for further information). Also contributing to the increase was a higher contribution from~~COVID-19 related claims, and lower net investment spread results driven by ~~continued business growth and higher~~lower income on non-coupon ~~investments.~~investments and lower investment yields, partially offset by business growth. Also contributing to the decrease was the absence of a favorable impact from changes in market conditions on estimates of profitability in the prior year period, which beginning with the second quarter of 2019, is excluded from adjusted operating income. These ~~increases~~decreases were partially offset by lower ~~underwriting results driven by~~expenses from cost savings initiatives, as well as the ~~unfavorable ongoing impact from our second quarter 2019 assumption update on current period results and higher expenses.~~absence of certain expenses incurred in the prior year period.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues ~~as shown in the table above under “—Operating Results,”~~ increased ~~$57~~$55 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues ~~increased $94~~decreased $16 million. This ~~increase~~decrease was primarily driven by ~~an increase in~~lower net investment income ~~from~~due to lower income on non-coupon investments and lower investment yields, partially offset by the impact of higher average invested assets resulting from ~~continued~~ business ~~growth,~~growth. The decrease was partially offset by higher ~~investment~~policy charges and fee income ~~from unaffiliated reserve financing activity that resulted in a corresponding increase in interest expense, as discussed below, and higher income on non-coupon investments.~~driven by business growth.

Benefits and expenses ~~as shown in the table above under “—Operating Results,” increased $235~~decreased $16 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased ~~$129~~$29 million. This increase was primarily driven by higher general and administrative expenses, net of capitalization, reflecting increased VOBA amortization, partially offset by lower expenses as discussed above. Also contributing to this increase were higher policyholders’ benefits ~~and interest credited to account balances attributable to continued business growth, the ongoing impact of the assumption update, as discussed above, and~~driven by an unfavorable impact from mortality experience, net of ~~reinsurance. Also contributing~~reinsurance, primarily attributable to ~~the increase was~~COVID-19 related claims, as well as higher ~~reserve financing costs, as discussed above.~~interest credited to account balances driven by business growth.

Six Month Comparison. Revenues increased ~~$114~~$103 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, revenues increased ~~$151~~$32 million. This increase was primarily driven by ~~an increase in net investment~~higher policy charges and fee income ~~from higher average invested assets resulting from continued~~driven by business growth, higher investment income from unaffiliated reserve financing activity that resulted in a corresponding increase in interest expense, as discussed below, and higher income on non-coupon investments.growth.

Benefits and expenses increased ~~$223~~$157 million. Excluding the impact of our annual reviews and update of assumptions and other refinements, as discussed above, benefits and expenses increased ~~$117~~$202 million. This increase ~~was primarily driven by~~reflected higher policyholders’ benefits ~~and~~driven by an unfavorable impact from mortality experience, net of reinsurance, primarily attributable to COVID-19 related claims, as well as higher interest credited to account balances ~~attributable to continued~~driven by business ~~growth and the ongoing impact of the assumption update, as discussed above.~~growth. Also contributing to the increase was the absence of a favorable impact from changes in market conditions on estimates of profitability in the prior year period, as discussed above. The increase also reflected higher ~~reserve financing costs,~~general and administrative expenses, net of capitalization, reflecting increased VOBA amortization, partially offset by lower expenses as discussed above.

Sales Results

The following table sets forth ~~individual life insurance~~Individual Life’s annualized new business premiums, as defined under “—Results of Operations—Segment Measures” above, by distribution channel and product, for the periods indicated.


	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018						Three Months Ended June 30, 2020						Three Months Ended June 30, 2019
	Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total
	(in millions)												(in millions)
Term Life	$	7	$	46	$	53	$	7	$	47	$	54	$	7	$	33	$	40	$	7	$	46	$	53
Guaranteed Universal Life(1)	2		22		24		2		22		24		1		33		34		2		22		24
Other Universal Life(1)	11		37		48		11		18		29		5		18		23		11		37		48
Variable Life	19		37		56		13		22		35		22		65		87		19		37		56
Total	$	39	$	142	$	181	$	33	$	109	$	142	$	35	$	149	$	184	$	39	$	142	$	181

	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018						Six Months Ended June 30, 2020						Six Months Ended June 30, 2019
	Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total		Prudential Advisors		Third- Party		Total
	(in millions)												(in millions)
Term Life	$	14	$	90	$	104	$	14	$	89	$	103	$	13	$	67	$	80	$	14	$	90	$	104
Guaranteed Universal Life(1)	4		41		45		5		40		45		3		60		63		4		41		45
Other Universal Life(1)	20		58		78		20		35		55		12		41		53		20		58		78
Variable Life	35		82		117		24		40		64		42		133		175		35		82		117
Total	$	73	$	271	$	344	$	63	$	204	$	267	$	70	$	301	$	371	$	73	$	271	$	344

__________

(1)

Single pay life premiums and excess (unscheduled) premiums are included in annualized new business premiums based on a 10% credit and represented approximately 5%12% and 5%7% of Guaranteed Universal Life and 0%11% and 0%17% of Other Universal Life annualized new business premiums for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and approximately 6%9% and ~~14%~~7% of Guaranteed Universal Life and 0%10% and 0%14% of Other Universal Life annualized new business premiums for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively. Prior period percentages have been updated to conform to current period presentation.

Total annualized new business premiums for the second quarter and the first six months of ~~2019~~2020 increased ~~$39~~$3 million and ~~$77~~$27 million, respectively, compared to the prior year periods primarily driven by higher sales of variable life products as a result of product design and pricing actions, ~~implemented in September 2018.~~and higher sales of guaranteed universal life products. The increases for both periods were ~~also driven~~partially offset by ~~higher~~lower sales of term life products due to pricing actions and lower other universal life products ~~as a result~~due to the absence of large case activity in the second quarter of 2020.

U.S. Businesses—Assurance IQ Division

Assurance IQ

Operating Results

The following table sets forth Assurance IQ’s operating results for the period indicated.



	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
	(in millions)
Operating results:
Revenues	$	59		$	119
Expenses	75			158
Adjusted operating income	(16		)	(39		)
Other adjustments(1)	32			77
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	16		$	38

__________


(1)	“Other adjustments” include certain components of the consideration for the Assurance IQ acquisition, which are recognized as compensation expense over the requisite service periods, as well as changes in the fair value of contingent consideration. See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.

Adjusted Operating Income

The acquisition of Assurance IQ was completed in October 2019. Adjusted operating income for the second quarter and the first six months of 2020 was $(16) million and $(39) million, respectively, reflecting revenues, net of marketing and distribution expenses, primarily related to our health (Health Under 65) and life insurance product lines. Results also included operating expenses and amortization expenses related to intangible assets recognized as part of purchase accounting (see Note 1 and Note 10 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information).

Revenues and Expenses

Revenues for the second quarter and the first six months of 2020 were $59 million and $119 million, respectively, primarily reflecting commissions and marketing referral revenues from our health (Health Under 65) and life insurance product lines. Expenses for the second quarter and the first six months of 2020 were $75 million and $158 million, respectively, driven by marketing and distribution costs, general and administrative operating expenses, and amortization expenses related to intangible assets.

International ~~Insurance Division~~Businesses

~~International~~Business Update

In April 2020, we entered into a definitive agreement with KB Financial Group, Inc., a Korean financial services provider, to sell The Prudential Life Insurance Company of Korea, Ltd. (“POK”) for cash consideration of approximately $1.9 billion (based on current exchange rates) to be paid at closing. The transaction is consistent with our strategic focus internationally on Japan and higher-growth emerging markets around the world. The transaction is expected to close by the end of 2020, subject to regulatory approvals and customary closing conditions. In the second quarter of 2020, we reported our investment in POK as “held for sale” and recognized an approximately $700 million after-tax charge to earnings to adjust the carrying value of POK to the fair market value reflected in the purchase price (see Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information). Effective in the second quarter of 2020, the results of this business and the impact of the anticipated sale are reflected in the Divested and Run-off Businesses that are included in Corporate and Other, and all prior period amounts have been updated to conform to the current period presentation. We intend to use the proceeds of the transaction for general corporate purposes.

We are exploring strategic options for our Taiwanese insurance business, which may include a sale.

Operating Results

The results of our International ~~Insurance~~Businesses’ operations are translated on the basis of weighted average monthly exchange rates, inclusive of the effects of the intercompany arrangement discussed in “—Results of Operations—Impact of Foreign Currency Exchange Rates” above. To provide a better understanding of operating performance within the International ~~Insurance segment,~~Businesses, where indicated below, we have analyzed our results of operations excluding the effect of the year over year change in foreign currency exchange rates. Our results of operations, excluding the effect of foreign currency fluctuations, were derived by translating foreign currencies to ~~U.S. dollars~~USD at uniform exchange rates for all periods presented, including for constant dollar information discussed below. The exchange ~~rates~~rate used ~~were~~was Japanese yen at a rate of ~~105~~104 yen per ~~U.S. dollar and Korean won at a rate of 1110 won per U.S. dollar, both of~~USD, which ~~were~~was determined in connection with the foreign currency income hedging program discussed in “—Results of Operations—Impact of Foreign Currency Exchange Rates” above. In addition, for constant dollar information discussed below, activity denominated in ~~U.S. dollars~~USD is generally reported based on the amounts as transacted in ~~U.S. dollars.~~USD. Annualized new business premiums presented on a constant exchange rate basis in the “Sales Results” section below reflect translation based on these same uniform exchange rates.

The following table sets forth the International ~~Insurance segment’s~~Businesses’ operating results for the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
	(in millions)												(in millions)
Operating results:
Operating results(1):
Revenues:
Life Planner operations	$	2,852		$	2,687		$	6,027		$	5,765
Gibraltar Life and Other operations	2,649			2,601			5,626			5,563
Life Planner													$	2,474		$	2,409		$	5,333		$	5,156
Gibraltar Life and Other													2,759			2,649			5,677			5,626
Total revenues	5,501			5,288			11,653			11,328			5,233			5,058			11,010			10,782
Benefits and expenses:
Life Planner operations	2,414			2,311			5,108			4,973
Gibraltar Life and Other operations	2,238			2,193			4,774			4,715
Life Planner													2,170			2,030			4,665			4,359
Gibraltar Life and Other													2,370			2,238			4,954			4,774
Total benefits and expenses	4,652			4,504			9,882			9,688			4,540			4,268			9,619			9,133
Adjusted operating income:
Life Planner operations	438			376			919			792
Gibraltar Life and Other operations	411			408			852			848
Life Planner													304			379			668			797
Gibraltar Life and Other													389			411			723			852
Total adjusted operating income	849			784			1,771			1,640			693			790			1,391			1,649
Realized investment gains (losses), net, and related adjustments(2)	259			205			791			50			177			261			662			783
Related charges	(3		)	1			(3		)	1
Charges related to realized investment gains (losses), net													(15		)	(3		)	(22		)	(3		)
Market experience updates~~(1)~~(3)	(38		)	0			(38		)	0			(37		)	(37		)	(46		)	(37		)
Investment gains (losses) on assets supporting experience-rated contractholder liabilities, net	(18		)	26			106			(88		)
Change in experience-rated contractholder liabilities due to asset value changes	18			(26		)	(106		)	88
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(28		)	(16		)	(58		)	(33		)	(34		)	(28		)	(30		)	(58		)
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	1,039		$	974		$	2,463		$	1,658		$	784		$	983		$	1,955		$	2,334

__________


(1)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.


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

(3)

Adjusted Operating Income

Three Month Comparison.Adjusted operating income from our Life Planner operations ~~increased $62~~decreased $75 million, including a net unfavorable impact of $3 million from currency fluctuations, inclusive of the currency hedging program discussed above. Both periods also include the impact of our annual reviews and update of assumptions and other refinements, which resulted in a $43 million net charge in the second quarter of 2020 compared to a $4 million net benefit in the second quarter of 2019. The net charge in 2020 is primarily driven by unfavorable impacts related to a decrease in long-term interest rate assumptions.

Excluding these items, adjusted operating income from our Life Planner operations decreased $25 million, primarily reflecting lower net investment spread results driven by lower investment yields and lower income on non-coupon investments. Also contributing to the decrease were higher expenses driven by costs associated with COVID-19 (see “Overview—COVID-19”). These decreases were partially offset by favorable underwriting results primarily due to the growth of business in force in our Japan and Brazil operations.

Adjusted operating income from our Gibraltar Life and Other operations decreased $22 million, including a net unfavorable impact of $2 million from currency fluctuations, inclusive of the currency hedging program discussed above. Both periods also include the impact of our annual reviews and update of assumptions and other refinements, which resulted in a ~~$1 million net benefit in the second quarter of 2019 compared to a $49~~$52 million net charge in the second quarter of ~~2018. The net charge in 2018 was primarily driven by the impact from unfavorable economic assumption updates driven by a lower long-term interest rate assumption in Japan.~~

Excluding these items, adjusted operating income increased $10 million, primarily reflecting the growth of business in force in our Japan and Brazil operations and higher underwriting results driven by a favorable impact from mortality experience and policyholders’ behavior. These increases were mostly offset by higher expenses driven by business growth and costs associated with business initiatives.

Adjusted operating income from our Gibraltar Life and Other operations increased $3 million, including a net favorable impact of $3 million from currency fluctuations, inclusive of the currency hedging program discussed above. Both periods also include the impact of our annual reviews and update of assumptions and other refinements, which resulted in2020 compared to a $7 million net benefit in the second quarter of ~~2019 compared to a $32 million net charge in the second quarter of 2018. The net benefit in 2019 reflected a net positive impact primarily related to updates to lapse assumptions.~~2019. The net charge in ~~2018~~2020 was primarily driven by updates of reserves reflecting the impact ~~from unfavorable economic assumption updates driven by~~of a ~~lower~~decrease in long-term interest rate ~~assumption in Japan,~~assumptions, as well as other refinements.

Excluding these items, adjusted operating income from our Gibraltar Life and Other operations ~~decreased~~increased $39 million, primarily reflecting higher earnings from our joint venture investments due to market performance and lower expenses ~~including~~driven by lower costs associated with business initiatives, ~~and lower~~partially offset by costs associated with COVID-19 (see “Overview—COVID-19”).

Also contributing to the increase were favorable underwriting results driven by a ~~less~~ favorable impact from mortality ~~experience. These decreases were~~experience, and higher net investment spread results driven by higher income on non-coupon investments, partially offset by ~~growth of business in force and more favorable results from joint venture investments.~~lower investment yields.

Six Month Comparison. Adjusted operating income from our Life Planner operations ~~increased $127~~decreased $129 million, including a net ~~favorable~~unfavorable impact of $7$3 million from currency fluctuations, inclusive of the currency hedging program discussed above. Excluding the impact of currency fluctuations, as well as the impact from our annual reviews and update of assumptions and other refinements as discussed above, adjusted operating income ~~increased $70~~from our Life Planner operations decreased $79 million primarily reflecting lower net investment spread results driven by lower income on non-coupon investments and lower investment yields. Also contributing to the decrease were higher expenses driven by updates to legal reserves, as well as higher costs related to business growth and business initiatives, and costs associated with COVID-19 (see “Overview—COVID-19”). These decreases were partially offset by favorable underwriting results due to the growth of business in force in our Japan and Brazil operations, ~~and higher underwriting results driven~~partially offset by ~~a favorable~~an unfavorable impact from mortality experience and policyholders’ behavior. Also contributing to the increase was a favorable net impact in the first quarter of 2019 from changes in our profitability of the business driven by equity market performance on policyholder accounts. Beginning in the second quarter of 2019, this activity is excluded from adjusted operating income (see Note 14 to the Unaudited Interim Consolidated Financial Statements for further information). These increases were partially offset by higher expenses, driven by business growth and costs associated with business initiatives.experience.

Adjusted operating income from our Gibraltar Life and Other operations ~~increased $4~~decreased $129 million, including a net ~~favorable~~unfavorable impact of $9$4 million from currency fluctuations, inclusive of the currency hedging program discussed above. Excluding the impact of currency fluctuations, as well as the impact from our annual reviews and update of assumptions and other refinements as discussed above, adjusted operating income from our Gibraltar Life and Other operations decreased ~~$44~~$66 million, primarily reflecting ~~higher expenses, including costs associated with business initiatives.~~lower net investment spread results driven by lower investment yields and lower income on non-coupon investments. Also contributing to the decrease were lower ~~underwriting results~~earnings from our joint venture investments due to market performance, as well as higher expenses driven by ~~a less favorable impact from mortality experience.~~costs associated with COVID-19 (see “Overview—COVID-19”), partially offset by lower costs related to business initiatives. These decreases were partially offset by favorable underwriting results driven by the growth of business in force ~~as well as higher net investment results driven by higher average invested assets resulting~~and a favorable impact from ~~continued business growth.~~mortality experience.

Revenues, Benefits and Expenses

Three Month Comparison. Revenues from our Life Planner operations ~~as shown in the table above under “—Operating Results,”~~ increased ~~$165~~$65 million, including a net unfavorable impact of ~~$53~~$21 million from currency fluctuations and a net ~~charge~~benefit of ~~$16~~$33 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased ~~$234~~$53 million, primarily driven by higher premiums and policy charges and fee income ~~related~~attributable to the growth of business in ~~force.~~force, partially offset by lower net investment results driven by lower investment yields and lower income on non-coupon investments.

Benefits and expenses of our Life Planner operations ~~as shown in the table above under “—Operating Results,”~~ increased ~~$103~~$140 million, including a net favorable impact of ~~$55~~$18 million from currency fluctuations and a net ~~benefit~~charge of $66 million from our annual review and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $224 million. This increase primarily reflects higher policyholders’ benefits, including changes in reserves, driven by business growth, and higher expenses.

Revenues from our Gibraltar Life and Other operations, as shown in the table above under “—Operating Results,” increased $48 million, including a net unfavorable impact of $4 million from currency fluctuations. Excluding this item, revenues increased $52 million, primarily reflecting higher net investment income driven by higher non-coupon investments and higher average invested assets resulting from business growth. Also contributing to the increase were higher other income driven by more favorable results from joint venture investments.

Benefits and expenses of our Gibraltar Life and Other operations, as shown in the table above under “—Operating Results,” increased $45 million, including a net favorable impact of $7 million from currency fluctuations and a net benefit of $39$80 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased ~~$91~~$78 million, primarily ~~driven by an increase in~~reflecting higher policyholders’ benefits, including changes in reserves, driven by ~~continued~~the growth of business ~~growth,~~in force, and higher expenses ~~including~~driven by costs associated with ~~business initiatives.~~COVID-19.

~~Six Month Comparison.~~ Revenues from our Gibraltar Life ~~Planner~~and Other operations increased ~~$262~~$110 million, including a net ~~unfavorable~~favorable impact of ~~$137~~$18 million from currency fluctuations and a net charge of ~~$16~~$9 million from our annual reviews and update of assumptions and other refinements. Excluding these items, revenues increased ~~$415~~$101 million, primarily reflecting higher premiums driven by the growth of business in force, and higher other income driven by a favorable impact from our joint venture investments due to market performance.

Benefits and expenses of our Gibraltar Life and Other operations increased $132 million, including a net unfavorable impact of $20 million from currency fluctuations and a net charge of $50 million from our annual reviews and update of assumptions and other refinements. Excluding these items, benefits and expenses increased $62 million, primarily driven by higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force. The increase was partially offset by lower expenses driven by lower costs associated with business initiatives, partially offset by costs associated with COVID-19.

Six Month Comparison. Revenues from our Life Planner operations increased $177 million, including a net unfavorable impact of $45 million from currency fluctuations. Excluding the impact of currency fluctuations, as well as the impact from our annual reviews and update of assumptions and other refinements as discussed above, revenues increased $189 million, primarily driven by higher premiums and policy charges and fee income ~~related~~attributable to the growth of business in force.

Benefits and expenses of our Life Planner operations increased ~~$135~~$306 million, including a net favorable impact of ~~$144~~$42 million from currency fluctuations. Excluding the impact of currency fluctuations, ~~and a net benefit of $66 million~~as well as the impact from our annual ~~review~~reviews and update of assumptions and other ~~refinements. Excluding these items,~~refinements as discussed above, benefits and expenses increased ~~$345 million. This increase~~$268 million, primarily ~~reflects~~reflecting higher policyholders’ benefits, including changes in reserves, driven by the growth of business in force, as well as an unfavorable

impact from mortality experience. Also contributing to the decrease were higher expenses driven by updates to legal reserves, as well as higher costs related to business growth and ~~higher expenses.~~business initiatives, and costs associated with COVID-19.

Revenues from our Gibraltar Life and Other operations increased ~~$63~~$51 million, including a net ~~unfavorable~~favorable impact of ~~$34~~$20 million from currency fluctuations. Excluding ~~this item,~~the impact of currency fluctuations, as well as the impact from our annual reviews and update of assumptions and other refinements as discussed above, revenues increased ~~$97~~$40 million, primarily ~~reflecting~~driven by higher ~~net investment~~premiums attributable to the growth of business in force. The increase was partially offset by lower other income driven by ~~higher average invested assets resulting~~an unfavorable impact from ~~continued business growth.~~our joint venture investments due to market performance, and lower net investment results driven by lower investment yields and lower income on non-coupon investments.

Benefits and expenses of our Gibraltar Life and Other operations increased ~~$59~~$180 million, including a net ~~favorable~~unfavorable impact of ~~$43~~$24 million from currency fluctuations. Excluding the impact of currency fluctuations, ~~and a net benefit of $39 million~~as well as the impact from our annual reviews and update of assumptions and other ~~refinements. Excluding these items,~~refinements as discussed above, benefits and expenses increased ~~$141~~$106 million, primarily driven by ~~an increase in~~higher policyholders’ benefits, including changes in reserves, driven by the growth of business ~~growth, and~~in force. Also contributing to the increase was higher expenses ~~including~~driven by costs associated with COVID-19, partially offset by lower costs associated with business initiatives.

Sales Results

The following table sets forth annualized new business premiums, as defined under “—Results of Operations—Segment Measures” above, on an actual and constant exchange rate basis for the periods indicated.

Three Months Ended
June 30, Six Months Ended
June 30,

2019 2018 2019 2018
(in millions)
Annualized new business premiums:
On an actual exchange rate basis:
Life Planner operations $ 224
$ 296
$ 628
$ 647
Gibraltar Life 271
399
594
806
Total $ 495
$ 695
$ 1,222
$ 1,453
On a constant exchange rate basis:
Life Planner operations $ 309
$ 295
$ 718
$ 639
Gibraltar Life 297
401
622
809
Total $ 606
$ 696
$ 1,340
$ 1,448



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Annualized new business premiums(1):
On an actual exchange rate basis:
Life Planner	$	166	$	253	$	487	$	608
Gibraltar Life and Other	197		296		504		619
Total	$	363	$	549	$	991	$	1,227
On a constant exchange rate basis:
Life Planner	$	178	$	255	$	505	$	613
Gibraltar Life and Other	198		298		507		623
Total	$	376	$	553	$	1,012	$	1,236

__________


(1)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

The amount of annualized new business premiums and the sales mix in terms of types and currency denomination of products for any given period can be significantly impacted by several factors, including but not limited to: the addition of new products, discontinuation of existing products, changes in credited interest rates for certain products and other product modifications, changes in premium rates, changes in interest rates or fluctuations in currency markets, changes in tax laws, changes in life insurance regulations or changes in the competitive environment. Sales volume may increase or decrease prior to certain of these changes becoming effective, and then fluctuate in the other direction following such changes.

Our diverse product portfolio in Japan, in terms of currency mix and premium payment structure, allows us to adapt to changing market and competitive dynamics, including the extremely low interest rate environment. We regularly examine our product offerings and their related profitability and, as a result, we have repriced or discontinued sales of certain products that do not meet our profit expectations. The impact of these actions, coupled with the introduction of certain new products, has generally resulted in an increase in sales of products denominated in ~~U.S. dollars~~USD relative to products denominated in other currencies.

The table below presents annualized new business premiums on a constant exchange rate basis, by product and distribution channel, for the periods indicated.


	Three Months Ended June 30, 2019										Three Months Ended June 30, 2018										Three Months Ended June 30, 2020										Three Months Ended June 30, 2019
	Life		Accident & Health		Retirement(1)		Annuity		Total		Life		Accident & Health		Retirement(1)		Annuity		Total		Life		Accident & Health		Retirement(1)		Annuity		Total		Life		Accident & Health		Retirement(1)		Annuity		Total
	(in millions)																				(in millions)
Life Planner(2)	$	166	$	26	$	96	$	21	$	309	$	165	$	27	$	77	$	26	$	295	$	89	$	18	$	71	$	0	$	178	$	137	$	23	$	95	$	0	$	255
Gibraltar Life:
Gibraltar Life and Other:
Life Consultants	$	84	$	10	$	18	$	56	$	168	$	73	$	11	$	24	$	127	$	235	$	59	$	7	$	6	$	17	$	89	$	84	$	10	$	19	$	56	$	169
Banks~~(2)~~(3)	73		0		9		3		85		88		0		6		10		104		57		0		3		2		62		73		0		9		3		85
Independent Agency	19		3		18		4		44		32		5		18		7		62		18		2		27		0		47		19		3		18		4		44
Subtotal	176		13		45		63		297		193		16		48		144		401		134		9		36		19		198		176		13		46		63		298
Total	$	342	$	39	$	141	$	84	$	606	$	358	$	43	$	125	$	170	$	696	$	223	$	27	$	107	$	19	$	376	$	313	$	36	$	141	$	63	$	553

__________


(1)	Includes retirement income, endowment and savings variable universal life.


(2)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

(3)

Single pay life annualized new business premiums, which include 10% of first year premiums, and 3-year limited pay annualized new business premiums, which include 100% of new business premiums, represented 3% and 75%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended June 30, 2020, and 0% and 68%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended June 30, ~~2019, and 0% and 75%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the three months ended June 30, 2018.~~2019.

Three Month Comparison.Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations ~~increased $14~~decreased $77 million, primarily ~~reflecting higher sales in our Brazil operation~~ driven by ~~growth~~restrictions in ~~Life Planner headcount.~~sales activities due to COVID-19 (see “Overview—COVID-19”), which resulted in lower sales across products.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased ~~$104~~$100 million. Life Consultants and Bank channel sales decreased ~~$67~~$80 million and $23 million, respectively, primarily ~~reflecting~~driven by COVID-19 impacts. Life Consultants sales also reflected lower sales of USD-denominated fixed annuity products driven by declines in crediting rates and ~~prioritization of our strategy to focus on recurring pay protection products. Bank channel~~lower Life Consultant headcount. These decreases were partially offset by a $3 million increase in Independent Agency sales ~~decreased $19 million, primarily from lower~~driven by higher sales of USD-denominated life products due to increased competition. Independent Agency sales decreased $18 million, primarily driven by the suspension of corporate term products in the first quarter of 2019 (see “Overview—Regulatory Developments—Japan Corporate Product Tax Rules”) and declines in crediting rates for fixed annuityendowment products.

The table below presents annualized new business premiums on a constant exchange rate basis, by product and distribution channel, for the periods indicated.


	Six Months Ended June 30, 2019										Six Months Ended June 30, 2018										Six Months Ended June 30, 2020										Six Months Ended June 30, 2019
	Life		Accident & Health		Retirement(1)		Annuity		Total		Life		Accident & Health		Retirement(1)		Annuity		Total		Life		Accident & Health		Retirement(1)		Annuity		Total		Life		Accident & Health		Retirement(1)		Annuity		Total
	(in millions)																				(in millions)
Life Planner(2)	$	403	$	62	$	212	$	41	$	718	$	348	$	57	$	186	$	48	$	639	$	268	$	42	$	194	$	1	$	505	$	345	$	56	$	209	$	3	$	613
Gibraltar Life:
Gibraltar Life and Other:
Life Consultants	$	171	$	21	$	41	$	101	$	334	$	150	$	23	$	53	$	206	$	432	$	141	$	16	$	24	$	39	$	220	$	171	$	21	$	42	$	101	$	335
Banks~~(2)~~(3)	167		0		18		8		193		224		0		14		24		262		177		0		13		4		194		167		0		18		8		193
Independent Agency	50		6		27		12		95		58		8		34		15		115		40		3		48		2		93		50		6		27		12		95
Subtotal	388		27		86		121		622		432		31		101		245		809		358		19		85		45		507		388		27		87		121		623
Total	$	791	$	89	$	298	$	162	$	1,340	$	780	$	88	$	287	$	293	$	1,448	$	626	$	61	$	279	$	46	$	1,012	$	733	$	83	$	296	$	124	$	1,236

__________


(1)	Includes retirement income, endowment and savings variable universal life.


(2)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

(3)

Single pay life annualized new business premiums, which include 10% of first year premiums, and 3-year limited pay annualized new business premiums, which include 100% of new business premiums, represented 4% and 70%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the six months ended June 30, 2020, and 0% and 66%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the six months ended June 30, ~~2019, and 0% and 73%, respectively, of total Japanese bank distribution channel annualized new business premiums, excluding annuity products, for the six months ended June 30, 2018.~~2019.

Six Month Comparison.Annualized new business premiums, on a constant exchange rate basis, from our Life Planner operations ~~increased $79~~decreased $108 million primarily ~~reflecting higher~~driven by COVID-19 impacts. Also contributing to the decrease were lower sales of ~~USD-denominated~~corporate term products in Japan driven by ~~growth in Life Planner headcount, as well as higher average premium sizes, in our Japan and Brazil operations.~~the corporate product tax rule change effective July 2019.

Annualized new business premiums, on a constant exchange rate basis, from our Gibraltar Life and Other operations decreased ~~$187~~$116 million. Life Consultants sales decreased ~~$98~~$115 million, primarily ~~reflecting~~driven by COVID-19 impacts, as well as lower sales of ~~U.S. dollar-denominated~~USD-denominated fixed

annuity products driven by declines in crediting rates and ~~prioritization of our strategy to focus on recurring pay protection products.~~lower Life Consultant headcount. Bank channel sales ~~decreased $69 million, primarily from~~remained relatively flat reflecting higher sales of USD-denominated protection products, offset by lower sales due to COVID-19 impacts. Independent Agency sales also remained flat reflecting lower sales of USD-denominated ~~life~~protection and fixed annuity products, ~~due to increased competition. Independent Agency~~offset by higher sales ~~decreased $20 million, primarily driven by the suspension~~ of ~~corporate term products in the first quarter of 2019 (see “Overview—Regulatory Developments—Japan Corporate Product Tax Rules”) and declines in crediting rates for fixed annuity~~USD-denominated endowment products.

~~Corporate~~Closed Block Division

Substantially all of the $61 billion of general account assets in the Closed Block division support obligations and ~~Other~~liabilities relating to the Closed Block policies only. See Note 7 to the Unaudited Interim Consolidated Financial Statements for additional information on the Closed Block.

~~Corporate~~International Insurance Operations

While our international insurance operations have experienced a low interest rate environment for many years, the current reinvestment yields for certain blocks of business in our international insurance operations are generally lower than the current portfolio yield supporting these blocks of business. In recent years, the Bank of Japan’s monetary policy has resulted in even lower and, ~~Other includes corporate~~at times, negative yields for certain tenors of government bonds. Our international insurance operations ~~after allocations~~employ a proactive asset/liability management program in order to mitigate, to the extent possible, the unfavorable impact that the current interest rate environment has on our net interest margins. In conjunction with this program, we have not purchased negative yielding assets to support the portfolio and we continue to purchase long-term bonds with tenors of 30 years or greater. Additionally, our diverse product portfolio in terms of currency mix and premium payment structure allows us to further mitigate the negative impact from

this low interest rate environment. We regularly examine our product offerings and their profitability. As a result, we have repriced certain products, adjusted commissions for certain products and have discontinued sales of other products that do not meet our profit expectations. The impact of these actions and the introduction of certain new products, has resulted in an increase in sales of U.S. dollar-denominated products relative to products denominated in other currencies. For additional information on sales within our international insurance operations, see “—International Businesses—Sales Results,” below.

The following table sets forth the insurance liabilities and policyholder account balances of our Japanese operations, by type, for the date indicated:



	As of June 30, 2020
	(in billions)
Insurance products with fixed and guaranteed terms	$	132
Contracts with a market value adjustment if invested amount is not held to maturity	25
Contracts with adjustable crediting rates subject to guaranteed minimums	11
Total	$	168

The $132 billion above is primarily comprised of long-duration insurance products that have fixed and guaranteed terms, for which underlying assets may have to be reinvested at interest rates that are lower than current portfolio yields. The remaining insurance liabilities and policyholder account balances include $25 billion related to contracts that impose a market value adjustment if the invested amount is not held to maturity and $11 billion related to contracts with crediting rates that may be adjusted over the life of the contract, subject to guaranteed minimums. Most of the current crediting rates on these contracts, however, are at or near contractual minimums. Although we have the ability in some cases to lower crediting rates for those contracts that are above guaranteed minimum crediting rates, the majority of this business ~~segments,~~has interest crediting rates that are determined by formula.

Assuming a hypothetical scenario where the average 30-year Japanese Government Bond yield is 0.60% and the 10-year U.S. Treasury rate is 0.65% (which is reasonably consistent with recent rates) for the period from July 1, 2020 through June 30, 2021 (and credit spreads remain unchanged from levels as of June 30, 2020), we estimate that the unfavorable impact to net investment income of reinvesting activities, including scheduled maturities and estimated prepayments of fixed maturities and commercial mortgage and other loans (excluding assets supporting participating contracts) would be between $40 million and $80 million for the period from July 1, 2020 through June 30, 2021.

Results of Operations

Consolidated Results of Operations

The following table summarizes net income (loss) for the periods presented.



	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(in millions)
Revenues	$	12,115		$	15,388	$	25,579		$	30,479
Benefits and expenses	14,447			14,512		28,249			28,463
Income (loss) before income taxes and equity in earnings of operating joint ventures	(2,332		)	876		(2,670		)	2,016
Income tax expense (benefit)	115			162		57			394
Income (loss) before equity in earnings of operating joint ventures	(2,447		)	714		(2,727		)	1,622
Equity in earnings of operating joint ventures, net of taxes	42			24		52			53
Net income (loss)	(2,405		)	738		(2,675		)	1,675
Less: Income attributable to noncontrolling interests	4			30		5			35
Net income (loss) attributable to Prudential Financial, Inc.	$	(2,409	)	$	708	$	(2,680	)	$	1,640

Three Month Comparison. The $3,117 million decrease in “Net income (loss) attributable to Prudential Financial, Inc.” for the second quarter of 2020 compared to the second quarter of 2019 reflected the following notable items:

$2,136 million unfavorable variance, on a pre-tax basis, from realized investment gains and losses for PFI excluding the Divested and Run-off Businesses, ~~other than~~and excluding the impact of the hedging program associated with certain variable annuities discussed below (see “General Account Investments” for additional information);

$663 million unfavorable variance, on a pre-tax basis, from lower adjusted operating income from our business segments (see “—Segment Results of Operations” for additional information); and

$491 million unfavorable variance, on a pre-tax basis, reflecting the net impact from changes in the value of our embedded derivatives and related hedge positions associated with certain variable annuities (see “Results of Operations by Segment—U.S. Businesses—U.S. Individual Solutions Division—Individual Annuities—Variable Annuity Risks and Risk Mitigants” for additional information).

Partially offsetting these decreases in “Net income (loss) attributable to Prudential Financial, Inc.” were the following items:

$446 million favorable variance, on a pre-tax basis, from investment related activities that are primarily within “Other income (loss)” for PFI excluding our Divested and Run-off Businesses. These favorable impacts were primarily driven by unrealized gains (losses) from equity securities as well as fixed maturity securities designated as trading; and

$258 million favorable variance, on a pre-tax basis, driven by market experience updates excluding those impacts related to the hedging program associated with certain variable annuities discussed above.

Six Month Comparison. The $4,320 million decrease in “Net income (loss) attributable to Prudential Financial, Inc.” for the first six months of 2020 compared to the first six months of 2019 reflected the following notable items:

$1,300 million unfavorable variance, on a pre-tax basis, reflecting the net impact from changes in the value of our embedded derivatives and related hedge positions associated with certain variable annuities (see “Results of Operations by Segment—U.S. Businesses—U.S. Individual Solutions Division—Individual Annuities—Variable Annuity Risks and Risk Mitigants” for additional information);

$1,066 million unfavorable variance, on a pre-tax basis, from lower adjusted operating income from our business segments (see “Segment Results of Operations” for additional information);

$859 million unfavorable variance, on a pre-tax basis, from investment related activities that ~~qualify~~are primarily within “Other income (loss)” for ~~“discontinued operations” accounting treatment under U.S. GAAP.~~PFI excluding our Divested and Run-off Businesses. These unfavorable impacts were primarily driven by unrealized gains (losses) from equity securities as well as fixed maturity securities designated as trading; and

Partially offsetting these decreases in “Net income (loss) attributable to Prudential Financial, Inc.” was the following item:

$114 million favorable variance, on a pre-tax basis, from realized investment gains and losses for PFI excluding Divested and Run-off Businesses, and excluding the impact of the hedging program associated with certain variable annuities discussed above (see “General Account Investments” for additional information).

Segment Results of Operations

Annual Reviews and Update of Assumptions and Other Refinements

Shown below are the impacts on our adjusted operating income from updates of actuarial assumptions and other refinements as discussed above. The information below is presented by each segment and Corporate and Other operations and includes a reconciliation of these impacts to the impacts within income (loss) before income taxes and equity in earnings of operating joint ventures.

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in millions)
Operating results:
Capital debt interest expense $ (200 ) $ (172 ) $ (399 ) $ (353 )
Investment income, net of operating debt interest expense 42
9
86
36
Pension and employee benefits 36
56
60
96
Other corporate activities(1) (213 ) (179 ) (494 ) (359 )
Adjusted operating income (335 ) (286 ) (747 ) (580 )
Realized investment gains (losses), net, and related adjustments (157 ) 199
(207 ) 228
Related charges (81 ) 1
(87 ) 4
Divested and Run-off Businesses 112
(1,526 ) 286
(1,598 )
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests (7 ) 4
(15 ) 3
Income (loss) before income taxes and equity in earnings of operating joint ventures $ (468 ) $ (1,608 ) $ (770 ) $ (1,943 )



	Three and Six Months Ended June 30,
	2020			2019
	(in millions)
Favorable (unfavorable) impact to adjusted operating income before income taxes by segment:
U.S. Businesses:
U.S Workplace Solutions division:
Retirement	$	(22	)	$	154
Group Insurance	11			9
Total U.S. Workplace Solutions division	(11		)	163
U.S. Individual Solutions division:
Individual Annuities	(136		)	(12		)
Individual Life	(92		)	(208		)
Total U.S. Individual Solutions division	(228		)	(220		)
Total U.S. Businesses	(239		)	(57		)
International Businesses(1)	(95		)	11
Corporate and Other	0			0
Total segment favorable (unfavorable) impact to adjusted operating income before income taxes	(334		)	(46		)
Reconciling items:
Realized investment gains (losses), net, and related adjustments	302			9
Charges related to realized investment gains (losses), net	(41		)	16
Divested and Run-off Businesses:
Closed Block division	0			(7		)
Other Divested and Run-off Businesses(1)	(33		)	(12		)
Favorable (unfavorable) impact to consolidated income (loss) before income taxes and equity in earnings of operating joint ventures	$	(106	)	$	(40	)

__________

(1)

~~Includes consolidating adjustments.~~Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and are included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.

~~Three Month Comparison. The loss from~~See “—Results of Operations by Segment” for a discussion of the impacts of our annual reviews and update of assumptions and other refinements.

Summary of Results of Operations by Segment

Shown below are the adjusted operating income contributions of each segment and Corporate and Other operations ~~on an adjusted operating~~for the periods indicated and a reconciliation of this segment measure of performance to “Income (loss) before income basis, increased $49 million. Net charges from other corporate activities increased $34 million, primarily reflecting higher costs for long-term and deferred employee compensation plans tied to Company stocktaxes and equity ~~market performance, and increases~~ in other corporate costs, including higher expenses related to corporate initiatives partially offset by lower enhanced supervision costs. Capital debt interest expense increased $28 million, reflecting higher average debt balances. Results from pension and employee benefits decreased $20 million, primarily reflecting lower income from our qualified pension plan, due to higher interest costs on plan obligations driven by the increase in interest rates in 2018. Results for investment income, netearnings of operating ~~debt interest expense, increased $33 million, including higher income on highly liquid assets.~~joint ventures” as presented in the Unaudited Interim Consolidated Statements of Operations.

~~Six Month Comparison~~. The loss from Corporate and Other operations, on an adjusted operating income basis, increased $167 million. Net charges from other corporate activities increased $135 million, primarily reflecting higher costs for long-term and deferred employee compensation plans tied to Company stock and equity market performance, and increases in other corporate costs, including higher expenses related to corporate initiatives partially offset by lower enhanced supervision costs. Capital debt interest expense increased $46 million, reflecting higher average debt balances. Results from pension and employee benefits decreased $36 million, primarily reflecting lower income from our qualified pension plan, due to higher interest costs on plan obligations driven by the increase in interest rates in 2018. Results for investment income, net of operating debt interest expense, increased $50 million, primarily reflecting higher income on highly liquid assets.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Adjusted operating income before income taxes by segment:
PGIM	$	324		$	264		$	488		$	478
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	281			467			526			718
Group Insurance	5			81			49			134
Total U.S. Workplace Solutions division	286			548			575			852
U.S. Individual Solutions division:
Individual Annuities	249			462			622			934
Individual Life	(64		)	(135		)	(84		)	(30		)
Total U.S. Individual Solutions division	185			327			538			904
Assurance IQ division(1):
Assurance IQ	(16		)	0			(39		)	0
Total Assurance IQ division	(16		)	0			(39		)	0
Total U.S. Businesses	455			875			1,074			1,756
International Businesses(2)	693			790			1,391			1,649
Corporate and Other	(541		)	(335		)	(883		)	(747		)
Total segment adjusted operating income before income taxes	931			1,594			2,070			3,136
Reconciling items:
Realized investment gains (losses), net, and related adjustments(3)	(3,191		)	(572		)	(2,982		)	(1,194		)
Charges related to realized investment gains (losses), net(4)	519			(82		)	(283		)	(57		)
Market experience updates(5)	55			(207		)	(886		)	(207		)
Divested and Run-off Businesses(6):
Closed Block division	(22		)	(21		)	(23		)	(40		)
Other Divested and Run-off Businesses(2)	(602		)	168			(580		)	415
Other adjustments(7)	32			0			77			0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(8)	(54		)	(4		)	(63		)	(37		)
Consolidated income (loss) before income taxes and equity in earnings of operating joint ventures	$	(2,332	)	$	876		$	(2,670	)	$	2,016

__________


(1)	Assurance IQ was acquired by the Company in October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.


(2)	Effective second quarter of 2020, the results of POK and the impact of its anticipated sale are excluded from the International Businesses and included in the Divested and Run-off Businesses in Corporate and Other. Prior period amounts have been updated to conform to current period presentation. See Note 1 to the Unaudited Interim Consolidated Financial Statements for additional information.


(3)	Represents “Realized investment gains (losses), net,” and related adjustments. See “—General Account Investments” and Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information. Prior period amounts have been updated to conform to current period presentation.


(4)	Includes charges that represent the impact of realized investment gains (losses), net, on the amortization of DAC and other costs, and on changes in reserves. Also includes charges resulting from payments related to market value adjustment features of certain of our annuity products and the impact of realized investment gains (losses), net, on the amortization of unearned revenue reserves.


(5)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019. See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.


(6)	Represents the contribution to income (loss) of Divested and Run-off Businesses that have been or will be sold or exited, including businesses that have been placed in wind down, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP. See “—Divested and Run-off Businesses.”

(7)

(8)

Equity in earnings of operating joint ventures are included in adjusted operating income but excluded from “Income (loss) before income taxes and equity in earnings of operating joint ventures” as they are reflected on an after-tax U.S. GAAP basis as a separate line in the Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests are excluded from adjusted operating income but included in “Income (loss) before income taxes and equity in earnings of operating joint ventures” as they are reflected on a U.S. GAAP basis as a separate line in the Unaudited Interim Consolidated Statements of Operations. Earnings attributable to noncontrolling interests represent the portion of earnings from consolidated entities that relates to the equity interests of minority investors.

~~Divested and Run-off Businesses~~

~~Divested and Run-off Businesses Included in Corporate and Other~~

~~Income from our Divested and Run-off Businesses includes~~Segment results from several businesses that have been or will be sold or exited, including businesses that have been placed in wind down status that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP. The results of these Divested and Run-off Businesses are reflected in our Corporate and Other operations, but are excluded from adjusted operating income. A summary of the results of the Divested and Run-off Businesses reflected in our Corporate and Other operations is as follows for the ~~periods indicated:~~

Three Months Ended
June 30, Six Months Ended
June 30,

2019 2018 2019 2018
(in millions)
Long-Term Care $ 145
$ (1,425 ) $ 309
$ (1,498 )
Other (33 ) (101 ) (23 ) (100 )
Total Divested and Run-off Businesses income (loss) excluded from adjusted operating income $ 112
$ (1,526 ) $ 286
$ (1,598 )
period presented above reflect the following:

~~Long-Term Care~~PGIM.. Results for the second quarter of 2020 increased in comparison to the prior year period, reflecting increases in asset management fees and other related revenues, and decreases in expenses. Results for the first six months of 2020 increased in comparison to the prior year period, reflecting increases in asset management fees and decreases in expenses, partially offset by decreases in other related revenues.

Retirement. Results for both the second quarter and the first six months of 2020 decreased in comparison to the prior year periods, primarily reflecting an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods decreased primarily driven by lower net investment spread results, partially offset by higher reserve gains.

Group Insurance. Results for both the second quarter and the first six months of 2020 decreased in comparison to the prior year periods, including a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods decreased primarily reflecting lower underwriting results and lower net investment spread results.

Individual Annuities. Results for both the second quarter and the first six months of 2020 decreased in comparison to the prior year periods, including an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, results for both periods decreased primarily driven by lower fee income, net of distribution expenses and other associated costs. The results for the second quarter were partially offset by higher net investment spread results.

Individual Life. Results for the second quarter of 2020 reflected a decrease in losses in comparison to the prior year period, and results for the first six months of 2020 reflected an increase in losses in comparison to the prior year period. Both periods include a favorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding this item, adjusted operating income decreased for both periods, primarily reflecting lower net investment spread results and lower underwriting results driven by an unfavorable impact from mortality experience, net of reinsurance, partially offset by lower expenses.

Assurance IQ. The acquisition of Assurance IQ was completed in October 2019. Results for both the second quarter and the first six months of 2020 include revenues, net of marketing and distribution expenses, operating expenses and amortization expenses related to intangible assets recognized as part of purchase accounting (see Note 1 and Note 10 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information).

International Businesses. Results for both the second quarter and the first six months of 2020 decreased in comparison to the prior year periods, inclusive of an unfavorable net impact from foreign currency exchange rates and an unfavorable comparative net impact from our annual reviews and update of assumptions and other refinements. Excluding these items, results for the second

Corporate and Other. Results for both the second quarter of 2020 and the first six months of 2020 reflected increased losses in comparison to the prior year periods, reflecting higher net charges from other corporate activities driven by increases to legal reserves, lower investment income and higher interest expense on debt, partially offset by favorable pension and employee benefit results.

Closed Block Division. Results for the second quarter of 2020 reflected an increase in losses in comparison to the prior year period, primarily reflecting an increase in the policyholder dividend obligation as a result of higher net investment activity results. Results for the first six months of 2020 reflected a decrease in losses in comparison to the prior year period, primarily reflecting a decrease in the policyholder dividend obligation as a result of lower net investment activity results.

Segment Measures

See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information on the presentation of segment results and our definition of adjusted operating income.

Annualized New Business Premiums. In managing our Individual Life, Group Insurance and International Businesses, we analyze annualized new business premiums, which do not correspond to revenues under U.S. GAAP. Annualized new business premiums measure the current sales performance of the business, while revenues primarily reflect the renewal persistency of policies written in prior years and net investment income, in addition to current sales. Annualized new business premiums include 10% of first year premiums or deposits from single pay products. No other adjustments are made for limited pay contracts.

Impact of Foreign Currency Exchange Rates

Foreign currency exchange rate movements and related hedging strategies



	June 30, 2020		December 31, 2019
	(in billions)
Foreign currency hedging instruments:
Hedging USD-equivalent earnings:
Forward currency contracts (notional amount outstanding)	$	0.4	$	0.6
Hedging USD-equivalent equity:
USD-denominated assets held in yen-based entities(1)	10.9		13.1
Dual currency and synthetic dual currency investments(2)	0.6		0.6
Total USD-equivalent equity foreign currency hedging instruments	11.5		13.7
Total foreign currency hedges	$	11.9	$	14.3

__________

(1)

Includes USD-denominated fixed maturities at amortized cost plus any related accrued investment income, as well as USD notional amount of foreign currency derivative contracts outstanding. Note this amount represents only those USD assets serving to hedge the impact of foreign currency volatility on equity. Separate from this program, our Japanese operations also have $62.2 billion and $57.8 billion as of June 30, 2020 and December 31, 2019, respectively, of USD-denominated assets supporting USD-denominated liabilities related to USD-denominated products.


(2)	Dual currency and synthetic dual currency investments are held by our yen-based entities in the form of fixed maturities and loans with a yen-denominated principal component and USD-denominated interest income. The amounts shown represent the present value of future USD-denominated cash flows.

Impact of intercompany foreign currency exchange rate arrangements on segment results of operations

The financial results of our International Businesses and PGIM reflect the impact of intercompany arrangements with our Corporate and Other operations pursuant to which these segments’ non-USD-denominated earnings are translated at fixed currency exchange rates. Results of our Corporate and Other operations include differences between the translation adjustments recorded by the segments at the fixed currency exchange rate versus the actual average rate during the period. In addition, specific to our International Businesses where we hedge certain currencies, the results of our Corporate and Other operations also include the impact of any gains or losses recorded from the forward currency contracts that settled during the period, which include the impact of any over or under hedging of actual earnings that differ from projected earnings.

For International Businesses, the fixed currency exchange rates are generally determined in connection with a foreign currency income hedging program designed to mitigate the impact of exchange rate changes on the segment’s expected USD-equivalent earnings. Pursuant to this program, our Corporate and Other operations execute forward currency contracts with third-parties to sell the net exposure of projected earnings for certain currencies in exchange for USD at specified exchange rates. The maturities of these contracts correspond with the future periods (typically on a three-year rolling basis) in which the identified non-USD-denominated earnings are expected to be generated. In establishing the level of non-USD-denominated earnings that will be hedged through this program, we exclude the anticipated level of USD-denominated earnings that will be generated by USD-denominated products and investments. For the six months ended June 30, 2020, approximately 4% of the segment’s earnings were yen-based and, as of June 30, 2020, we have hedged 100%, 92% and 50% of expected yen-based earnings for 2020, 2021 and 2022, respectively. To the extent currently unhedged, our International Businesses’ future expected USD-equivalent of yen-based earnings will be impacted by yen exchange rate movements.

As a result of these arrangements, our International Businesses’ results for 2020 and 2019 reflect the impact of translating yen-denominated earnings at fixed currency exchange rates of 104 and 105 yen per USD, respectively. Since determination of the fixed currency exchange rates for a given year is impacted by changes in foreign currency exchange rates over time, the segment’s future earnings will ultimately be impacted by these changes in exchange rates.

For PGIM and certain other currencies within our International Businesses, the fixed currency exchange rates for the current year are predetermined during the third quarter of the prior year using forward currency exchange rates.

The table below presents, for the periods indicated, the increase (decrease) to revenues and adjusted operating income for the International Businesses, PGIM and Corporate and Other operations, reflecting the impact of these intercompany arrangements.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Segment impacts of intercompany arrangements:
International Businesses(3)	$	19		$	11		$	31		$	26
PGIM	2			2			2			3
Impact of intercompany arrangements(1)	21			13			33			29
Corporate and Other:
Impact of intercompany arrangements(1)(3)	(21		)	(13		)	(33		)	(29		)
Settlement gains (losses) on forward currency contracts(2)(3)	20			16			42			29
Net benefit (detriment) to Corporate and Other	(1		)	3			9			0
Net impact on consolidated revenues and adjusted operating income	$	20		$	16		$	42		$	29

__________


(1)	Represents the difference between non-USD-denominated earnings translated on the basis of weighted average monthly currency exchange rates versus fixed currency exchange rates determined in connection with the foreign currency income hedging program.

(2)

As of June 30, 2020 and 2019, the total notional amounts of these forward currency contracts within our Corporate and Other operations were $1.1 billion and $2.0 billion, respectively, of which $0.4 billion and $1.2 billion, respectively, were related to our Japanese insurance operations. Prior period total notional amount of these forward currency contracts has been updated to conform to current period presentation.

(3)

Impact of products denominated in non-local currencies on U.S. GAAP earnings

In 2015, we implemented a structure in Gibraltar Life’s operations that disaggregated the USD- and AUD-denominated businesses into separate divisions, each with its own functional currency that aligns with the underlying products and investments. The result of this alignment was to reduce differences in the accounting for changes in the value of these assets and liabilities that arise due to changes in foreign currency exchange rate movements. For the USD- and AUD-denominated assets that were transferred under this structure, the net cumulative unrealized investment gains associated with foreign exchange remeasurement that were recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) totaled $2.5 billion and $2.7 billion as of June 30, 2020 and December 31, 2019, respectively, and will be recognized in earnings within “Realized investment gains (losses), net” over time as these assets mature or are sold. Absent the sale of any of these assets prior to their stated maturity, approximately 7% of the $2.5 billion balance as of June 30, 2020 will be recognized throughout the remainder of 2020, approximately 13% will be recognized in 2021, and the remaining balance will be recognized from 2022 through 2051.

Highly inflationary economy in Argentina

Our insurance operations in Argentina, Prudential of Argentina (“POA”), have historically utilized the Argentine peso as the functional currency given it is the currency of the primary economic environment in which the entity operates. During 2018, Argentina experienced a cumulative inflation rate that exceeded 100% over a 3-year period. As a result, Argentina’s economy was deemed to be highly inflationary resulting in reporting changes effective July 1, 2018. Under U.S. GAAP, the financial statements of a foreign entity in a highly inflationary economy are to be remeasured as if its functional currency (formerly the Argentine peso) is the reporting currency of its parent reporting entity (the USD) on a prospective basis. While this changed how the results of POA are remeasured and/or translated into USD, the impact to our financial statements was not material nor is it expected to be material in future periods given the relative size of our POA operations. It should also be noted that due to the macroeconomic environment in Argentina, substantially all of POA’s balance sheet consists of USD-denominated product liabilities supported by USD-denominated assets. As a result, this accounting change serves to reduce the remeasurement impact reflected in net income given that the functional currency and currency in which the assets and liabilities are denominated will be more closely aligned.

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. 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 Consolidated Financial Statements could change significantly.

DAC, deferred sales inducements (“DSI”) and VOBA;

Policyholder liabilities;

Goodwill;

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

Pension and other postretirement benefits;

Taxes on income; and

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

Market Performance - Equity and Interest Rate Assumptions

DAC, DSI and VOBA associated with the variable and universal life policies of our Individual Life and International Businesses segments and the variable and fixed annuity contracts of our Individual Annuities and International Businesses segments 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 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

The weighted average rate of return assumptions used in developing estimated market returns consider many factors specific to each product type, including asset durations, asset allocations and other factors. With regard to equity market assumptions, the near-term future rate of return assumption used in evaluating DAC, DSI and VOBA and liabilities for future policy benefits for certain of our products, primarily our domestic variable annuity and domestic and international 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, 2020, our domestic variable annuities and variable life insurance businesses assume an 8.0% long-term equity expected rate of return and a 5.1% near-term mean reversion equity expected rate of return, and our international variable life insurance business assumes a 4.8% long-term equity expected rate of return and a 5.0% near-term mean reversion equity expected rate of return.

With regard to interest rate assumptions used in evaluating DAC, DSI and VOBA and liabilities for future policy benefits for certain of our products, we update the long-term and near-term future rates used to project fixed income returns annually and quarterly, respectively. As a result of our 2020 annual reviews and update of assumptions and other refinements, we reduced our long-term expectation of the (i) 10-year U.S. Treasury rate by 50 basis points and now grade to a rate of 3.25% over ten years, and (ii) 10-year Japanese Government Bond yield by 30 basis points and now grade to a rate of 1.00% over ten years. As part of our quarterly market experience updates, we update our near-term projections of interest rates to reflect changes in current rates.

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. As a result of the COVID-19 pandemic, the FASB voted in June 2020 to tentatively defer for an additional one year the current effective date of ASU 2018-12 from January 1, 2022 to January 1, 2023, and to provide transition relief to facilitate the early adoption of the ASU. Subsequently in July 2020, the FASB issued a proposed ASU with comment deadline of August 24, 2020 to obtain additional feedback on the tentative decisions, which are expected to be finalized during the third quarter of 2020. The transition relief would allow large calendar-year public companies that early adopt ASU 2018-12 to apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2022 financial statements. Companies that do not early adopt ASU 2018-12 would also apply the guidance as of January 1, 2021 (and record transition adjustments as of January 1, 2021) in the 2023 financial statements. ASU 2018-12 will impact, at least to some extent, the accounting and disclosure requirements for all long-duration insurance and investment contracts issued by the Company. 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 the Unaudited Interim Consolidated Financial Statements for a more detailed discussion of ASU 2018-12, as well as other accounting pronouncements issued but not yet adopted and newly adopted accounting pronouncements.

Results of Operations by Segment

PGIM

Operating Results

The following table sets forth PGIM’s operating results for the periods indicated.



	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
	(in millions)
Operating results(1):
Revenues	$	957		$	926	$	1,735		$	1,796
Expenses	633			662		1,247			1,318
Adjusted operating income	324			264		488			478
Realized investment gains (losses), net, and related adjustments	(1		)	1		3			1
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(6		)	30		(42		)	35
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	317		$	295	$	449		$	514

__________

(1)

Certain of PGIM’s investment activities are based in currencies other than the U.S. dollar and are therefore subject to foreign currency exchange rate risk. The financial results of PGIM include the impact of an intercompany arrangement with our Corporate and Other operations designed to mitigate the impact of exchange rate changes on PGIM’s U.S. dollar-equivalent earnings. For more information related to this intercompany arrangement, see “—Results of Operations—Impact of Foreign Currency Exchange Rates,” above.

Adjusted Operating Income

Three Month Comparison. Adjusted operating income increased $60 million. The increase primarily reflected an increase in asset management fees due to higher average assets under management as a result of market appreciation and fixed income inflows, as well as a decrease in expenses driven by lower costs of long-term employee compensation plans tied to performance factors and a temporary pause in travel and entertainment due to COVID-19. The increase also reflected an increase in other related revenues, net of related expenses, primarily due to higher strategic investing results driven by spread tightening impacting fixed income investment strategies and strong equity investment performance, partially offset by lower net performance-based incentive fees driven by the absence of a significant fee earned in the prior year period. These increases were partially offset by a decrease in service, distribution and other revenues primarily reflecting the absence of fees in the current year period related to the Wells Fargo agreement (see “—Revenue and Expenses,” below).

Six Month Comparison. Adjusted operating income increased $10 million. This increase primarily reflected an increase in asset management fees, net of related expenses, due to higher average assets under management as a result of market appreciation and fixed income inflows. The increase was partially offset by a decrease in other related revenues, net of related expenses, primarily due to lower net performance-based incentive fees driven by the absence of significant fees earned in the prior year, and lower strategic investing results driven by spread widening impacting fixed income investment strategies. The increase was also partially offset by a decrease in service, distribution and other revenues primarily due to the absence of fees in the current year period related to the Wells Fargo agreement.

Revenues and Expenses

The following table sets forth PGIM’s revenues, presented on a basis consistent with the table above under “—Operating Results,” by type.



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Revenues by type:
Asset management fees by source:
Institutional customers	$	325	$	319	$	653	$	631
Retail customers(1)	227		220		456		429
General account	138		132		274		255
Total asset management fees	690		671		1,383		1,315
Other related revenues by source:
Incentive fees	17		62		35		98
Transaction fees	4		10		8		12
Strategic investing	64		18		37		54
Commercial mortgage(2)	32		25		59		51
Total other related revenues(3)	117		115		139		215
Service, distribution and other revenues(4)	150		140		213		266
Total revenues	$	957	$	926	$	1,735	$	1,796

__________

(1)


(2)	Includes mortgage origination revenues from our commercial mortgage origination and servicing business.


(3)	Future revenues will be impacted by the level and diversification of our strategic investments, the commercial real estate market, and other domestic and international markets.

(4)

Prior period amount includes payments from Wells Fargo under an agreement dated as of July 30, 2004, implementing arrangements with respect to money market mutual funds in connection with the combination of our retail securities brokerage and clearing operations with those of Wells Fargo. The agreement extended for ten years from the Wachovia Securities joint venture termination date of December 31, 2009 to December 31, 2019. The revenue from Wells Fargo under this agreement was $15 million for the three months ended June 30, 2019 and $31 million for the six months ended June 30, 2019.

Three Month Comparison. Revenues increased $31 million. Asset management fees increased primarily reflecting an increase in average assets under management as a result of market appreciation and fixed income inflows. Other related revenues increased primarily reflecting higher strategic investing results driven by spread tightening impacting fixed income investment strategies and strong equity investment performance, partially offset by lower performance-based incentive fees driven by the absence of a significant fee earned in the prior year period. Service, distribution and other revenues increased primarily reflecting higher revenues from certain consolidated funds (which were fully offset by higher expenses related to noncontrolling interests in these funds), partially offset by the absence of fees in the current year period related to the Wells Fargo agreement.

Expenses decreased $29 million. Expenses decreased, primarily driven by lower costs for certain long-term employee compensation plans tied to performance factors and a temporary pause in travel and entertainment due to COVID-19. Also contributing to the decrease were lower expenses associated with lower performance-based incentive fee revenues. These decreases were partially offset by an increase in expenses for service, distribution and other revenues primarily driven by higher revenues associated with certain consolidated funds as discussed above.

Six Month Comparison. Revenues decreased $61 million. Asset management fees increased primarily reflecting an increase in average assets under management as a result of market appreciation and fixed income inflows. Other related revenues decreased primarily reflecting lower performance-based incentive fees due to the absence of a significant fee earned in the prior year period, and lower strategic investing results driven by spread widening impacting fixed income investment strategies. Service, distribution and other revenues decreased primarily reflecting lower revenues from certain consolidated funds, which were fully offset by lower expenses related to noncontrolling interests in these funds, and the absence of fees in the current year related to the Wells Fargo agreement.

Expenses decreased $71 million. Expenses for service, distribution and other revenues decreased primarily driven by lower revenues associated with certain consolidated funds as discussed above. Also contributing to the decrease were lower expenses associated with lower performance-based incentive fee revenues and a temporary pause in travel and entertainment due to COVID-19.

Assets Under Management

The following table sets forth assets under management by asset class and source as of the dates indicated.



	June 30, 2020		December 31, 2019		June 30, 2019
	(in billions)
Assets Under Management(1) (at fair value):
Institutional customers:
Public equity	$	48.9	$	57.1	$	54.9
Public fixed income	443.9		418.6		404.7
Real estate	48.9		49.1		48.3
Private credit and other alternatives	24.7		23.5		23.0
Multi-asset	4.8		4.5		4.0
Institutional customers(2)	571.2		552.8		534.9
Retail customers:
Public equity	109.7		104.2		105.2
Public fixed income	152.0		138.7		119.7
Real estate	1.8		2.0		1.9
Private credit and other alternatives	0.5		0.5		0.3
Multi-asset	56.2		60.2		60.8
Retail customers(3)	320.2		305.6		287.9
General account:
Public equity	4.0		4.4		4.0
Public fixed income	354.8		328.6		321.9
Real estate	67.2		66.0		63.5
Private credit and other alternatives	77.1		73.5		70.3
Multi-asset	0.0		0.1		0.1
General account	503.1		472.6		459.8
Total PGIM assets under management(4)	$	1,394.5	$	1,331.0	$	1,282.6

Assets under management within other reporting segments(4)(5)	$	210.8	$	219.9	$	214.8
Total PFI assets under management	$	1,605.3	$	1,550.9	$	1,497.4

__________

(1)


(2)	Consists of third-party institutional assets and group insurance contracts.


(3)	Consists of individual mutual funds and variable annuities and variable life insurance separate account assets; funds invested in proprietary mutual funds through our defined contribution plan products; and third-party sub-advisory relationships. Fixed annuities and the fixed-rate accounts of variable annuities and variable life insurance are included in the general account.


(4)	Effective first quarter of 2020, certain assets have been reclassified from the U.S. Individual Solutions division to PGIM.

(5)

Primarily include certain assets related to annuity and variable life products in our U.S. Individual Solutions division, retirement and group life products in our U.S. Workplace Solutions division and certain general account assets of our International Businesses. These assets are not directly managed by PGIM, but rather are invested in non-proprietary funds or are managed by either the divisions themselves or our Chief Investment Officer Organization.

The following table sets forth the component changes in PGIM’s assets under management by asset source for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020			2019			2020			2019			2020
	(in billions)
Institutional Customers:
Beginning assets under management	$	524.8		$	524.0		$	552.8		$	493.5		$	534.9
Net additions (withdrawals), excluding money market activity:
Third-party	(5.7		)	(6.0		)	(1.5		)	(5.0		)	(3.0		)
Third-party via affiliates(1)	(0.3		)	0.8			(1.1		)	0.5			(1.4		)
Total	(6.0		)	(5.2		)	(2.6		)	(4.5		)	(4.4		)
Market appreciation (depreciation)(2)	43.3			16.6			12.8			40.9			34.2
Other increases (decreases)(3)	9.1			(0.5		)	8.2			5.0			6.5
Ending assets under management	571.2			534.9			571.2			534.9			571.2
Retail Customers(4):
Beginning assets under management	282.4			279.1			305.6			260.2			287.9
Net additions (withdrawals), excluding money market activity:
Third-party	9.4			1.1			8.1			1.5			12.3
Third-party via affiliates(1)	(14.0		)	(0.3		)	(3.1		)	(6.8		)	(6.5		)
Total	(4.6		)	0.8			5.0			(5.3		)	5.8
Market appreciation (depreciation)(2)	42.0			7.8			9.4			32.9			25.9
Other increases (decreases)(3)	0.4			0.2			0.2			0.1			0.6
Ending assets under management	320.2			287.9			320.2			287.9			320.2
General Account:
Beginning assets under management	488.5			441.0			472.6			427.8			459.8
Net additions (withdrawals), excluding money market activity:
Third-party	0.0			0.0			0.0			0.0			0.0
Affiliated	0.1			1.0			0.8			1.6			5.3
Total	0.1			1.0			0.8			1.6			5.3
Market appreciation (depreciation)(2)	18.0			14.2			17.4			28.4			25.9
Other increases (decreases)(3)	(3.5		)	3.6			12.3			2.0			12.1
Ending assets under management	503.1			459.8			503.1			459.8			503.1
Total assets under management(4)	$	1,394.5		$	1,282.6		$	1,394.5		$	1,282.6		$	1,394.5

__________


(1)	Represents assets that PGIM manages for the benefit of other reporting segments within the Company. Additions and withdrawals of these assets are attributable to third-party product inflows and outflows in other reporting segments.


(2)	Includes income reinvestment, where applicable.

(3)

Includes the effect of foreign exchange rate changes, net money market activity and the impact of acquired business. The impact from foreign currency fluctuations, which primarily impact the general account, resulted in a gain of $1.1 billion and $1.9 billion for the three months ended June 30, 2020 and 2019, respectively, and a loss of $0.7 billion and gain of $0.7 billion for the six months ended June 30, 2020 and 2019, respectively; and a loss of $0.9 billion for the twelve months ended June 30, 2020.


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

Strategic Investments

The following table sets forth PGIM’s strategic investments at carrying value (including the value of derivative instruments used to mitigate equity market and currency risk) by asset class and source as of the dates indicated.



	June 30, 2020		December 31, 2019
	(in millions)
Co-Investments(1):
Public fixed income	$	441	$	462
Real estate	210		228
Private credit and other alternatives	22		19
Seed Investments(1):
Public equity	635		671
Public fixed income	343		325
Real estate	31		34
Private credit and other alternatives	61		59
Multi-asset	63		74
Total	$	1,806	$	1,872

__________


(1)	Prior period amounts have been updated to conform to current period presentation. For more information, see the “Assets Under Management” table above.

The decrease of $66 million in strategic investments was primarily driven by PGIM’s redemptions of invested seed capital and unfavorable market conditions impacting public fixed income and real estate co-investments.

U.S. Businesses

Operating Results

The following table sets forth the operating results for our U.S. Businesses for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30, 2020
	2020			2019			2020			2019
	(in millions)
Adjusted operating income before income taxes:
U.S. Businesses:
U.S. Workplace Solutions division:
Retirement	$	281		$	467		$	526		$	718
Group Insurance	5			81			49			134
Total U.S. Workplace Solutions division	286			548			575			852
U.S. Individual Solutions division:
Individual Annuities	249			462			622			934
Individual Life	(64		)	(135		)	(84		)	(30		)
Total U.S. Individual Solutions division	185			327			538			904
Assurance IQ division(1):
Assurance IQ	(16		)	0			(39		)	0
Total Assurance IQ division	(16		)	0			(39		)	0
Total U.S. Businesses	455			875			1,074			1,756
Reconciling Items:
Realized investment gains (losses), net, and related adjustments(2)	(2,188		)	(677		)	(2,428		)	(1,771		)
Charges related to realized investment gains (losses), net	551			2			(265		)	33
Market experience updates(3)	96			(170		)	(844		)	(170		)
Other adjustments(4)	32			0			77			0
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	0			1			1			1
Income (loss) before income taxes and equity in earnings of operating joint ventures	$	(1,054	)	$	31		$	(2,385	)	$	(151	)

________


(1)	Assurance IQ was acquired by the Company in October 2019. For additional information, see Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.


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


(3)	Represents the immediate impacts in current period results from changes in current market conditions on estimates of profitability, which are excluded from adjusted operating income beginning with the second quarter of 2019. See Note 13 to the Unaudited Interim Consolidated Financial Statements for additional information.

Description

Effective date and method of adoption

Effect on the financial statements or other significant matters

ASU ~~2017-08~~2017-04, ~~Receivables -Nonrefundable Fees~~Intangibles - Goodwill and Other ~~Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt Securities~~(Topic 350): Simplifying the Test for Goodwill Impairment

This ASU ~~requires certain premiums on callable debt securities to~~simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test, which measures a goodwill impairment by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of the goodwill. Under the ASU, a goodwill impairment should be ~~amortized~~recorded for the amount by which the carrying amount of a reporting unit exceeds its fair value (capped by the total amount of goodwill allocated to the ~~earliest call date.~~

reporting unit).

January 1, ~~2019~~2020 using the ~~modified retrospective method which included cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption.~~

prospective method.

~~Adoption~~The adoption of the ASU did not have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated Financial Statements. ~~The impact of the cumulative-effect adjustment to retained earnings was immaterial.~~

ASU ~~2017-12~~2020-04, , ~~Derivatives and Hedging~~Reference Rate Reform (Topic ~~815)~~848): ~~Targeted Improvements to Accounting for Hedging Activities~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting

This ASU ~~makes targeted changes~~provides optional relief for certain contracts impacted by reference rate reform. The standard permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the ~~existing hedge~~modification date or reassessment of a previous accounting ~~model to better portray the economics of an entity’s risk management activities and to simplify the use of hedge accounting.~~determination. The ASU ~~eliminates separate measurement and recording of~~also temporarily (until December 31, 2022) allows hedge ~~ineffectiveness. It requires entities~~relationships 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.~~continue without de-designation upon changes due to reference rate reform.

~~January 1, 2019~~March 12, 2020 to December 31, 2022 using the ~~modified retrospective method which included cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption.~~prospective method.

~~Adoption of the~~
This ASU did not have a significant impact on the Company’s Consolidated Financial Statements and Notes to the Consolidated 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 and accumulated other comprehensive income (loss) (“AOCI”) related to ineffectiveness of~~ the ~~hedge instruments outstanding at the date of adoption was immaterial. See Note 5 for additional required disclosures.~~new reference rate.